Form 10-Q

27442 Portola Parkway, Suite 200, Foothill Ranch, CA 92610
(Address of principal executive offices) (Zip Code)

Fountain View, Inc.
2600 W. Magnolia Blvd., Burbank, CA 91505-3031
(818) 841-8750
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under plan confirmed by a court. Yes x No o

As of September 30, 2003, the issuer had 1,193,586 shares of common stock and 15,000 shares of Series A preferred stock outstanding.

The accompanying notes are an integral part of these consolidated financial statements.

SKILLED HEALTHCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)

Skilled Healthcare Group, Inc., formerly known as Fountain View, Inc. (the “Company”), through its subsidiaries is an operator of long-term care facilities and a provider of a wide range of post-acute care services, with a strategic emphasis on sub-acute specialty medical care. The Company operates facilities in California and Texas, including 47 skilled nursing facilities (SNFs) that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as five assisted living facilities (ALFs) that provide room and board and social services. In addition, the Company provides a variety of ancillary services such as physical, occupational and speech therapy in Company-operated facilities and unaffiliated facilities. The Company also operates three institutional pharmacies (one of which is a joint venture), which serve SNFs and ALFs, both affiliated and unaffiliated with the Company.

On October 2, 2001, the Company and 19 of its subsidiaries filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”). On November 28, 2001, the Company’s remaining three subsidiaries also filed voluntary petitions for protection under Chapter 11.

The Company’s and its subsidiaries’ financial difficulties were attributable to a number of factors. The federal government had fundamentally changed reimbursement rates and procedures for medical services provided to individuals in 1999. These changes had a significant adverse effect on the healthcare industry on the whole as well as on the Company’s cash flows. These changes also exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various states’ Medicaid programs. At the same time, the Company experienced significant increases in its labor costs and professional liability and other insurance costs.

Following its petition for protection under Chapter 11, the Company and its subsidiaries continued to operate their businesses as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court through August 19, 2003 (the “Effective Date”), when they emerged from bankruptcy pursuant to the terms of the Company’s Third Amended Joint Plan of Reorganization dated April 22, 2003 (the “Plan”). In connection with emerging from bankruptcy, the Company changed its name to Skilled Healthcare Group, Inc. From the date the Company filed the petition with the Bankruptcy court through September 30, 2003, the Company incurred reorganization expenses totaling approximately $27.7 million.

The principal components of reorganization expenses incurred during the nine months ended September 30, 2003 and 2002 are as follows (in thousands):

On July 10, 2003, the Bankruptcy Court confirmed the Company’s Plan, which was approved by substantially all creditors and implemented on the Effective Date. The principal provisions of the Plan included:

•

the incurrence by the Company of (i) approximately $32.0 million in indebtedness available under new Revolving Credit Facilities; (ii) approximately $33.0 million under a new Secured Mezzanine Term Loan; and (iii) approximately $85.0 million under a new Senior Mortgage Term Loan;

	•		the satisfaction of the Company’s 11 ¼% Senior Subordinated Notes due 2008 (“Senior Subordinated Notes”) upon the issuance or payment by the Company to the holders of Senior Subordinated Notes on a pro rata basis of (i) approximately $106.8 million of new Senior Subordinated Secured Increasing Rate Notes due 2008 (“Increasing Rate Notes”) with an initial rate of 9.25% and provide for annual rate increases, (ii) 58,642 shares of common stock and (iii) cash in the amount of $50.0 million, consisting of approximately $36.0 million in outstanding interest and approximately $14.0 million of principal;

	•		the payment in full of amounts outstanding under the Company’s $90 million Term Loan Facility and $30 million Revolving Credit Facility;

	•		the issuance of one share of new series A preferred stock for each share of the Company’s existing series A preferred stock;

	•		the cancellation of the Company’s series A common stock and the issuance of 1.1142 shares of new common stock for each share of cancelled series A common stock;

	•		the cancellation of the Company’s series B common stock and options to purchase series C common stock, with no distribution made in respect thereof;

	•		the cancellation of the Company’s series C common stock and the issuance of one share of new common stock for each share of cancelled series C common stock;

	•		the cancellation of outstanding warrants to purchase series C common stock and the issuance of new warrants, on substantially the same terms, to purchase a number of shares of new common stock equal to the number of shares of series C common stock that were subject to the existing warrant so cancelled;

	•		an amendment and restatement of the Company’s stockholders’ agreement;

	•		the impairment of certain secured claims and the impairment of certain general unsecured claims; and

	•		the restructuring of the Company’s and its subsidiaries’ businesses and legal structure.

Although operating under the jurisdiction of the United States Bankruptcy Court as a debtor-in-possession, the Company continued control of its subsidiaries’ operations. Therefore the condensed consolidated interim financial statements of the Company include the accounts of the Company’s wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

The condensed consolidated interim financial statements as of September 30, 2003 and for the three and nine month periods ended September 30, 2002 and 2003 are unaudited but, in the opinion of management, have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting of normal recurring accruals necessary for a fair presentation of the information set forth therein. The results of operations for the three and nine month periods ended September 30, 2003 are not necessarily indicative of the operating results to be expected for the full year or any other period.

These financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations, although the Company believes the disclosures provided are adequate to prevent the information presented from being misleading.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts 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. The most significant estimates in the Company’s consolidated financial statements relate to net revenues, allowance for doubtful accounts, and patient liability claims. Actual results could differ from those estimates.

Revenues are recorded on an accrual basis as services are performed at their estimated net realizable value. The Company derived approximately 75 percent of its revenues in each of the nine months ended September 30, 2003 and 2002 from funds under federal Medicare and state Medicaid assistance programs, the continuation of which are dependent upon governmental policies. Differences between final settlement and the estimated net realizable value accrued in prior years are reported as adjustments to the current year’s net revenues. These revenues are based, in certain cases, upon cost reimbursement principles and are subject to audit.

In 1999, one of the Company’s Medicare fiscal intermediaries performed focused audits as part of the normal annual audit process at a number of the Company’s SNF facilities. The auditors identified certain matters that represented a departure from prior practices of the fiscal intermediary. In 2000, the Company received notification of proposed adjustments for certain of these audits. The adjustments, which originally were assessed to be approximately $2.8 million, were subsequently revised to approximately $1.4 million. The Company has appealed these adjustments and believes that the ultimate resolution of these items will not have a material adverse effect on its financial position or results of operations, notwithstanding the fact that the Company has not recorded a receivable related to the appeals. In July 2002, an adjustment relating to one of these audited facilities was settled for $109,000. The settlement was approved and entered in the Bankruptcy Court on July 10, 2002. As of September 30, 2003, the adjustments, after giving effect to the settlement of $109,000, were approximately $1.3 million.

The Company’s net revenue is derived from services provided to patients in the following payer classes (in thousands):

Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less. The Company places its temporary cash investments with high credit quality financial institutions.

Inventories are stated at the lower of cost (first-in, first-out method) or market and are included in other current assets in the accompanying consolidated financial statements.

Property and equipment are stated at cost. Major renewals or improvements are capitalized, whereas ordinary maintenance and repairs are expensed as incurred. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets as follows:

Depreciation and amortization of property and equipment under capital leases is included in depreciation and amortization expense. For leasehold improvements, where the Company has acquired the right of first refusal to purchase or to renew the lease, amortization is based on the lesser of the estimated useful lives or the period covered by the right.

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combination accounted for as purchases. The Company adopted Statement of Financial Accounting Standards, (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, on January 1, 2002.

Goodwill, which was previously amortized on a straight-line basis over 35 years, is no longer amortized to earnings but instead is

subject to periodic testing for impairment. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual testing if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. As provided under SFAS No. 142, the initial testing of goodwill for possible impairment was completed within the first six months of 2002 and no impairment was identified. As of September 30, 2003, the carrying value of goodwill was approximately $20.8 million and no impairment was recorded at December 31, 2002.

Deferred financing costs substantially relate to the Company’s Senior Mortgage Term Loan and Increasing Rate Notes (see Note 4) and are being amortized over the maturity periods using an effective-interest method. At September 30, 2003, deferred financing costs, net of accumulated amortization were approximately $4.3 million.

The Company utilizes the liability method of accounting for income taxes as set forth in FASB Statement No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

The Company periodically evaluates the carrying value of long-lived assets other than goodwill in relation to the future undiscounted cash flows of the underlying businesses to assess recoverability of the assets. If the estimated undiscounted future cash flows are less than the carrying amount, an impairment loss, which is determined based on the difference between the fair value and the carrying value of the assets, is recognized.

On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which supersedes SFAS 121, Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS 144 addresses financial accounting and reporting requirements for the impairment or disposal of long-lived assets. This statement also expands the definition of a discontinued operation to include a component of an entity, and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The Company’s adoption of SFAS 144 did not have a material impact on its financial position or results of operations.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) becomes applicable in the Company’s fiscal fourth quarter, 2003. Variable interest entities (VIEs) are entities that lack sufficient equity or whose equity holders lack adequate decision making ability based on criteria set forth in the interpretation. All of a company’s VIEs must be evaluated under methods prescribed by this interpretation to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

The Company has an equity interest in a limited liability company that was formed with its joint venture partner, American Pharmaceutical Services, Inc., that is currently not consolidated, but under current rules is accounted for under the equity method of accounting. For this entity, the Company holds variable interests, such as management contracts, license agreements, leases or other arrangements. This entity may be considered a VIE under FIN 46, and it is possible that the Company may be required to consolidate certain of this entity when FIN 46 becomes applicable. The Company is currently in the process of analyzing this entity to determine if it is a VIE and, if so, whether the Company is the primary beneficiary, in which case consolidation would be required. The Company believes that any additional liabilities recognized as a result of consolidating any VIEs would not represent additional claims on the general assets of the Company; rather, they would represent claims against the additional assets recognized by the Company as a result of consolidating the VIEs. Conversely, the Company believes that any additional assets recognized as a result of consolidating any VIEs would not represent additional assets of the Company that could be used to satisfy claims against the Company’s general assets.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Statement 150). This statement was developed in response to concerns expressed by preparers, auditors, regulators, and other users of financial statements about issuers’ classification in the balance sheet of certain financial instruments that have characteristics of both liabilities and equity but that have been presented between the liabilities section and the equity section of the balance sheet. The statement requires that financial instruments issued in the form of shares that are mandatorily redeemable be classified as liabilities. Mandatorily redeemable shares are defined as shares for which the issuer has an unconditional obligation to redeem shares at a specified or determinable date or upon an event that is certain to occur. The provisions of this statement are effective as of the first interim period beginning after June 15, 2003. The Company adopted Statement 150 on July 1, 2003. At that time, the Company’s Series A preferred stock, which is mandatorily redeemable, was classified as a liability, implemented by reporting

Effective July 1, 2003, the Company recognized as interest expense $12.3 million of previously undeclared dividends on the Series A preferred stock related to the adoption of Statement 150. In accordance with the underlying provisions of Statement 150, such charge was recorded in the Company’s Consolidated Financial Statements as a cumulative effect of a change in accounting principle during the third quarter, 2003. See Note 4 to the Company’s Condensed Consolidated Financial Statements for further details.

The following table illustrates the effect on net income (loss) if the Company had recorded interest expense for the three and nine months ended September 30, 2003 and 2002 (in thousands):

Nursing services are provided by 47 SNFs that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as five ALFs that provide room and board and social services. Therapy services include ancillary services such as physical, occupational and speech therapy provided in Company-operated facilities, unaffiliated facilities and acute care hospitals. Pharmacy services are provided by three institutional pharmacies (one of which is a joint venture), which serve SNFs and ALFs, both affiliated and unaffiliated with the Company. The Company’s reportable segments are business units that offer different services and products. The reportable segments are each managed separately due to the nature of the services provided or the products sold.

The Company’s management evaluates performance based on operating contribution, where segment revenues are reduced by those costs that are allowable to the segments. Management evaluates performance and allocates resources to each segment based on an operating model that is designed to maximize the quality of care provided and profitability of the Company’s facilities. Certain of the Company’s facilities are leased, under operating leases, and not owned. Accordingly, earnings before interest, taxes, depreciation, amortization, rent and extraordinary items are used to determine and evaluate segment profit or loss. Corporate overhead is not allocated to any segment for purposes of determining segment profit or loss, and is included, along with the Company’s durable medical equipment subsidiary, whose operations ceased during 2002, in the “all other” category in the selected segment financial data that follows. Goodwill and deferred financing costs are also not allocated to any segment for purposes of determining segment assets and are included in the “all other” category. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at the Company’s cost plus standard mark-up; intersegment profit and loss has been eliminated in consolidation.

The following table sets forth selected financial data by business segment (in thousands):

As a result of the Chapter 11 filing, a significant amount of the Company’s short-term and long-term debt as of the Company’s petition date were classified as “liabilities subject to compromise” in the Company’s consolidated balance sheets in accordance with SOP 90-7. Pursuant to the Seventh Interim Order, the Company was authorized to make payments to reduce the principal amounts of certain secured debts and capital leases.

Long-term debt consists of the following at September 30, 2003 and December 31, 2002 (in thousands):

Other assets are comprised of the following at September 30, 2003 and December 31, 2002 (in thousands):

The Company has a joint-venture relationship with American Pharmaceutical Services, Inc. to service its pharmaceutical needs for a limited number of its Texas operations. The joint venture, a limited liability company, was formed in 2003, and was funded through the contribution by the Company of $1.5 million of cash, and the contribution by American Pharmaceutical Services of $3.0 million of tangible assets. Immediately after the formation and funding of the joint-venture, a distribution of $1.5 million in cash was made to American Pharmaceutical Partners such that each of the joint venture partners retained a 50% equity interest in the partnership after the distribution. This joint venture operates a pharmacy in Austin, Texas, and the Company pays market rates for prescription drugs it purchases, and receives 50% of the net income of this joint-venture. Based on the Company’s lack of any controlling interest in the joint-venture, the Company’s investment is accounted for under the equity method of accounting.

In connection with the Senior Mortgage Term Loan, the Company is required to maintain reserves on deposit with the lender. At September 30, 2003 the following amounts were on reserve: $2.0 million for general insurance, $1.6 million for property insurance and taxes, $1.2 million for professional liability reserves, $0.5 million for deferred maintenance and improvements, and $0.2 million for debt service coverage.

In August 2003, the Company formed Fountain View Reinsurance, Ltd., (the “captive”) a wholly owned off-shore captive for the purposes of insuring its workers’ compensation liability in California. In connection with the formation of this subsidiary, the Company funded the captive with approximately $4.0 million.

In the normal course of business the Company is required to post security deposits with respect to our leased properties and to many of the vendors with which it conducts business.

In November 1999, one of the Company’s SNFs was decertified from the Medicare and Medicaid Programs as a result of surveys conducted by the California Department of Health Services. In December 2000, the Company obtained new provider agreements from both the Medicare and Medicaid Programs. During the period through December 2000, the Company recorded a charge relating to this decertification totaling approximately $4,865,000. The Company has appealed this decertification with a Federal Government Administrative Law Judge and has filed a claim against the State of California.

In November 2002, a settlement was reached to provide for an earlier recertification of the facility and a recovery of uncompensated care in the amount totaling approximately $3.1 million. A Bankruptcy Court order approving the settlement agreement was entered in December 2002. Due to the on-going contingency related to the payment of these services the Company did not record the reversal of the charge until the cash was received. Of the amount settled, a total of approximately $3.0 million has been received through September 30, 2003, of which approximately $2.7 million was received in the nine months ended September 30, 2003.

Property and equipment is comprised of the following at September 30, 2003 and December 31, 2002 (in thousands):

Property and equipment includes $11.1 million related to land and buildings for the lease of four facilities that have been capitalized.

The Company’s Series A preferred stock is subject to mandatory redemption by the Company, out of funds legally available therefor, upon the earlier of (i) an underwritten initial public offering of the Company’s common stock for cash pursuant to a registration statement filed under the Securities Act of 1933, as amended or (ii) May 1, 2010. The series A preferred stock is also redeemable by the Company, out of funds legally available therefor, at the option of the Company at any time by payment of the per share Base Amount plus all unpaid dividends accrued on such shares. The Base Amount is initially equal to $1,000 per share of series A preferred stock, provided that any dividends that have accrued but are not paid on March 31 of each year are automatically added to the Base Amount. The Series A preferred stock entitles the holder to a dividend at an annual rate of 12% of the Base Amount of each share of series A preferred stock from the date of issuance of such share, provided that all currently outstanding shares of Series A preferred stock are deemed to have been issued as of March 27, 1998 for purposes of determining the amount of dividends that have accrued. As of September 30, 2003, the aggregate Base Amount of the series A preferred stock was $15.0 million and there was approximately $13.1 million of undeclared and unpaid dividends on the series A preferred stock.

Pursuant to the Company Plan, the Company issued new shares of series A preferred stock in exchange for existing shares of series A preferred stock. The holders of new shares of series A preferred stock have substantially the same rights and privileges as the holders of previously outstanding series A preferred stock; provided that each share of new series A preferred stock is entitled to one vote per share and is entitled, except as otherwise required by law, to vote together with our common stock on all matters put before our stockholders.

In 1998, the Company issued 1,000,000 shares of Series A common stock, 114,202 shares of Series B common stock and 20,742 shares of Series C common stock.

Pursuant to the Company’s Plan, each share of Series A common stock was cancelled and replaced with 1.1142 shares of new common stock, each share of Series B common stock was cancelled for no consideration and each share of Series C common stock was replaced with one share of new common stock.

In 1998, the Company issued 71,119 warrants to purchase the Company’s Series C common stock at an exercise price of $.01 per share. The warrants were exercisable beginning April 16, 1998, and expire in April 2008. During 2003 and 2002, no warrants were exercised.

Pursuant to the Company’s Plan, the Company’s outstanding warrants were cancelled and replaced with an equivalent number of new warrants to purchase common stock. Other than the security for which the warrant may be exercised, the terms of the new warrants are substantially similar to the terms of the cancelled warrants.

The Company has not paid nor declared any dividends during the nine months ended September 30, 2003 and 2002. During the pendency of the Company’s Chapter 11 bankruptcy proceedings, the Company was prohibited from paying dividends without obtaining Bankruptcy Court approval.

In 1998, the Company adopted a stock option plan which provided for the grant of stock options to certain directors, employees and consultants of the Company to purchase up to 49,388 shares of Series C common stock. At December 31, 2002, a total of 39,226 options had been granted to employees and consultants of the Company. Out of the 39,226 options granted, 12,422, 9,996 and 5,746 options were cancelled in 2002, 2001 and 2000, respectively, leaving a total of 11,062 options outstanding at December 31, 2002.

The Company’s Plan cancelled all options to purchase the Company’s Series C common stock without consideration.

The Company leases certain of its facilities under noncancelable operating leases. The leases generally provide for payment of property taxes, insurance and repairs, and have rent escalation clauses, principally based upon the Consumer Price Index or other fixed annual adjustments.

The future minimum rental payments under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of September 30, 2003, are as follows (in thousands):

As is typical in the health care industry, the Company has experienced an increasing trend in the number and severity of litigation claims asserted against the Company. In addition, there has been an increase in governmental investigations of long-term care providers. While the Company believes that it provides quality care to its patients and is in compliance with regulatory requirements, a legal judgment or adverse governmental investigation could have a material negative effect on the Company.

During the pendency of the Company’s petition for protection of creditors under Chapter 11 of the United States Bankruptcy Code, all litigation matters brought against the Company were stayed by the Bankruptcy Court. Matters that were resolved during the pendency of the petition were subject to compromise in the bankruptcy proceedings.

At various times prior to July 31, 2002, the Texas Department of Human Services (TDHS) conducted several surveys of certain of the Company’s facilities in Texas. As a result of these surveys, TDHS assessed civil monetary penalties against the Company totaling approximately $1.0 million and in some cases withdrew approval of its Nurse Aide Training and Competency Evaluation Program (NATCEP), for alleged licensure violations. The Company filed an appeal of the imposition of each of the above referenced sanctions. On April 14, 2003, the parties reached an agreement, which settled the matter for approximately $0.3 million. The amount was accrued in the Company’s consolidated financial statements as of December 31, 2002. Pursuant to the agreement, the amount is payable in equal monthly installments over a period of twelve months beginning on July 23, 2003. Interest at a rate of ten percent will begin to accrue on any outstanding balance thirty days following the due date of the first payment.

The Company follows the provision of Statement of Financial Accounting Standards No. 5 (SFAS No. 5), Accounting for Contingencies. SFAS No. 5 requires that an estimated loss from a loss contingency be accrued for by a charge to income if its both probable that an asset has been impaired or that a liability has been incurred and that the amount of the loss can be reasonably estimated.

The Company maintains general and professional liability coverage, employee benefits liability, property, casualty, directors and officers, inland marine, crime, boiler and machinery coverage, health, travel accident, automobile, employment practices liability, earthquake and flood, workers’ compensation and employers’ liability. The Company believes that its insurance programs are adequate.

Hallmark Therapy Group, LLC (Hallmark), the Company’s wholly owned rehabilitation services subsidiary, provides physical, occupational and speech therapy services to various unaffiliated skilled nursing facilities. These skilled nursing facilities are

reimbursed for these services from the Medicare Program and other third party payors. Hallmark has indemnified these skilled nursing facilities from certain disallowances of these services. The accompanying financial statements do not include an estimate of these potential disallowances as management has concluded that they are not determinable.

The Company’s former Chief Executive Officer and current director, and his wife, a former Executive Vice President of the Company, own the real estate for four of the Company’s leased facilities. Such real estate has not been included in the financial statements for any of the years presented herein. Lease payments to these related parties under operating leases for these facilities for the three months ended September 30, 2003 and 2002 were $0.6 million and $0.5 million, respectively.

The Company’s former Executive Vice President, who is also the wife of the Company’s former Chief Executive Officer and current director, owned approximately 33% of a medical supply company that provides medical supplies and equipment to the Company pursuant to a supply contract. In May 2003, this ownership interest was fully divested. As part of the Company’s on-going effort to review and renegotiate all of its material executory contracts during the reorganization proceeding, the agreement was amended, first in September 2002 and subsequently in April 2003. The agreement, as amended, provides for an approximately 5% price reduction on medical supplies and equipment, effective through April 30, 2008. Billings for medical supplies from this related company for the three months ended September 30, 2003 and 2002 were $0.6 million and $0.4 million, respectively. The Company believes that the terms of this supply agreement are at least as favorable to the Company as could be obtained from third parties in an arms length transaction.

The Company has a limited recourse promissory note receivable from the Chairman of its Board of Directors in the amount of approximately $2.5 million with an interest rate of 5.7%. The Note is due on the earlier of April 15, 2007 or the sale by the Chairman of 20,000 shares of the Company’s common stock pledged as security for the note. The Company has recourse for payment up to $1.0 million of the principal amount of the note.

In September 2002, the Company extended a limited recourse loan in the principal amount up to $0.5 million to its Chief Executive Officer. The note, which was secured by a deed of trust on the residential property of the Chief Executive Officer, bore interest at a rate of 8.0% per annum and required monthly payments payable on the first day of each month beginning on the first day of October 2002. The entire principal balance of the note together with the accrued interest thereon was due and payable on the earlier of December 1, 2003 or upon the sale of the property securing the loan. As of September 30, 2003, the outstanding principal balance of the note was $275,000. In October 2003, the outstanding principal and interest on the loan was paid in full.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The accompanying unaudited consolidated financial statements set forth certain data with respect to the financial position, results of operations and cash flows of our company which should be read in conjunction with the following discussion and analysis. The terms “company”, “we”, “our”, and “us” refer to Skilled Healthcare Group, Inc. and its consolidated subsidiaries (formerly known as Fountain View, Inc.).

We are an operator of long-term care facilities and a provider of a broad range of post-acute care services, with a strategic emphasis on sub-acute specialty medical care. We operate facilities in California and Texas, including 47 skilled nursing facilities (“SNFs”) that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as five assisted living facilities (“ALFs”) that provide room and board and social services. Sub-acute care is generally short-term, goal-oriented rehabilitation care intended for individuals who have a specific illness, injury or disease, but who do not require many of the services provided in an acute care hospital. Sub-acute care is typically rendered immediately after, or in lieu of, acute hospitalization in order to treat such specific medical conditions. As of September 30, 2003, we had 6,933 licensed beds.

In addition to long-term care, we provide a variety of high-quality ancillary services such as physical, occupational and speech therapy in company-operated facilities and unaffiliated facilities. We also operate three institutional pharmacies (one of which is a joint venture), which serve SNFs and ALFs both affiliated and unaffiliated with us.

On October 2, 2001, we and 19 of our subsidiaries filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”). On November 28, 2001, our remaining three subsidiaries also filed voluntary petitions for protection under Chapter 11.

Our Company and subsidiaries’ financial difficulties were attributable to a number of factors. The federal government had fundamentally changed reimbursement rates and procedures for medical services provided to individuals in 1999. These changes had a significant adverse effect on the healthcare industry on the whole as well as our cash flows. These changes also exacerbated a long-standing problem of inadequate reimbursement by the states for medical services provided to indigent persons under the various states’ Medicaid programs. At the same time, we experienced significant increases in our labor costs and professional liability and other insurance costs.

Following our petition for protection under Chapter 11, we and our subsidiaries continued to operate our businesses as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court through August 19, 2003, the effective date, when we emerged from bankruptcy pursuant to the terms of our Third Amended Joint Plan of Reorganization dated April 22, 2003 (the “Plan”). In connection with emerging from bankruptcy, we changed our name to Skilled Healthcare Group, Inc. From the date we filed the petition with the Bankruptcy Court through September 30, 2003, we incurred restructuring charges totaling approximately $27.7 million.

The principal components of reorganization expenses incurred during the nine months ended September 30, 2003 and 2002 are as follows (in thousands):

On July 10, 2003, the Bankruptcy Court confirmed our Plan, which was approved by substantially all or our creditors and implemented on August 19, 2003. The principal provisions of the Plan included:

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the incurrence by us of (i) approximately $32.0 million in indebtedness under new Revolving Credit Facilities; (ii) approximately $23.0 million under a new Secured Mezzanine Term Loan; and (iii) approximately $95.0 million under a

			new Senior Mortgage Term Loan;

	•		the satisfaction of our 11¼% Senior Subordinated Notes due 2008 (“Senior Subordinated Notes”) upon the issuance or payment by us to the holders of Senior Subordinated Notes on a pro rata basis of (i) $106.8 million of new Senior Subordinated Secured Increasing Rate Notes due 2008 (“Increasing Rate Notes”) that accrue interest at an initial rate of 9.25% and provide for annual rate increases, (ii) 68,642 shares of common stock and (iii) cash in the amount of $50.0 million, consisting of approximately $36.0 million in outstanding interest and approximately $14.0 million of principal;

	•		the payment in full of amounts outstanding under our $90 million Term Loan Facility and $30 million Revolving Credit Facility;

	•		the issuance of one share of new Series A preferred stock for each share of our existing Series A preferred stock;

	•		the cancellation of our Series A common stock and the issuance of 1.1142 shares of new common stock for each share of cancelled Series A common stock;

	•		the cancellation of our Series B common stock and options to purchase Series C common stock, with no distribution made in respect thereof;

	•		the cancellation of our Series C common stock and the issuance of one share of new common stock for each share of cancelled Series C common stock;

	•		the cancellation of outstanding warrants to purchase Series C common stock and the issuance of new warrants, on substantially the same terms, to purchase a number of shares of new common stock equal to the number of shares of Series C common stock that were subject to the existing warrant so cancelled;

	•		an amendment and restatement of our stockholders’ agreement;

	•		the impairment of certain secured claims and the impairment of certain general unsecured claims; and

	•		the restructuring of our and our subsidiaries’ businesses and legal structure.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments 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 amount of revenues and expenses for each period.

The following represents a summary of our critical accounting policies, defined as those policies that we believe are: (a) the most important to the portrayal of our financial condition and results of operations, and (b) that require management’s most subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

	•		Revenue recognition — Our revenues are derived primarily from providing long-term healthcare services. Approximately 75% of our net revenues are received from funds provided under Medicare and state Medicaid assistance programs. We record our revenues on an accrual basis as services are performed at their estimated net realizable value under these governmental programs. These revenues are subject to audit and retroactive adjustment by governmental and third-party agencies. Retroactive adjustments that are likely to result from future audits by third-party payors are accrued on an estimated basis in the period the related services are performed. Consistent with the healthcare industry accounting practices, any changes to these governmental revenues estimates are recorded in the period the change or adjustment becomes known based on final settlements. Because of the complexity of the laws and regulations governing Medicare and state Medicaid assistance programs, our estimates may potentially change by a material amount.

	•		Allowance for doubtful accounts — We maintain allowances for doubtful accounts for estimated losses resulting from non-payment of patient accounts receivable and third-party billings. We record bad debt expense monthly using a percentage of revenue approach that reflects our historical experience. In evaluating the collectibility of accounts receivable, we consider a number of factors, including the age of the accounts, changes in collection trends, the composition of patient accounts by payor the status of ongoing disputes with third-party payors and general industry conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. If, at September 30, 2003, we were to recognize an increase of 10% in the allowance for our doubtful accounts, our total current assets would be decreased by $1.3 million, or 3.0%.

	•		Patient liability risks — Our general and professional liability reserve includes amounts for patient care related claims and incurred but not reported claims. General and professional liability costs for the long-term care industry have become increasingly expensive and difficult to estimate. The amount of our reserves is determined based on an estimation process that uses information obtained from both company-specific and industry data. The estimation process requires us to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and our assumptions about emerging trends, we along with our independent actuary develop information about the size of ultimate claims based on our historical experience and other available industry information. The most significant assumptions used in the estimate process include determining the trend in costs, and the expected cost of claims incurred but not reported and the expected costs to settle unpaid claims. Although we believe that our reserves are adequate, we cannot not assure you that this liability will not require a material adjustment in the future. If, at September 30, 2003, we were to recognize an increase of 10% in the reserve for general and professional liabilities our total liabilities would be increased by $2.5 million, or 0.8%.

	•		Impairment of long-lived assets and goodwill — We periodically evaluate our long-lived assets, primarily consisting of our investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future discounted cash flows of the underlying operations. Measurement of the amount of the impairment, if any, may be based on independent appraisals, established market values of comparable assets or estimates of future cash flows expected. The estimates of these future cash flows are based on assumptions and projections believed by management to be reasonable and supportable. They require management’s subjective judgments and take into account assumptions about revenue and expense growth rates. These assumptions may vary by type of long-lived asset. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, that we adopted January 1, 2002, goodwill and other intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are subject to impairment tests performed at least annually. For goodwill, the test is performed at the reporting unit level as defined by SFAS No. 142. If we find that the carrying value of goodwill to be impaired, we must reduce the carrying value, including any allocated goodwill, to fair value. We believe that our determination not to recognize an impairment loss on our long-lived assets and goodwill is a critical accounting estimate because this determination is susceptible to change, dependent upon events that are remote in time and may or may not occur, and because recognizing an impairment loss could result in a material reduction of the assets reported on our balances sheet.

We make our estimates and judgments based on, among other things; knowledge of operations, markets, historical trends and likely futures changes, and when appropriate, the opinions of advisors with knowledge and experience in certain fields. However, due to the nature of certain assets and liabilities, there are risks and uncertainties associated with some of the estimates and judgments, which are required to be made. Actual results could differ from these estimates under different assumptions or conditions.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) becomes applicable in our fiscal fourth quarter. Variable interest entities (VIEs) are entities that lack sufficient equity or whose equity holders lack adequate decision making ability based on criteria set forth in the interpretation. All of our VIEs must be evaluated under methods prescribed by this interpretation to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

We have an equity interest in a limited liability company that was formed with our joint venture partner, American Pharmaceutical Services, Inc., that are currently not consolidated, but under current rules are accounted for under the equity method of accounting. For this entity, we may hold variable interests, such as management contracts, license agreements, leases or other arrangements. This entity may be considered a VIE under FIN 46, and it is possible that we may be required to consolidate this entity when FIN 46 becomes applicable in our fourth quarter, 2003. We are currently in the process of analyzing this entity to determine if it is a VIE and, if so, whether we are the primary beneficiary, in which case consolidation would be required. We believe that any additional liabilities recognized as a result of consolidating any VIE would not represent additional claims on our general assets; rather, they would represent claims against the additional assets recognized by us as a result of consolidating the VIEs. Conversely, we believe that any additional assets recognized as a result of consolidating any VIEs would not represent additional assets that we could use to satisfy claims against our general assets.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Statement 150). This statement was developed in response to concerns expressed by preparers, auditors, regulators, and other users of financial statements about issuers’ classification in the balance sheet of certain financial instruments that have characteristics of both liabilities and equity but that have been presented between the liabilities section and the equity section of the balance sheet. The statement requires that financial instruments issued in the form of shares that are mandatorily redeemable be classified as liabilities. Mandatorily redeemable shares are defined as shares for which the issuer has an unconditional obligation to redeem at a specified or determinable date or upon an event that is certain to occur. The provisions of this statement are effective as

of the first interim period beginning after June 15, 2003. The Company adopted Statement 150 on July 1, 2003. At that time, the Company’s Series A preferred stock, which is mandatorily redeemable, was classified as a liability, implemented by reporting the cumulative effect of a change of accounting principle.

Effective July 1, 2003, we recognized as interest expense $12.3 million of previously undeclared dividends on the Series A preferred stock related to the adoption of Statement 150. In accordance with the underlying provisions of Statement 150, such charge was recorded in our Consolidated Financial Statements as a cumulative effect of a change in accounting principle during the third quarter, 2003. See Note 2 to our Condensed Consolidated Financial Statements for further details.

The following table illustrates the effect on net income (loss) if the Company had recorded interest expense for the three and nine months ended September 30, 2003 and 2002 (in thousands):


	Three months ended September 30,						Nine months ended September 30,

	2003			2002			2003			2002

Reported net (loss) income	$	(19,811	)	$	811		$	(16,866	)	$	724
Reversal of cumulative effect		12,261			—			12,261			—
Interest expense on mandatorily redeemable Series A preferred stock		—			(708	)		(1,502	)		(2,682	)

Adjusted net (loss) income	$	(7,550	)	$	103		$	(6,107	)	$	(1,958	)

The following table sets forth the amounts of our consolidated revenues derived from the various sources of payment and certain operating data for our SNF’s and ALF’s for the three and nine months ended September 30, 2003 and 2002 are as follows:

Three months ended September 30, 2003 compared to three months ended September 30, 2002

Net revenues increased $3.4 million or 3.8% to $90.6 million for the three months ended September 30, 2003 from $87.2 million for the three months ended September 30, 2002. Net revenues increased primarily due to a 3.4% increase in total average occupancy to 83.3% for the three months ended September 30, 2003 from 80.7% for the three months ended September 30, 2002 and the impact of beginning operations at four new facilities in California. Net revenue for nursing services accounted for $75.3 million, or 73.0% of total net revenues, for the three months ended September 30, 2003 as compared to $72.0, or 76.1% of total net revenues, for the three months ended September 30, 2002. Net revenue for therapy services accounted for $10.3 million, or 9.9% of total net revenues, for the three months ended September 30, 2003 as compared to $10.6 million, or 11.2% of total net revenues, for the three months ended September 30, 2002. Net revenues from pharmacy services accounted for $13.0 million, or 12.6% of total net revenues, for the three months ended September 30, 2003 as compared to $12.0 million, or 12.7% of total net revenues, for the three months ended September 30, 2002. The increases in revenue for the therapy services and pharmacy services were primarily attributable to new contracts and volume within their exiting contracts.

Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues increased to 84.4% of net revenues in the three months ended September 30, 2003 from 83.7% in the three months ended September 30, 2002. Expenses increased $3.5 million, or 0.79%, to $76.4 million in the three months ended September 30, 2003 from $73.0 million in the three months ended September 30, 2002. This increase was primarily due to higher salaries and benefits of $3.0 million, higher supplies costs related primarily to nursing services and pharmacy services of $0.9 million, partially offset by decreased purchase services of $0.2 million. Salaries and benefits were 52.4% of net revenues in the three months ended September 30, 2003 compared to 51.0% in the three months ended September 30, 2002. The increase in salaries and benefits was largely due to additional personnel related to expansion of our therapy operations and increases in wage rates and staffing levels at our nursing facilities, certain of which were mandated by the State of California. The decrease in purchased services was primarily due to the of contract nursing staff being replaced by our own personnel.

Income from operations before other expenses, rent, depreciation and amortization, and interest expense decreased $0.2 million, or 0.1%, to $14.1 million for the three months ended September 30, 2003 from $14.3 million or the three months ended September 30, 2002 and was

15.6% of net revenues in the three months ended September 30, 2003 compared to 16.3% in the three months ended September 30, 2002.

Rent, depreciation and amortization and interest expense increased $1.8 million or 17.6% to $12.0 million for the three months ended September 30, 2003 from $10.2 million for the three months ended September 30, 2002. The increase was due to higher interest expense due in part to higher interest rates on the refinancing and our new secured mezzanine term loan and revolving credit facilities and the application of Statement 150 in the third quarter, 2003.

Other expenses increased $7.1 million to $9.7 million for the three months ended September 30, 2003 from $2.5 million for the three months ended September 30, 2002. The increase was due to emerging from bankruptcy on August 19, 2003 and refinancing the existing debt, and the change in the fair market value of our interest rate hedge. As part of our refinancing, we wrote off $4.1 million of deferred financing costs associated with debt that has been extinguished. Additionally, we are required to reflect the fair market value of our interest rate hedge, which decreased by $1.1 million from $2.9 million to $1.8 million.

We recognized interest expense of $12.3 million related to the adoption of Statement 150. In accordance with the underlying provisions of Statement 150, such charge was recorded in our Consolidated Financial Statements as a cumulative effect of a change in accounting principle during the third quarter, 2003.

Net income decreased $20.6 million to a net loss of $(19.8) million for the three months ended September 30, 2003 from a net income of $0.8 million for the three months ended September 30, 2002. The net loss was primarily due to the cumulative effect of a change in accounting principle related adoption of Statement 150 for $12.3 million, the financing costs of extinguished debt written off for $4.1 million and the increase in reorganization costs of $1.9 million.

Nine months ended September 30, 2003 compared to nine months ended September 30, 2002

Net revenues increased $7.1 million or 2.7% to $261.9 million for the nine months ended September 30, 2003 from $254.8 million for the nine months ended September 30, 2002. Net revenues increased due to a 2.2% increase in total average occupancy to 82.5% for the nine months ended September 30, 2003 from 80.3% for the nine months ended September 30, 2002 and the impact of beginning operations at four new facilities in California, partially offset by the negative rate variance related to Medicare rate cut, which was effective October 1, 2002. Net revenue for nursing services accounted for $217.7 million, or 74.9% of total net revenues, for the three months ended September 30, 2003 as compared to $209.9, or 74.7% of total net revenues, for the three months ended September 30, 2002. Net revenue for therapy services accounted for $31.4 million, or 10.8% of total net revenues, for the three months ended September 30, 2003 as compared to $32.2 million, or 11.5% of total net revenues, for the three months ended September 30, 2002. Net revenues from pharmacy services accounted for $37.8 million, or 13.0% of total net revenues, for the three months ended September 30, 2003 as compared to $34.4 million, or 12.3% of total net revenues, for the three months ended September 30, 2002. The increase in revenue for the therapy services and pharmacy services were primarily due to new contracts and volume within their existing contracts.

Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues increased to 84.9% of net revenue for the nine months ended September 30, 2003 from 84.2% for the nine months ended September 30, 2003. Expenses increased $7.6 million or 0.6% to $222.3 million for the nine months ended September 30, 2003 from $214.6 million for the nine months ended September 30, 2002. Salaries and benefits increased to 52.7% of net revenues in the nine months ended September 30, 2003 compared to 52.7% for the nine months ended September 30, 2002. The increase in salaries and benefits was largely due to the number of new patients requiring increased staffing and wage increases.

Income before other expenses, rent, depreciation and amortization, and interest expense decreased by $0.5 million or 0.9% to $39.7 million for the nine months ended September 30, 2003 from $40.2 million for the nine months ended September 30, 2002 and was 15.1% of net revenues for the nine months ended September 30, 2003 compared to 15.8% for the nine months ended September 30, 2002.

Rent, Depreciation and amortization and interest expense increased by $1.1 million to $31.1 million for the nine months ended September 30, 2003 from $30.0 million for the nine months ended September 30, 2002. This is primarily due to interest expense increasing by $1.1 million related to the preferred stock obligation of $0.8 million and to higher interest rates in the refinanced debt.

The charge related to decertification of facility changed by $2.7 million for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002. The $(2.7) million is the reversal of previously recorded charges recorded in 2000 related to a facility decertification from the Medicare and Medicaid Programs. We appealed the decision and in November 2002 a settlement was reached a settlement to provide for an earlier decertification and recovery of uncompensated care in the amount of approximately $3.1 million. Of the amount settled, a total of approximately $2.9 million had been received through September 30, 2003. Financing costs were $4.1 million in the nine months ended September 30, 2003 compared to no charges in the nine months ended September 30, 2002. As part of our refinancing, we wrote off $4.1 million of deferred financed costs associated with debt that

has been extinguished. The reorganization expense increased from $8.8 million for the nine months ended September 30, 2002 to $10.7 million for the nine months ended September 30, 2003. This increase is primarily related to greater activity by our various bankruptcy consultants and attorneys as we emerges from bankruptcy in August 2003. The change in the fair market value in the interest rate hedge was $1.1 million for the nine months ended September 30, 2003 compared to no charges for the nine months ended September 30, 2002. We are required to reflect the fair market value of our interest rate hedge, which decreased by $1.1 million from $2.9 million to $1.8 million.

We recognized interest expense of $12.3 million related to the adoption of Statement 150. In accordance with the underlying provisions of Statement 150, such charge was recorded in the Company’s Consolidated Financial Statements as a cumulative effect of a change in accounting principle during the third quarter, 2003.

Net income decreases $17.6 million to a net loss of $16.9 million for the nine months ended September 30, 2003 from a net income of $0.7 million for the nine months ended September 30, 2002. The net loss was primarily due to the cumulative effect of a change in accounting principle related adoption of Statement 150 for $12.3 million, the financing costs of extinguished debt written off for $4.1 million and the increase in reorganization costs of $1.8 million.

As of September 30, 2003, cash and cash equivalents were zero compared to $20.50 million at December 31, 2002. Our principal sources of liquidity to fund ongoing operations for the nine months ended September 30, 2003 were cash provided by operations and existing cash and cash equivalents.

Cash flow used in operations for the nine months ended September 30, 2003 was $24.6 million, an increase of $29.7 million compared with cash provided by operations for the nine months ended September 30, 2002 of $5.1 million. Cash was used primarily to discharge approximately $12.0 million in pre-petition bankruptcy claims and approximately $36.0 million in interest payments on the Senior Subordinated Notes. These increases were partially offset by the accrual of current interest on our new debt obligations.

Cash flow used in investing activities for the nine months ended September 30, 2003 was $17.1 million, an increase of $13.0 million compared with cash used for the nine months ended September 30, 2002 of $4.1 million. The principal elements of this increase: i) deposits paid to our lender for $5.6 million of loan servicing reserves; ii) the funding of our workers’ compensation insurance captive for $4.0 million;, iii) an increase in notes receivable for $2.1 million related to our taking a secured note in exchange for outstanding receivables from one of our customers, and iv) an increase in capital expenditure for $1.4 million in renovations and improvements on our operating locations.

Net cash provided in financing activities totaled $21.2 million for the nine months ended September 30, 2003. The source of our cash provided in financing activities was proceeds from the issuance of long-term debt of approximately $135 million offset by the cash used in financing activities. Cash used in financing activities includes:

•

an aggregate of $76.6 million plus cash on hand to fund the payment in full of our pre-petition $30 million Revolving Credit Facility and $90 million Term Loan Facility;

•

a $50.0 million payment to holders of our Senior Subordinated Notes pursuant to the terms of our Plan;

•

$4.3 million in financing costs incurred in connection with our emergence from bankruptcy and incurrence of associated debt;

•

$2.9 million to purchase an interest rate hedge in accordance with the terms of our Senior Mortgage Term Loan. We purchased the interest rate hedge in August 2003 to limit our interest rate risk on the $95 million Senior Mortgage Term Loan, under which we will receive payment from the counterparty of amounts we are required to pay in the event that LIBOR exceeds 4.5%. The hedge is treated as a cash flow hedge for accounting purposes, which requires us to adjust the carrying value of the hedge asset at each reporting period to the current value.

Our Senior Mortgage Term Loan is collateralized by liens on 30 skilled nursing facilities. Under the terms of the loan we are required to maintain the following reserve accounts: (i) a debt service reserve account in the amount of $0.7 million to cover shortfalls in the cash available for debt service payments, (ii) a reserve collected monthly for the payment of real property taxes and certain insurance programs; (iii) a replacement reserve for reimbursement to us for capital expenditures made to the secured facilities.

Our ability to make capital expenditures is restricted by the terms of the new refinancing credit agreement. Permitted capital expenditures to renovate or improve our facilities will be funded by the Company’s operating cash flows or borrowings under its revolving credit line.

Based upon our current plans, level of operations and business conditions, we believe that our cash generated from operations together with available borrowing under our $32.0 million revolving credit line will be sufficient to meet our capital requirements and working capital needs for the foreseeable future. However we cannot assure you that we will not be required to seek other financing

sooner or that such financing, if required, will be available on terms satisfactory to us.

Our former Chief Executive Officer and current director, and his wife, our former Executive Vice President of the Company, own the real estate for four of our leased facilities. Such real estate has not been included in our consolidated financial statements for any of the years presented herein. Lease payments to these related parties under operating leases for these facilities for the three months ended September 30, 2003 and 2002 were $0.6 million and $0.5 million, respectively.

Our former Executive Vice President, who is also the wife of our former Chief Executive Officer and current director, owned approximately 33% of a medical supply company that provides medical supplies and equipment to us pursuant to a supply contract. In May 2003, this ownership interest was fully divested. As part of our on-going effort to review and renegotiate all of its material executory contracts during the reorganization proceeding, the agreement was amended, first in September 2002 and subsequently in April 2003. The agreement, as amended, provides for an approximately 5% price reduction on medical supplies and equipment, effective through April 30, 2008. Billings for medical supplies from this related company for the three months ended September 30, 2003 and 2002 were $0.6 million and $0.4 million, respectively. We believe that the terms of this supply agreement are at least as favorable to us as could be obtained from third parties in an arms length transaction.

We have a limited recourse promissory note receivable from our Chairman of the Board of Directors in the amount of approximately $2.5 million with an interest rate of 5.7%. The Note is due on the earlier of April 15, 2007 or the sale by the Chairman of 20,000 shares of our common stock pledged as security for the note. We have recourse for payment up to $1.0 million of the principal amount of the note.

In September 2002, we extended a limited recourse loan in the principal amount up to $0.5 to our Chief Executive Officer. The note, which was secured by a deed of trust on the residential property of our Chief Executive Officer, bore interest at a rate of 8.0% per annum and required monthly payments payable on the first day of each month beginning on the first day of October 2002. The entire principal balance of the note, together with the accrued interest thereon, was due and payable on the earlier of December 1, 2003 or upon the sale of the property securing the loan. As of September 30, 2003, the outstanding principal balance of the note was $275,000. In October 2003, the outstanding principal and interest on the loan was paid in full.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and management’s assumptions. Examples of such forward-looking statements include our expectations with respect to our strategy, expansion opportunities, extension of our business model, customer demand and future growth. We believe that our expectations are based upon reasonable beliefs, assumptions, and information available to our management at the time the statements are made, however, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on our behalf. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects,” “estimates,” “assumes,” “could,” “projects,” “intends,” “may,” “will,” “continue” and similar expressions are intended to identify forward-looking statements. Factors that may cause such differences include those risk factors discussed below. Except as required by the federal securities laws or the rules and regulation of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events changes in assumptions or otherwise.

We depend heavily on reimbursement from Medicare, Medicaid and other third-party payors and reimbursement rates from these payors may be reduced in the future.

We derive a substantial portion of our revenue from third-party payors, including the Medicare and Medicaid programs. For the nine-month period ended September 30, 2003, we derived approximately 30%, 44% and 26% of our total revenue from the Medicare program, the Medicaid program and private third party payor programs, respectively.

Third-party payor programs are highly regulated and are subject to frequent and substantial changes. Changes in the reimbursement rates or methods of payment from third-party payors, including the Medicare and Medicaid programs, or the implementation of other measures to reduce reimbursements for our services, could result in a substantial reduction in our revenue and operating margins.

As government programs, the Medicare and state Medicaid programs are subject to statutory and regulatory changes, administrative or executive orders, and government funding restrictions, all of which may materially decrease the rate of government program payments to us for our services. The Medicare and Medicaid programs have implemented numerous measures, and may continue to do so in the future, to contain or reduce costs. Such measures include limiting or reducing payment rates, increasing case management review and operational requirements, and negotiating reduced contract pricing. Private third-party payors are also continuing their efforts to control healthcare costs through direct contracts with healthcare providers, increased utilization reviews, or reviews of the propriety of, and charges for, services provided, and greater enrollment in managed care programs and preferred provider organizations. These private payors increasingly are demanding discounted fee structures and the assumption by healthcare providers of all or a portion of the financial risk associated with the provision of care.

Since Medicare has certain restrictions on coverage and payment of services provided by SNF’s and state-administered Medicaid programs generally provide more restricted coverage and lower reimbursement rates than private third-party payors, the sources and amounts of our patient revenue are determined by a number of factors, including licensed bed capacity of our facilities, occupancy rate, payor mix, type of services rendered to the patient and rates of reimbursement among payor categories (private and other payors, Medicare and Medicaid). Accordingly, changes in the case mix of patients, the mix of patients by payor type and payment methodologies may significantly affect our profitability. In particular, changes which increase the percentage of Medicaid residents within our facilities could have a material adverse effect on our financial operations, especially in states whose reimbursement levels are below our operating costs.

We cannot assure you that coverage policies and reimbursement levels under third-party payor programs will remain similar to present policies or levels or that payment levels will be sufficient to cover the costs allocable to patients eligible for reimbursement under these programs. We could be adversely affected by the continuing efforts of third-party payors, including the Medicare and Medicaid programs, to contain the amount of reimbursement we receive for healthcare services. Future changes in the reimbursement rates or methods of third-party payors or the implementation of other measures to reduce reimbursement for our services could result in a substantial reduction in our revenue and a material adverse effect on our operations and financial condition.

Our business is highly leveraged. As of September 30, 2003, we have long-term debt of approximately $227.3 million. We also had stockholders’ equity deficit of approximately $84.2 million.

Our substantial indebtedness and the provisions in our term loan, revolving credit facilities, mezzanine loan agreement and the indenture relating to our senior subordinated secured increasing rate notes due 2008, could also have other important consequences. For example:


	• they could increase our vulnerability to general adverse economic and industry conditions, including material adverse regulatory changes such as reductions in reimbursement;


	• they could increase the cost or limit the availability of additional financing, if needed or desired, to fund future working capital, capital expenditures and other general corporate requirements, or to carry out other aspects of our business plan;


	• they could require us to dedicate a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, reducing our cash flow available for working capital, capital expenditures or other general corporate purposes, or to carry out other aspects of our business plan;


	• they could require us to maintain debt coverage and financial ratios at specified levels, reducing our financial flexibility;


	• they could limit our ability to make material acquisitions or take advantage of business opportunities that may arise;


	• they could limit our flexibility in planning for, or reacting to, changes in our business and the industry; and

	• they could place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, most of the agreements relating to our debt contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of all or a substantial amount of our debt.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further increase the risks associated with our substantial leverage.

We conduct business in a heavily regulated industry, and compliance with and changes in regulations may result in increased costs that reduce our revenue and profitability.

We believe that the regulatory environment surrounding the long-term care industry remains intense. In the operation of our business we must comply with extensive regulations relating to, among other things, licensure, conduct of operations, ownership of facilities, construction of new and additions to existing facilities, allowable costs, services and prices for services. Changes in and compliance with the extensive laws and regulations applicable to our businesses is expensive and time consuming. If we fail to comply with these laws and regulations, we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to an investigation or other enforcement action under these laws or regulations. Furthermore, should we lose licenses for a number of our facilities as a result of regulatory action or otherwise, this could result in a material adverse effect on our operations and financial condition.

Our facilities must comply with certain requirements to participate either as a SNF under Medicare or a nursing facility under Medicaid. Failure to comply with these requirements may result in termination of the facility’s Medicare and Medicaid provider agreements, after which the facility would be unable to receive payment for services provided to Medicare or Medicaid patients until the facility reapplies or is otherwise reinstated or recertified to participate in Medicare or Medicaid. We cannot assure you that we will be able to maintain compliance with these regulatory requirements at all times, or that we will not be required to expend significant resources to do so.

Our pharmacies are subject to a variety of state licensing and other laws governing the storage, handling, selling or dispensing of prescription drugs, in addition to federal regulation of the storage, handling and distribution of prescription drugs under the Food, Drug and Cosmetic Act and the Prescription Drug Marketing Act. Moreover, we are required to register our pharmacies with the United States Drug Enforcement Administration, or DEA, to comply with requirements imposed by that agency with respect to security and reporting of inventories and transactions, and to make our pharmacies available for periodic inspections by the DEA and other governmental agencies with jurisdiction over our pharmacies. Failure to comply with these regulatory requirements could result in, among other things, warning letters, significant fines or other civil penalties, operating restrictions, withdrawal of our pharmacy approvals, and criminal prosecutions. Medicare pays for certain prescription drugs furnished in a number of settings including hospitals and SNFs. State Medicaid programs also pay for certain prescription drugs and typically provide for broader coverage the Medicare.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established regulations to improve the efficiency and effectiveness of the health care system by standardizing the electronic transmission of certain administrative and financial transactions including claims information, plan eligibility, referral certification and authorization, claims status, plan enrollment and disenrollment and payment and remittance advice. HIPAA also established regulations requiring all such electronic transactions, including claims for payments to our fiscal intermediaries, to be transmitted using standardized code sets. It is a violation of HIPAA to submit data in any format other than that prescribed by HIPAA. Due to a perceived lack of readiness on the part of many providers and payers to meet the compliance deadline of October 16, 2003, however, Medicare continues to accept claims and other transmissions in non-standard code sets, termed “legacy” codes. It is unclear whether other entities will continue to accept claims using legacy code sets or how long such code sets may be used. For example, state Medicaid programs from which we receive Medicaid reimbursements may not be compliant and may not be so in the near term. In the event that a state is unable to process our HIPAA-compliant requests for payment, and does not accept claims in legacy formats, our liquidity could be adversely affected.

HIPAA also established regulations to protect the privacy and security of identifiable health information for individual patients. The Standards for the Privacy of Individually Identifiable Health Information impose significant restrictions on our use and disclosure of individually identifiable health information, establish certain patient rights with respect to such information and impose certain administrative obligations on us. In addition, the Security Standards establish measures to protect electronic individually identifiable health information while it is in the custody of entities covered by HIPAA or transmitted from such entities to others. The Security Standards have been finalized, but health care providers, including us, need not be in compliance with these regulations until April 21, 2005.

While we believe we are in compliance with all HIPAA standards now in effect, the cost for us to maintain compliance with these regulations and to meet the compliance deadline of the Security Standards may be significant and our failure to do so could result in us incurring significant civil and criminal penalties.

HIPAA also created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.

Additionally, HIPAA granted expanded enforcement authority to the U.S. Department of Health and Human Services (HHS) and the U.S. Department of Justice (DOJ) and provided enhanced resources to support the activities and responsibilities of the HHS’s Office of Inspector General and the DOJ by authorizing large increases in funding for investigating fraud and abuse violations relating to healthcare delivery and payment.

“Fraud and abuse” anti-kickback provisions of the Social Security Act make it a criminal felony offense to knowingly and willfully offer, pay, solicit or receive payment or any other remuneration in order to induce, or in return for the receipt of, business for which reimbursement is provided under government health programs, including the Medicare and Medicaid programs. In addition, violators can be subject to civil penalties, as well as exclusion from government health programs. These anti-kickback provisions have been broadly interpreted to make payment of any kind, including many types of business and financial arrangements among providers, and between providers and beneficiaries, potentially illegal if any purpose of the payment or financial arrangement is to induce a referral.

In addition, Section 1877 of the Social Security Act, known as the Stark Law, imposes restrictions on referrals between physicians and certain entities with which the physicians have financial relationships. The Stark Law provides that if a physician (or an immediate family member of a physician) has a financial relationship with an entity that provides certain designated health services, the physician may not refer a Medicare or Medicaid patient to the entity for those designated services, unless an exception applies. Designated health services include certain services, such as physical therapy, occupational therapy, outpatient prescription drugs and home health. The penalties for violating the Stark Law include civil monetary penalties and possible exclusion from the Medicare and Medicaid programs. Many states have adopted or are considering legislative proposals similar to the Social Security Act’s anti-kickback provisions and the Stark Law, but with broader effect since they apply regardless of the source of payment for care. These laws and regulations are complex and limited judicial or regulatory interpretation exists. We cannot assure you that governmental officials charged with responsibility for enforcing the provisions of these laws and regulations will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations.

State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. HIPAA and the Balanced Budget Act expanded the penalties for healthcare fraud, including broader provisions for the exclusion of providers from the Medicare and Medicaid programs and the establishment of civil monetary penalties for violations of the anti-kickback provisions. While we believe that our practices are consistent with Medicare and Medicaid guidelines, those guidelines are often vague and subject to interpretation. There can be no assurance that anti-fraud enforcement actions will not adversely affect our business.

We are unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or the intensity of federal and state enforcement actions. Changes in the regulatory framework and sanctions from various enforcement actions could have a material adverse effect on our financial position, results of operations and liquidity.

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.

In the ordinary course of our business, we are regularly subject to inquiries, investigations and audits by federal and state agencies to determine whether we are in compliance with regulations governing the operation of, and reimbursement for, SNFs, ALFs, pharmacies and therapy services.

Both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts under these regulations as part of numerous ongoing investigations of health care companies and, in particular, SNFs. This includes investigations of:

	•		cost reporting and billing practices;

	•		quality of care;

	•		financial relationships with referral sources; and

	•		the medical necessity of services provided.

We receive requests for information from government agencies in connection with their regulatory or investigational authority and notices of deficiencies for failure to comply with various regulatory requirements. In most cases, with respect to these notices, the facility and the reviewing agency will agree upon the steps to be taken to bring the facility into compliance with regulatory requirements. In some cases or upon repeat violations, the reviewing agency may take a number of adverse actions against a facility. These adverse actions include:

	•		the imposition of fines;

	•		refunding amounts paid to the facility pursuant to the Medicare or Medicaid programs or from private payors;

	•		temporary suspension of payment for new patients to the facility;

	•		decertification from participation in the Medicaid or Medicare programs; or

	•		in extreme circumstances, revocation of a facility’s license.

We have been subject to certain of these adverse actions in the past and could be subject to adverse actions in the future, which could result in significant penalties, as well as adverse publicity. Any such penalties or adverse publicity could have a material adverse effect on our financial condition and results of operations.

We also are subject to potential lawsuits under a federal whistleblower statute that imposes sanctions, consisting of monetary penalties of up to $11,000 for each claim and three times the amount of damages, on entities and persons who knowingly present or cause to be presented to the federal government a false or fraudulent claim for payment. Also, the statute allows private parties to bring qui tam whistleblower lawsuits alleging false claims. Some states have adopted similar whistleblower and/or false claims provisions.

Insurance is not available to cover losses resulting from such enforcement and whistleblower actions. Any adverse determination in a governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on our financial condition. Furthermore, should we lose licenses or certifications for a number of our facilities as a result of regulatory action or otherwise, we could be deemed in default under some of our agreements, including agreements governing outstanding

Significant legal actions, which are commonplace in our industry, could subject us to increased operating costs and substantial uninsured liabilities, which would materially and adversely affect our results of operations, liquidity and financial condition.

As is typical in the healthcare industry, we are and will continue to be subject to claims that our services have resulted in resident or patient injury or other adverse effects. We, like our industry peers, have experienced an increasing trend in the frequency and severity of claims and litigation asserted against us. In addition we may be subject to punitive damage awards related to these claims. We cannot assure you that we have insurance adequate to cover these claims. Any adverse determination in a legal proceeding, whether currently asserted or arising in the future, could have a material adverse effect on our financial condition.

We self insure a significant amount of our potential liabilities and provisions for losses on our financial statements may not be adequate.

Due to the rising cost and limited availability of liability insurance, we currently purchase excess liability insurance only, and maintain, an unaggregated $0.3 million and $1.0 million self-insured retention per claim, in California and Texas, respectively. Additionally, we self insure the first $0.5 million and $1.0 million self-insured retention per claim of each employee injury claim, in California and Texas, respectively. Because we are largely self-insured on both the personal and general liability and workers’ compensation programs, there is no limit on the maximum number of claims or amount for which we can be liable in any policy period. Although we base our loss estimates on independent actuarial analyses, which determine expected liabilities on an undiscounted basis, including incurred but not reported losses, based upon the available information to date, the ultimate amount of the losses could exceed our estimates and our insurance limits. In the event our actual liability exceeds our estimates for any given period, our results of operations and financial condition could be materially adversely impacted.

The cost to replace or retain qualified nurses, healthcare professionals and other key personnel may adversely affect our financial performance, and we may not be able to comply with certain states’ staffing requirements.

We could experience significant increases in our operating costs due to shortages in qualified nurses, healthcare professionals and other key personnel. The market for these key personnel is highly competitive. We, like other healthcare providers, have experienced difficulties in attracting and retaining qualified personnel, especially facility administrators, nurses, certified nurses’ aides and other important healthcare providers. Our SNFs and ALFs are particularly dependent on nurses for patient care. There is currently a shortage of nurses, and trends indicate this shortage will worsen in the future. The difficulty our SNFs and ALFs are experiencing in hiring and retaining qualified personnel has increased our average wage rate. We may continue to experience increases in our labor costs primarily due to higher wages and greater benefits required to attract and retain qualified healthcare personnel. Our ability to control labor costs will significantly affect our future operating results.

We operate a number of facilities in California, which have enacted legislation establishing minimum staffing requirements for facilities operating in those states. Each facility in California must satisfy established minimum nursing hours of direct care per resident per day. Our ability to satisfy these requirements will depend upon our ability to attract and retain qualified nurses, certified nurses’ assistants and other staff. Failure to comply with these requirements may result in the imposition of fines or other sanctions. If the state does not appropriate sufficient additional funds, through Medicaid program appropriations or otherwise, to pay for any additional operating costs resulting from minimum staffing requirements, our profitability may be adversely affected.

Denial of pending change of ownership applications may have an adverse impact on our business.

In connection with our emergence from bankruptcy, we completed a corporate restructuring program that required us to file change of ownership applications with state governmental entities in connection with moving certain of our ALFs and SNFs within our corporate structure. If a sufficient number of change of ownership applications are rejected by any of these entities, it could have a material adverse impact on our financial condition and results of operations.

Insurance coverage is becoming increasingly expensive and difficult to obtain for long-term care companies, and our insurance carriers could become insolvent and unable to reimburse us.

Primarily as a result of patient care liability costs for long-term care providers, insurance companies are ceasing to insure long-term care companies, or severely limiting their capacity to write long-term care general and professional liability insurance. In addition, in the wake of the September 11, 2001 events, reduced overall insurance capacity and increasing insurance company losses, the insurance environment in general has become unstable, making it increasingly difficult to obtain coverage for patient care liabilities and certain other risks. When insurance coverage is available, insurance carriers are typically requiring companies to significantly increase their liability retention levels and/or pay substantially higher premiums for reduced coverage for most insurance coverages, including workers’ compensation, employee healthcare and patient care liability. We are experiencing higher premiums and retention levels. Our insurance covering patient care liability comes up for renewal in the second quarter of 2004. We cannot assure you that we will be able to renew our patient care liability insurance on terms as favorable as those we currently have.

We have purchased insurance for workers’ compensation, property, casualty and other risks from numerous insurance companies. In many cases, the policies provide coverage for events occurring in specific time frames that may only be determined in later years. We exercise care in selecting companies from which we purchase insurance, including review of published ratings by recognized rating agencies, advice from national brokers and consultants and review of trade information sources. There exists a risk that any of these insurance companies may become insolvent and unable to fulfill their obligation to defend, pay or reimburse us when that obligation becomes due. Although we believe the companies we have purchased insurance from are solvent, in light of the dramatic changes occurring in the insurance industry in recent years, we cannot assure you that they will remain solvent and able to fulfill their obligations.

State efforts to regulate the construction or expansion of health care providers could impair our ability to expand our operations.

Texas regulations require health care providers (including SNF’s, home health agencies, hospices and assisted living centers) to obtain prior approval, known as a certificate of need for:

	•		the purchase, construction or expansion of health care facilities;

	•		capital expenditures exceeding a prescribed amount; or

	•		changes in services or bed capacity.

To the extent that we are required to obtain a certificate of need or other similar approvals to expand our operations, either by acquiring facilities or expanding or providing new services or other changes, our expansion could be adversely affected by our failure or inability to obtain the necessary approvals, changes in the standards applicable to those approvals, and possible delays and expenses associated with obtaining those approvals. We cannot assure you that we will be able to obtain certificate of need approval for all future projects requiring this approval.

If we fail to attract patients and residents and compete effectively with other healthcare providers, our revenues and profitability may decline.

The long-term healthcare services industry is highly competitive. Our nursing centers compete on a local and regional basis with other nursing centers and other long-term healthcare providers. Some of our competitors’ facilities are located in newer buildings and may offer services not provided by us or are operated by entities having greater financial and other resources than us. Our facilities compete based on factors such as our reputation for quality care, the commitment and expertise of our staff and physicians, the quality and comprehensiveness of our treatment programs, charges for services, and the physical appearance, location and condition of our facilities.

The provision of pharmacy services in the long-term care industry is highly competitive. In the regions we sell pharmacy products and services, we compete with multiple local, regional and national institutional pharmacies. Our institutional pharmacy services generally compete on price and quality of the services provided. Several of the competitors to our pharmacy operations are larger and more established service providers. We also expect to encounter continued competition in connection with our physical therapy operations. Generally, this competition is national, regional and local in nature. Many companies competing in the therapy industry have greater financial and other resources than we have. The primary competitive factors in the rehabilitation business are similar to those in the inpatient and pharmacy business and include reputation, the cost of services, the quality of clinical services, responsiveness to customer needs, and the ability to provide support in other areas such as third party reimbursement, information management and patient record-keeping.

We cannot assure you that increased competition in the future will not adversely affect our financial position, results of operations or liquidity.

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 patient base 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, which, if significant, could have a material adverse effect on our financial condition and results of operations.

Financial information related to our post-emergence operations is limited and you may not be able to accurately determine our future operating results from our historical results.

We emerged from bankruptcy on August 19, 2003 following a significant restructuring of our debt obligations and corporate structure. Accordingly we have limited operating and financial data available from which you may analyze the operating results and cash flows of our business as it is currently structured. We have limited operating experience as a reorganized company.

Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

We intend to selectively pursue acquisitions of nursing centers, long-term acute care hospitals, pharmacies and other related healthcare operations. Acquisitions may involve significant cash expenditures, debt incurrence, additional operating losses, amortization of certain intangible assets of acquired companies, dilutive issuances of equity securities and expenses that could have a material adverse effect on our financial position, results of operations and liquidity. Acquisitions involve numerous risks, including:


	• difficulties integrating acquired operations, personnel and information systems,

	• diversion of management’s time from existing operations,

	• potential loss of key employees or customers of acquired companies, and


	• assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for failure to comply with healthcare regulations.

We cannot assure you that we will succeed in obtaining financing for acquisitions at a reasonable cost, or that such financing will not contain restrictive covenants that limit our operating flexibility. We also may be unable to operate acquired facilities profitably or succeed in achieving improvements in their financial performance.

A portion of our workforce has unionized and our operations may be adversely affect by work stoppages, strikes or other collective actions

In California, certain of our employees are represented by various unions and covered by collective bargaining agreements. Certain labor unions have publicly stated that they are concentrating their organizing efforts within the long-term health care industry. We cannot predict the effect that continued union representation or future organizational activities will have on our business. Although our facilities have never experienced any material work stoppages and we believe that our relations with employees and labor organizations are generally good, we cannot predict the effect continued union representation or organizational activities will have on our future operations. We cannot assure you that we will not experience a material work stoppage in the future.

Our business is subject to modest effects of seasonality that have caused our quarterly operating results to fluctuate in the past and will continue to do so in the future. During the calendar fourth quarter holiday periods, nursing home and assisted living residents are sometimes discharged to join family celebrations and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among nursing home and assisted living residents which can result in increased costs or discharges to hospitals. As a result of these factors, nursing home and assisted living operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the first and fourth quarters.

Certain of our debt obligations are sensitive to changes in interest rates. The rates on our senior debt and revolving loan facilities, which both bear interest at LIBOR plus an applicable margin, are reset at various intervals. To mitigate our risk in an increasing interest rate environment, we purchased from a highly rated counter party a hedge in August 2003 to limit our exposure to an increase in the interest rate under our Senior Mortgage Term Loan in the event that LIBOR exceeds of 4.5%. We have not experienced significant changes in market risk due to the relative stability of interest rates during the nine months ended September 30, 2003.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entitles. As we do not control or mange these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2003, the end of the quarterly period covered by this report. Based on the forgoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

As is typical in the health care industry, we have experienced an increasing trend in the number and severity of litigation claims asserted against us. In addition, there has been an increase in governmental investigations of long-term care providers. While we believe that we provide quality care to our patients and are in compliance with regulatory requirements, a legal judgment or adverse governmental investigation could have a material negative effect on us.

From time to time, we have been a party to other professional liability claims and other litigation arising in the ordinary course of business. In the opinion of management, any liability beyond amounts covered by insurance and the ultimate resolution of all pending legal proceedings will not have a material adverse effect on our financial position or results of operations.

On October 2, 2001, we and our subsidiaries filed a petition in the Bankruptcy Court seeking relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”).

We filed our Plan with the Bankruptcy Court on June 30, 2003. Our Chapter 11 case was confirmed by an order of the Bankruptcy Court on July 10, 2003. Prior to the consummation of the Plan on August 19, 2002 (the “Effective Date”), we had two classes of capital stock: common stock, $0.01 par value per share, and preferred stock, $0.01 par value per share. The total authorized number of shares of each class of capital stock was (i) 3,000,000 shares of common stock and (ii) 1,000,000 shares of preferred stock. In addition, we had outstanding immediately exercisable warrants to purchase our series C common stock at an exercise price of $0.01 per share. The following table sets forth information with respect to each class of equity securities of the Company prior to the Effective Date:

The total authorized number of shares of each class of capital stock after the Effective Date is (i) 1,500,000 shares of common stock and (ii) 1,000,000 shares of preferred stock. Pursuant to the Plan, (i) each holder of series A common stock received 1.1142 shares of new common stock for each share of series A common stock held by them immediately prior to the Effective Date; (ii) all shares of series B common stock were cancelled; (iii) each holder of Series C common stock received one share of common stock for each share of Series C common stock held by them immediately prior to the Effective Date, (iv) each holder of series A preferred stock received one share of new series A preferred stock for each share of series A preferred stock held by them immediately prior to the Effective Date and (v) each holder of a warrant to purchase series C common stock received a warrant to purchase a number of shares of common stock that was equal to the number of shares of series C common stock issuable upon the exercise of warrants held by them immediately prior to the Effective Date.

The following table sets forth information with respect to each class of equity securities of the Company following the Effective Date:

We did not receive any cash proceeds from the issuance of our equity securities pursuant to the Plan.

On August 13, 2003, holders of a majority of the voting power of our series A common stock and series C common stock of, voting together as a single class, took action by written consent in lieu of an annual meeting of stockholders. These stockholders elected ten directors to our Board of Directors. Such action by written consent was taken by holders of 556,990 shares, representing 54.57% of the total outstanding eligible votes. The only proposal considered in such action by written consent in lieu of an annual meeting was voted on as follows:

Election of Directors. Proposal to elect ten directors to hold office until the 2004 Annual Meeting of Stockholders or earlier resignation or removal.

On August 15, 2003, Sheila Snukal and Keith Abrahams resigned as directors, creating two vacancies on our board of directors. On August 18, 2003, holders of a majority of the voting power of our common stock and series A preferred stock, voting together as a single class, took action by written consent in lieu of a special meeting of stockholders for the purposes of decreasing the number of directors from ten to nine and electing one director to fill the vacancy created by the resignations. Such action by written consent was taken by holders of 623,254 shares, representing 51.57% of the total outstanding eligible votes, with 585,333 votes not cast. The proposals considered in such action by written consent in lieu of an annual meeting were voted on as follows:

1. Approval of decrease in number of directors from ten to nine. The proposal was approved by 623,254 votes with 585,333 votes not cast.

2. Election of Director. Proposal to elect one director to fill the vacancy on the board, to hold office until the 2004 Annual Meeting of Stockholders or earlier resignation or removal.

On September 23, 2003, holders of a majority of the voting power of our common stock and series A preferred stock, voting together as a single class, took action by written consent in lieu of a special meeting of stockholders approving an amendment to our

certificate of incorporation for the purpose of changing our name from Fountain View, Inc. to Skilled Healthcare Group, Inc. Such action by written consent was taken by holders of 623,254 shares, representing 51.57% of the total outstanding eligible votes with 585,333 votes not cast. The only proposal considered in such action by written consent in lieu of an annual meeting was voted on as follows:

Approval of amendment to our certificate of incorporation for the purpose of changing our name to Skilled Healthcare Group, Inc. The proposal was approved by 623,254 votes representing 51.57% of the total outstanding eligible votes with 585,333 votes not cast.

The exhibits listed below are hereby filed with the Commission as part of this Report.

(1) Incorporated by reference to the Company’s Form T-3 filed with the Securities and Exchange Commission on July 16, 2003.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-4 (No. 333-57279) filed with the Securities and Exchange Commission on June 19, 1998, as amended.

The following Current Reports on Form 8-K were filed during the three-month period ended September 30, 2003:

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(1) Incorporated by reference to the Company’s Form T-3 filed with the Securities and Exchange Commission on July 16, 2003.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-4 (No. 333-57279) filed with the Securities and Exchange Commission on June 19, 1998, as amended.

EX-3.1.1 3 a94359exv3w1w1.txt EXHIBIT 3.1.1 EXHIBIT 3.1.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF FOUNTAIN VIEW, INC. Fountain View, Inc., (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby does certify as follows: 1. This Corporation was originally incorporated under the name "Fountain View Management, Inc.", and the original Certificate of Incorporation of this Corporation was filed with the Secretary of State of Delaware on July 14, 1997 (the "Original Certificate of Incorporation"). 2. On October 2, 2001, the Corporation filed a petition in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court") seeking relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101-1130 (the "Bankruptcy Code"). 3. This Amended and Restated Certificate of Incorporation was duly adopted pursuant to a plan of reorganization confirmed by an order of the Bankruptcy Court on July 10, 2003 in accordance with Section 303 of Title 8 of the General Corporation Law of the State of Delaware. 4. This Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") restates and integrates and further amends the Original Certificate of Incorporation, as heretofore amended or supplemented. 5. The Certificate of Incorporation of this Corporation shall be amended and restated to read in full as follows: FIRST: The name of this Corporation is Fountain View, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is 9 East Loockerman Street, Suite 1B, Dover, Kent County, Delaware 19901. The name of the Corporation's registered agent at such address is National Registered Agents, Inc.. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which Corporations may be organized under the Delaware General Corporation Law. FOURTH: A description of each class and series of stock of the Corporation and the voting rights, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof is as follows: 1. Capital Stock. The Corporation shall have two classes of capital stock (the "Capital Stock"): Common Stock, $0.01 par value per share (the "Common Stock"), and Preferred Stock, $0.01 par value per share (the "Preferred Stock"). (a) Number of Shares. The total authorized number of shares of each class of Capital Stock is (i) 1,500,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock, of which 15,000 shares have been designated "Series A Preferred Stock". (b) Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation (the "Board") is hereby authorized, within the limitations and restrictions stated in this Amended and Restated Certificate of Incorporation ("Certificate of Incorporation"), to determine or alter the rights, preferences, powers, privileges and the restrictions, qualifications and limitations granted to or imposed upon any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof; to increase or decrease the number of shares constituting any such series; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series as are then issued and outstanding, and if any series shall be so decreased, the shares then constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. (c) Prohibition of Non-Voting Capital Stock. Notwithstanding anything to the contrary set forth in this Certificate of Incorporation, the Corporation shall not issue any nonvoting equity securities to the extent prohibited by Section 1123 of the Bankruptcy Code; provided, however, that this subsection 1(c) of this Article FOURTH (i) will have no further force and effect beyond that required under Section 1123 of the Bankruptcy Code, (ii) will have such force and effect, if any, only for so long as such section of the Bankruptcy Code is in effect and applicable to the Corporation, and (iii) in all events may be amended or eliminated in accordance with such applicable law as from time to time may be in effect. 2. Dividends and Other Distributions. (a) Dividends on the Series A Preferred Stock. (i) Subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, a dividend at the annual rate of 12% of the Base Amount (as hereinafter defined) of each share of Series A Preferred Stock from and including the date of issuance of such share to and including the day on which the Liquidation Value (as 2 hereinafter defined) of such share is paid. Such dividends shall accrue from day to day, whether or not earned or declared, on each issued and outstanding share of Series A Preferred Stock, and shall be cumulative. The date on which the Corporation initially issues any share of Series A Preferred Stock will be deemed to be its "date of issuance" regardless of the number of times transfer of such share is made on the stock records of the Corporation and regardless of the number of certificates which may be issued to evidence such share, provided, however, that all shares of Series A Preferred Stock issued prior to the first Dividend Reference Date (as hereinafter defined) shall be deemed, for purposes of this Subsection (a), to have been issued on March 27, 1998. (ii) If declared by the Board, dividends on each share of Series A Preferred Stock shall be paid on each March 31, commencing March 31, 2004 (the "Dividend Reference Dates"), while such share is outstanding. (iii) Any dividends that accrue on any share of Series A Preferred Stock during the period ending upon such Dividend Reference Date that are not paid on such Dividend Reference Date and that have not previously been added to the Base Amount of such share shall automatically be added to the Base Amount of such share and will remain a part thereof until such dividends are paid, at which time the Base Amount shall be reduced by such payment. (iv) The "Base Amount" of any share of Series A Preferred Stock as of a particular date shall be an amount equal to the sum of $1,000.00 plus any unpaid dividends on such share added to the Base Amount of such share as provided above and not thereafter paid. (b) Dividends on Common Stock. The holders of record of Common Stock shall be entitled to receive such dividends ratably as may from time to time be declared by the Board out of funds legally available therefor. 3. Voting Rights. Subject to the rights of series of Preferred Stock which may from time to time come into existence, at every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law, on all matters to be voted on by the stockholders of the Corporation, the following provisions shall apply: (a) Voting as a Single Class. Except as otherwise required by law, the holders of the Common Stock and Series A Preferred Stock shall vote together as a single class on all matters presented to the stockholders. 3 (b) Voting by Series A Preferred Stock. In any matter to be voted on by the holders of the Series A Preferred Stock, each holder of Series A Preferred Stock shall have one tenth of one vote for each such share held by such holder. (c) Voting by Common Stock. In any matter to be voted on by the holders of the Common Stock, each holder of Common Stock shall have one vote for each such share held by such holder. 4. Liquidation. (a) Series A Preferred Stock. Subject to the rights of any series of Preferred Stock which may from time to time come into existence, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled, before any distribution or payment is made upon any shares of Common Stock, to be paid in cash, in respect of each share of Series A Preferred Stock held by such holder, an amount equal to the Base Amount of such share on such date, plus all unpaid dividends accrued on such share from the previous Dividend Reference Date through the close of business on the date of payment (the "Liquidation Value"). If upon such liquidation, dissolution or winding up, the assets to be distributed among the holders of the shares of Series A Preferred Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining and legally available for distribution shall be distributed ratably among the holders of the shares of Series A Preferred Stock. (b) Common Stock. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock and the liquidation value of any other series of Preferred Stock which may from time to time come into existence, the holders of the Common Stock shall be entitled to receive ratably all remaining assets of the Corporation to be distributed among them, based upon the number of shares of Common Stock held by each such holder. 5. Redemption of Series A Preferred Stock. (a) Redemption Upon Initial Public Offering. (i) Promptly after the closing of an underwritten, initial public offering of the Corporation's Common Stock for cash pursuant to a registration statement under the Securities Act of 1933, as amended, the Corporation shall redeem, out of funds legally available therefor, all outstanding shares of the Series A Preferred Stock by paying in cash to the holders thereof an amount equal to the Liquidation Value thereof. Such payment shall be made to the record holders of the Series A Preferred 4 Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. (ii) If the funds legally available to redeem shares of Series A Preferred Stock under this Section 5(a) of this Article FOURTH are insufficient to redeem all of the outstanding shares of Series A Preferred Stock at any time, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock owned by each holder, and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock then owned by each holder. (iii) Promptly after each holder of Series A Preferred Stock has received payment of the Liquidation Value thereof, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares of Series A Preferred Stock not redeemed. (iv) After any payment under this Section 5(a) of this Article FOURTH, the redeemed shares of Series A Preferred Stock shall be cancelled on the Corporation's records and shall cease to be outstanding. (b) Redemption at Corporation's Option. (i) The Corporation may at any time, at its option, redeem some or all shares of Series A Preferred Stock, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. All such redemptions shall be pro rata among the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock owned by each holder. (ii) Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5(b) of this Article FOURTH, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares of Series A Preferred Stock not redeemed. 5 (iii) After any payment under this Section 5(b) of this Article FOURTH, the redeemed shares of Series A Preferred Stock shall be cancelled on the Corporation's records and shall cease to be outstanding. (c) Mandatory Redemption. (i) The Corporation shall, on the first business day following May 1, 2010 (or, if the Corporation's Senior Subordinated Secured Increasing Rate Notes due 2008 have not then been paid in full, immediately after the date on which such Notes have been paid in full), redeem all shares of Series A Preferred Stock then outstanding, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. In the event the funds legally available to redeem shares of Series A Preferred Stock are insufficient to redeem all of the outstanding shares of Series A Preferred Stock, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock, at the then applicable Liquidation Value. All such redemptions shall be pro rata among the holders of Series A Preferred Stock. (ii) Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5(c) of this Article FOURTH, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares not redeemed. (iii) After any payment under this Section 5(c) of this Article FOURTH, the redeemed shares shall be canceled on the Corporation's records and shall cease to be outstanding. 6. No Conversion Rights for Series A Preferred Stock. The holders of the Series A Preferred Stock shall not have any rights to convert such shares into shares of any other class or series of stock or into any other securities of, or any other interest in, the Corporation. 7. No Sinking Fund. No sinking fund shall be established for the retirement or redemption of the Series A Preferred Stock. 8. No Other Rights. The Series A Preferred Stock shall not have any designations, preferences, or relative, participating, optional, or other special rights, except as set forth in this Certificate of Incorporation or as otherwise required by law. 6 FIFTH: Following the date the Corporation first has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, no action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken by written consent without a meeting, except by a written consent signed by all stockholders of the Corporation entitled to vote thereon. SIXTH: 1. Elections of Directors need not be by ballot unless the By-Laws of the Corporation shall so provide. 2. The business and affairs of the Corporation shall be managed by or under the direction of the Board. 3. Unless a greater vote requirement in any matter is provided in this Certificate of Incorporation or the By-Laws, the affirmative vote of a majority of the Directors present and acting at a duly constituted meeting at which a majority of the entire Board is present and acting, is sufficient for all action of the Board. 4. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to the adoption of resolutions authorizing the action. 5. The Board shall have the power to adopt, amend or repeal the By-Laws of the Corporation. SEVENTH: The Board shall have that number of Directors set out in the By-Laws of the Corporation as adopted or as set from time to time by a duly adopted amendment thereto by the Directors or stockholders of the Corporation. EIGHTH: The Corporation shall have perpetual existence. NINTH: 1. The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. 2. The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall 7 continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. 3. The right to indemnification conferred by this Article NINTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition upon receipt by the Corporation of an undertaking by or on behalf of the person receiving advancement to repay the amount advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation under this Article NINTH. 4. Neither any amendment nor repeal of this Article NINTH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article NINTH, shall eliminate or reduce the effect of this Article NINTH in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article NINTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. TENTH: 1. To the fullest extent permitted by the General Corporation Law of the State of Delaware and subject to Section 2 of this Article TENTH, this Certificate of Incorporation may be amended by the Board, with respect to corrections not affecting the rights, preferences and privileges of the Corporation's stockholders. 2. The Corporation reserves the right to amend and repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. 8 IN WITNESS WHEREOF, Fountain View, Inc., has caused this Restated Certificate of Incorporation to be signed by Roland Rapp its Secretary, this 14th day of August, 2003. FOUNTAIN VIEW, INC. By: \s\ Roland Rapp ------------------------------- Roland Rapp Secretary [FVI Amended and Restated Certificate of Incorporation] S-1 EX-3.1.2 4 a94359exv3w1w2.txt EXHIBIT 3.1.2 EXHIBIT 3.1.2 CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF FOUNTAIN VIEW, INC. Fountain View, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: 1. The amendment to the Corporation's Restated Certificate of Incorporation set forth below was duly authorized and adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. 2. Article FIRST of the Corporation's Certificate of Incorporation is amended to read as follows: "FIRST: The name of the corporation is Skilled Healthcare Group, Inc." IN WITNESS WHEREOF, said Corporation has caused this Certificate to be executed this 23rd day of September, 2003. FOUNTAIN VIEW, INC. By: \s\Roland Rapp ------------------------------- Roland Rapp Secretary EX-4.1 5 a94359exv4w1.txt EXHIBIT 4.1 EXHIBIT 4.1 - -------------------------------------------------------------------------------- FOUNTAIN VIEW, INC. SENIOR SUBORDINATED SECURED INCREASING RATE NOTES DUE 2008 INDENTURE --------------------------- Dated as of August 19, 2003 --------------------------- U.S. Bank National Association Trustee - -------------------------------------------------------------------------------- TABLE OF CONTENTS

i Section 4.11. Asset Sales........................................................................... 47 Section 4.12. Transactions with Affiliates.......................................................... 48 Section 4.13. Liens................................................................................. 48 Section 4.14. Corporate Existence................................................................... 48 Section 4.15. Offer to Repurchase Upon Change of Control............................................ 49 Section 4.16. Payments for Consent.................................................................. 51 Section 4.17. Additional Subsidiary Guarantees...................................................... 51 Section 4.18. Sale and Leaseback Transactions....................................................... 51 Section 4.19. Maintenance of Insurance.............................................................. 52 Section 4.20. Perfection of Security Interests...................................................... 52 Section 4.21. Limitation on Issuance of Capital Stock of Restricted Subsidiaries.................... 52 Section 4.22. Consummation of Plan or Reorganization................................................ 52 ARTICLE 5. SUCCESSORS............................................................................................ 53 Section 5.01. Merger, Consolidation, or Sale of Assets.............................................. 53 Section 5.02. Successor Corporation Substituted..................................................... 53 ARTICLE 6. DEFAULTS AND REMEDIES................................................................................. 54 Section 6.01. Events of Default..................................................................... 54 Section 6.02. Acceleration.......................................................................... 56 Section 6.03. Collection of Indebtedness and Suits for Enforcement by Trustee....................... 57 Section 6.04. Waiver of Past Defaults............................................................... 58 Section 6.05. Control by Super-Majority............................................................. 58 Section 6.06. Limitation on Suits................................................................... 58 Section 6.07. Rights of Holders of Notes to Receive Payment......................................... 59 Section 6.08. Trustee May Enforce Claims Without Possession of Notes................................ 59 Section 6.09. Trustee May File Proofs of Claim...................................................... 59 Section 6.10. Priorities............................................................................ 60 Section 6.11. Restoration of Rights and Remedies.................................................... 60 Section 6.12. Rights and Remedies Cumulative........................................................ 60 Section 6.13. Delay or Omission Not Waiver.......................................................... 60 Section 6.14. Undertaking for Costs................................................................. 61 ARTICLE 7. TRUSTEE .............................................................................................. 61 Section 7.01. Duties of Trustee..................................................................... 61 Section 7.02. Rights of Trustee..................................................................... 62 Section 7.03. Individual Rights of Trustee.......................................................... 63 Section 7.04. Trustee's Disclaimer.................................................................. 63 Section 7.05. Notice of Defaults.................................................................... 63 Section 7.06. Reports by Trustee to Holders of the Notes............................................ 63 Section 7.07. Compensation and Indemnity............................................................ 64 Section 7.08. Replacement of Trustee................................................................ 65 Section 7.09. Successor Trustee by Merger, Etc...................................................... 66 Section 7.10. Eligibility; Disqualification......................................................... 66 Section 7.11. Preferential Collection of Claims Against Company..................................... 66 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.............................................................. 66 Section 8.01. Option to effect Legal Defeasance or Covenant Defeasance.............................. 66 Section 8.02. Legal Defeasance and Discharge........................................................ 66

ii Section 8.03. Covenant Defeasance................................................................... 67 Section 8.04. Conditions to Legal or Covenant Defeasance............................................ 67 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions............................................................................ 68 Section 8.06. Repayment to Company.................................................................. 69 Section 8.07. Reinstatement......................................................................... 69 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER...................................................................... 70 Section 9.01. Without Consent of Holders of Notes................................................... 70 Section 9.02. With Consent of Holders of Notes...................................................... 71 Section 9.03. Compliance with Trust Indenture Act................................................... 72 Section 9.04. Revocation and Effect of Consents..................................................... 72 Section 9.05. Notation on or Exchange of Notes...................................................... 73 Section 9.06. Trustee to Sign Amendments, Etc....................................................... 73 ARTICLE 10. SECURITY ARRANGEMENTS................................................................................ 73 Section 10.01. Collateral and Security Documents..................................................... 73 Section 10.02. Release of Collateral................................................................. 75 Section 10.03. Opinions as to Recording.............................................................. 75 Section 10.04. Further Assurances and Security....................................................... 76 Section 10.05. Authorization of Actions to be Taken by Collateral Agent Under the Security Documents. 76 Section 10.06. Authorization of Receipt of Funds by the Trustee Under the Security Documents......... 76 Section 10.07. Covenants of Collateral Agent with Respect to the Exit Facility and the Senior Mortgage Loan......................................................................... 77 ARTICLE 11. SUBSIDIARY GUARANTEES................................................................................ 77 Section 11.01. Guarantee............................................................................. 77 Section 11.02. Subordination of Subsidiary Guarantee................................................. 79 Section 11.03. Limitation on Guarantor Liability..................................................... 79 Section 11.04. Successors and Assigns................................................................ 80 Section 11.05. No Waiver............................................................................. 80 Section 11.06. Execution and Delivery of Subsidiary Guarantee........................................ 80 Section 11.07. Guarantors May Consolidate, Etc., on Certain Terms.................................... 81 Section 11.08. Releases Following Sale of Assets or Capital Stock.................................... 81 ARTICLE 12. SUBORDINATION........................................................................................ 81 Section 12.01. Agreement to Subordinate.............................................................. 81 Section 12.02. Liquidation; Dissolution; Bankruptcy.................................................. 82 Section 12.03. Default on Senior Debt................................................................ 82 Section 12.04. Acceleration of Securities............................................................ 83 Section 12.05. When Distribution Must Be Paid Over................................................... 83 Section 12.06. Notice by the Company................................................................. 83 Section 12.07. Payment Permitted if no Default....................................................... 83 Section 12.08. Subrogation........................................................................... 84 Section 12.09. Relative Rights....................................................................... 84 Section 12.10. Subordination may not be Impaired by Company.......................................... 84 Section 12.11. Distribution or Notice to Representative.............................................. 84

iii Section 12.12. Rights of Trustee and Paying Agent.................................................... 85 Section 12.13. Authorization to effect Subordination................................................. 85 Section 12.14. Amendments............................................................................ 85 ARTICLE 13. MISCELLANEOUS........................................................................................ 85 Section 13.01. Trust Indenture Act Controls.......................................................... 85 Section 13.02. Notices............................................................................... 86 Section 13.03. Communication by Holders of Notes with Other Holders of Notes......................... 87 Section 13.04. Certificate and Opinion as to Conditions Precedent.................................... 87 Section 13.05. Statements Required in Certificate or Opinion......................................... 88 Section 13.06. Rules by Trustee and Agents........................................................... 88 Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders.............. 88 Section 13.08. Governing Law......................................................................... 88 Section 13.09. No Adverse Interpretation of Other Agreements......................................... 89 Section 13.10. Successors............................................................................ 89 Section 13.11. Severability.......................................................................... 89 Section 13.12. Counterpart Originals................................................................. 89 Section 13.13. Table of Contents, Headings, Etc...................................................... 89

EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF SUBSIDIARY GUARANTEE Exhibit C FORM OF SUPPLEMENTAL INDENTURE Exhibit D FORM OF INTERCREDITOR AGREEMENT Exhibit E FORM OF SECURITY AGREEMENT SCHEDULES Schedule I EXISTING AFFILIATE TRANSACTIONS Schedule II GUARANTORS Schedule III MEZZANINE LOAN BORROWERS Schedule IV PERMITTED JOINT VENTURES Schedule V EXISTING LIENS Schedule VI REVOLVING CREDIT FACILITY BORROWERS Schedule VII SENIOR MORTGAGE LOAN BORROWERS iv INDENTURE dated as of August 19, 2003 among Fountain View, Inc., a Delaware corporation (the "Company"), the Guarantors (as defined below) and U.S. Bank National Association, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). RECITALS OF THE COMPANY A. The Company and certain of its subsidiaries filed for reorganization under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court"); and B. By order, dated July 10, 2003, the Bankruptcy Court has confirmed the Company's plan of reorganization (the "Plan") in accordance with Section 1129 of the Bankruptcy Code and such Plan has become effective as of August 19, 2003; and C. As part of the Plan, the Company has agreed, inter alia, to issue $106,761,608 principal amount of Senior Subordinated Secured Increasing Rate Notes (the "Notes") to holders of the Company's outstanding 11 1/4% Senior Subordinated Notes due 2008 (the "Old Notes") in exchange for all of the Company's outstanding Old Notes and obligations thereunder. All things necessary to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the issuance of the Notes to the Holders (as defined herein), it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) 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, including, without limitation, Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Adjusted Net Assets" of a Guarantor at any date means the amount by which the fair value of the assets and property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under any Subsidiary Guarantee, of such Guarantor at such date. "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" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management 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 shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer 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 or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 or Section 5.01, as applicable, and not by Section 4.11 hereof and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance or sale of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Investment that is permitted by Section 4.08 hereof, (iv) transfers of Cash Equivalents and (v) an exchange of facilities by the Company or a Restricted Subsidiary to the extent that such facilities are exchanged for one or more nursing centers, long-term care facilities, assisted living facilities, outpatient clinics or any other facilities or businesses that are used or useful in the provision of healthcare related services, in each case the aggregate fair market value of which is equal to or greater than the fair market value of the facilities so exchanged, as determined in good faith by the Board of Directors. "Asset Sale Proceeds" means, for any Fiscal Year of the Company, the aggregate amount of all net cash proceeds (i.e., cash or Cash Equivalent proceeds net of all amounts paid or payable in connection with such sale or other disposition of assets (including, without limitation, indebtedness paid and federal and state income taxes paid or payable in connection therewith)) realized by the Company and its Subsidiaries during such Fiscal Year in connection with any sale or other disposition of any asset (other than the sales of inventory in the ordinary course of business and other than the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or of the Company and its Restricted Subsidiaries taken as a whole (which shall be governed by Section 4.15 or Section 5.01, as applicable)); provided that, for purposes of this definition, such net cash proceeds will not be deemed to be realized until the earlier to occur of (a) 360 days after the receipt by the Company and its Subsidiaries of such net 2 cash proceeds and (b) that date the Company and its Subsidiaries apply such net cash proceeds to prepay indebtedness, to make Capital Expenditures or to make acquisitions. "Attributable Debt" in respect of a sale and leaseback transaction or an operating lease in respect of a healthcare facility means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee of the property subject to such sale and leaseback transaction or operating lease in respect of a healthcare facility or net rental payments during the remaining term of the lease included in such transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "B Note" means those certain subordinate Promissory Notes B, in the initial aggregate principal amount of $10,000,000 (which is part of the Senior Mortgage Loan), which is being executed pursuant to that certain Mortgage Loan Agreement dated August 15, 2003 between Column Financial, Inc. (as originating lender) and the borrowers under the Senior Mortgage Loan (it being understood that immediately following closing, Column Financial, Inc.'s interest in the B Note will be assigned to Capital Source, Fortress Credit Opportunities and Highbridge/Zwirn), including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased (except for protective advances thereunder), from time to time, and all accrued and unpaid interest, costs and expenses thereon. "Bank Midwest Notes" means those certain promissory notes in a maximum aggregate principal amount not to exceed $5,633,333 issued by the Woodlands Entities to Bank Midwest, N.A. pursuant to the Plan, the repayment of which is secured by the Bank Midwest Deed of Trust. "Bank Midwest Deed of Trust" means that certain Deed of Trust dated December 1, 1993 assigned to Bank Midwest, N.A. by instrument dated July 17, 2001 recorded in the real property records of Montgomery County, Texas and constituting a first priority lien against the real property associated with the long-term care facility known as the "Woodlands" located in such county and owned and operated by Subsidiaries of the Company. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Bergen Note" means the promissory note in a principal amount not to exceed $1,237,880 to be issued by Summit Care Pharmacy to AmerisourceBergen Drug Corporation (or its designee) pursuant to the Plan, the repayment of which is secured by Liens contained in that certain security agreement dated March 29, 2001. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. 3 "Business Day" means any day other than a Legal Holiday. "Calculation Date" has the meaning assigned to it in the definition of Fixed Charge Coverage Ratio. "Capital Expenditures" means, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, repairs, substitutions or additions thereto, that are required to be capitalized under GAAP. "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Source" means CapitalSource Finance, LLC. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) 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 (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) 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 domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) - (v) of this definition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" or "group" (as such terms are used in 4 Sections 13(d) and 14(d) of the Exchange Act) other than one or more Principals and their Related Parties, (ii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as defined above), directly or indirectly, of more than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares) and the Principals and their Related Parties in the aggregate "beneficially own" (as defined above) less than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares), provided that for the purpose of such determination, the Principals and their Related Parties shall be deemed to own at least 35% of the Voting Stock of the Company for so long as such Persons have not sold or otherwise disposed of more than 5% of the shares of Voting Stock held by them as of the Effective Date) or, in the event the Company has consummated a Public Equity Offering, less than 20% of the Voting Stock of the Company (measured by voting power rather than number of shares) provided that for the purpose of such determination, the Principals and their Related Parties shall be deemed to own at least 20% of the Voting Stock of the Company for so long as such Persons have not sold or otherwise disposed of more than 5% of the shares of Voting Stock held by them as of the Effective Date), or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Claims Agent" shall have the meaning set forth in the Collateral Agency Agreement. "Clearstream" means Clearstream Banking, societe anonyme. "Collateral" means the collective reference to all assets, whether now owned or hereafter acquired, upon which a Lien is created or granted from time to time pursuant to any Security Document. "Collateral Agency Agreement" means that certain Collateral Agency Agreement by and among the Company, the Subsidiaries of the Company party thereto, the Collateral Agent and the Claims Agent. "Collateral Agent" means the Trustee, in its capacity as collateral agent under the Security Documents, until a successor collateral agent shall have become such pursuant to the Security Documents, and thereafter "Collateral Agent" shall mean such successor collateral agent. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this 5 instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Company" means Fountain View, Inc., a Delaware corporation, until a successor Person or Persons shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Order" means a written request or order signed in the name of the Company by two Officers of the Company and delivered to the Trustee. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its 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, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) 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 or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) non-recurring financing, advisory and other expenses Incurred in connection with the Transactions, minus (vi) non-cash items increasing such Consolidated Net Income for such period (other than items accrued in the ordinary course of business), minus (vii) gains from purchases of Indebtedness at a discount, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. 6 "Consolidated Net Income" means, with respect to any 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 (i) 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 shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a wholly Owned Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary shall 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, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries, (vi) any gain or loss realized on the termination of any employee pension benefit plan shall be excluded, and (vii) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments). "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election or (iii) was elected to such Board of Directors pursuant to a designation made pursuant to the Stockholders Agreement. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give notice to the Company. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "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. 7 "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend, shall not contain certain phrases specified in Exhibit A to be for Global Notes only and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "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 provision of this Indenture. "Designated Senior Debt" means any Senior Debt outstanding under the Exit Facility or the B Note, together with any Indebtedness constituting Senior Debt incurred to renew, refinance, refund or replace (within two Business Days) (or successive renewals, refinancings or refundings), in whole or in part, the Senior Debt outstanding under the Exit Facility. "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, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall 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 4.07 hereof. "Effective Date" means the Effective Date as defined in the Plan. "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 system. "Excess Cash Flow" means for any Fiscal Year of the Company, (a) the sum, without duplication, of (i) the net income or loss of the Company and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by the Company or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of the Company and its Subsidiaries during 8 such Fiscal Year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP; (vi) the Asset Sales Proceeds for such Fiscal Year; and (vii) an amount equal to any decrease in Working Capital during such Fiscal Year; minus (b) the sum, without duplication, of (i) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP; (ii) the Maintenance Capital Expenditures for such Fiscal Year; (iii) the aggregate amount of all non-financed acquisitions (other than the non-cash portion of any acquisitions) by the Company and its Subsidiaries during the Fiscal Year; (iv) the aggregate amount of all interest expense of the Company and its Subsidiaries paid or payable during such Fiscal Year; (v) the aggregate amount of all federal and state income taxes of the Company and its Subsidiaries paid or payable during such Fiscal Year; (vi) an amount equal to any increase in the Working Capital during such Fiscal Year; (vii) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such Fiscal Year with respect to the Senior Mortgage Loan, the Bank Midwest Amended and Restated Note, the Woodlands Place Note, the Union Bank Note, the Mezzanine Loan, the Revolving Credit Facility, the Bergen Note, the Class 10 Deferred Obligations and the Continuing Creditor Deferred Obligations (as such terms are defined in the Plan); and (viii) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Mezzanine Loan and the Revolving Credit Facility (solely to the extent that such prepayment is accompanied by a reduction in the commitments) thereunder. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Affiliate Transactions" means any transaction between the Company and any of its Affiliates contemplated by the Plan or in the agreements listed on Schedule I. "Existing Disqualified Stock" means the 15,000 shares of Series A Preferred Stock, par value $0.01 per share, of the Company to be issued pursuant to the Plan. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Exit Facility or the Senior Mortgage Loan) in existence on the date of this Indenture, until such amounts are repaid. "Exit Facility" means the Revolving Credit Facility and the Mezzanine Loan. "Fiscal Year" means the calendar year. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) 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 (other than any costs incurred in connection with the Transactions) 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, commissions, discounts and other fees and charges Incurred in respect of letter of credit or 9 bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), (iv) accrued Disqualified Stock dividends of such Person and all Restricted Subsidiaries of such Person, whether or not declared or paid, and (v) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, 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 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 referent Person or any of its Restricted Subsidiaries Incurs, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but 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 shall be calculated giving pro forma effect to such Incurrence, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the referent Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) 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, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Fortress Credit Opportunities" means Fortress Credit Opportunities I, L.P., a Delaware limited partnership. "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 from time to time. 10 "Global Notes" means, individually and collectively, the Notes in the form of Exhibit A hereto issued in accordance with Section 2.01 and Section 2.06. "Global Note Legend" means the legend set forth in Section 2.06, which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guaranteeing, any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided, however, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "Guarantors" means (i) each of the Restricted Subsidiaries of the Company listed on Schedule II hereto; and (ii) any other Restricted Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Healthcare Related Business" means a business, at least a majority of whose revenues result from pharmacy, healthcare, long-term care, physical therapy or assisted living related businesses or facilities. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency changes. "Highbridge/Zwirn" means Highbridge/Zwirn Special Opportunities Fund, L.P., a Delaware limited partnership. "Holder" means a Person in whose name a Note is registered. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Indebtedness or other obligation including by acquisition of Restricted Subsidiaries or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence", "Incurred", "Incurable" and "Incurring" shall have meanings correlative to the forgoing); 11 provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness. "Indebtedness" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person (including reimbursement obligations with respect thereto) (other than letters of credit securing obligations entered into in the ordinary course of business to the extent such letters of credit are fully cash collateralized using funds provided by the Exit Facility), (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements), (v) every Capital Lease Obligation of such Person, (vi) Hedging Obligations of such Person and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or is responsible or liable for, directly or indirectly, as obligor, Guarantor or otherwise. The "amount" or "principal amount" of Indebtedness at any time of determination as used herein will be (a) the maximum principal amount thereof in the case of any contingent Indebtedness, (b) the accreted value thereof, in the case of any Indebtedness issued at a price that is less than the principal amount at maturity thereof, and (c) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. In no event shall "Indebtedness" include any trade payable or accrued expenses arising in the ordinary course of business which are not more than 180 days past due or which are being contested in good faith and by appropriate proceedings. "Indenture" means this Indenture, as amended or supplemented from time to time by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Intercreditor Agent" means CapitalSource Finance LLC, or any person whom it may designate, as provided in the Intercreditor Agreement. "Intercreditor Agreement" means an Intercreditor Agreement between the Company and Capital Source as agent for itself and other lenders pursuant to the Revolving Credit Facility, Capital Source as agent for itself and the other lenders under the Mezzanine Loan, and the Trustee as agent for Holders and for the General Claim Holders (as defined therein), in substantially the form attached hereto as Exhibit D. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness 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 12 securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted 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 shall 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 Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.08 hereof. "Junior Securities" means securities that are subordinated to the Senior Debt at least to the same extent as the Notes and are unsecured. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in The City of New York or the city in which the principal Corporate Trust Office of the Trustee is located 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. "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). "Maintenance Capital Expenditures" means, for any Fiscal Year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection with an acquisition) incurred or made by the Company and its Subsidiaries during such Fiscal Year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any Fiscal Year (for any Fiscal Year, the "Maximum Amount") shall not exceed (a) for Fiscal Year 2003, $7,000,000 and (b) for any Fiscal Year thereafter, $7,000,000 plus the Maximum Amount for the immediately preceding Fiscal Year minus the actual amount of Maintenance Capital Expenditures included in this definition pursuant to clause (a) in such immediately preceding Fiscal Year. "Maturity", when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Mezzanine Loan" means a $23,000,000 aggregate principal amount term loan facility provided by Highbridge/Zwirn, Fortress Credit Opportunities, and Capital Source, pursuant to that certain Mezzanine Loan Agreement dated August 15, 2003 between Highbridge/Zwirn, Fortress Credit Opportunities, Capital Source and the borrowers thereunder, listed on Schedule III, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, 13 replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder. "Mortgages" means the mortgages granted pursuant to the Security Documents on certain of the real property owned or leased by the Company or the Guarantors. "Net Income" means, with respect to any 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, (i) 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 (including, without limitation, dispositions pursuant to sale and leaseback transactions) 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 (ii) 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 proceeds in the form of cash or Cash Equivalents received by the Company or any of its Restricted Subsidiaries (i) with respect to any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions), (b) any relocation expenses incurred as a result thereof, (c) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing), (d) any amounts required to be applied to the permanent repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and (e) any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP; provided, however, that any reduction in such reserve within twelve months following the consummation of such Asset Sale will be treated for all purposes of this Indenture and the Notes as a new Asset Sale at the time of such reduction with Net Proceeds equal to the amount of such reduction; and (ii) with respect to the issuance or sale of Capital Stock, or options, warrants or rights to purchase Capital Stock, or debt securities or Disqualified Stock that has been converted into or exchanged for Capital Stock, the proceeds of such issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations, net of attorney's fees, accountant's fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale, conversion or exchange and net of any consolidated interest expense attributable to any debt securities paid to the holders thereof prior to the conversion or exchange and net of taxes paid or payable as a result thereof. "Non-Recourse Debt" means Indebtedness: (i) 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; (ii) 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 14 payable prior to its stated maturity; and (iii) as to which lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries, except, in each case, for any environmental indemnity and non-recourse carve-outs not broader than those provided for in the Senior Mortgage Loan. "Notes" has the meaning assigned to it in the preamble to this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 13.04 and 13.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Sections 13.04 and 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "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 Depositary Trust Company, shall include Euroclear and Clearstream). "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) 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 a Restricted Subsidiary of the Company that is a Guarantor; (d) any Investment by a Restricted Subsidiary that is not a Guarantor in any Restricted Subsidiary; (e) any Investment in a borrower under the Mezzanine Loan for the sole purpose of permitting such borrower to make payments on the Mezzanine Loan; (f) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.11 hereof; (g) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (h) Hedging Obligations; (i) any Investment in the joint venture entities identified on Schedule IV hereto; (j) 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 (j) that are at the time outstanding, not to exceed $2.5 million; (k) Guarantees issued in accordance with Section 4.10 of this Indenture; (l) Investments in prepaid 15 expenses, negotiable instruments held for collection and lease, utility and worker's compensation, performance and other similar deposits; and (m) accounts receivable in the ordinary course of business (and Investments obtained in exchange or settlement of accounts receivable for which the Company has determined that collection is not likely or as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in each case as to debt owing to the Company or any Restricted Subsidiary that arose in the ordinary course of business of the Company or such Restricted Subsidiary). "Permitted Liens" means (i) Liens on assets of the Company, any of its Restricted Subsidiaries or any of the Guarantors securing the Exit Facility, the Senior Mortgage Loan, the Woodlands Place Note or the Union Bank Note; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; 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; (iv) Liens on property or assets existing at the time of acquisition thereof or the acquisition of a Person owning such property or assets by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any assets other than the acquired property and accessions and additions thereto and proceeds thereof; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bond or other obligations of a like nature Incurred in the ordinary course of business; (vi) Liens to secure Capital Lease Obligations and mortgage financing or purchase money obligations of the type (but without reference to any restrictions on amount) described in clause (viii) of Section 4.10 that are permitted to be Incurred pursuant to the terms of this Indenture covering only the assets acquired with such Indebtedness and proceeds thereof, provided, however, that (a) the principal amount of any Indebtedness secured by such a Lien does not exceed 100% of such purchase price or cost, (b) such a Lien is created within 180 days of the construction, acquisition or improvement of such property and does not extend to or cover any other property other than such item of property and any improvements or accessions thereto and proceeds thereof and (c) the Incurrence of such Indebtedness is otherwise permitted by this Indenture; (vii) Liens existing on the date of this Indenture listed on Schedule V; (viii) 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 shall be required in conformity with GAAP shall have been made therefor; (ix) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (x) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on the assets of the Woodlands Entities securing the Bank Midwest Amended and Restated Note; (xii) Liens on the assets of Summit Care Pharmacy securing the Bergen Note; (xiii) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii), (iv), (vi), (vii), 16 (xi) and (xii) so long as such Lien does not extend to any other property and the principal amount of Indebtedness so secured is not increased; (xiv) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (xv) Liens on assets or Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; and (xvi) Liens on accounts of the Company's Subsidiary organized under the laws of the Cayman Islands established for the purpose of obtaining insurance on behalf of the Company and its Subsidiaries to secure insurance or payment obligations to any third party insurer of the Company or any of its Subsidiaries. "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, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses Incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date equal to or 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; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness 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 (iv) such Indebtedness is Incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Plan" has the meaning assigned to it in the preamble of this Indenture. "Principals" means Heritage Partners Management Company, Inc., Heritage Fund II, L.P. and HF Partners II, L.P. "Public Equity Offering" means a public offering of Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. 17 "Regular Record Date" has the meaning set forth in Exhibit A attached hereto. "Related Party" with respect to any Principal means (A) any controlling holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex-spouse or immediate family member (in the case of an individual) of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A) or (C) any investment fund, whether a limited partnership, limited liability corporation or corporation, or other entity managed and controlled by Heritage Partners Management Company, Inc. or HF Partners, L.P. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means, with respect to any Person, each Subsidiary of such Person that is not an Unrestricted Subsidiary. "Revolving Credit Facility" means the revolving credit facilities in an outstanding aggregate principal amount not to exceed $37,000,000 evidenced by (i) the Revolving Credit and Security Agreement dated as of August 15, 2003, by and among the Guarantors, the Company, the Woodlands Entities and CapitalSource Finance LLC and (ii) the Revolving Credit and Security Agreement dated as of August 15, 2003, by and among the borrowers thereunder, listed on Schedule VI, and CapitalSource, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case of (i) and (ii) as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the Security Agreement by and among the Company, the Guarantors and the Collateral Agent in substantially the form attached hereto as Exhibit E. "Security Documents" means the Security Agreement, the Mortgages and any other document or agreement that secures the Notes or the Subsidiary Guarantees. "Senior Debt" means any Indebtedness outstanding under the Exit Facility, the B Note and all Hedging Obligations with respect thereto; provided that such Indebtedness was not incurred in violation of this Indenture. Senior Debt shall not include any Indebtedness renewing, 18 refinancing, replacing or refunding the Indebtedness outstanding under the Exit Facility and all Hedging Obligations with respect thereto to the extent, and only to the extent, that the Stated Maturity of any installments of principal and interest thereunder is after the Maturity of the Notes. "Senior Mortgage Loan" means that certain loan issued under that certain Loan Agreement between Column Financial, Inc., a Delaware corporation and the borrowers thereunder, listed on Schedule VII hereto, in an outstanding aggregate principal amount not to exceed $95,000,000, including any related guarantees, collateral documents, instruments and agreements, as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder. "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 and the Exchange Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall 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. "Stockholders Agreement" means the Amended and Restated Stockholders Agreement, dated as of August 15, 2003, among the Company and certain of its stockholders, as in effect on the Effective Date, and as thereafter amended from time to time; provided for purposes of the definition of "Continuing Director" that no such amendment alters the provision relating to the designation and election of members of the Board of Directors. "Subsidiary" means, with respect to any Person, (i) 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 thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) 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 such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture. "Summit Care Corporation" means Summit Care Corporation, a Restricted Subsidiary of the Company. "Summit Care Pharmacy" means Summit Care Pharmacy, Inc., a Restricted Subsidiary of the Company. 19 "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Transactions" means the transactions contemplated by the Plan that are consummated on or before the Effective Date. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Union Bank Note" means that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 issued by Summit Care Corporation to Union Bank of California, N.A. with an outstanding principal balance of $823,333.04 on the date of this Indenture and secured by certain real and personal property located in Burbank, California, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001, as such obligations shall be further modified and extended pursuant to the Extension and Modification Agreement. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company 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; (iii) 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; (iv) has not Guaranteed any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors (or manager on its board of managers or equivalent governing body) or the general partner of which has a member on its board of directors (or manager on its board of managers or equivalent governing body) 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 such designation by the Board of Directors shall be evidenced by a Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation compiled with the foregoing conditions and was permitted by Section 4.08 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall 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 4.10 hereof the Company shall be in default of such covenant). 20 "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) at such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) 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 thereof, 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 (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned" means, when used with respect to any Subsidiary or Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as appropriate) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors, qualifying shares) shall at the time be owned by such Person or by one or more wholly owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person. "Woodlands Entities" means The Woodlands Resource Management, LP and The Woodlands Healthcare Center, LP. "Woodlands Place Note" is that certain promissory note in the original principal amount of $1,887,866.62 and to be issued by the Woodlands Entities to Woodlands Place Nursing Center, L.P. pursuant to the Plan, the repayment of which is secured by a new deed of trust between Woodlands Place Nursing Center, L.P., or its successor and the Woodlands Entities that is on the same terms as the Bank Midwest Deed of Trust; provided however that such lien when properly perfected, will be junior to the lien of the Bank Midwest Deed of Trust and shall constitute a second priority lien against the property subject to the Bank Midwest Deed of Trust. "Working Capital" means, as of the end of any Fiscal Year of the Company, (a) the sum, without duplication of (i) current assets (other than cash and Cash Equivalents) and (ii) cash and Cash Equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long-term debt) and (ii) long-term liabilities related to accrued insurance, in each case as reflected on the consolidated balance sheet for such Fiscal Year for the Company and its Subsidiaries. Section 1.02. Other Definitions.
Defined Term in Section - ---- ---------- "Affiliate Transaction".................................... 4.12 "Asset Sale Offer"......................................... 4.11 "DTC"...................................................... 2.03
21
Defined Term in Section - ---- ---------- "Change of Control Offer".................................. 4.15 "Change of Control Payment"................................ 4.15 "Change of Control Payment Date"........................... 4.15 "Change of Control Purchase Price"......................... 4.15 "Covenant Defeasance"...................................... 8.03 "Event of Default"......................................... 6.01 "Excess Cash Flow Payment"................................. 3.08 "Excess Cash Flow Payment Amount".......................... 3.08 "Excess Cash Flow Payment Date"............................ 3.08 "Excess Proceeds".......................................... 4.11 "Legal Defeasance"......................................... 8.02 "Nonpayment Default"....................................... 12.03 "Offer Amount"............................................. 4.11 "Offer Period"............................................. 3.09 "Paying Agent"............................................. 2.03 "Payment Blockage Notice".................................. 12.03 "Payment Default".......................................... 12.03 "Permitted Debt"........................................... 4.10 "Purchase Date"............................................ 3.09 "Registrar"................................................ 2.03 "Restricted Payments"...................................... 4.07
Section 1.03. Terms of TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. 22 Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP (whether or not such is indicated herein); and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States as consistently applied by the Company on the Effective Date; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with GAAP but shall not include the accounts of Unrestricted Subsidiaries, except to the extent of dividends and distributions actually paid to the Company or a Restricted Subsidiary; (6) 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; (7) unless the context otherwise requires, any reference to a "Clause," and "Article" or a "Section", or to an "Exhibit" or a "Schedule", refers to a Clause, an Article or Section of, or to an Exhibit or a Schedule attached to, this Indenture, as the case may be; (8) unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time; (9) unless otherwise expressly provided herein, the principal amount of any preferred stock shall be greater of (i) the maximum liquidation value of such preferred stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such preferred stock; and (10) provisions apply to successive events and transactions. 23 ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes, notation of the Subsidiary Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends, 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 $1.00 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, the Guarantors 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. Upon their original issuance, Notes shall be issued in the form of one or more Global Notes registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as Custodian for DTC, for credit by DTC to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct). (b) Global Notes. Notes issued in global form 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). 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 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. Except as set forth in Section 2.06 hereof, the Global Notes may be transferred, in whole and not in part, only 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. (c) Book-Entry Provisions. This Section 2.01(c) shall apply only to Global Notes deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver the Global Notes that (i) shall be registered in the name of the Depositary or the nominee of the Depositary and (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instructions or held by the Custodian. 24 Participants shall have no rights either under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Custodian as custodian for the Depositary or under such Global Note, and the Depositary may 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, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in any Global Note. (d) Definitive Notes. Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon, without certain phrases specified in Exhibit A to be for Global Notes only and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto) and shall be printed, typewritten, lithographed or engraved or produced by any combination of these methods or may be produced by any other method permitted by the rules of any securities exchange on which the Notes may be listed, as evidenced by the execution of such Notes. (e) Provisions Applicable to Forms of Notes. The Notes may also have such additional provisions, omissions, variations or substitutions as are not inconsistent with the provisions of this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with this Indenture, any applicable law or with any rules made pursuant thereto or with the rules of any securities exchange or governmental agency or as may be determined consistently herewith by the Officers of the Company executing such Notes, as conclusively evidenced by their execution of such Notes. All Notes will be otherwise substantially identical except as provided herein. Subject to the provisions of this Article 2, a Holder of a Global Note may grant proxies and otherwise authorize any Person to take any action that a Holder is entitled to take under this Indenture or the Notes. Section 2.02. Execution and Authentication. An Officer shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. 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. 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. The Trustee shall, upon a Company Order, authenticate Notes for original issue up to the aggregate principal amount of $106,761,608. The aggregate principal amount of Notes outstanding at any time may not exceed such amount, except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may 25 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. Section 2.03. Registrar and Paying Agent. 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. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. 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. The Company shall, prior to each Regular Record Date, notify the Paying Agent of any wire transfer instructions for payments that it receives from Holders. 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 will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Notes, and will 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 ss. 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 as the Trustee may 26 reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. (i) Except as provided in this Section 2.06 and the sections of the Indenture referenced herein, notwithstanding any other provision in this Indenture, no Global Note may be exchanged in whole or in part for Definitive Notes, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Notes or a nominee thereof unless (i) such Depositary or the Trustee has notified the Company that the Depository is (A) unwilling or unable to continue as Depositary for such Global Notes or (B) has ceased to be clearing agency registered as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary within 120 days of such notice, (ii) the Company executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Notes in definitive form and that all Global Notes shall be exchanged in whole for Definitive Notes (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default with respect to the Notes. Notwithstanding the foregoing provisions of this Section 2.06(a), Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. 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) or (d) 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. (i) If any Global Note is to be exchanged for other Notes or cancelled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Registrar, for exchange or cancellation as provided in this Article 2. If any Global Note is to be exchanged for other Notes or cancelled in part, or if another Note is to be exchanged in whole or in part for a beneficial interest in any Global Note, then either (i) such Global Note shall be so surrendered for exchange or cancellation as provided in this Article 2 or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or cancelled, or equal to the principal amount of such other Note to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate endorsement made on the Global Notes by the Trustee, as Custodian, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Note, the Trustee shall, as provided in this Article 2, authenticate and deliver any Notes issuable in exchange for such Global Note (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in Section 2.06(a), the Company shall promptly make available to the 27 Trustee a reasonable supply of Definitive Notes that are not in the form of Global Notes. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article 2 if such order, direction or request is given or made in accordance with the Applicable Procedures and in accordance with all applicable laws. Every Note authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Note or any portion thereof, whether pursuant to this Article 2 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depositary for such Global Note or a nominee thereof. (ii) The Depositary or its nominee, as registered owner of a Global Note, shall be the Holder of such Global Note for all purposes under this Indenture and the Notes and owners of beneficial interests in a Global Note shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Note will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Participants. (c) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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. (d) 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 28 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 to reflect such increase. (e) General Provisions Relating to Transfers and Exchanges. Subject to the other provisions of this Indenture regarding restrictions on transfer, upon surrender for registration of transfer of any Note at any office or agency of the Company designated pursuant to Section 4.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferee or transferees, one or more new Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. (i) At the option of the Holder, and subject to the other provisions of this Section 2.06, Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and make available for delivery, the Notes which the Holder making the exchange is entitled to receive. (ii) Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. (iii) 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, 3.08, 3.09, 4.11, 4.15 and 9.05 hereof). (iv) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 29 (v) 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. (vi) The Registrar shall not 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. (vii) 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. (viii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. 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 a Company 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. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 2.07, the Company and the Trustee (without duplication) may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and reasonable attorneys' fees) connected therewith. 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. 30 The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 2.08. Outstanding Notes. 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 3.08 hereof. 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. 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. If the Paying Agent (other than the Company, a Subsidiary of the Company 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. Notwithstanding the foregoing, with respect to any Global Note, 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 a Depositary or impair, as between a Depositary and holders of beneficial interests in any Global Note the operation of customary practices governing the exercise of the rights of the Depositary as Holder of such Global Note. Section 2.10. Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of a Company 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 31 acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, as soon as practicable upon its receipt of a Company Order, 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 and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement 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 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 Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices as a convenience to Holders; provided 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 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" numbers. Section 2.14. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. 32 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 (unless a shorter notice shall be satisfactory to the Trustee), an Officers' Certificate setting forth (i) the redemption date, (ii) the principal amount of Notes to be redeemed and (iii) the redemption price. Section 3.02. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased 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 $1.00 or whole multiples of $1.00; 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 $1.00, 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. Subject to the provisions of Section 3.09 hereof, 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. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) 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; 33 (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 on Notes called for redemption ceases to accrue on and after the redemption date; (g) the CUSIP number or numbers, if any, of the Notes called for redemption; 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 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 the preceding paragraph. 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 prior to 10:00 a.m. New York City time, 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 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 on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest 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 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 receipt of the Company's written request, the Trustee shall as soon as practicable authenticate for 34 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) The Company may at any time, in its sole and absolute discretion, redeem up to 100% of the outstanding Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to but excluding the date of redemption. (b) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemptions (a) To the extent permitted by the terms of the Exit Facility, the Company shall be required to make mandatory redemptions of the Notes on a pro rata basis on the date which is 150 days following the end of the Company's Fiscal Year (the "Excess Cash Flow Payment Date") pursuant to which the Company will redeem a principal amount of Notes equal to 80% of the Excess Cash Flow for the Fiscal Year ended most recently prior to the Excess Cash Flow Payment Date (the "Excess Cash Flow Payment Amount"), unless the amount of such Excess Cash Flow is less than $2.0 million, in which case no redemption from Excess Cash Flow shall be required. Any such mandatory redemption shall be made at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Excess Cash Flow Payment Date. On the earlier of the ninetieth day following the end of the Company's Fiscal Year or the date on which the Company delivers the audited financial statements to the Trustee pursuant to Section 4.03(a) hereof, the Company shall deliver an Officers' Certificate setting forth the calculation of Excess Cash Flow (whether positive or negative) and the Excess Cash Flow Payment Amount, if any, to be made on the Excess Cash Flow Payment Date. On or before the record date the Company shall publicly announce the aggregate amount of such Excess Cash Flow Payment Amount and the Excess Cash Flow Payment Date. (b) The record date for any such redemptions from Excess Cash Flow (the "Excess Cash Flow Payment") shall be the one hundred and thirty-fifth day following the end of the Company's Fiscal Year. On or prior to 10:00 a.m. New York City time on any Excess Cash Flow Payment Date, the Company shall deposit with the Trustee or with the Paying Agent the Excess Cash Flow Payment Amount. (c) The Excess Cash Flow Payment Amount shall be applied on a pro rata basis to make a partial payment of principal on each Note and accrued and unpaid interest on the portion of the principal being so repaid on the Excess Cash Flow Payment Date, provided, however, that installments of interest whose Stated Maturity is on or prior to the Excess Cash Flow Payment Date shall first be payable to the Holders of such Notes, or one or more predecessor Notes, registered as such at the close of business on the relevant Regular Record Dates according to their terms. 35 (d) Other than as specifically provided in this Section 3.08 (including, but not limited to the requirement for pro rata payments set forth in Section 3.08(c)), any redemption pursuant to this Section 3.08 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.11 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of the Indebtedness of the Company or the Subsidiaries that is pari passu with the Notes or the Subsidiary Guarantee in question that contains provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets. 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 Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.11 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 a Regular 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 an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice shall contain (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to Section 4.03(a) of this Indenture (which requirements may be satisfied by delivery of such documents together with the Asset Sale Offer), (ii) a description of material developments as found in press releases and public filings in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i), (iii) a description of the events requiring the Company to make the Asset Sale Offer and (iv) any other information required by applicable law to be included therein. The notice, which shall govern the terms of the Asset Sale Offer, shall also state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.11 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; 36 (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) 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 Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, 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; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1.00, or integral multiples thereof, shall be purchased); and (i) 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 Company 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 Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five 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 Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of a Company Order from the Company, 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 Company to the Holder thereof. The Company 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 Sections 3.01 through 3.06 hereof. 37 ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of and interest on the Notes on the dates and in the manner provided in the Notes. Principal and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, (i) holds as of 10:00 a.m. New York City Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal and interest then due and (ii) is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture and the Notes. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including interest that accrues after, or would have accrued but for, the commencement of a proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be 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. 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; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. 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. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. Reports; Fiscal Year. (a) Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company shall furnish to the Trustee and the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained 38 in a filing with the Commission on Forms 10-Q and 10K 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 thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (b) Any materials required to be furnished to Holders of Notes by this Section 4.03 shall discuss, in reasonable detail, either on the face of the financial statements included therein or in the footnotes thereto and in any Management's Discussion and Analysis of Financial Condition and Results of Operations, 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 Unrestricted Subsidiaries of the Company. (c) The Company shall not, and shall not permit any of its Subsidiaries, to change the date of the end of its Fiscal Year from December 31. (d) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within 5 Business Days of its effective date, an Officers' Certificate specifying any change in the final scheduled principal payment under the Exit Facility and publicly announce any resulting change in the date of the final Maturity of the Notes. Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) 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 39 pursuant to Section 4.03(a) 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 Article 4 or Article 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, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon and in any event within 10 Business Days after any Officer's becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default 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 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. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors 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 Indenture; and the Company and each of the Guarantors (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. Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including; without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; or (iii) make any payment on or with respect to, or 40 purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or a Subsidiary Guarantee, except a payment of interest or principal at Stated Maturity (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "Restricted Payments"). The foregoing provisions shall not prohibit (i) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness that is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any 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 shall be excluded from clause (3)(b) of the first paragraph of Section 4.08; (ii) the defeasance, redemption, repurchase or other acquisition of Indebtedness that is subordinated to the Notes with the net cash proceeds from an Incurrence of Permitted Refinancing Indebtedness; (iii) the payment of any dividend (in cash or otherwise) by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (iv) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or employment agreement, provided that the purchase price is paid with the proceeds to the Company of key man life or disability insurance policies purchased by the Company specifically to finance any such repurchase, redemption or other acquisition; (v) 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 employment agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests of the Company or any Restricted Subsidiary shall not exceed $500,000 in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; or (vi) upon the occurrence of a Change of Control or an Asset Sale and within 60 days after the completion of the offer to repurchase the Notes pursuant to the covenants described under Section 3.09, 4.11 and 4.15, any purchase, repurchase, redemption, defeasance, acquisition or other retirement for value of Indebtedness subordinated to the Notes or a Subsidiary Guarantee required pursuant to the terms thereof as a result of such Change of Control or Asset Sale at a purchase price not to exceed 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any; provided, however, that at the time of such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, no Default or Event of Default shall have occurred and be continuing (or would result therefrom). Section 4.08. Limitation on Restricted Investments. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Restricted Investment if: (1) an Event of Default, or an event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and is continuing, or 41 (2) upon giving effect to such Restricted Investment, the Company could not, after giving pro forma effect thereto as if such Restricted Investment had been made at the beginning of the applicable four (4) quarter period, Incur at least $1.00 of additional Indebtedness pursuant to the terms of the first paragraph of Section 4.10, or (3) upon giving effect to such Restricted Investment, the aggregate amount of all Restricted Investments from the Effective Date and payments made pursuant to clauses (iii) or (v) of the second paragraph of Section 4.07 exceeds the sum of: (a) 50% of Consolidated Net Income for the period (treated as one accounting period) commencing with the first full fiscal quarter after the Effective Date and ending on the last day of the last full fiscal quarter immediately preceding such Restricted Investment for which quarterly or annual financial statements of the Company are available (or if such Consolidated Net Income is a deficit, less 100% of such deficit); plus (b) 100% of the aggregate Net Proceeds received after the Effective Date as a contribution to the common equity capital of the Company or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests or Disqualified Stock or convertible debt securities) sold to a Restricted Subsidiary of the Company after the Effective Date; plus (c) an amount equal to the net reduction in Restricted Investments resulting from dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary (except to the extent any such payment is included in the calculation of Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed the amount of Restricted Investments previously made after the Effective Date by the Company and its Restricted Subsidiaries in such Person. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated as an Unrestricted Subsidiary will be deemed to be Restricted Investments at the time of such designation and will reduce the amount available for Restricted Investments under clause (3)(c) of this Section 4.08. All such outstanding Investments (except to the extent repaid in cash) will be deemed to constitute Restricted Investments in an amount equal to the greatest of (x) the net book value of such Investments at the time of such designation, (y) the fair market value of such Investments at the time of such designation and (z) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Investments would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation would not cause a Default; provided that such designation shall be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under Section 4.10 calculated on a pro forma basis as if such designation had occurred 42 at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. The amount of all Restricted Investments (other than cash) shall be the fair market value on the date of the Restricted Investments of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Investment. The fair market value of any assets or securities that are required to be valued pursuant to the foregoing sentence shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $10.0 million. Not later than the date of making any Restricted Investment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Investment is permitted and setting forth the basis upon which the calculations required by this Section 4.08 were computed, together with a copy of any opinion or appraisal required by this Indenture. Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such 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 the agreements governing the Existing Indebtedness as in effect on the date of this Indenture, (b) the Exit Facility or the Senior Mortgage Loan as in effect as of the date of this Indenture, any amendments, modifications, refundings, replacements, renewals or supplements thereof; provided that such amendments, modifications, refundings, replacements, renewals or supplements are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Exit Facility or the Senior Mortgage Loan, as the case may be, as in effect on the date of this Indenture as determined in good faith by the Company's Board of Directors, (c) the Indenture, the Security Documents and the Notes, (d) applicable law, (e) 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 (except to the extent such Indebtedness was Incurred in connection with or in contemplation 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, (f) customary non-assignment provisions in leases, 43 licenses and other contracts and other contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) of this Section 4.09 above on the property so acquired, (h) any agreement for the sale of a Subsidiary or a substantial portion of such Subsidiary's assets that restricts distributions by that Subsidiary pending its sale, (i) 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 as determined in good faith by the Company's Board of Directors, (j) secured Indebtedness otherwise permitted to be Incurred pursuant to the provisions of Section 4.10 that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business, (l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, and (m) any agreement or instrument governing Indebtedness permitted to be Incurred under this Indenture; provided that the terms and conditions of any restrictions and encumbrances, taken as a whole, are not more restrictive than those contained in this Indenture. Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, Incur or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may Incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may Incur Indebtedness or issue preferred stock 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 or preferred stock is issued would have been at least 2.25 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 Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this Section 4.10 will not apply to the Incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the Incurrence by the Company and the Guarantors of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the stated amount thereof) and other obligations under the Revolving Credit Facility in an aggregate principal amount that does not exceed at any one time $37,000,000 less any aggregate repayments made on the Revolving Credit Facility for which there is a concomitant permanent reduction in the commitment of the lenders under the Revolving Credit Facility; provided, however, that the Company and the Guarantors may Incur pursuant to this clause (i) Indebtedness in an aggregate principal amount in excess of $32,000,000 for the sole purpose of reimbursing the lenders and/or agents under the Exit 44 Facility for any fees, costs, interest, charges, enforcement expenses (including legal fees and disbursements) and other reimbursement obligations attributable to protection of collateral; (ii) the Incurrence by the Company and the Guarantors of the Mezzanine Loan and the Senior Mortgage Loan; (iii) Incurrence by the Woodlands Entities of Indebtedness pursuant to the Bank Midwest Amended and Restated Note and the Woodlands Place Note; (iv) the Incurrence by Summit Care Pharmacy of Indebtedness pursuant to the Bergen Note; (v) the Incurrence by Summit Care Corporation of Indebtedness pursuant to the Union Bank Note; (vi) the Incurrence by the Company and the Guarantors of the Existing Indebtedness and the issuance of the Existing Disqualified Stock; (vii) the Incurrence by the Company of Indebtedness represented by the Notes in an aggregate principal amount not to exceed $106,761,608; (viii) the Incurrence by the Company or any of the 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 business of the Company or such Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any other Indebtedness Incurred pursuant to this clause (viii), that does not exceed at any one time the amount of such Capital Lease Obligations, mortgage financings or purchase money obligations outstanding as of the date of this Indenture, plus $5.0 million; (ix) the Incurrence by the Company or any of the Guarantors 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 is permitted by this Indenture to be Incurred under the first paragraph hereof or clauses (iii) through (viii) or this clause (ix) of this paragraph; (x) the Incurrence by the Company or any of the Guarantors of intercompany Indebtedness between or among the Company and any Guarantor; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) 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 Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor thereof shall be deemed, in each case, to 45 constitute an Incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (x); (xi) the Incurrence by the Company or any of the Guarantors of Hedging Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (xii) the guarantee by the Company or any of its Subsidiaries or any of the Guarantors of Indebtedness of the Company or another Guarantor that was permitted to be Incurred by another provision of this Section 4.10 other than clause (xv); (xiii) 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 constitute an Incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (xiii), and the issuance of preferred stock by Unrestricted Subsidiaries; (xiv) the Incurrence by the Company or any of the Guarantors 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 (xiv), not to exceed $5 million; (xv) Indebtedness in an aggregate principal amount not to exceed $6,000,000 incurred by a Subsidiary of the Company organized under the laws of the Cayman Islands established for the purpose of obtaining insurance on behalf of the Company and its Subsidiaries to fund its obligations in connection therewith, whether incurred before or after the Effective Date. (xvi) Indebtedness in an aggregate principal amount not to exceed $11,000,000 in connection with the purchase and Capital Lease of five previously identified properties located in Eureka, California, to be operated as skilled nursing facilities and an associated office facility. For purposes of determining compliance with this Section 4.10, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xvi) above or is entitled to be Incurred pursuant to the first paragraph of this Section 4.10, the Company shall, in its sole discretion, classify such item of Indebtedness, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.10. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an Incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.10; provided, in each such case, that 46 the amount thereof is included in Fixed Charges of the Company as accrued (to the extent not already included in Fixed Charges). Section 4.11. Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a Board Resolution) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) 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 (y) in the case of any Asset Sale constituting the transfer (by merger or otherwise) of all of the Capital Stock of a Restricted Subsidiary, any liabilities (as shown on such Restricted Subsidiary's most recent balance sheet) of such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that will remain outstanding after such transfer and will not be a liability of the Company or any other Restricted Subsidiary of the Company following such transfer and (z) 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), shall be deemed to be cash for purposes of this provision. To the extent that the assets which are the subject of any Asset Sale constitute Collateral, all proceeds thereof shall, to the extent permitted by law, be subject to a perfected Lien in favor of the Collateral Agent, and all Net Proceeds from such an Asset Sale shall be deposited in the escrow account established by the Security Documents. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of a Healthcare Related Business, the making of a capital expenditure or the acquisition of other long-term assets for use in a Healthcare Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make a pro rata offer to all Holders of Notes and any holders of other Indebtedness that is pari passu with the Notes or the Subsidiary Guarantee in question and that requires such an offer and contains provisions similar to those set forth in this Indenture with respect to offers (an "Asset Sale Offer"), to purchase or redeem with the proceeds of sales of assets in accordance with Section 3.09, the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set 47 forth in this Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocated for the Notes (the "Offer Amount"), the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Section 4.12. 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 its 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 of the foregoing, an "Affiliate Transaction"), unless (i) such 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 an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a Board Resolution certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity Interests (other than Disqualified Stock) of the Company, (v) Restricted Investments that are otherwise permitted by Section 4.08 hereof, (vi) reimbursements of actual out-of-pocket expenses and, to the extent consistent with prior practice, allocated expenses and (vii) Existing Affiliate Transactions. Section 4.13. 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 on any asset now owned or hereafter acquired, securing Indebtedness or trade payables, except Permitted Liens. Section 4.14. 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 Subsidiaries, in accordance with the respective 48 organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its 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 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 Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1.00 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon (the "Change of Control Purchase Price"), to the date of purchase (the "Change of Control Payment Date"). If the Change of Control Payment Date is on or after a Regular 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 Regular Record Date, and no additional interest shall be payable to Holders who validly tender Notes pursuant to the Change of Control Offer in respect of such Interest Payment Date. (b) Within 15 Business Days following any Change of Control, the Company shall mail a notice to each Holder, with a copy of such notice to the Trustee. The notice, which shall govern the terms of the Change of Control Offer, shall state, among other things: (i) that a Change of Control has occurred and a Change of Control Offer is being made as provided for herein that each Holder has the right to require the Company to purchase such Holder's Notes at the Change of Control Purchase Price, and that, although Holders are not required to tender their Notes, all Notes that are validly tendered shall be accepted for payment; (ii) the circumstances giving rise to the Change of Control; (iii) the Change of Control Purchase Price and the Change of Control Payment Date, which will be no earlier than 30 days and no later than 60 days after the date such notice is mailed; (iv) that any Note accepted for payment pursuant to the Change of Control Offer (and duly paid for on the Change of Control Payment Date) shall cease to accrue interest, after the Change of Control Payment Date; (v) that any Notes (or portions thereof) not validly tendered shall continue to accrue interest; (vi) that any Holder electing to have a Note purchased pursuant to any Change of Control Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note 49 completed, or transfer by book entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Change of Control Payment Date; (vii) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, 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) the instructions and any other information necessary to enable Holders to tender their Notes (or portions thereof) and have such Notes (or portions thereof) purchased pursuant to the Change of Control Offer; and (ix) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes; provided that such new Note must be equal to $1.00 principal amount and integral multiples thereof. (c) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered 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 thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Change of Control Payment Date) mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unrepurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1.00 or an integral multiple thereof. (d) Upon surrender and cancellation of a Definitive Note that is purchased in part pursuant to the Change of Control Offer, the Company shall promptly issue and the Trustee shall authenticate and mail (or cause to be transferred by book entry) to the surrendering Holder of such Definitive Note, a new Definitive Note equal in principal amount to the unpurchased portion of such surrendered Definitive Note; provided that each such new Definitive Note shall be in a principal amount of $1.00 or an integral multiple thereof. Upon surrender of a Global Note that is purchased in part pursuant to a Change of Control Offer, the Paying Agent shall forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note to an amount equal to the unpurchased portion of such Global Note, as provided in Section 2.06 hereof. The Company shall publicly announce the results of the Change of Control Offer on the Change of Control Payment Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. 50 (e) Notwithstanding anything to the contrary in this Section 4.15, the Company shall 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 this Section 4.15 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. (f) The Company shall comply with the requirements of Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such 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 this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. Section 4.16. Payments for Consent. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes 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 of the Notes 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 4.17. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary (other than a Subsidiary that is also a Subsidiary of a Restricted Subsidiary that is not a Guarantor) after the date of this Indenture, then such newly acquired or created Subsidiary shall become a Guarantor and execute a Supplemental Indenture and deliver an opinion of Counsel, in accordance with the terms of this Indenture; provided that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with this Indenture (i) shall not be subject to the requirements of this Section 4.17 and (ii) shall be released from all Obligations under any Subsidiary Guarantee, in each case for so long as they continue to constitute Unrestricted Subsidiaries. Section 4.18. Sale and Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have Incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.10 hereof, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.11 hereof. 51 Section 4.19. Maintenance of Insurance. The Company shall, and the Company shall cause its Restricted Subsidiaries to, keep at all times all of its properties which are of an insurable nature insured (which may include self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors, is adequate for the conduct of the Company and its Restricted Subsidiaries, with insurers believed by the Company to be responsible in such amounts, with such deductibles and by such methods as shall be customary, in the good faith judgment of the Board of Directors for companies similarly situated. To the extent that the Company and its Restricted Subsidiaries are required to maintain insurance by the Exit Facility, the Company will have satisfied its obligations under this Section 4.19 if it complies with the insurance covenants contained in the Exit Facility. Section 4.20. Perfection of Security Interests. The Company shall preserve the Liens granted under the Security Documents and, subject to the provisions of the Security Documents, shall undertake all actions which are required by applicable law in the reasonable judgment of the Trustee or the Collateral Agent to (a) maintain the Liens of the Collateral Agent in the Collateral in full force and effect at all times (including the priority thereof), and (b) preserve and protect the Collateral and protect and enforce the Company's rights and title and the rights of the Collateral Agent to the Collateral, including, without limitation, the making or delivery of all filings and recordations, the payment of fees and other charges and the issuance of supplemental documentation for such purposes. Section 4.21. Limitation on Issuance of Capital Stock of Restricted Subsidiaries. The Company will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants, or other rights to purchase shares of such Capital Stock) except: (i) to the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; or (iii) issuances or sales of Common Stock of a Restricted Subsidiary so long as immediately giving effect to the issuance or sale, the Restricted Subsidiary would no longer constitute a Restricted Subsidiary, provided that (x) the proceeds therefrom shall be treated as proceeds from an Asset Sale in accordance with Section 4.11 and (y) any Investment in any Person remaining after giving effect to the issuance or sale would have been permitted to be made under Section 4.08 if made on the date of the issuance or sale. Section 4.22. Consummation of Plan or Reorganization. No provision of this Indenture shall prevent the Company and its Restricted Subsidiaries from consummating the Plan and the transactions contemplated thereby. 52 ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity 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 shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes, this Indenture and the Security Documents pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or 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 shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, immediately after such transaction after giving pro forma effect thereto and any related financial transaction as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.10 hereof. The Company shall not lease its properties and assets substantially as an entity to any Person. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. 53 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Company defaults for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of this Indenture); (b) the Company defaults in the payment when due of principal of the Notes (whether or not prohibited by the subordination provisions of this Indenture); (c) failure by the Company or any of its Subsidiaries to comply with any of the provisions of Section 4.07, 4.11, 4.15 or Article 5; (d) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.08, 4.10 or 4.20; (e) the Company or any of its Subsidiaries fails to comply with any other covenant, representation, warranty or other agreement in this Indenture, the Notes or the Security Documents for 60 days and such failure continues for 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of outstanding Notes; (f) a default occurs under any mortgage, indenture or instrument under which there may be issued or by 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 of this Indenture, which default (i) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided by the documents governing such Indebtedness, which default has not been waived or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness which has not been so paid or the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness, the Exit Facility or the Senior Mortgage Loan to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under this Indenture); (g) the receipt by the Collateral Agent of a written notice under the Collateral Agency Agreement from the Claims Agent to realize and foreclose upon the Collateral; (h) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days; provided that the aggregate of all such undischarged judgments exceeds $5.0 million; 54 (i) the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, (v) generally is not paying its debts as they become due; or (j) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; (k) the Liens created by the Security Documents shall at any time not constitute valid and perfected Liens on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of this Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 15 days after (i) written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of outstanding Notes, or (ii) the enforceability thereof shall be contested by the Company or any Subsidiary Guarantor; 55 (l) failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and such failure continues unremedied for 10 Business Days after notice of such failure is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes; or (m) except as permitted by this Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (i) or (j) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (i) or (j) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable without further action or notice. Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Indenture. In the event of a declaration of acceleration because an Event or Default set forth in clause (f) of Section 6.01 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (f) of Section 6.01 shall be remedied or cured or waived by the holders of the relevant Indebtedness within 30 days after such event of default; provided that no judgment or decree for the payment of the money due on Notes has been obtained by the Trustee as provided in this Indenture. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article, the Holders of at least 60% in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) the principal of any Notes which have become due otherwise than by such declaration of acceleration (including any Notes required to have been purchased on a Change of Control Payment Date or a Purchase Date pursuant to a Change of Control Offer or an Asset Sale Offer, as applicable, made by the Company) and, to the extent that payment of such interest is lawful, any interest thereon at the rate provided therefore in the Notes; 56 (B) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided therefore in Section 4.01, and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amount due under Section 7.07; and (2) all Events of Default, other than the non-payment of the principal of or interest on, the Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.04. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 6.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if there is: (1) a default in the payment of any interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (2) a default in the payment of the principal of any Note at the Maturity thereof or, with respect to any Note required to have been purchased pursuant to a Change of Control Offer or an Asset Sale Offer made by the Company, at the Change of Control Payment Date or Purchase Date thereof, as applicable, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate provided therefore in Section 4.01 hereof, and, in addition thereto, 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 and any amounts due the Trustee under Section 7.07 hereof. If the Company fails to pay such amounts within 10 Business Days following such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute any such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property and assets of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may, subject to Article 12, pursue any available remedy to collect the payment of principal and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. 57 Section 6.04. Waiver of Past Defaults. Subject to Section 6.07 hereof, Holders of not less than 60% 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 hereunder, except a continuing Default or Event of Default in the payment of the principal of and interest on the Notes (including any waiver obtained in connection with a purchase of, tender offer or exchange offer for Notes) (provided, however, that the Holders of at least 60% in aggregate principal amount of then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon 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 Super-Majority. Holders of at least 60% in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may result in the incurrence of liability by the Trustee. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. 58 Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture and subject to Section 11.02 and Article 12, the right of any Holder of a Note to receive payment of principal and interest 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, except that no Holder shall have the right to institute any such suit, if and to the extent that the institution or prosecution thereof or the entry of judgment therein would under applicable law result in the surrender, impairment, waiver, or loss of the Liens of the Security Documents upon any property or assets subject to the Liens. Section 6.08. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any amounts due the Trustee under Section 7.07 hereof, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. 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 of the Notes 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 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, 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. 59 Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall, subject to Article 12, 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, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Third: to the Company or the Subsidiary Guarantors 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 of Notes pursuant to this Section 6.10. Section 6.11. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture, the Subsidiary Guarantees or the Security Documents and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 6.12. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 2.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.13. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 60 Section 6.14. 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 6.14 does not apply to a suit by the Trustee, a suit by a Holder of a Note 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 person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) 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 (ii) 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 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 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: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) 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 (iii) 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. 61 (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01 and Section 7.02. (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 or the Security Documents 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) In connection with the Trustee's rights and duties under this Indenture, the Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting, 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 under this Indenture, 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 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 or the Security Documents 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. (g) Except with respect to Section 4.01 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any 62 Event of Default occurring pursuant to Sections 6.01(a), 6.01(b), 6.01(c) and 4.01 or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney. Section 7.03. Individual Rights of Trustee. The Trustee 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 (as defined in the TIA) it must eliminate such conflict within 90 days, apply to the Commission 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 Sections 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 of Notes a notice of the Default or Event of Default within 90 days after such Default or Event of Default becomes known to the Trustee. Except in the case of a Default or Event of Default relating to the payment of principal of or interest on any Note, the Trustee may withhold the notice if it determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes 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). 63 A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange, if any, 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. 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. 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 and the Guarantors shall jointly and severally indemnify the Trustee and each of its officers, directors, employees and agents for, and hold the same harmless against, any and all losses, liabilities or expenses (including, without limitation, reasonable attorneys' fees) 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 loss, liability or expense may be attributable to its 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. At the Trustee's sole discretion, the Company shall defend the claim with counsel reasonably satisfactory to the Trustee and the Trustee shall cooperate in the defense at the Company's expense. 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 obligations of the Company and the Guarantors under this Section 7.07 shall survive the resignation of the Trustee and/or the satisfaction and discharge or termination of this Indenture. To secure the Company's payment obligations in this Section 7.07, 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 and interest on particular Notes. Such Lien shall survive the resignation of the Trustee and/or the satisfaction and discharge or termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(i) or (j) 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. 64 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 7.08. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes 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 (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 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes 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 of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note 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 of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. 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. 65 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 corporation 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 (or in the case of a corporation included in a bank holding company, the bank holding company and related entities has) a combined capital and surplus of at least $100 million 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 Sections 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 the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, 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. 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 Indebtedness 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, this Indenture and the Security Documents (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 66 otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of and interest on such Notes when such payments are due, solely from the trust fund described in Section 8.04 hereof, (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 Company's obligations in connection therewith and (d) this Article 8. 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, (i) the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their respective obligations under the covenants contained in Sections 4.03, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.17, 4.18, 4.19, 4.20 and 4.21 hereof with respect to the outstanding Notes and clauses (ii) and (iii) of Section 5.01 and (ii) the occurrence of an event specified in Section 6.01(c) (with respect to Sections 4.07, 4.11 and 4.15 and clauses (ii) and (iii) of Section 5.01), 6.01(d) (with respect to Sections 4.08, 4.10 and 4.20), 6.01(e) (with respect to Sections 4.03, 4.05, 4.09, 4.10, 4.12, 4.13, 4.17, 4.18, 4.19, 4.20 and 4.21 and clauses (ii) and (iii) of Section 5.01), 6.01(f), 6.01(g), 6.01(h), 6.01(k), 6.01(l) and 6.01(m) shall not be deemed to be an Event of Default 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. 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: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, noncallable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest 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; 67 (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States 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 of this 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 shall 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 an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States 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 shall have occurred and be 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) or insofar as Sections 6.01(i) or 6.01(j) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is bound including, without limitation, the Exit Facility; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered 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 any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or 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 non-callable Government Securities (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 68 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 and interest, 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 non-callable Government Securities 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 non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) 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 or interest on any Note and remaining unclaimed for two years after such principal 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 of such Note shall thereafter, as a secured 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 will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities 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, the Notes and the Security Documents 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 or a Guarantor makes any payment of principal of or interest on any Note following the reinstatement of its obligations, the 69 Company or such Guarantor shall be subrogated to the rights of the Holders of such Notes 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, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes, the Security Documents or the Intercreditor Agreement without the consent of any Holder of a Note: (1) to evidence the succession of another Person to the Company or a Guarantor and the assumption by any such successor of the covenants of the Company herein and in the Notes, the Security Documents and the Intercreditor Agreement and of such Guarantor contained herein and in the Security Documents; or (2) to add to the covenants of the Company or the Guarantors for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or the Guarantors; or (3) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (4) to cure any ambiguity, to correct or supplement any provision herein or in the Security Documents which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture or the Security Documents which shall not be inconsistent with the provisions of this Indenture; provided that such action pursuant to this clause (4) shall not adversely affect the interests of the Holders in any material respect; (5) to evidence and provide for the acceptance and appointment hereunder of a successor Trustee with respect to the Notes; (6) to mortgage, pledge, hypothecate or grant a Lien in favor of the Collateral Agent for the benefit of Trustee and the Holders of the Notes as additional security for the payment of principal of and interest on the Notes by the Company or on the Subsidiary Guarantees by the Guarantors under this Indenture in any property or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a Lien is required to be granted to the Collateral Agent, pursuant to this Indenture or the Security Documents; 70 (7) to add Guarantees with respect to the Notes, to secure the Notes or to release Guarantors from Subsidiary Guaranties as provided by the terms of this Indenture; or (8) to add additional Events of Default. Upon the request of the Company accompanied by a resolution of its 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 and the Guarantors in the execution of any 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 and in Section 12.14, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes, any Subsidiary Guarantees, the Security Documents and the Intercreditor Agreement with the consent of the Holders of at least 60% in aggregate principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of at least 60% in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its 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 and the Guarantors 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. It shall not be necessary for the consent of the Holders of Notes 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 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the 71 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 60% in aggregate principal amount of the Notes 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. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon, or change the place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of a Change of Control Offer or an Asset Sale Offer which has been made, on or after the applicable Change of Control Payment Date or Purchase Date), or (2) reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and its consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section 9.02, Section 6.04 or Section 6.07, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holders of each outstanding Note affected thereby, or (4) modify the provisions of this Indenture requiring the Company to make a Change of Control Offer after the occurrence of a Change of Control, (5) make any change in the ranking of the Notes or the Subsidiary Guarantees that would adversely affect the Holders of the Notes, or (6) make any change in any Subsidiary Guarantee that would adversely affect the Holders of the Notes. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in an 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 of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note 72 or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note 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 a Company 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, in addition to the documents required by Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SECURITY ARRANGEMENTS Section 10.01. Collateral and Security Documents. (a) To secure the due and punctual payment of principal of and interest on the Notes by the Company when and as the same shall be due and payable (whether on an Interest Payment Date, at Stated Maturity, by acceleration, call for redemption, upon a Change of Control Offer or an Asset Sale Offer, or otherwise) and interest on the overdue principal of, and interest (to the extent permitted by law) on, the Notes and performance of all other Obligations of the Company and the Guarantors to the Holders of the Notes, the Trustee or the Collateral Agent under this Indenture, the Notes, the Subsidiary Guarantees, and the Security Documents, according to the terms hereunder or thereunder, each of the Company and the Subsidiary Guarantors will enter into the Security Documents, to create the security interests with respect to the Collateral (except to the extent that granting such Liens is precluded by the provisions or the documents evidencing the Senior Debt). The Trustee, the Collateral Agent, the Guarantors and the Company hereby acknowledge and agree that the Collateral Agent holds the Collateral in 73 trust for the benefit of the Holders and the Trustee, among others, pursuant to the terms of the Security Documents. (b) Each Holder, by accepting a Note, agrees to all of the terms and provisions of the Security Documents (including, without limitation, the provisions providing for foreclosure and release of Collateral) as the same may be in effect or may be amended from time to time in accordance with the terms thereof and hereof, and authorizes and directs the Trustee, in its capacity as Collateral Agent, to perform its obligations and exercise its rights under the Security Documents in accordance therewith; provided, however, that if any provisions of the Security Documents limit, qualify or conflict with the duties imposed by the provisions of the TIA, the TIA will control. (c) As more fully set forth in, and subject to the provisions of, the Security Documents, the Holders, and the Trustee and the Collateral Agent on behalf of such Holders, will have rights in and to the Collateral that are subject to the rights that have been or may be created in favor of the holders of other Indebtedness and obligations of the Company. (d) As among the Holders, the Collateral shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other. (e) With respect to the Trustee acting as Collateral Agent, the Trustee (i) shall not be deemed to have breached its fiduciary duty as Trustee to the Holders as a result of the performance of its duties as Collateral Agent to the extent it acts in compliance with the Security Documents and (ii) shall not be liable to the Holders for any such action or inaction. The rights and interests created under this Indenture shall be subject to the terms of the Security Documents. (f) The Company and each Guarantor will do or cause to be done all such acts and things as may be required by the provisions of the Security Documents to which it is a party, to assure and confirm to the Trustee, in its capacity as Collateral Agent, the Liens on the Collateral contemplated by the Security Documents to which it is a party, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes and each Subsidiary Guarantee secured thereby, as applicable, according to the intent and purposes herein and therein expressed. The Company will take all actions required pursuant to the Security Documents to cause the Liens created pursuant to the Security Documents to be valid, enforceable and perfected (except as expressly provided therein) Liens in and on all the Collateral in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Notes. Each Guarantor will take any and all actions required pursuant to the Security Documents to cause the Liens created pursuant to the Security Documents to which it is a party to create and maintain for its Obligations under each Subsidiary Guarantee and the Security Document related thereto, valid and enforceable, perfected (except as expressly provided therein), Liens in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Notes. 74 Section 10.02. Release of Collateral. Collateral may be released from the Liens created by the Security Documents at any time or from time to time, and the Security Documents may be terminated, in accordance with the provisions of the Security Documents or in accordance with this Indenture. In addition, upon the request of the Company pursuant to an Officer's Certificate and receipt of an Opinion of Counsel certifying that any sale, conveyance or disposal of any Collateral has been effected in compliance with the provisions of this Indenture, the Trustee will release such Collateral. Upon receipt of such Officer's Certificate and Opinion of Counsel, the Trustee will execute, deliver and acknowledge any necessary or proper instruments of termination or release to evidence the release of any Collateral permitted to be released pursuant to this Indenture or the Collateral Documents. The release of any Collateral from the terms hereof and of the Security Documents or the release of, in whole or in part, the Liens created by the Security Documents, or the termination of the Security Documents, will not be deemed to impair the Liens on the Collateral in contravention of the provisions hereof if and to the extent that the Liens on Collateral are released, or the Security Documents are terminated, pursuant to this Indenture or the applicable Security Documents. The Trustee and each of the Holders acknowledge that a release of Collateral or a Lien in accordance with the terms of the Security Documents will not be deemed for any purpose to be an impairment of the Lien on the Collateral in contravention of the terms of this Indenture. To the extent applicable, the Company and each obligor on the Notes shall cause Section 314(d) of the TIA relating to the release of property or securities from the Lien hereof and of the Security Documents to be complied with. Any certificate or opinion required by Section 314(d) of the TIA may be made by an officer of the Company, except in cases which Section 314(d) of the TIA requires that such certificate or opinion be made by an independent person. In releasing any Collateral pursuant to the terms of the Indenture, including the provisions of Section 10.02, or any Security Document, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, in addition to the documents required by Section 13.04, an Officers' Certificate certifying that such release is authorized or permitted by this Indenture and the Security Documents and the Intercreditor Agreement and that all conditions precedent, if any, to such release have been satisfied. Section 10.03. Opinions as to Recording. (a) Each of the Company and the Guarantors represent that is has caused or will promptly cause to be executed and delivered, filed and recorded and covenants that it will promptly cause to be executed and delivered and filed and recorded, all instruments and documents, and represents that it has done and will do or will cause to be done all such acts and other things, at the Company's or the Guarantors' expense, as applicable, as are necessary to subject the applicable Collateral to valid Liens and to perfect those Liens to the extent contemplated by the Security Documents. (b) The Company and the Guarantors shall furnish to the Trustee and the Collateral Agent promptly after the execution and delivery of this Indenture an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of this Indenture, financing statements or other instruments or otherwise necessary to make effective the Liens intended to be created by the Security Documents and reciting the details of such action, or (ii) stating that, in the opinion of 75 such counsel, no such action is necessary to make such Lien effective. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinions. (c) The Company and the Subsidiary Guarantors shall furnish to the Trustee and the Collateral Agent within three months after each anniversary of the Effective Date, an Opinion of Counsel, dated as of such date, stating either that (i) in the opinion of such counsel, all action has been taken with respect to the recording, filing, re-recording, and refiling of the Indenture and related financing statements, continuation statements and other instruments and documents as is necessary to maintain the effectiveness of the Liens intended to be created by the Security Documents and reciting the details of such action or (ii) in the opinion of such counsel, no such action is necessary to maintain the effectiveness of such Liens. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinions. (d) The Company and the Subsidiary Guarantors shall otherwise comply with the provisions of Section 314(b) and, as applicable Sections 314(c), (d) and (e) of the TIA. Section 10.04. Further Assurances and Security. The Company and the Guarantors will execute, acknowledge and deliver to the Trustee, at the Company's and/or such Guarantor's expense, at any time and from time to time such further assignments, transfers, assurances or other instruments as may be reasonably required by the Trustee, to assure and confirm to the Trustee, in its capacity as Collateral Agent, the Liens in the Collateral contemplated hereby and by the Security Documents, all to the extent contemplated by the Security Documents. Section 10.05. Authorization of Actions to be Taken by Collateral Agent Under the Security Documents. The Trustee, in its capacity as Collateral Agent, may, in its sole discretion and without the consent of the Holders, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Documents and (b) collect and receive any and all amounts payable in respect of the obligations of the Company and the Guarantors hereunder. The Trustee, in its capacity as Collateral Agent, shall have the power to institute and to maintain such suits and proceedings as such Person may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other government enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee). Section 10.06. Authorization of Receipt of Funds by the Trustee Under the Security Documents. The Trustee, in its capacity as Collateral Agent, is authorized to receive any funds for the benefit of the Holders distributed under the Security Documents, and to make further 76 distributions of such funds to the Holders according to the provisions of this Indenture and the Security Documents. Section 10.07. Covenants of Collateral Agent with Respect to the Exit Facility and the Senior Mortgage Loan. The Trustee, in its capacity as Collateral Agent, and any successor Collateral Agent, hereby agrees that it shall, upon the written request of the Company, either: (1) enter into the Intercreditor Agreement with regard to the Exit Facility to effectuate the priority of the Liens granted under the Exit Facility over the Liens of the Collateral Agent with respect to the Collateral to the extent contemplated herein; or (2) release its Lien with respect to Collateral to the extent required under the Intercreditor Agreement. ARTICLE 11. SUBSIDIARY GUARANTEES Section 11.01. Guarantee. Subject to this Article 11, each of the 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, the Security Documents or the Obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes (including, without limitation, any interest that accrued after, or would accrue but for, the commencement of a proceeding of the type described in Section 6.01(i) or (j)) and any fees, expenses and other amounts owing under this Indenture will be duly and punctually paid in full when due, whether at Stated Maturity, by acceleration, mandatory redemption, call for redemption, upon a Change of Control Offer, an Asset Sale Offer or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Notes and any other amounts due in respect of the Notes and the Security Documents, and all other Obligations of the Company, including the Company's Obligations to the Holders of the Notes under this Indenture, the Notes and the Security Documents and Subsidiary Guarantors under this Indenture, the Security Documents and the Subsidiary Guarantees, whether nor or hereafter existing, will be promptly paid in full or performed, all strictly 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 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. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.02. An Event of Default under this Indenture or the Notes shall constitute an Event of Default under each Subsidiary Guarantee, and shall entitle the Holders to accelerate the Obligations of each Subsidiary Guarantor hereunder in the same manner and to the same extent 77 as the Obligations of the Company. Each Subsidiary Guarantee is intended to be superior to or pari passu in right of payment with all Indebtedness of the respective Guarantor and each Guarantor's Obligations are independent of any Obligation of the Company or any other Guarantor. Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor, and that each Guarantor will remain bound under this Article 11 notwithstanding any extension or renewal of any Obligation. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes, this Indenture or the Security Documents, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. Each Guarantor waives notice of any default under the Notes or the Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder, Trustee or the Collateral Agent to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Notes, or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Notes, the Security Documents or any other agreement; (d) the release of any security held by any Holder, the Collateral Agent or the Trustee for the Obligations or any of them; (e) the failure of any Holder, the Trustee or the Collateral Agent to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of such Guarantor. Each Guarantor further agrees that its Subsidiary Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the 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 Guarantor agrees that it shall not be entitled to any right of subrogation, contribution, exoneration, indemnification or reimbursement in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. If any amount shall be paid to such Guarantor in violation of the preceding sentence at any time prior to the later of the payment in full of the Notes and all other amounts payable under this Indenture and under each Subsidiary Guarantee upon the Stated Maturity of the Notes, such 78 amount shall be held in trust for the benefit of the Holders and the Trustee and shall forthwith be paid to the Trustee to be credited and applied to the Notes and all other amounts payable under each Subsidiary Guarantee, whether matured or unmatured, in accordance with the terms of this Indenture, or to be held as security for any Obligations or other amounts payable under any Subsidiary Guarantee thereafter arising. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.01 is knowingly made in contemplation of such benefits. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) subject to this Article 11, the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of each 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 acceleration of such Obligations guaranteed hereby as provided in Article 6, such Obligations (whether or not due and payable) shall, forthwith become due and payable by the Guarantor for the purposes of each Subsidiary Guarantee. A Guarantor that makes a distribution or payment under its Subsidiary Guarantee shall be entitled to contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each such other Guarantor for all payments, damages and expenses incurred by that Guarantor in discharging the Company's obligations with respect to the Notes and this Indenture or any other Guarantor with respect to its Subsidiary Guarantee, so long as the exercise of such right does not impair the rights of the Holders of the Notes under the Subsidiary Guarantees. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 11.01. Section 11.02. Subordination of Subsidiary Guarantee The Obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 12 hereof. Section 11.03. Limitation on Guarantor Liability. Each 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 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 Guarantors hereby irrevocably agree that the obligations of such 79 Guarantor under its Subsidiary Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Each Guarantor that makes a payment or distribution under its Subsidiary Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each such other Guarantor. Section 11.04. Successors and Assigns. This Article 11 shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. Section 11.05. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise. Section 11.06. Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit B shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its Chairman, President or one of its Vice Presidents. Further, the Company shall cause all future Guarantors to execute a Supplemental Indenture substantially in the form of Exhibit C. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 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. 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 Guarantors. 80 In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17 hereof the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Subsidiary Guarantees in accordance with Section 4.17 hereof and this Article 11, to the extent applicable. Section 11.07. Guarantors May Consolidate, Etc., on Certain Terms. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or other entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.10 hereof. Section 11.08. Releases Following Sale of Assets or Capital Stock. In the event of a sale or other disposition of all of the assets of any Guarantor (other than to the Company, another Guarantor or a Restricted Subsidiary), by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to, the Company, another Guarantor or a Restricted Subsidiary), then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the entity acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee and any such acquiring entity will not be required to assume any obligations of such Guarantor under the applicable Subsidiary Guarantee; provided that such sale or other disposition complies with all applicable provisions of this Indenture including, without limitation, Section 4.10 and this Article 11. Any 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 Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. SUBORDINATION Section 12.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. 81 Section 12.02. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company, any Guarantor, or their property, an assignment for the benefit of creditors or any marshaling of the Company's or any Guarantor's assets and liabilities, the holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not allowed as a claim in any such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes or under the Subsidiary Guarantee, and until all obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive payments made from the trust created pursuant to Article 8 hereof and payments or distributions in the form of Junior Securities). In connection with the enforcement of the foregoing rights, Intercreditor Agent is hereby irrevocably appointed attorney in fact for the Trustee with full power to act in the place and stead of each Holder to exercise the rights of such Holders and the Trustee provided in Section 6.09 in the event the Trustee has failed to exercise such rights with 10 Business Days after receipt of written notice from the Intercreditor Agent. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the company following the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of its properties and assets to another Person or group of Affiliated Persons pursuant to, and in compliance with, the terms and conditions set forth in Article 5 hereof will not be deemed an insolvency or liquidation proceeding (requiring the repayment of all Senior Debt in full as a prerequisite to any payments being made to the Holders) for the purposes of this Section 12.02. Section 12.03. Default on Senior Debt. The Company and the Guarantors also may not make any payment upon or in respect of the Notes or the Subsidiary Guarantees (except from the trust created pursuant to Article 8 hereof) if (i) a default in the payment of the principal of, premium, if any, or interest on Senior Debt occurs and is continuing beyond any applicable period of grace (a "Payment Default") or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that currently, or with the passage of time or giving of notice, permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity (a "Nonpayment Default") and, in the case of any such Nonpayment Default, the Trustee receives a notice of such Nonpayment Default (a "Payment Blockage Notice") from the Company or the holders of such Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a Payment Default, upon the date on which such Payment Default is cured or waived in writing by the holders of the applicable Senior Debt, or (b) in case of a Nonpayment Default, the earlier of (x) the date on which such Nonpayment Default is cured or waived in writing by the holders of Designated Senior Debt or (y) 179 days after the date on which the applicable Payment Blockage Notice is received by the Trustee, unless the maturity of any Designated Senior Debt has been 82 accelerated. However, the Company may pay the Notes if the Company and the Trustee receive written notice approving such payment from the Representative of the Senior Debt with respect to which any of the events set forth in clause (i) of the immediately preceding sentence has occurred and is continuing. No new period of payment blockage may be commenced under clause (ii) above unless and until (x) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (y) all scheduled payments of principal of and interest 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 shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived in writing or cured for a period of not less than 180 days. Section 12.04. Acceleration of Securities. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 12.05. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when such payment is prohibited by Section 12.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to the Company or as directed in writing by the Representative of the Senior Debt. In the event that the Company makes any payment in respect of the Notes to the Trustee and the Trustee receives written notice of a Payment Default or a Nonpayment Default in the manner provided by Section 12.12 hereof prior to making any payment to Holders in respect of the Notes, such payments will be paid over by the Trustee and delivered forthwith to the Company. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 12, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. 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 the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 12, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 12.06. Notice by the Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 12, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 12. Section 12.07. Payment Permitted if no Default. Nothing contained in this Article 12 or elsewhere in this Indenture or in any of the Notes will prevent the Company or any Guarantor, at any time except during the pendency of any 83 insolvency or liquidation proceeding referred to in Section 12.02 hereof or under the conditions described in Section 12.03 hereof, from making payments at any time of principal of or interest on the Notes. Section 12.08. Subrogation. After all Senior Debt is paid in full and commitments to lend have irrevocably terminated and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) 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 of Notes 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 of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 12.09. Relative Rights. This Article 12 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 12 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 12.10. Subordination may not be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 12.11. 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. Upon any payment or distribution of assets of the Company referred to in this Article 12, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative(s) or of the 84 liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, 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. Section 12.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 12 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least two Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 12. Only the Company or a Representative may give the notice. Nothing in this Article 12 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. Subject to Section 7.03 hereof and the applicable provisions of the TIA, the Trustee may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 12.13. Authorization to effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 12 and the subordination of the Subsidiary Guarantees as provided in Section 11.02, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 12.14. Amendments. The provisions of this Article 12, Section 11.02 or the definitions used therein shall not be amended or modified without the written consent of the holders of all Senior Debt. 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. 85 Section 13.02. Notices. Any notice or communication by the Company, any Guarantor 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), telex, facsimile or overnight courier guaranteeing next day delivery, to the other's address. If to the Company and/or any Guarantor: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Facsimile No.: (949) 282-5820 Attention: General Counsel With a copy to: Latham & Watkins LLP 650 Town Center Drive, 20th Floor Costa Mesa, CA 92626 Facsimile No. (714) 755-8290 Attention: Patrick T. Seaver If to the Trustee: U.S. Bank National Association 1 Federal Street Boston, Massachusetts 02110 Facsimile No.: (617) 603-6640 Attention: Corporate Trust Department with a copy to: Brown Rudnick Berlack Israels LLP CityPlace I, 185 Asylum Street Hartford, Connecticut 06103 Facsimile No.: (860) 509-6501 Attention: David Golden, Esq. The Company, any Guarantor 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) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; 5 Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight courier guaranteeing next day delivery. 86 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. 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 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 satisfied; 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 satisfied. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such eligible and qualified Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating the information on which counsel is relying unless such counsel knows, or 87 in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 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 him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. 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. 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 Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees, this Indenture 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 issuance of the Notes. Section 13.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF 88 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 agreements of the Company in this Indenture and the Notes shall bind its successors. All 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 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 and Headings of the Articles and Sections of 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 PAGES] 89 SIGNATURES FOUNTAIN VIEW, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary U.S. BANK NATIONAL ASSOCIATION, as Trustee By: \s\ Paula Oswald ------------------------------------ Name: Paula Oswald Title: Vice President ALEXANDRIA CARE CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary ALTA CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary ANAHEIM TERRACE CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary BAY CREST CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary S-1 BRIER OAK ON SUNSET, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary CARSON SENIOR ASSISTED LIVING, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary ELMCREST CARE CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary HALLMARK INVESTMENT GROUP, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary HALLMARK REHABILITATION GP, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary S-2 HALLMARK REHABILITATION, LP By: Hallmark Rehabilitation GP, LLC By: \s\ Roland G. Rapp -------------------------------- Name: Roland G. Rapp Title: Secretary HANCOCK PARK REHABILITATION CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary HANCOCK PARK SENIOR ASSISTED LIVING, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary HEMET SENIOR ASSISTED LIVING, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary LEASEHOLD RESOURCE GROUP, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary MONTEBELLO CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary S-3 RIO HONDO SUBACUTE AND NURSING CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary ROYALWOOD CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary SHARON CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary SKILLED HEALTHCARE, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary SUMMIT CARE CORPORATION By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS MANAGEMENT, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary S-4 SUMMIT CARE PHARMACY, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC By: \s\ Roland G. Rapp ----------------------------- Name: Roland G. Rapp Title: Secretary SYCAMORE PARK CARE CENTER, INC. By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary WOODLAND CARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary S-5 EXHIBIT A-1 (Face of Note) [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE ORIN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [IF THE NOTE IS A GLOBAL NOTE AND THE DEPOSITORY TRUST COMPANY IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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] FOUNTAIN VIEW, INC SENIOR SUBORDINATED SECURED INCREASING RATE NOTES DUE 2008 CUSIP No. _____ _____ [ISIN: ______________] No. __________ $ [_______] Fountain View, Inc, a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________, or registered assigns, the principal sum of _______ Dollars (such amount the "principal amount" of this Note) [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT --, or such other principal amount as may be set forth in the records of the Trustee as referred to in accordance with the Indenture,] on the earlier of (i) August 19, 2008; or A-1 (ii) one Business Day after the final scheduled principal payment under the Exit Facility (as defined in the Indenture referred below) becomes due, at the office or agency of the Company in the Borough of Manhattan, City of New York, State of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest semi-annually on February 19 and August 19 of each year (each, an "Interest Payment Date"), on said principal sum at the rate per annum specified below, at such office or agency, in like coin or currency, from the February 19 or August 19, as the case may be, to which interest on the Notes has been paid preceding the date hereof (unless the date thereof is a February 19 or a August 19 to which interest has been paid, in which case from the date thereof) until payment of said principal sum has been made or duly provided for. This Note shall bear interest at the rate of 9 1/4% per annum until August 19, 2004, at the rate of 11 1/4% per annum from August 20, 2004 until August 19, 2005, at the rate of 13 1/4% per annum from August 20, 2005 until August 19, 2006 and at the rate of 15% per annum after August 19, 2006, until the principal hereof is paid or made available for payment. Interest will be computed on the basis of a 360 day year consisting of twelve 30-day months. The interest that is so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the record date for such Interest Payment Date, which shall be the February 5 or August 5 (the "Regular Record Date") (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on the relevant Regular Record Date and shall be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee in accordance with Section 2.12 of the Indenture, notice whereof shall be given to Holders of Notes not less than 15 days prior to such special record date, or shall be paid in any other lawful manner not inconsistent with the requirements of any national securities exchange on which the Notes may then be listed. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. A-2 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: __________________, _____ FOUNTAIN VIEW, INC. By: _____________________________ Name: _____________________________ Title: _____________________________ This is one of the [Global] Notes referred to in the within-mentioned Indenture: U.S. Bank National Association, as Trustee By: _____________________________ Name: _____________________________ Title: _____________________________ A-3 (Back of Note) SENIOR SUBORDINATED SECURED INCREASING RATE NOTES DUE 2008 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its Senior Subordinated Secured Increasing Rate Notes due 2008 (herein called the "Notes"), issued under an Indenture, dated as of August 19, 2003 (herein called the "Indenture", which term shall have the meaning assigned to in such instrument), among the Company, the Subsidiaries acting as Guarantors and U.S. Bank National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantors, the Trustee and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. 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. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the applicable Regular Record Date next preceding the Interest Payment Date, even if such Notes are cancelled after such Regular 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. Principal and interest on the Notes will be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal and interest with respect to Notes the Holders of which have given wire transfer instructions to the Company prior to the Regular Record Date will be required to be made by wire transfer of immediately available funds within the United States to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1.00 and integral multiples thereof. 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 National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Security. The payment of principal of and interest on the Notes is secured by the Liens of the Security Documents pursuant to, and subject to the terms (including the provisions of Article 11) of the Indenture, the Security Agreement and the other Security Documents. A-4 5. Subordination. The payment of the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Debt. 6. Redemption. The Notes are subject to redemption, at the option of the Company, in whole or in part, at any time and from time to time on or after the Effective Date and prior to Maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the register of the Notes, in amounts of $1.00 (or such lesser amount if the entire principal amount of such Security is redeemed) or an integral multiple of $1.00, at the redemption price of 100% of the principal amount plus accrued and unpaid interest, if any, to but excluding the redemption date (subject to the right of Holders of record on the immediately preceding Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the redemption date). 7. Prepayments. Except as set forth in Paragraphs 7 and 8 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 8. Mandatory Prepayments. To the extent permitted by the terms of the Exit Facility, the Company shall be required to make mandatory redemptions of the Notes on a pro rata basis on the date which is 150 days following the end of each Fiscal Year of the Company (the "Excess Cash Flow Payment Date") in an amount equal to 80% of the Excess Cash Flow for the Fiscal Year ended most recently prior to the applicable Excess Cash Flow Payment Date unless the amount of such Excess Cash Flow is less than $2.0 million, in which case no redemption from Excess Cash Flow shall be required. Any such mandatory redemption shall be made at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Excess Cash Flow Payment Date. The record date for such redemptions from Excess Cash Flow shall be the one hundred and thirty-fifth day following the end of the Company's Fiscal Year. 9. Repurchase at Option of Holder. (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1.00 or an integral multiple thereof) of such Holder's Notes at an offer price in cash equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 15 Business Days following any Change of Control, the Company will mail a notice to each Holder describing the circumstances giving rise to the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 13e-4 and Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes and to the extent required by the terms thereof, an offer to A-5 the holders of any other Indebtedness of the Company that is pari passu with the Notes or Indebtedness of a Restricted Subsidiary that is pari passu with its Subsidiary Guarantee and containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with proceeds of sales of assets (an "Asset Sale Offer"), to purchase the maximum principal amount of Notes that may be purchased with the amount of Excess Proceeds allocated for the Notes at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocated for the Notes, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 10. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. Notes in denominations larger than $1.00 may be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 11. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1.00 and integral multiples of $1.00. 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 Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company or the Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Company or the Registrar is not required to transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed. 12. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 13. Amendment, Supplement and Waiver. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantors and the rights of the Holders of the Notes under the Indenture and the Security Documents at any time by the Company, the Guarantors and the Trustee with the consent of the Holders of at least 60% in aggregate principal amount of the then outstanding Notes. The Indenture also contains provisions permitting the Holders of at least 60% in aggregate principal amount of the Notes at the time outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and the Security Documents and certain past defaults under the Indenture and its consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon A-6 such Holder and upon all future Holders of the Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. 14. Defaults and Remedies. Events of Default include in summary form: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal on the Notes; (iii) failure by the Company or any of its Subsidiaries to comply with Section 4.07, 4.11, 4.15 or Article 5 of the Indenture; (iv) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.08, 4.10 or 4.20 of the Indenture; (v) failure by the Company or any of its Subsidiaries for 60 days after written notice to comply with any of its other agreements in the Indenture, the Notes or the Security Documents; (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 of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided by the documents governing such Indebtedness, which default has not been waived 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 which has been not so paid or the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness, the Exit Facility or the Senior Mortgage Loan, to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under the Indenture); (vii) the receipt by the Collateral Agent of a written notice under the Collateral Agency Agreement from the Claims Agent to realize and foreclose upon the Collateral; (viii) failure by the Company or any Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary as set forth in the Indenture; (x) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (xi) the Liens created by the Security Documents shall at any time not constitute a valid and perfected Liens on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of the Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 15 days after notice, or the enforceability thereof shall be contested by the Company or any Subsidiary Guarantor; (xii) failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and such failure continues unremedied for 10 Business Days after notice of such failure is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; or A-7 (xiii) except as permitted by the Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. 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 immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency as set forth in the Indenture, with respect to the Company, any Significant Subsidiary that is a Restricted Subsidiary or any group of Restricted Subsidiaries, that taken together would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of at least 60% 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 of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of at least 60% 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 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 on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company 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. 15. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 16. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the Indenture 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 Commission 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). A-8 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company 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. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92010 Attention: Chief Executive Officer A-9 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 tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. 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. _______________________________________ Participant in a Recognized Signature Guarantee Medallion Program A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Sections 3.09 and 4.11 or Section 4.15 of the Indenture, check the box below: [ ] Sections 3.09 and 4.11 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Sections 3.09 and 4.11 or Section 4.15 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. _______________________________________ Participant in a Recognized Signature Guarantee Medallion Program A-11 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/1/ 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:
AMOUNT OF AMOUNT OF PRINCIPAL SIGNATURE INCREASE IN DECREASE IN AMOUNT OF THIS OF PRINCIPAL PRINCIPAL GLOBAL NOTE AUTHORIZED AMOUNT OF AMOUNT OF FOLLOWING OFFICER OF DATE OF THIS GLOBAL THIS GLOBAL SUCH DECREASE TRUSTEE OR EXCHANGE NOTE NOTE (OR INCREASE) CUSTODIAN - -------- ----------- ----------- -------------- ----------
- --------------- /1/ This should be included only if the Note is issued in global form. A-12 EXHIBIT B FORM OF SUBSIDIARY GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of August 19, 2003 (the "Indenture") among Fountain View, Inc., the Guarantors listed on the signature page thereto and U.S. Bank National Association, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of 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, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company 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 Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, and (b) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. The terms of Article 11 of the Indenture are incorporated herein by reference. Dated: _______________ SIGNATURES ALEXANDRIA CARE CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary ALTA CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary B-1 ANAHEIM TERRACE CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary BAY CREST CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary BRIER OAK ON SUNSET, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary CARSON SENIOR ASSISTED LIVING, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary ELMCREST CARE CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary B-2 HALLMARK INVESTMENT GROUP, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary HALLMARK REHABILITATION GP, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary HALLMARK REHABILITATION, LP By: Hallmark Rehabilitation GP, LLC By: _____________________________ Name: Roland G. Rapp Title: Secretary HANCOCK PARK REHABILITATION CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary HANCOCK PARK SENIOR ASSISTED LIVING, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary HEMET SENIOR ASSISTED LIVING, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary B-3 LEASEHOLD RESOURCE GROUP, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary MONTEBELLO CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary RIO HONDO SUBACUTE AND NURSING CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary ROYALWOOD CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary SHARON CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary SKILLED HEALTHCARE, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary B-4 SUMMIT CARE CORPORATION By: ____________________________________ Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS MANAGEMENT, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary SUMMIT CARE PHARMACY, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC By: _____________________________ Name: Roland G. Rapp Title: Secretary SYCAMORE PARK CARE CENTER, INC. By: ____________________________________ Name: Roland G. Rapp Title: Secretary WOODLAND CARE CENTER, LLC By: ____________________________________ Name: Roland G. Rapp Title: Secretary B-5 EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS Supplemental Indenture (this "Supplemental Indenture"), dated as of _______________, among _______________ (the "Guaranteeing Subsidiary"), a subsidiary of Fountain View, Inc. (or its permitted successor), a Delaware corporation (the "Company"), and U.S. Bank National Association, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of August 19, 2003 providing for the issuance of an aggregate principal amount of up to $106,761,608 of Senior Subordinated Secured Increasing Rate Notes due 2008 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee 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 the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will 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 C-1 Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that 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. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the 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. (f) The Guaranteeing Subsidiary 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. (g) As between the 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 Article 6 of the Indenture 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 Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. C-2 (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) The obligations hereunder shall be subject to the subordination provisions set forth in Section 11.2 and Article 12 of the Indenture. 3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. 4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to Section 11.07 and 11.08 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.10 of the Indenture. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, 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 the Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation 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 the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the C-3 terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to the Company or another Guarantor), then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor (other than to the Company or another Guarantor)) or the entity acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any Obligations under its Subsidiary Guarantee and the Security Documents and any such acquiring entity will not be required to assume any Obligations of such Guarantor under the applicable Subsidiary Guarantee and the Security Documents; provided that such sale or other disposition complies with all applicable provisions of the Indenture including, without limitation, Section 4.11 hereof. 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 was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.11 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. (b) Any 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 Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the 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 Commission that such a waiver is against public policy. C-4 7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT 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. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: ____________, _____ [Guaranteeing Subsidiary] By: ______________________________ Name: ______________________________ Title: ______________________________ U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ______________________________ Name: ______________________________ Title: ______________________________ C-5 EXHIBIT D FORM OF INTERCREDITOR AGREEMENT D-1 EXHIBIT E FORM OF SECURITY AGREEMENT E-1 SCHEDULE I EXISTING AFFILIATE TRANSACTIONS SCH I-1 SCHEDULE II GUARANTORS Summit Care Corporation Summit Care Pharmacy, Inc. Alexandria Care Center, Inc. Brier Oak on Sunset, Inc. Elmcrest Care Center, Inc. Hancock Park Rehabilitation Center, Inc. Hancock Park Senior Assisted Living, Inc. Fountain View Subacute and Nursing Center, Inc. Rio Hondo Subacute and Nursing Center, Inc. Sycamore Park Care Center, Inc. Anaheim Terrace Care Center, LLC Bay Crest Care Center, LLC Alta Care Center, LLC Royalwood Care Center, LLC Sharon Care Center, LLC Woodland Care Center, LLC Carson Senior Assisted Living, LLC Hemet Senior Assisted Living, LLC Montebello Care Center, LLC Summit Care Texas, L.P. Summit Care Texas Management, LLC Hallmark Investment Group, Inc. Hallmark Rehabilitation GP, LLC Hallmark Rehabilitation, LP Leasehold Resource Group, LLC Skilled Healthcare, LLC SCH II-1 SCHEDULE III MEZZANINE LOAN BORROWERS SHG Property Resources, LLC SHG Investments, LLC SCH III-1 SCHEDULE IV PERMITTED JOINT VENTURES APS-Summit Care Pharmacy, L.L.C. SCH IV-1 SCHEDULE V EXISTING LIENS None SCH V-1 SCHEDULE VI REVOLVING CREDIT FACILITY BORROWERS Borrowers: ---------- Carehouse Healthcare Center, LLC Devonshire Care Center, LLC The Earlwood, LLC Fountain Care Center, LLC Fountain Senior Assisted Living, LLC Spring Senior Assisted Living, LLC Valley Healthcare Center, LLC Villa Maria Healthcare Center, LLC Willow Creek Healthcare Center, LLC Texas Cityview Care Center, LP Clairmont Beaumont, LP Clairmont Longview, LP The Clairmont Tyler, LP Colonial New Braunfels Care Center, LP Colonial Tyler Care Center, LP Coronado Nursing Center, LP Hallesttsville Rehabilitation and Nursing Center, LP Texas Heritage Oaks Nursing and Rehabilitation Center, LP Hospitality Nursing and Rehabilitation Center, LP Monument Rehabilitation and Nursing Center, LP Oak Crest Nursing Center, LP Flatonia Oak Manor, LP Oakland Manor Nursing Center, LP Southwood Care Center, LP Town and Country Manor, LP West Side Campus of Care, LP Comanche Nursing Center, LP Guadalupe Valley Nursing Center, LP Briarcliff Nursing and Rehabilitation Center, LP Live Oak Nursing Center, LP SCH VI-1 SCHEDULE VII SENIOR MORTGAGE LOAN BORROWERS California Secured Resources, LLC Texas Secured Resources, LLC SHG Secured Resources, LP Carehouse Healthcare Center, LLC Devonshire Care Center, LLC The Earlwood, LLC Fountain Care Center, LLC Fountain Senior Assisted Living, LLC (Ashton Court) Spring Senior Assisted Living, LLC Valley Healthcare Center, LLC Villa Maria Healthcare Center, LLC Willow Creek Healthcare Center, LLC Texas Cityview Care Center, LP Clairmont Beaumont, LP Clairmont Longview, LP The Clairmont Tyler, LP Colonial New Braunfels Care Center, LP Colonial Tyler Care Center, LP Coronado Nursing Center, LP Hallesttsville Rehabilitation and Nursing Center, LP Texas Heritage Oaks Nursing and Rehabilitation Center, LP Hospitality Nursing and Rehabilitation Center, LP Monument Rehabilitation and Nursing Center, LP Oak Crest Nursing Center, LP Flatonia Oak Manor, LP Oakland Manor Nursing Center, LP Southwood Care Center, LP Town and Country Manor, LP West Side Campus of Care, LP Comanche Nursing Center, LP Guadalupe Valley Nursing Center, LP Briarcliff Nursing and Rehabilitation Center, LP Live Oak Nursing Center, LP SCH VII-1 EX-4.2 6 a94359exv4w2.txt EXHIBIT 4.2 EXHIBIT 4.2 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT This Amended and Restated Stockholders Agreement (the "Agreement") is entered into effective as of August 15, 2003 by and among Fountain View, Inc., a Delaware corporation (the "Company"), the individuals and entities listed on Schedule A attached hereto, each of which has executed a Joinder Agreement in substantially the form attached hereto as Exhibit A (a "Joinder Agreement"), and any Person who hereafter becomes a stockholder of the Company as provided herein. Introduction Reference is hereby made to that certain Stockholders Agreement dated as of March 27, 1998 (the "Stockholders Agreement") among the Company, Heritage Fund II, L.P. ("Heritage"), Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal ("RS"), Sheila Snukal ("SS"), William Scott ("Scott") and certain other parties signatories thereto, as amended May 4, 1998 by and among the Company, Heritage, Baylor Health Care System ("Baylor"), and Buckner Foundation ("Buckner") (as so amended, the "First Amended Agreement"). On October 2, 2001, the Company filed a petition in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court") seeking relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101-1130 (the "Bankruptcy Code"). This Agreement amends and restates the First Amended Agreement and is adopted pursuant to the Debtors' Joint Plan of Reorganization, dated April 22, 2003, as amended (the "Reorganization Plan"), confirmed by an order (the "Confirmation Order") of the Bankruptcy Court on July 10, 2003. In accordance with the Reorganization Plan, the Company has agreed to issue (i) 15,000 shares of its Series A Preferred Stock to the holders of Class 14 Allowed Claims, (ii) 58,642 shares of its Common Stock to the holders of Class 9 Allowed Claims, (iii) 1,114,202 shares of its Common Stock to the holders of Class 15 Allowed Claims, and (iv) 20,743 shares of its Common Stock to the holders of Class 17 Allowed Claims, as each such term is defined in the Reorganization Plan. The shares of Series A Preferred Stock and Common Stock to be issued under the Reorganization Plan are referred to herein as the "New Shares". It is a condition to the issuance of the New Shares that the holders thereof agree to be bound by the terms of the Agreement. Capitalized terms used herein and not otherwise defined shall have the respective meanings given to them in Article VII at the end of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein expressed, the parties hereto hereby agree as follows: 1 ARTICLE I BOARD OF DIRECTORS; VOTING Section 1.01 Board Size. At all meetings (and written actions in lieu of meetings) of stockholders of the Company at which the number of directors of the Company is to be determined, each Stockholder shall vote all of such Stockholder's Stock to fix the number of directors of the Company at the number specified by a Majority of Investors. Section 1.02 Election of Directors. At all meetings (and written actions in lieu of meetings) of stockholders of the Company at which directors are to be elected, each Stockholder shall vote all of such Stockholder's Stock in favor of the election of: (a) RS Directors. Two nominees of RS, which number shall be increased if necessary to insure that the nominees of RS constitute not less than twenty-five percent (25%) of the total number of directors (the "RS Directors"), as long as RS holds any shares of Stock. (b) Scott Director. One nominee of Scott (the "Scott Director"), as long as Scott holds any shares of Stock. (c) Baylor Director. One nominee of Baylor ("Baylor Director"), as long as Baylor holds any shares of Stock or Stock Equivalents. (d) Investor Directors. Such number of nominees of a Majority of Investors as may be designated by a Majority of Investors, up to the maximum number of directors that constitute the whole Board after taking account of the RS Directors, the Scott Director and the Baylor Director (the "Investor Directors"). Section 1.03 Removal. Each Stockholder agrees to vote such Stockholder's Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to remove any RS Director, if so requested by RS, (b) to remove the Scott Director, if so requested by a Scott (c) to remove any Baylor Director, if so requested by Baylor and (d) to remove any Investor Director, if so requested by a Majority of Investors. Each Stockholder agrees not to vote such Stockholder's Stock in favor of the removal of any director other than in accordance with the preceding sentence. Section 1.04 Vacancies. Each Stockholder agrees to vote such Stockholder's Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to fill any vacancy on the Board of Directors of the Company (the "Board") caused by the resignation or removal of any RS Director with a nominee selected by RS, (b) to fill any vacancy on the Board caused by the resignation or removal of the Scott Director with a nominee selected by Scott, (c) to fill any vacancy on the Board caused by the resignation or removal of the Baylor Director with a nominee selected by Baylor and (d) to fill any vacancy on the Board caused by the resignation or removal of any Investor Director with a nominee selected by a Majority of Investors. Section 1.05 Meetings. The Board will meet not less often than quarterly. Each Director shall be given at least three days prior notice of any meeting and will be permitted to participate in any meeting by telephone. Any Director may call a meeting of the Board. 2 Section 1.06 Observation Rights. An Investor shall be entitled to have one observer present at any meeting of the Board if such Investor holds at least 75,000 shares of Common Stock (appropriately adjusted for stock splits, stock dividends, combinations and similar transactions) as of the date notice of such meeting is delivered. The Company shall give each Investor who is listed on the record books of the Company as holding the number of shares of Stock set forth in the foregoing sentence at least three days prior notice of any meeting so that each such Investor may designate an observer to be present at such meeting. No observer pursuant to this Section 1.06 shall have any right to vote upon any matters to be considered by the Board. Section 1.07 Voting on Other Matters. If requested by Heritage, for as long as Heritage holds more shares of Common Stock than any other Investor, the Stockholders agree to vote their Stock on all matters to be voted upon by holders of the Company's Securities (other than the election or removal of directors, which is governed by the provisions of Section 1.01 to Section 1.06 hereof) as directed by Heritage, unless the effect of such matter on such Stockholder differs materially and adversely from the effect on Heritage. Each Stockholder hereby grants Heritage an irrevocable proxy, which is coupled with an interest, to vote such Stockholder's Securities as provided in this Section. Each Qualified Stockholder shall, if such Qualified Stockholder requests, be given an opportunity to be heard by Heritage for the purpose of discussing the exercise of such proxy, provided that such opportunity shall in no way limit the scope or validity of such proxy. ARTICLE II PREEMPTIVE RIGHTS Section 2.01 Notice of Issuance. The Company will give each Qualified Stockholder (other than a Noteholder Stockholder that is not an "accreditor investor" within the meaning of the Securities Act) at least 20 Business Days prior written notice of any proposed sale or issuance by the Company of any Securities, except for Exempt Issuances. Such notice will identify the Securities to be issued, the approximate date of issuance, and the price and other terms and conditions of the issuance. Such notice will also include an offer (the "Offer") to transfer to each such Qualified Stockholder its Proportionate Percentage of such Securities (the "Offered Securities") at the price and on the other terms as are proposed for such sale or issuance, which Offer by its terms shall remain open for a period of 15 Business Days from the date of receipt of such notice and which Offer may be accepted by any such Qualified Stockholder in such Qualified Stockholder's sole discretion. The Offer will also specify each such Qualified Stockholder's Proportionate Percentage, and the manner in which it was determined. The provisions of this Article II shall not apply to any Noteholder Stockholder that is not an "accredited investor" within the meaning of the Securities Act, whether or not such Noteholder Stockholder is a Qualified Stockholder. Section 2.02 Acceptance. Each Qualified Stockholder shall give notice to the Company of such Qualified Stockholder's intention to accept an Offer prior to the end of the 15-Business Day period of such Offer, setting forth the portion of the Offered Securities which such Qualified Stockholder elects to purchase and specifying the maximum number of additional Securities such Qualified Stockholder is willing to purchase if any other Qualified Stockholder declines to purchase all of such other Qualified Stockholder's Offered Securities. If any Qualified 3 Stockholder fails to subscribe for such Qualified Stockholder's Proportionate Percentage of the Offered Securities, the other subscribing Qualified Stockholders shall be entitled to purchase such Offered Securities as are not subscribed for by such Qualified Stockholder, up to the number of additional Securities specified in their notice in the same relative proportion in which they were initially entitled to purchase the Offered Securities. The Company shall notify each Qualified Stockholder within five days following the expiration of the 15-Business Day period described above of the additional amount of Offered Securities which each Qualified Stockholder may purchase pursuant to the foregoing sentence and each Qualified Stockholder shall then have five days from the delivery of such notice to indicate such additional amount, if any, that such Qualified Stockholder wishes to purchase. Section 2.03 Sale to Qualified Stockholders. Upon the closing of any sale or issuance as to which the Company has given notice under Section 2.01, the Qualified Stockholders shall purchase from the Company, and the Company shall sell to the Qualified Stockholders the Offered Securities subscribed for by the Qualified Stockholders at the price and on the terms specified in the Offer, which shall be the same price and terms at which all other Persons acquire such Securities in connection with such sale or issuance. Section 2.04 Sale to Third Parties. If, but only if, the Qualified Stockholders do not subscribe for all of the Offered Securities, the Company shall have 150 days from the end of the foregoing 15-Business Day or five-day period, whichever is applicable, to sell all or any part of such Offered Securities as to which Qualified Stockholders have not accepted an Offer to any other Persons, at a price and on terms and conditions which are no more favorable to such other Persons or less favorable to the Company than those set forth in the Offer. Any Offered Securities not purchased by the Qualified Stockholders or other Persons in accordance with Section 2.03 and this Section 2.04 may not be sold or otherwise disposed of until they are again offered to the Qualified Stockholders under the procedures specified in this Article II. Section 2.05 Exempt Issuances. As used herein, "Exempt Issuances" means (a) the issuance of Stock and Stock Equivalents to current employees, consultants and directors of the Company or its subsidiaries (or to former employees, consultants and directors of the Company or its subsidiaries pursuant to the exercise of outstanding stock options or similar rights), (b) the issuance of shares of Stock upon the conversion or exercise of Stock Equivalents as to which the Company complied with the provisions of this Article II or was not required to comply such provisions, including without limitation the issuance of Common Stock upon the exercise of warrants to purchase Common Stock issued on or about the date hereof, and (c) the issuance of Securities which the Board determines in good faith should not, in the best interests of the Company, be subject to the provisions of this Article II, provided that none of such Securities are being issued to Heritage or its Affiliates. Section 2.06 Issuances in Advance. Notwithstanding the foregoing, if the Board determines that it should, in the best interests of the Company, issue Securities which would otherwise be required to be offered under this Article II prior to their issuance, it may issue such Securities without first complying with Sections 2.01 and 2.02 above; provided that within 30 days after such issuance, it offers each Qualified Stockholder the opportunity to purchase the number of Securities that such Qualified Stockholder would have been entitled to purchase in connection with the issuance of such Securities pursuant to the provisions of Sections 2.01 and 4 2.02 and it otherwise complies with the provisions and time periods set forth in Sections 2.01 and 2.02 as if such issuance had not yet occurred. ARTICLE III TRANSFER RESTRICTIONS FOR STOCKHOLDERS Section 3.01 No Transfer. No Stockholder (other than Heritage, as to which this Article III shall not apply) may sell, pledge, give, assign, distribute, hypothecate, mortgage or transfer (all hereinafter referred to as "transfer") any Securities owned by such Stockholder, directly or indirectly, to any other Person, except (a) in the case of Management Stockholders or Investors, other than Heritage, upon compliance with the other provisions of this Article III, (b) in the case of Noteholder Stockholders, upon compliance with the other provisions of this Article III, provided that each Noteholder Stockholder may transfer Securities only to (i) a Person that is then a Stockholder or (ii) a Person that is not then a Stockholder if the number of shares to be transferred to such Person is at least (x) 7,500 or (y) the total number of shares then held by such Noteholder Stockholder, whichever is less, or (c) in a Permitted Transfer without compliance with the other provisions of this Article III. In addition, at such time as the Company determines that additional transfers of Securities may result in it being required to register any of its Securities under the Securities Exchange Act of 1934, as amended, taking into account shares it may issue in the future, the Board, acting in good faith, may limit the number of transferees of all Stockholders in such manner and amount as it deems reasonable. Section 3.02 Offer to Company and Qualified Stockholders. If a Stockholder (the "Transferring Stockholder") desires to transfer any of such Stockholder's Securities, such Stockholder shall first offer such Securities to the Company and the other Qualified Stockholders by written notice (the "Initial Notice") stating the Securities such Stockholder desires to transfer and the proposed price (expressed in dollars) and terms of transfer (which shall be for cash payable upon the transfer). The Company and each of the other Qualified Stockholders shall then have 30 days within which to give notice (the "Return Notice") of the maximum number of such Securities they wish to acquire at the specified price and terms. Copies of each Return Notice shall be sent to the Company, to the Transferring Stockholder and to each other Qualified Stockholder. The Company shall be entitled to purchase any or all of the Securities offered. If the Company elects to purchase fewer than all of the Securities offered, each Qualified Stockholder (other than the Transferring Stockholder) shall be entitled to acquire a pro rata portion of the balance of the Securities remaining, determined in accordance with their Proportionate Percentages. If any Qualified Stockholder elects to acquire less than such Qualified Stockholder's pro rata portion of the available Securities, the other Qualified Stockholders may acquire a pro rata portion of the balance of the Securities remaining. The Company and the Qualified Stockholders shall not be entitled to acquire any Securities from the Transferring Stockholder unless they have elected, in the aggregate, to purchase all of the Securities specified in the Initial Notice. Section 3.03 Payment. The Company shall, at the close of the 30-day period provided in Section 3.02 for delivery of the Return Notice, confirm by notice the Securities to be acquired by each Qualified Stockholder and by the Company. Payment for such Securities shall be delivered within 30 days thereafter at the price and on the terms specified in the Initial Notice, against receipt from the Transferring Stockholder of certificates for the Securities purchased, 5 duly endorsed for transfer, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Section 3.04 Right to Sell. If, at the close of the 30-day period provided in Section 3.02 for delivery of the Return Notice, the Company and the other Qualified Stockholders have not sent notice of their intention to acquire, in the aggregate, all of the Securities offered, the Transferring Stockholder shall have 120 days to transfer the Securities specified in the Initial Notice at the price and on the terms set forth in the Initial Notice, or at a higher price than the price specified therein. After the expiration of 120 days the Transferring Stockholder may not transfer such Securities unless and until they are again offered to the Company and the other Qualified Stockholders under the procedures specified in this Article III, where applicable. Section 3.05 Legends. All certificates or instruments representing Securities issued to any party to this Agreement, other than the Noteholder Stockholders, shall bear substantially the following legends: (A) THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS COVERING SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER SHALL HAVE OBTAINED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. (B) THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. All certificates or instruments representing Stock issued to the Noteholder Stockholders shall bear substantially the legend set forth in clause (B) of this Section 3.05. ARTICLE IV TRANSFERS BY HERITAGE Section 4.01 Co-Sale Rights. If Heritage determines to transfer, including without limitation any transfer pursuant to a merger, consolidation or other business combination of the Company or any subsidiary with another person or entity (except pursuant to a public offering), all or a portion of the Common Stock held by it (any such transfer being referred to herein as a "Heritage Transfer Event"), Heritage shall give prior notice thereof (the "Transfer Event Notice") to the other Qualified Stockholders, indicating the overall value of the Company 6 implied by the transfer, the Common Stock to be transferred and the value of such Common Stock in the proposed transfer, which value will be determined by taking the overall Company value stated in the notice and allocating that value among the Company's outstanding Securities in accordance with the liquidation provisions of the Certificate of Incorporation (assuming the conversion of all Stock Equivalents into Stock). Each other Qualified Stockholder shall have the right, by giving notice thereof to Heritage within 20 days after receipt of the Transfer Event Notice, to include in such transfer the same proportion of its holdings of each class of Stock or Stock Equivalents as Heritage transfers of its holdings of Common Stock in such transaction; provided, that each holder of Series A Preferred Stock shall be entitled to include all of such holder's shares of Series A Preferred Stock in any such transfer that constitutes a Trigger Event. Except as provided below, Heritage will not transfer any shares of Common Stock in a transaction covered by this Section 4.01 unless the transferee also acquires any Stock or Stock Equivalents requested by the other Qualified Stockholders pursuant to the preceding sentence to be included in such transfer, at the applicable values determined in accordance with the preceding paragraph (except as provided in Section 4.04 below) and terms specified in the Transfer Event Notice and in the same form of consideration received by Heritage, and as to which the other Qualified Stockholders comply with the following paragraph. In the event that more Stock or Stock Equivalents are requested to be included in any transfer under this Section 4.01 than the transferee is willing to purchase, the Securities to be transferred by Heritage and the other Qualified Stockholders to such transferee shall be reduced pro rata among Heritage and such other Qualified Stockholders based on the number of shares of Stock (assuming the conversion of all Stock Equivalents) requested to be included in such transfer (and subject to the prior rights of holders of Series A Preferred Stock to transfer all their shares in a transfer that constitutes a Trigger Event). Heritage shall have 150 days after the close of the 20-day period specified above to transfer the shares of Common Stock described in the Transfer Event Notice at the price (except as provided in Section 4.04 below) and on the terms specified therein, together with any additional Stock or Stock Equivalents to be included in such transfer pursuant to the preceding paragraph. Any Qualified Stockholder whose Stock or Stock Equivalents are being transferred pursuant hereto, in order to be entitled to have such Stock or Stock Equivalents transferred, shall deliver on no less than five Business Days notice from Heritage, at the time and place specified by Heritage, certificates representing the Stock or Stock Equivalents to be transferred, duly endorsed for transfer to the transferee designated by Heritage, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Notwithstanding the foregoing, this Section 4.01 shall not apply to transfers by Heritage to its partners which are required by Article X of its Agreement of Limited Partnership, as in effect on May 4, 1998, a true and correct copy of which Article X has been delivered to Baylor, if such partners become parties to this Agreement. Section 4.02 Required Transfers. Each Securityholder agrees, at Heritage's request and upon not less than 20 days prior notice from Heritage, to transfer in any transaction constituting a Heritage Transfer Event which occurs on or after the occurrence of a Trigger Event (other than any transfer to an Affiliate of Heritage), at a price (except as provided in Section 4.04 below) and 7 on terms determined in the manner applicable to transfers under Section 4.01, the same proportion of its holdings of each class of Securities as Heritage transfers of its holdings of Common Stock in such transaction, except that the holders of Series A Preferred Stock may elect, if such Heritage Transfer Event involves a Trigger Event, to transfer all shares of Series A Preferred Stock held by them in such transaction. Upon receipt of notice from Heritage under this Section 4.02, each Securityholder shall deliver, on not less than five Business Days notice from Heritage, at the time and place specified by Heritage, certificates representing the Securities to be transferred, duly endorsed for transfer to the transferee designated by Heritage, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Section 4.03 Certain Obligations Relating to Transfer Events. The Securityholders will (a) cooperate with Heritage in all respects in the consummation of any Heritage Transfer Event, (b) vote their Securities in favor of any Heritage Transfer Event, if requested by Heritage, and (c) execute all agreements, documents and instruments reasonably required by Heritage, which agreements, documents and instruments will be substantially similar to those executed by Heritage to consummate such Heritage Transfer Event, provided, however, that any obligation of the Securityholders with respect to indemnification or representations, warranties and covenants shall be several and not joint and that such obligations shall be limited for each Securityholder to the amount of proceeds received by such Securityholder in such Heritage Transfer Event (other than proceeds received with respect to shares of Series A Preferred Stock held by such Securityholder, except with respect to indemnification relating to title, authority to transfer and similar matters relating to the sale of such shares of Series A Preferred Stock). Section 4.04 Treatment of Stock Equivalents. For purposes of Sections 4.01 and 4.02, Stock Equivalents shall be deemed to be the same class of Stock as the Securities for which they are exercisable or into which they are convertible, but the price payable for them in connection with a Heritage Transfer Event shall be reduced by the exercise price thereof or other consideration required to be paid to the Company to acquire the underlying Stock. ARTICLE V PUBLIC OFFERING Section 5.01 Stand-Off in Connection with Initial Public Offering. Notwithstanding anything to the contrary contained in this Agreement or in the Certificate of Incorporation, in connection with a registered Public Offering of the Company's Common Stock, the each Securityholder will execute all agreements, documents and instruments reasonably required by a Majority of Investors, consistent with this Section 5.01, whereby such Securityholder shall agree not to sell, grant any option for the purchase of, or otherwise dispose of any Securities (other than those included in such registration) for such period as may be reasonably requested by the managing underwriter of any Public Offering of the Company's Common Stock (not to exceed (A) 180 days thereafter, in the case of the initial Public Offering of the Company's Common Stock or (B) 90 days thereafter, in the case of any other registration). Section 5.02 Termination. This Agreement will terminate upon the consummation of an initial public offering of the Company's Common Stock. 8 ARTICLE VI MISCELLANEOUS Section 6.01 Affiliate Transactions. The Company will not, and will not permit any of its subsidiaries to, engage in any transaction with any Affiliate of the Company other than (a) as expressly contemplated by this Agreement, (b) issuances of Securities in compliance with (or which are exempt from) Article II or (c) those transactions that are on a commercially-reasonable, arms-length basis and that are approved by a disinterested majority of the Board. Section 6.02 Information. The Company will provide to each Qualified Stockholder (other than a Noteholder Stockholder) the following reports: (a) Monthly Reports. As soon as available, a consolidated balance sheet of the Company as at the end of such period and the related consolidated statement of operations for such period and for the portion of the Company's fiscal year ended on the last day of such month, in each case setting forth in comparative form the corresponding figures for the same period and portion of the next preceding fiscal year. (b) Quarterly Reports. As soon as available, a consolidated balance sheet of the Company as at the end of such period and the related consolidated statements of operations, stockholders' equity and cash flows for such period and for the portion of the Company's fiscal year ended on the last day of such quarter, in each case setting forth in comparative form the corresponding figures for the same period. (c) Annual Reports. As soon as available, a consolidated balance sheet of the Company as at the end of such year and the related consolidated statements of income, stockholders' equity and cash flows for such year, in each case setting forth in comparative form the corresponding figures for the next preceding fiscal year, accompanied by the report on such consolidated financial statements of national independent certified public accountants selected by the Board. (d) Securities Filings. As promptly as practicable and in any event within five days after the same are available, copies of all periodic and special reports, documents and registration statements which the Company furnishes or files with the Securities and Exchange Commission or any securities exchange. (e) Board of Directors Information. As promptly as practicable, copies of all information furnished by the Company to its directors in connection with meetings of the Board. (f) Other Information. Such other information relating to the Company as from time to time may reasonably be requested. Section 6.03 Inspection. The Company will permit any person designated by a Qualified Stockholder (other than a Noteholder Stockholder), on reasonable notice and during normal business hours, to visit and inspect any of the properties, books and records of the Company or its subsidiaries and to discuss issues relating to the Company with the Company's management. 9 Section 6.04 Noteholder Stock Transfers. If a Noteholder transfers its Noteholder Stock as permitted by this Agreement, such Noteholder Stock shall continue to be classified as Noteholder Stock for purposes of this Agreement but the holder thereof shall not become a Noteholder Stockholder by virtue of such transfer. If a Person holds Noteholder Stock and other Stock, upon a transfer of Stock by such Person, such Person shall be deemed to have first transferred the other Stock and then transferred the Noteholder Stock. Section 6.05 Other Activities of Securityholders and Directors. Securityholders and their Affiliates may engage in and possess interests in other business ventures and investment opportunities, except as provided in any employment agreement between such Securityholder and the Company. Neither the Company nor any other Securityholder shall have any rights in or to such ventures or opportunities or the income or profits therefrom by reason of this Agreement. Section 6.06 Issuance of Certain Shares of Stock by the Company and its Subsidiaries. The Company will not, at any time when any shares of Series A Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding, (i) issue any shares of preferred stock or other equity Securities having rights or preferences which are senior to or pari passu with the rights and preferences applicable to the Series A Preferred Stock with respect to liquidation, dividends or redemption, or (ii) permit any of its subsidiaries (other than any subsidiary whose assets or gross revenues, combined with the assets or gross revenues of all other subsidiaries which have issued equity Securities to any Person other than the Company or any other subsidiary of the Company since April 30, 1998, did not exceed twenty percent (20%) of the Company's consolidated assets or gross revenues, respectively, at any time within the preceding twelve months) to issue any shares of their capital stock to any Person other than the Company or any other subsidiary of the Company. Notwithstanding the foregoing, the Company may issue any Stock without regard to the restrictions contained in this Section 6.06 if at the time of such issuance (A) the aggregate amount of outstanding indebtedness of the Company, determined in accordance with generally accepted accounting principles, including the issuance of Series A Preferred Stock and any preferred stock to which this Section 6.06 is applicable, is not more than four (4) times the EBITDA (as defined below) of the Company for the Company's four most recently completed fiscal quarters, and (B) the Fixed Charge Coverage Ratio of the Company, including the issuance of Series A Preferred Stock and any preferred stock to which this Section 6.06 is applicable, is not less than 2.0 to 1. The term "EBITDA" as used in this Section 6.06 shall mean consolidated net income, after restoring thereto amounts deducted with respect to interest, taxes, depreciation, amortization and other non-cash charges. The term "Fixed Charge Coverage Ratio" as used in this Section 6.06 shall have the meaning set forth in the Indenture of even date herewith with respect to the Company's Senior Subordinated Secured Increasing Rate Notes due 2008. Section 6.07 Payment of Certain Dividends and Redemptions with Respect to Capital Stock. The Company will not, at any time when any shares of Series A Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding, (i) pay any amounts to the holders of shares of capital stock of the Company (other than shares of Series A Preferred Stock or shares of preferred stock issued pursuant to Section 6.06 hereof) in respect of a redemption or repurchase of such shares which 10 exceed in the aggregate, collectively with any other payments made under clause (i) or (ii) of this Section 6.07, the Section 6.07 Amount, or (ii) pay any amounts to the holders of shares of capital stock of the Company (other than shares of Series A Preferred Stock or shares of preferred stock issued pursuant to Section 6.06 hereof) in respect of a dividend or distribution (A) while any dividends with respect to shares of Series A Preferred Stock remain accrued but not yet paid, unless the Company shall at such time pay a dividend with respect to the shares of Series A Preferred Stock in an aggregate amount equal to the amount of the proposed payment under this clause (ii) multiplied by a fraction, the numerator of which is the amount of accrued but not yet paid dividends owed with respect to shares of Series A Preferred Stock and the denominator of which is the Section 6.07 Amount, and (B) which exceed in the aggregate, collectively with any other payments made under clause (i) or clause (ii) of this Section 6.07, the Section 6.07 Amount. Any payments made with respect to shares of Series A Preferred Stock pursuant to clause (ii) (A) above shall be excluded in determining whether the Section 6.07 Amount has been exceeded. Section 6.08 Failure to Deliver Securities. If any Securityholder fails to deliver any Securities to be acquired, transferred or exchanged hereunder, the acquiror may elect to establish a segregated account in the amount of the price to be paid therefor, such account to be turned over to such Securityholder upon delivery of instruments transferring the Securities. If a segregated account is so established, the Company shall take such action as is appropriate to transfer record title to the Securities from such Securityholder to the acquiror. Each Securityholder hereby irrevocably grants the Company a power of attorney to effectuate the purposes of this Section 6.08. Section 6.09 Requirement to be Bound by Agreement. Unless waived by the Board, notwithstanding anything to the contrary contained in this Agreement, no Person shall acquire any Securities, whether by transfer from a Securityholder, issuance by the Company or otherwise, and whether or not any such Securities are subject to vesting or similar restrictions, unless such Person first executes a Joinder Agreement, agreeing to be bound by all the terms of this Agreement. Upon the execution of a Joinder Agreement by a Person, the Company shall amend Schedule A to set forth the name and address of such Person. The Company shall not issue any Securities or transfer any Securities on its books which have been issued or transferred in violation of this Agreement, or treat as the owner of such Securities, or accord the right to vote as such owner or pay dividends to, any Person to which any such Securities shall have been issued or transferred in violation of this Agreement. Section 6.10 Exercise of Contractual Rights. The Company and its Securityholders recognize, acknowledge and agree that the Securityholders have substantial financial interests in the Company to preserve and that the exercise by them of any of their respective rights under this Agreement or any of the other agreements contemplated hereby shall not be deemed to constitute a lack of good faith, a breach of fiduciary duties or unfair dealing. Section 6.11 Specific Enforcement. Each Securityholder expressly agrees that the other Securityholders and the Company would be irreparably damaged if this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms or provisions of this Agreement by any Securityholder, the other Securityholders and the Company shall, in addition to all other remedies, each be entitled to a temporary or permanent injunction, and/or decree for 11 specific performance, in accordance with the provisions hereof, without the necessity of proof of actual charges or the posting of a bond or other security. Section 6.12 Successors and Assigns. Subject to the restrictions on transfers set forth herein, this Agreement shall be binding upon and shall inure to the benefit of the Securityholders and their respective successors, successors-in-title, heirs and assigns, and each and every successor-in-interest to any Securityholder shall hold all Securities subject to all of the terms and provisions of this Agreement. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of any Securityholder, or any creditor of the Company other than a Securityholder who is such a creditor of the Company. Section 6.13 Waivers, Amendments, Etc. Except as otherwise provided herein, no waiver, modification or amendment of this Agreement shall be valid or binding unless such waiver, modification or amendment is in writing and duly executed by (a) the Company, (b) Heritage, (c) a Majority of Investors (other than Heritage) as to which the effect of such waiver, modification or amendment (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of such Investors provided for in this Agreement, including but not limited to any rights under Sections 6.02 or 6.03 hereof, or create any material additional obligation for such Investors, (d) a Majority of Management Stockholders as to which the effect of such waiver, modification or amendment (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of such Management Stockholders provided for in this Agreement, including but not limited to any rights under Sections 6.02 or 6.03 hereof, or create any material additional obligation for such Management Stockholders and (e) a Majority of Noteholder Stockholders as to which the effect of such waiver, modification, or amendment (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of Noteholder Stockholders provided for in this Agreement or create any material additional obligation for Noteholder Stockholders. Notwithstanding the foregoing, any waiver, modification or amendment which requires any Investor, Management Stockholder or Noteholder Stockholder to make additional cash contributions to the Company shall require the consent of such Investor, Management Stockholder or Noteholder Stockholder, as the case may be. Section 6.14 Notices. All notices under this Agreement shall be in writing. Any notice shall be deemed to have been duly given upon receipt if delivered personally, mailed, certified mail, return receipt requested, sent by facsimile, with verification of receipt and written confirmation provided by another means permitted hereunder, or sent by nationally recognized overnight delivery service, to the parties hereto at the addresses set forth on Schedule A. Upon notice from any Securityholder of a change in address, the Company will cause Schedule A to be amended to reflect the new address of such Securityholder. Section 6.15 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of laws or choice of laws of the State of Massachusetts, and with respect to matters covered thereby, the General Corporation Law of the State of Delaware. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective 12 and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under any such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating or nullifying the remainder of such provision or any other provisions of this Agreement. Section 6.16 Headings. The headings of Articles and Sections herein are inserted for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 6.17 Counterparts. This Agreement may be executed in any number of counterparts, and with counterpart signature pages, all of which together shall for all purposes constitute one Agreement, binding on the Company and all the Securityholders notwithstanding that not all Securityholders have signed the same counterpart. The execution of a Joinder Agreement shall have the same effect as executing a counterpart to this Agreement. Section 6.18 Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. Section 6.19 Noteholder Stockholders. In accordance with the terms of the Reorganization Plan, except as set forth in Article II with respect to Noteholder Stockholders that are not "accredited investors" within the meaning of Regulation D under the Securities Act, Section 6.02 and 6.03, each of the Noteholder Stockholders shall be entitled to all of the rights and shall be subject to all of the obligations of a Qualified Stockholder under this Agreement, so long as the aggregate number of shares of Stock held by all Noteholders is greater than 10,000. ARTICLE VII DEFINITIONS For purposes of this Agreement, the following terms shall have the following respective meanings: Act shall have the meaning specified in Section 3.05. Affiliate shall have the meaning given to it in Rule 405 promulgated under the Securities Act. Agreement shall mean this Amended and Restated Stockholders Agreement, as amended from time to time. Baylor shall have the meaning set forth in the Introduction. Baylor Director shall have the meaning specified in Section 1.02. Board shall have the meaning specified in Section 1.04. Buckner shall have the meaning specified in the Introduction. 13 Business Day shall mean any day on which businesses are generally open in Los Angeles, California. Certificate of Incorporation shall mean the Certificate of Incorporation of the Company, as amended from time to time. Common Stock shall mean the common stock, par value $0.01 per share, of the Company. Company shall have the meaning specified in the Preamble, and shall also include any successor entity to the Company. Exempt Issuances shall have the meaning specified in Section 2.05. Heritage shall have the meaning specified in the Introduction. Heritage Transfer Event shall have the meaning specified in Section 4.01 Initial Notice shall have the meaning specified in Section 3.02. Investors shall mean Heritage, Heritage Investors II L.L.C., Heritage Fund II Investment Corporation, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC and each other Stockholder that first becomes a Stockholder as a result of acquiring Stock from Heritage or from another Investor. Investor Directors shall have the meaning specified in Section 1.02. Joinder Agreement shall have the meaning set forth in the Preamble. Majority of Management Stockholders shall mean Management Stockholders who hold a majority of the Common Stock held by all Management Stockholders. Majority of Investors shall mean Investors who hold a majority of the Common Stock held by all Investors (assuming the exercise or conversion of all Stock Equivalents held by all Investors); provided that any decision, determination or actions to be made or taken by a Majority of Investors shall be made or taken by Heritage as long as Heritage holds more shares of Common Stock than any other Investor. Majority of Noteholder Stockholders shall mean Noteholder Stockholders who hold a majority of the Noteholder Stock held by all Noteholder Stockholders. Management Stockholders shall mean all Stockholders that are not Investors or Noteholder Stockholders. Noteholders shall mean holders of the Company's Senior Subordinated Secured Increasing Rate Notes due 2008. 14 Noteholder Stock shall mean all Common Stock distributed pursuant to the Reorganization Plan to holders of the Company's Senior Subordinated Secured Increasing Rate Notes due 2008 issued by the Company pursuant to that certain trust indenture of even date herewith. Noteholder Stockholder shall mean each Noteholder that holds any Noteholder Stock. Offer shall have the meaning specified in Section 2.01. Offered Securities shall have the meaning specified in Section 2.01. Permitted Transfers shall mean any of the following: (a) Transfers of Securities of a Securityholder to the trustees of a trust revocable by such Securityholder alone, the beneficiaries of which consist solely of such Securityholder and transferees enumerated in clause (d) below; (b) Transfers of Securities between a Securityholder and such Securityholder's guardian or conservator; (c) Transfers of Securities of a deceased Securityholder to such Securityholder's executors or administrators or to trustees under such Securityholder's will and thereafter to transferees enumerated in clause (d) below; (d) Transfers of Securities of a Securityholder to the spouse of such Securityholder, to any of such Securityholder's children or their issue (or to custodians for the benefit of minor children or issue), or to such Securityholder's parents or siblings; (e) Transfers of Securities by any Securityholder which is a corporation, partnership, limited liability company or other entity to any owner or Affiliate of such Securityholder, provided that such Securityholder may not transfer Securities to more than (i) a total of five (5) of its owners or Affiliates pursuant to this clause (e) before December 31, 2004 (unless such transfer relates to a liquidation or winding-up of such Securityholder, in which case the maximum number specified in this clause (i) shall be 16), and (ii) a total of sixteen (16) of its owners or Affiliates pursuant to this clause (e) after January 1, 2005; and provided, further, that this clause (e) shall not be applicable to transfers of Noteholder Stock. (f) Transfers of warrants to purchase Common Stock of the Company by Baylor or Buckner to any broker or agent retained by Baylor or Buckner with respect to their investment in the Company (up to a maximum of warrants to purchase 20,742 shares of Common Stock in the aggregate) or transfers of Securities of Baylor to Baylor Health Care System Foundation (in any amount); (g) Transfers of Securities by Heritage Fund II Investment Corporation to any other Person; (h) Transfers of Securities pursuant to Articles III or IV; and 15 (i) In the case of the transfer of any Noteholder Stock held by a Noteholder Stockholder that holds such Noteholder Stock in the capacity of nominee, depository, agent, trustee or custodian for the benefit of another Person, or that shall have investment authority over such Noteholder Stock for the benefit of another Person, transfers of such Noteholder Stock to another nominee, depository, agent, trustee or custodian for such Person or any other party who shall have investment authority over such Noteholder Stock; provided, however, that Securities transferred pursuant to clauses (a) - (f) may not be further transferred under such clauses except to a Person that would have been a permitted transferee thereof from the initial Securityholder who held such Securities. Person shall mean any natural person, corporation, limited liability company, partnership, trust or other entity. Proportionate Percentage of a Securityholder shall mean a fraction of which (a) the numerator is the number of then outstanding shares of Common Stock held by such Securityholder (assuming the exercise or conversion of all Stock Equivalents held by such Securityholder), and (b) the denominator is the total number of then outstanding shares of Common Stock (assuming the exercise or conversion of all Stock Equivalents held by all Securityholders). Public Offering shall mean a registered underwritten public offering of shares of Common Stock. Qualified Stockholder shall mean any Stockholder then holding more than 10,000 shares of Stock (assuming the exercise or conversion of all Stock Equivalents held by such Stockholder, and appropriately adjusted for stock splits, stock dividends, combinations and other similar transactions); provided that (a) all shares of Stock held by a Stockholder and any transferees of such Stockholder under clause (e) of the definition of Permitted Transfers shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (b) all shares of Stock held by GS Private Equity Partners, L,P, and GS Private Equity Partners Offshore, L.P. shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (c) all shares of Stock held by Nassau Capital Partners II L.P. and NAS Partners I LLC shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (d) all shares of Stock held by Baylor, Buckner and each transferee of Baylor or Buckner permitted under clause (f) of the definition of Permitted transfers shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, and (e) all shares of Noteholder Stock held by all Noteholders shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder. Reorganization Plan shall have the meaning specified in the Introduction. Return Notice shall have the meaning specified in Section 3.02. RS shall mean Robert Snukal. Scott shall mean William Scott. 16 Section 6.07 Amount shall mean $20,000,000. Securities shall mean all Stock, Stock Equivalents and all other equity securities of the Company, and any debt securities issued together with warrants or similar rights, provided that the Company's Senior Subordinated Secured Increasing Rate Notes shall not constitute "Securities" pursuant to this Agreement. Securities Act shall mean the Securities Act of 1933, as amended. Securityholder shall mean the holder of any Securities. Series A Preferred Stock shall mean the 15,000 shares of Series A Preferred Stock, par value $0.01 per share, of the Company issued by the Company pursuant to the Reorganization Plan. SS shall mean Sheila Snukal. Stock shall mean all outstanding capital stock of the Company. Stock Equivalents shall mean any equity or debt security convertible into or exchangeable for any Stock, or any right, warrant or option to acquire any Stock or such convertible or exchangeable equity interest or security. Stockholder shall mean each Person who holds any Stock (and shall also include Baylor and Buckner so long as they shall hold any Stock Equivalents). transfer shall have the meaning specified in Section 3.01. Transfer Event Notice shall have the meaning specified in Section 4.01 Transferring Stockholder shall have the meaning specified in Section 3.02. Trigger Event shall mean any of the following: (A) the closing of a Public Offering, (B) the sale of Stock in a single transaction or a series of related transactions, or a merger or consolidation of the Company as a result of which a majority of the outstanding Stock is not held by the initial parties to the Stockholders Agreement and their transferees under clauses (a) through (f) of the definition of "Permitted Transfers", or (C) the sale of all or substantially all of the consolidated assets of the Company and its Subsidiaries, approved as required by this Agreement. [Signature Page Follows] 17 IN WITNESS WHEREOF, the parties hereto have signed and sworn to this Agreement as of the date first above written. FOUNTAIN VIEW, INC., a Delaware corporation By: \s\ Roland G. Rapp ------------------------------- Name: Roland G. Rapp Title: Secretary [Fountain View, Inc. Amended and Restated Stockholders' Agreement] S-1 SCHEDULE A ADDRESSES FOR NOTICE [Address of all signatories to Joinder to be inserted following execution of Joinder, exhibit to be provided to such signatories upon completion] Schedule A-1 EXHIBIT A FORM OF JOINDER AGREEMENT JOINDER TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT The undersigned hereby executes this JOINDER TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT effecting a joinder to the Amended and Restated Stockholders Agreement effective as of August 15, 2003 (the "Stockholders Agreement"), by and between Fountain View, Inc. a Delaware corporation (the "Company"), and the parties identified on Schedule A attached thereto. By its execution hereof, the undersigned agrees to be bound by the terms and conditions of the Stockholders Agreement. [If sent to a Noteholder Stockholder] [The undersigned hereby represents and warrants to the Company that, as of the record date, April 15, 2003, it was the beneficial holder of the principal amount of the Company's 11 1/4% Senior Subordinated Notes due 2008 that is set forth below (the "Principal Amount"). The undersigned acknowledges that the Company will rely on and use the Principal Amount to determine the number of shares of the Company's common stock that the undersigned is entitled to receive and agrees that, if the Principal Amount is determined to overstate the principal amount of Notes held by the undersigned, the Company is unilaterally authorized to cancel any shares of common stock issued to the undersigned in respect of such overage amount.] Date: ______________________________ STOCKHOLDER: __________________________, a _____ By: _______________________________ Name: ____________________________ Title: ____________________________ [Aggregate principal amount of Notes Address: beneficially owned on April 15, 2003:] _____________________________ _____________________________ $___________________________________ _____________________________ Telephone: ( ) ___________ with copies to: Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 Attn: Michael S. Stamer, Esq. Exhibit A-1 EX-4.3 7 a94359exv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 AMENDMENT NO. 1 TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT This Amendment No. 1 to Amended and Restated Stockholders Agreement (the "Amendment") is entered into effective as of August 18, 2003 by and among Fountain View, Inc., a Delaware corporation (the "Company"), Heritage Fund II, L.P., a Delaware limited partnership ("Heritage"), Robert Snukal ("RS") and Sheila Snukal ("SS", and together with RS, the "Snukals"). INTRODUCTION Reference is hereby made to that certain Stockholders Agreement dated as of March 27, 1998 (the "Stockholders Agreement") among the Company, Heritage, Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, RS, SS, William Scott and certain other parties signatories thereto, as amended May 4, 1998 by and among the Company, Heritage, Baylor Health Care System, and Buckner Foundation (as so amended, the "First Amended Agreement"). Reference is hereby made to that certain Amended and Restated Stockholders Agreement effective as of August 15, 2003 (the "Amended and Restated Stockholders Agreement") among the Company and the individuals and entities listed on Schedule A attached thereto. On October 2, 2001, the Company filed a petition in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court") seeking relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101-1130 (the "Bankruptcy Code"). The Amended and Restated Stockholders Agreement amended and restated the First Amended Agreement and was adopted pursuant to the Debtors' Third Amended Joint Plan of Reorganization, dated April 22, 2003, (the "Reorganization Plan"), confirmed by an order (the "Confirmation Order") of the Bankruptcy Court on July 10, 2003. Pursuant to that certain Stipulation between (i) the Debtors, and (ii) Robert Snukal and Sheila Snukal (the "Stipulation"), confirmed by an order of the Bankruptcy Court on August 19, 2003, RS and SS have agreed and consented to amend the Amended and Restated Stockholders Agreement to provide that the Snukals may designate only one director to serve on the Board of Directors of the Company, without regard to the total size of the Board. Capitalized terms used herein and not otherwise herein defined shall have the respective meanings given to them in the Amended and Restated Stockholders Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein expressed, the parties hereto hereby agree as follows: 1. RS Director. a. Section 1.02 (a) of the Amended and Restated Stockholders Agreement is hereby deleted in its entirety and replaced with the following: "RS Director. One nominee of RS (the "RS Director"), as long as RS holds any shares of Stock." b. All references in the Amended and Restated Stockholders Agreement to "RS Directors" or "any RS Director" shall hereby be deemed references to the RS Director. 2. Other Provisions. Except as otherwise expressly provided herein, all provisions of the Amended and Restated Stockholders Agreement shall remain in full force and effect. 3. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 4. Facsimile Signatures. This Amendment may be executed by facsimile transmission and such facsimile will be valid and binding to the same extent as if it were an original. 5. Governing Law. This Amendment shall be governed by and interpreted, construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of laws or choice of laws of the State of Massachusetts, and with respect to matters covered thereby, the General Corporation Law of the State of Delaware. 6. Severability. In the event any one or more of the provisions contained in this Amendment shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Amendment. 7. Entire Agreement. This Amendment, together with the Amended and Restated Stockholders Agreement, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and may not be changed or modified except by an agreement in writing signed by the parties in accordance with the provisions of the Amended and Restated Stockholders Agreement. [Signature Page Follows] 2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FOUNTAIN VIEW, INC., a Delaware corporation By: \s\ Roland Rapp -------------------------------- Name: Roland G. Rapp Title: Secretary HERITAGE FUND II, L.P., a Delaware limited partnership By: HF Partners II, LLC, its General Partner By: \s\ Mark Jrolf ------------------------------- Name: Mark Jrolf Title: ____________________________ ROBERT SNUKAL By: \s\ Robert Snukal --------------------------- Name: Robert Snukal SHEILA SNUKAL By: \s\ Sheila Snukal ----------------------------- Name: Sheila Snukal [Amendment No. 1 Amended and Restated Stockholders Agreement] S-1 EX-4.4.1 8 a94359exv4w4w1.txt EXHIBIT 4.4.1 EXHIBIT 4.4.1 Certificate FOUNTAIN VIEW, INC. *________* Shares Number C-___ A Delaware Corporation Common Stock, $0.01 par value Capital Stock: 2,500,000 Shares Preferred Stock: 1,000,000 Shares Common Stock: 1,500,000 Shares THIS CERTIFIES THAT *___________________* is the record holder of [_____________] (______) shares of the COMMON STOCK of FOUNTAIN VIEW, INC., transferable only on the share register of said Corporation, in person or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and the Bylaws of said Corporation and any amendments and/or restatements thereof, to all of which the holder of this certificate, by acceptance hereof, assents. A statement of the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights may be obtained by any stockholder, upon request and without charge, at the principal office of the Corporation. FOR RESTRICTIONS ON TRANSFER OF SHARES AND OTHER RIGHTS AND RESTRICTIONS SEE REVERSE SIDE OF THIS CERTIFICATE. IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by its duly authorized officers this ____ day of __________,_____. ___________________________ _________________________________________ Roland Rapp, Secretary Boyd Hendrickson, Chief Executive Officer FOR VALUE RECEIVED, ___________________________________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO ____________________________________, ________________________________________________ (_________) SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ______________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED __________________, _____ ____________________________________ (Stockholder) THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS COVERING SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER SHALL HAVE OBTAINED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. EX-4.4.2 9 a94359exv4w4w2.txt EXHIBIT 4.4.2 EXHIBIT 4.4.2 Certificate FOUNTAIN VIEW, INC. *________* Shares Number PA-___ A Delaware Corporation Series A Preferred Stock, $0.01 par value Capital Stock: 2,500,000 Shares Preferred Stock: 1,000,000 Shares Common Stock: 1,500,000 Shares THIS CERTIFIES THAT *___________________* is the record holder of [_____________] (______) shares of the SERIES A PREFERRED STOCK of FOUNTAIN VIEW, INC., transferable only on the share register of said Corporation, in person or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and the Bylaws of said Corporation and any amendments and/or restatements thereof, to all of which the holder of this certificate, by acceptance hereof, assents. A statement of the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights may be obtained by any stockholder, upon request and without charge, at the principal office of the Corporation. FOR RESTRICTIONS ON TRANSFER OF SHARES AND OTHER RIGHTS AND RESTRICTIONS SEE REVERSE SIDE OF THIS CERTIFICATE. IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by its duly authorized officers this ____ day of __________, ____. ___________________________ _________________________________________ Roland Rapp, Secretary Boyd Hendrickson, Chief Executive Officer FOR VALUE RECEIVED, ___________________________________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO ____________________________________, ________________________________________________ (_________) SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ______________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED __________________, _____ _______________________________ (Stockholder) THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS COVERING SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER SHALL HAVE OBTAINED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. EX-4.5 10 a94359exv4w5.txt EXHIBIT 4.5 EXHIBIT 4.5 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF _____ __, 2003 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. [__] Warrant to Purchase [_____] Shares of Common Stock FOUNTAIN VIEW, INC. Warrant Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby certifies that, for value received, [_____________________] or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time on or after August __, 2003, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration Date"), up to [_______] fully paid and nonassessable shares of the Company's Common Stock at the purchase price (the "Warrant Price") of $.01 per share and otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have the meanings set forth below: "Stockholders Agreement" means the Amended and Restated Stockholders Agreement dated as of August __, 2003 among the Company, the individuals and entities listed on Exhibit A thereto, and any Person who thereafter becomes a stockholder of the Company as provided therein, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc. The Warrant Price and the number of shares of Common stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times reserve and keep available a number of its authorized shares of Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Common Stock issued pursuant to the exercise of this Warrant will, upon the issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Common Stock for which this warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to 2 surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Common Stock shall mean (i) if the company has consummated a registered public offering of its Common Stock, the average of the closing sale prices of each share of Common Stock for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its Common Stock, the fair market value of each share of Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this Warrant by any holder of shares of the Company's Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 3 Section 11. Notices. Any notice or other communication given pursuant to this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Common Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of Massachusetts, (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By: ___________________________ Roland Rapp Secretary 4 FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____________* shares of Common Stock of Fountain View, Inc., and herewith makes payment of $_________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to __________________________, whose address is _______________________ _______________________________________________________________________________. Dated: __________________________________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. 5 FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________ the right represented by the within Warrant to purchase shares of Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _____________________ its attorney to transfer such right On the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________________________________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) 6 EX-10.1 11 a94359exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 REVOLVING CREDIT AND SECURITY AGREEMENT AMONG FOUNTAIN VIEW, INC. AND THE SUBSIDIARY BORROWERS LISTED ON SCHEDULE 1 ANNEXED HERETO, AS BORROWERS and CAPITALSOURCE FINANCE LLC, AS AGENT and CAPITALSOURCE FINANCE LLC, AS SOLE LENDER DATED AS OF AUGUST 19, 2003 REVOLVING CREDIT AGREEMENT TABLE OF CONTENTS
Page ---- I. DEFINITIONS.................................................................................. 1 1.1. General Terms....................................................................... 1 II. ADVANCES, PAYMENT AND INTEREST............................................................... 1 2.1. The Revolving Facility.............................................................. 2 2.2. The Revolving Notes; Maturity....................................................... 2 2.3. Interest on the Revolving Notes..................................................... 3 2.4. Revolving Facility Disbursements; Requirement to Deliver Borrowing Certificate...... 3 2.5. Revolving Facility Collections; Repayment; Borrowing Availability and Lockbox....... 4 2.6. Promise to Pay; Manner of Payment................................................... 5 2.7. Repayment of Excess Advances........................................................ 5 2.8. Other Mandatory Prepayments......................................................... 6 2.9. Payments by Agent................................................................... 7 2.10. Grant of Security Interest; Collateral.............................................. 7 2.11. Collateral Administration........................................................... 9 2.12. Power of Attorney................................................................... 11 2.13. Notes............................................................................... 11 2.14. Replacement of Lost Notes........................................................... 11 2.15. Replacement of Lenders.............................................................. 12 III. FEES AND OTHER CHARGES....................................................................... 13 3.1. Commitment Fee...................................................................... 13 3.2. Unused Line Fee; Minimum Loan Fee................................................... 13 3.3. Collateral Management Fee........................................................... 13 3.4. Computation of Fees; Lawful Limits.................................................. 13 3.5. Default Rate of Interest............................................................ 14 IV. CONDITIONS PRECEDENT......................................................................... 14 4.1. Conditions to Initial Advance and Closing........................................... 14 4.2. Conditions to Each Advance.......................................................... 17 V. REPRESENTATIONS AND WARRANTIES............................................................... 18 5.1. Organization and Authority.......................................................... 18 5.2. Loan Documents...................................................................... 18 5.3. Subsidiaries, Capitalization and Ownership Interests................................ 19 5.4. Properties.......................................................................... 19 5.5. Other Agreements.................................................................... 20 5.6. Litigation.......................................................................... 20 5.7. Hazardous Materials................................................................. 20
i 5.8. Tax Returns; Governmental Reports................................................... 21 5.9. Financial Statements and Reports.................................................... 21 5.10. Compliance with Law................................................................. 21 5.11. Intellectual Property............................................................... 22 5.12. Licenses and Permits; Labor......................................................... 22 5.13. No Default.......................................................................... 22 5.14. Disclosure.......................................................................... 22 5.15. Existing Indebtedness; Investments, Guarantees and Certain Contracts................ 22 5.16. Other Agreements.................................................................... 23 5.17. Insurance........................................................................... 23 5.18. Names; Location of Offices, Records and Collateral.................................. 23 5.19. Non-Subordination................................................................... 23 5.20. Accounts............................................................................ 24 5.21. Healthcare.......................................................................... 24 5.22. Plan of Reorganization.............................................................. 25 5.23. Survival............................................................................ 25 VI. AFFIRMATIVE COVENANTS........................................................................ 25 6.1. Financial Statements, Reports and Other Information................................. 25 6.2. Payment of Obligations.............................................................. 28 6.3. Conduct of Business and Maintenance of Existence and Assets......................... 28 6.4. Compliance with Legal and Other Obligations......................................... 28 6.5. Insurance........................................................................... 28 6.6. True Books.......................................................................... 29 6.7. Inspection; Periodic Audits......................................................... 29 6.8. Further Assurances; Post Closing.................................................... 29 6.9. Payment of Indebtedness............................................................. 30 6.10. Lien Searches....................................................................... 30 6.11. Use of Proceeds..................................................................... 30 6.12. Collateral Documents; Security Interest in Collateral............................... 30 6.13. Taxes and Other Charges............................................................. 31 6.14. New Subsidiaries.................................................................... 31 6.15. Right of First Offer................................................................ 32 6.16. Supplemental Disclosure............................................................. 32 VII. NEGATIVE COVENANTS........................................................................... 33 7.1. Financial Covenants................................................................. 33 7.2. Permitted Indebtedness.............................................................. 33 7.3. Permitted Liens..................................................................... 34 7.4. Investments; New Facilities or Collateral; Subsidiaries............................. 35 7.5. Dividends; Redemptions.............................................................. 35 7.6. Transactions with Affiliates........................................................ 36 7.7. Charter Documents; Fiscal Year; Dissolution; Use of Proceeds........................ 36 7.8. Transfer of Assets.................................................................. 37 7.9. Contingent Obligations.............................................................. 38 7.10 IRS Form 8821....................................................................... 38 7.11. Payment on Subordinated Debt........................................................ 38 7.12. Negative Pledge..................................................................... 39 VIII. EVENTS OF DEFAULT............................................................................ 39

ii IX. RIGHTS AND REMEDIES AFTER DEFAULT............................................................ 41 9.1. Rights and Remedies................................................................. 41 9.2. Application of Proceeds............................................................. 42 9.3. Rights of Agent to Appoint Receiver................................................. 43 9.4. Rights and Remedies not Exclusive................................................... 43 X. WAIVERS AND JUDICIAL PROCEEDINGS............................................................. 43 10.1. Waivers............................................................................. 43 10.2. Delay; No Waiver of Defaults........................................................ 44 10.3. Jury Waiver......................................................................... 44 10.4 Amendment and Waivers............................................................... 45 XI. EFFECTIVE DATE AND TERMINATION............................................................... 45 11.1. Effectiveness and Termination....................................................... 45 11.2. Survival............................................................................ 46 XII. AGENCY PROVISIONS............................................................................ 46 12.1. Agent............................................................................... 46 12.2. Consents............................................................................ 51 12.3. Set Off and Sharing of Payments..................................................... 51 12.4. Disbursement of Funds............................................................... 52 12.5. Settlements; Payments and Information............................................... 52 12.6. Dissemination of Information........................................................ 54 XIII. BORROWING AGENCY; IRS FORMS.................................................................. 54 13.1. Borrowing Agency Provisions; Acknowledgement of Joint and Several Liability......... 54 13.2. Withholding Tax..................................................................... 55 XIV. MISCELLANEOUS................................................................................ 56 14.1. Governing Law; Jurisdiction; Service of Process; Venue.............................. 56 14.2. Successors and Assigns; Assignments and Participations; New Lenders................. 57 14.3. Application of Payments; Reinstatement.............................................. 59 14.4. Indemnity........................................................................... 59 14.5. Notice.............................................................................. 60 14.6. Severability; Captions; Counterparts; Facsimile Signatures.......................... 61 14.7. Expenses............................................................................ 61 14.8. Entire Agreement.................................................................... 61 14.9. Agent Approvals..................................................................... 62 14.10. Confidentiality and Publicity....................................................... 62

iii REVOLVING CREDIT AND SECURITY AGREEMENT THIS REVOLVING CREDIT AND SECURITY AGREEMENT (this "AGREEMENT") dated as of August 19, 2003, is entered into by and among the Subsidiary Borrowers listed on Schedule 1 to this Agreement (each individually a "SUBSIDIARY BORROWER" and collectively, the "SUBSIDIARY BORROWERS"), FOUNTAIN VIEW, INC., a Delaware corporation ("PARENT" and together with the Subsidiary Borrowers each individually a "BORROWER" and collectively, the "BORROWERS") and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company ("CAPITALSOURCE"), as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and Lenders party hereto. WHEREAS, Borrowers have requested that Lenders make available to Borrowers a revolving credit facility (the "REVOLVING FACILITY") in a maximum principal amount at any time outstanding of up to Twenty One Million Dollars ($21,000,000) (the "FACILITY CAP"), the proceeds of which shall be used by Borrowers (i) to fund distributions under, and comply with certain requirements of, the Plan of Reorganization (as defined herein) and (ii) to finance the working capital and other general corporate needs of Borrowers in the ordinary course of business and as permitted in this Agreement in connection with their skilled nursing home, assisted living, pharmacy and therapy business and to conduct other activities incidental thereto (the "BUSINESS"); and WHEREAS, Lenders are willing to make the Revolving Facility available to Borrowers upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrowers, Agent and Lenders hereby agree as follows: I. DEFINITIONS 1.1. GENERAL TERMS For purposes of this Agreement and the other Loan Documents, in addition to the definitions above and elsewhere in this Agreement, the terms listed in Appendix A hereto shall have the meanings given such terms in Appendix A, which is incorporated herein and made a part hereof. All capitalized terms used which are not specifically defined shall have meanings provided in Article 9 of the UCC in effect on the date hereof to the extent the same are used or defined therein. Unless otherwise specified herein or in Appendix A, this Agreement and any agreement or contract referred to herein or in Appendix A shall mean such agreement as modified, amended or supplemented from time to time. Unless otherwise specified, as used in the Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the Loan Documents, all accounting terms not defined in Appendix A elsewhere in this Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with GAAP. II. ADVANCES, PAYMENT AND INTEREST 2.1. THE REVOLVING FACILITY (a) Subject to the provisions of this Agreement, each Lender agrees to make available its Pro Rata Share of Advances to Borrowers under the Revolving Facility from time to time during the Term, provided that, (i) the Pro Rata Share of the Advances of any Lender shall not at any time exceed its separate Commitment, and (ii) the aggregate amount of all Advances at any one time outstanding under the Revolving Facility shall not exceed the lesser of (a) the Facility Cap, and (b) the Availability. The obligations of Lenders hereunder shall be several and not joint. The Revolving Facility is a revolving credit facility, which may be drawn, repaid and redrawn, from time to time as permitted under this Agreement. Any determination as to whether there is Availability shall be made by reference to the most recent Borrowing Certificate or Interim Borrowing Certificate delivered by Borrowers (subject to Agent's right to set reserves pursuant to this Agreement). Unless otherwise permitted by Agent, each Advance shall be in an amount of at least $1,000. Subject to the provisions of this Agreement, Borrowers may request Advances under the Revolving Facility up to and including the value, in U.S. Dollars, of the sum of (i) eighty five percent (85%) of the Borrowing Base plus (ii) the Special Advance Amount minus (iii) if applicable, amounts reserved pursuant to this Agreement (such calculated amount being referred to herein as the "Availability"). Advances under the Revolving Facility automatically shall be made for the payment of interest on the Revolving Notes and other Obligations on the date when due to the extent available and as provided for herein. (b) Agent has established the above-referenced advance rate for Availability based upon Borrowers' actual recent collection history for the Eligible Receivables for each payor class (i.e., Medicare, Medicaid, commercial insurance, etc.) in a manner consistent with Agent's underwriting practices and procedures, including without limitation Agent's review and analysis of, among other things, Borrowers' historical returns, rebates, discounts, credits and allowances (collectively, the "DILUTION ITEMS"), and throughout the Term, if there are adverse changes in the collection history or the Dilution Items, Agent, upon five (5) Business Days prior written notice to Borrowing Agent, may, in its Permitted Discretion and as warranted by Agent's underwriting practices and procedures in its credit judgment exercised in its Permitted Discretion, adjust the liquidity factors and the advance rate for Availability. Also, based on changes related to Borrowers after the Closing Date, Agent shall have the right to establish from time to time, in its credit judgment exercised in its Permitted Discretion, reserves against the Borrowing Base, which reserves shall have the effect of reducing the amounts otherwise eligible to be disbursed to Borrowers under the Revolving Facility pursuant to this Agreement. 2.2. THE REVOLVING NOTES; MATURITY (a) All Advances under the Revolving Facility shall be evidenced by the Revolving Notes, payable to the order of each Lender in the principal amount of the Commitment of such Lender, duly executed and delivered by Borrowers. The Revolving Notes shall evidence the aggregate Indebtedness of Borrowers to Lenders resulting from Advances under the Revolving Facility, from time to time. Each Lender hereby is authorized, but is not obligated, to enter the amount of such Lender's Pro Rata Share of each Advance under the Revolving Facility and the amount of each payment or prepayment of principal or interest thereon in the appropriate spaces on the reverse of or on an attachment to such Lender's Revolving Note(s). Agent will account to Borrowers monthly with a statement of Advances 2 under the Revolving Facility and any charges and payments made pursuant to this Agreement, and in the absence of manifest error, such accounting rendered by Agent shall be deemed final, binding and conclusive unless Agent is notified by Borrowers in writing to the contrary within fifteen (15) calendar days of Receipt of each accounting, which notice shall be deemed an objection only to items specifically objected to therein. (b) All amounts outstanding under the Revolving Notes and other Obligations under the Revolving Facility shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. 2.3. INTEREST ON THE REVOLVING NOTES Interest on Advances under the Revolving Notes shall accrue from the respective dates of the Advances until the respective dates of repayment of the Advances, in each case at an annual rate of the Prime Rate plus 2.5%, provided, however, that, notwithstanding any provision of any Loan Document, the interest on outstanding Advances under the Revolving Notes shall not be less than 7.25%, in each case calculated on the basis of a 360-day year and for the actual number of calendar days elapsed in each interest calculation period. Interest accrued on each Advance under the Revolving Notes shall be due and payable on the first day of each calendar month in accordance with the procedures provided for in Section 2.5 and Section 2.9, commencing on the first day of the first calendar month after the Closing Date, and continuing until the later of the expiration of the Term and the full performance and irrevocable payment in full in cash of the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement. 2.4. REVOLVING FACILITY DISBURSEMENTS; REQUIREMENT TO DELIVER BORROWING CERTIFICATE So long as no Default or Event of Default shall have occurred and be continuing, Borrowing Agent on behalf of Borrowers may give Agent irrevocable written notice requesting an Advance of a specified amount under the Revolving Facility by notifying Agent not later than 11:00 a.m. (New York City time) at least one (1) but not more than four (4) Business Days before the proposed borrowing date of such requested Advance (the "BORROWING DATE"), and delivering to Agent by noon (New York City time) on the date of the proposed borrowing, a completed Interim Borrowing Certificate and relevant supporting documentation satisfactory to Agent in its Permitted Discretion, which shall (i) specify the proposed Borrowing Date of such Advance, which shall be a Business Day, (ii) specify the principal amount of such requested Advance, and (iii) certify the matters contained in Section 4.2. On a monthly basis, within thirty (30) days after the end of each month, Borrowing Agent on behalf of Borrowers shall specify to Agent the amount of any Medicare or Medicaid recoupments and/or recoupments of any third party payor being sought, requested or claimed, or, to Borrowers' knowledge, threatened against any Borrower or any Borrower's Affiliates. Each time a request for an Advance is made, and, in any event and regardless of whether an Advance is being requested, on Tuesday of each week during the Term (and more frequently if Lender shall so request after and during the continuance of an Event of Default) until the Obligations (other than Unmatured Surviving Obligations) are indefeasibly paid in cash in full and this Agreement is terminated, Borrowers shall deliver to Agent an Interim Borrowing Certificate, and on the date twenty (20) days after the end of each 3 calendar month, Borrower shall deliver to Agent a Borrowing Certificate. On each Borrowing Date, each Borrower irrevocably authorizes Agent to disburse the proceeds of the requested Advance to the appropriate Borrower's account(s) as set forth on Schedule 2.4 (or to such other account as to which the appropriate Borrower shall instruct Agent), in all cases for credit to the appropriate Borrower, via Federal funds wire transfer no later than 4:00 p.m. (New York City time). 2.5. REVOLVING FACILITY COLLECTIONS; REPAYMENT; BORROWING AVAILABILITY AND LOCKBOX Each Borrower shall maintain one or more lockbox accounts or blocked accounts (individually, a "LOCKBOX ACCOUNT," and collectively, the "LOCKBOX ACCOUNTS") with one or more financial institutions reasonably acceptable to Agent (individually, a "LOCKBOX BANK," and collectively, the "LOCKBOX BANKS"), and shall execute with each Lockbox Bank one or more agreements reasonably acceptable to Agent (individually a "LOCKBOX AGREEMENT," and collectively, the "LOCKBOX AGREEMENTS"), and such other agreements related thereto as Agent may reasonably require. Each Borrower shall ensure that all collections of its Accounts and all other cash payments received by such Borrower are paid and delivered directly from Account Debtors and other Persons into the appropriate Lockbox Account, provided, however, Borrowers may directly receive collections from Private Pay Debtors so long as such collections are remitted to the appropriate Lockbox Account within two (2) Business Days of receipt by such Borrower. The Lockbox Agreements shall provide that the Lockbox Banks immediately will transfer all funds paid into the Lockbox Accounts into a depository account or accounts maintained by Agent or an Affiliate of Agent at a financial institution selected by Agent from time to time (such account or accounts, collectively, the "CONCENTRATION ACCOUNT"), except, with respect only to Accounts payable by Medicaid/Medicare Account Debtors, as instructed by the applicable Borrower to whom such Accounts are payable as permitted pursuant to the applicable Lockbox Agreement. Agent agrees that, notwithstanding the foregoing, (I) it shall instruct each Lockbox Bank to follow the instructions of Borrowers until the earlier of (x) the occurrence and during the continuance of an Event of Default or (y) the date upon which the outstanding balance of Advances shall exceed $3,000,000 for a period of thirty (30) consecutive days prior to the date of determination, at which time Agent may direct each Lockbox Bank to remit funds into the Concentration Account; and (II) if, pursuant to clause (I) it has directed each Lockbox Bank to remit funds into the Concentration Account, and thereafter (x) the outstanding balance of Advances shall be equal to or less than $3,000,000 for a period of thirty (30) consecutive days prior to the date of determination, and (y) no Event of Default shall have occurred and be continuing, Agent shall instruct each Lockbox Bank to follow the instructions of Borrowers, and shall not require that each Lockbox Bank remit funds into the Concentration Account. Notwithstanding and without limiting any other provision of any Loan Document, Agent shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to the Lockbox Agreement and this Section 2.5, (i) if no Event of Default shall have occurred and be continuing, to the payment of the Advances, with any excess after payment of all outstanding Advances to be returned to Borrowers, and (ii) if an Event of Default shall have occurred and be continuing, in such order and manner as determined by Agent in accordance with this Agreement, with any excess after repayment of the Obligations to be returned to Borrowers. To the extent that any Accounts collections of any Borrower or any other cash payments received by any Borrower are not sent directly to the appropriate Lockbox Account but 4 are received by any Borrower, such collections and proceeds shall be held in trust for the benefit of Agent and Lenders and immediately remitted (and in any event within two (2) Business Days), in the form received, to the appropriate Lockbox Account for immediate transfer to the Concentration Account. Each Borrower acknowledges and agrees that compliance with the terms of this Section 2.5 is an essential term of this Agreement, and that, in addition to and notwithstanding any other rights Agent may have hereunder, under any other Loan Document, under applicable law or at equity, upon each and every failure by any Borrower or any of their Affiliates to comply with any such terms Agent shall be entitled to assess a non-compliance fee which shall operate to increase the Revolving Interest Rate by two percent (2.0%) per annum during any period of non-compliance, whether or not a Default or an Event of Default occurs or is declared, provided that nothing shall prevent Agent from considering any failure to comply with the terms of this Section 2.5 to be a Default or an Event of Default. All funds transferred to the Concentration Account for application to the Obligations under the Revolving Facility shall be applied to reduce the Obligations under the Revolving Facility, but, for purposes of calculating interest hereunder, shall be subject to a seven (7) Business Day clearance period. If as the result of collections of Accounts and/or any other cash payments received by any Borrower pursuant to this Section 2.5 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of the appropriate Borrower, but shall be available to the appropriate Borrower in accordance with the terms of this Agreement. If applicable, at any time prior to the execution of all or any of the Lockbox Agreements and operation of all or any of the Lockbox Accounts, each Borrower shall direct all collections or proceeds it receives on Accounts or from other Collateral to the account(s) and in the manner specified by Agent in its Permitted Discretion. 2.6. PROMISE TO PAY; MANNER OF PAYMENT. (a) Any payments made by Borrowers (other than payments automatically paid through Advances under the Revolving Facility as provided herein), shall be made only by ACH or wire transfer on the date when due, without offset or counterclaim, in U.S. Dollars, in immediately available funds to such account within the domestic United States as may be indicated in writing by Agent to Borrowers from time to time. Any such payment received after 4:00 p.m. New York City time on any date shall be deemed received on the following Business Day. Whenever any payment hereunder shall be stated to be due or shall become due and payable on a day other than a Business Day, the due date thereof shall be extended to, and such payment shall be made on, the next succeeding Business Day, and such extension of time in such case shall be included in the computation of payment of any interest (at the Revolving Interest Rate then in effect during such extension) and/or fees, as the case may be. (b) Borrowers absolutely and unconditionally promise to pay the Obligations hereunder in accordance with the manner and terms hereof, without any deduction whatsoever, without setoff, recoupment or counterclaim, each of which claim or defense hereby is waived. 2.7. REPAYMENT OF EXCESS ADVANCES Any balance of Advances under the Revolving Facility outstanding at any time in excess of the lesser of the Facility Cap or the Availability shall be immediately due and payable by Borrowers without the necessity of any demand, at the Payment Office, whether or not a 5 Default or Event of Default has occurred or is continuing and shall be paid in the manner specified in Section 2.9. 2.8. OTHER MANDATORY PREPAYMENTS (a) In addition to and without limiting any provision of any Loan Document, if a Change of Control occurs, on or prior to the first Business Day following the date of such Change of Control, Borrowers shall prepay the Advances and all other Obligations (other than Unmatured Surviving Obligations) in full in cash together with accrued interest thereon to the date of prepayment and all other amounts owing to Agent and Lenders under the Loan Documents. (b) Commencing 2004 and each calendar year thereafter during the Term, upon the earlier to occur of (i) April 30 of such year and (ii) not later than 10 days following delivery of the annual financial statements to Agent referred to in and required by Section 6.1(a)(i) with respect to the prior calendar year and until the Special Advance Amount shall be paid in full, Borrowers shall prepay the Special Advance Amount in an amount equal to the sum of (A) and (B) below: (A) An amount (the "Target Payment Amount") equal to (1) the lesser of (a) 100% of Target Excess Cash Flow for the immediately preceding fiscal year and (b) the positive excess of (x) Ten Million Dollars ($10,000,000) (or for calendar year 2003, the 2003 Maximum Amount (as defined below)) plus any Catch Up Amounts (defined below) with respect to years prior to the immediately preceding calendar year, if applicable, over (y) monthly amortization payments made by Borrowers with respect to the Special Advance Amount during such immediately preceding calendar year or any other voluntary prepayments of the Special Advance Amount minus (2) the sum of (a) the amount of Target Excess Cash Flow ----- applied to make prepayments on the Mezzanine Loan and the Senior Mortgage Term Loan B on such day and (b) the amount of voluntary prepayments of the principal amount of the Mezzanine Loan and the Senior Mortgage Term Loan B made during the immediately preceding fiscal year. To the extent that with respect to any calendar year the aggregate amount of (x) principal payments of (I) the Special Advance Amount under this Section 2.8(b)(A), (II) the Mezzanine Loan under Section 2.3.2(b) of the Mezzanine Loan Agreement and (III) the Senior Mortgage Term Loan B under Section 2.3.2(b) of the Senior Mortgage Term Loan Agreement in such calendar year plus (y) voluntary principal prepayments of the Mezzanine Loan, the Senior Mortgage Term Loan B and the Special Advance Amount during the immediately preceding fiscal year is less than $10,000,000 the positive excess of $10,000,000 over such payments shall be defined as a "Catch Up Amount". For purposes of the foregoing calculation, for calendar year 2003 an amount equal to the product of (I) $10,000,000 multiplied by (II) a fraction, the numerator of which is the number of months during 2003 that the Special Advance Amount is outstanding and the denominator of which is 12 (the "2003 Maximum Amount") shall be substituted for $10,000,000 in such calculation. 6 (B) If the Target Excess Cash Flow for any fiscal year is greater than the Target Payment Amount calculated with respect to such fiscal year, an amount, but not less than zero, equal to (1) 80% of Excess Cash Flow for the immediately preceding fiscal year minus (2) the sum of (a) the amount of Excess Cash Flow applied to make prepayments on the Mezzanine Loan and the Senior Mortgage Term Loan B and (b) the Target Payment Amount. 2.9. PAYMENTS BY AGENT Should any amount required to be paid under any Loan Document or under any of the Mezzanine Loan Documentation be unpaid, such amount may be paid by Agent, for the account of Lenders or Mezzanine Loan Lenders, as the case may be, which payment shall be treated as an Advance under the Revolving Facility as of the date such payment is due, and each Borrower irrevocably authorizes disbursement of any such funds to Agent, for the benefit of Lenders or Mezzanine Loan Lenders, as the case may be, by way of direct payment of the relevant amount, interest or Obligations without necessity of any demand in accordance with Section 2.6 whether or not a Default or Event of Default has occurred or is continuing. No payment or prepayment of any amount by Agent, Lenders or any other Person shall entitle any Person to be subrogated to the rights of Agent or Lenders under any Loan Document unless and until the Obligations (other than Unmatured Surviving Obligations) have been fully performed and paid irrevocably in cash and this Agreement has been terminated. Any sums expended by Agent or Lenders as a result of any Borrower's or any Guarantor's failure to pay, perform or comply with any Loan Document or any of the Obligations, or with respect to any failure to pay, perform or comply with any of the Mezzanine Loan Documentation, may be charged to Borrowers' account as an Advance under the Revolving Facility and added to the Obligations. 2.10. GRANT OF SECURITY INTEREST; COLLATERAL (a) To secure the payment and performance of the Obligations, each Borrower hereby grants to Agent, for the benefit of itself and Lenders, a continuing security interest in and Lien upon, and pledges to Agent, for the benefit of itself and Lenders, all of its right, title and interest in and to and upon all of such Borrower's assets, now owned or hereafter acquired (collectively and each individually, the "COLLATERAL"), including, without limitation, all of the following property and interests in property of such Borrower: (i) all of such Borrower's tangible personal property, including without limitation all present and future Inventory and Equipment (including items of Equipment which are or become Fixtures), now owned or hereafter acquired; (ii) all of such Borrower's intangible personal property, including without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Chattel Paper, Documents, Instruments, Deposit Accounts, Letter-of-Credit Rights and Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing; 7 (iii) all of such Borrower's present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by such Borrower; provided, however, that Agent shall not have a security interest in any rights under any Government Contract of such Borrower or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, Section 203 or Title 41, Section 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; and (iv) any and all additions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing. (b) Notwithstanding the foregoing provisions of this Section 2.10, such grant of a security interest shall not extend to, and the term "Collateral" shall not include, (x) any General Intangible, contract, agreement or document of any Borrower to the extent that (i) such General Intangible, contract, agreement or document is not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; (y) any asset of any Borrower to the extent that (i) such asset subject to a contract, agreement or document otherwise permitted pursuant to this Agreement, which contract, agreement or document restricts the grant of such security interest (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral" ; and (z) any Permit of any Borrower to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Each Borrower shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent, provided, however in the event Borrowers are unable to obtain the required Landlord Consent and Waiver for any location at which books and records are kept, 8 Borrowers shall maintain a duplicate set of such books and records at a location owned by a Borrower or with respect to which a Landlord Consent and Waiver reasonably satisfactory to Agent shall have been obtained. (c) In addition to the foregoing, to secure the payment and performance of the Obligations, pursuant to the Pledge Agreements, Agent has received a pledge of all of the Subsidiary Stock. (d) Each Borrower shall promptly notify Agent of any material Commercial Tort Claim in which such Borrower has an interest arising after the Closing Date and shall provide all necessary information concerning such Commercial Tort Claim and make all necessary filings with respect thereto to perfect Agent's (for its benefit and the benefit of Lenders) first priority security interest therein. (e) Upon the execution and delivery of this Agreement, and upon the proper filing of the necessary financing statements, the proper recordation of the Collateral Patent, Trademark and Copyright Assignment in the United States Patent and Trademark Office and/or the United States Copyright Office and proper delivery of the necessary stock certificates, without any further action, Agent will have a good, valid and perfected first priority Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person except for Permitted Liens, except for security interests in (x) motor vehicles subject to a certificate of title, and (y) money. No financing statement relating to any of the Collateral is on file in any public office except those (i) on behalf of Agent, and/or (ii) in connection with or with respect to Permitted Liens. (f) Borrowers shall cause Agent to have a valid first priority Lien on all Leasehold Properties, subject only to Priority Liens. After the recordation of the Leasehold Mortgages in the appropriate jurisdiction, Agent shall have a valid first priority Lien in such Leasehold Property senior to any Lien asserted by any other person, other than the Priority Liens. 2.11. COLLATERAL ADMINISTRATION (a) All Collateral (except Deposit Accounts and equipment located at the premises of clients and used in their ordinary course of business) will at all times be kept by Borrowers at the locations set forth on Schedule 5.18B hereto, and such other locations as Borrowers shall identify to Agent upon ten (10) calendar days prior written notice, and in any case shall not be moved outside the continental United States. (b) Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit such records to Agent on such periodic bases as Agent may request. In addition, if Accounts of any Borrower in an aggregate face amount in excess of $200,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Receivables, Borrowers shall notify Agent of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Agent, after the occurrence and during the continuance of an Event of Default, Borrowers shall execute and deliver to Agent formal written assignments of all of its Accounts weekly or daily as Agent 9 may request, including all Accounts created since the date of the last assignment, together with copies of claims, invoices and/or other information related thereto. To the extent that collections from such assigned accounts exceed the amount of the Obligations, such excess amount shall not accrue interest in favor of Borrowers, but shall be available to Borrowers upon Borrowers' written request. (c) Whether or not an Event of Default has occurred, any of Agent's officers, employees, representatives or agents shall have the right, at any time during normal business hours, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts of Borrower; provided that unless an Event of Default has occurred and is continuing, such verification shall only verify account balances and shall not give notice of Agent's security interest. Borrowers shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, each Borrower shall endeavor in the first instance to make collection of its Accounts for Agent. Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify (i) Account Debtors owing Accounts to Borrowers other than Medicaid/Medicare Account Debtors that their Accounts have been assigned to Agent and to collect such Accounts directly in its own name and to charge collection costs and expenses, including reasonable attorney's fees, to Borrowers, and (ii) Medicaid/Medicare Account Debtors that Borrowers have waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Agent to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Agent is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. (e) As and when determined by Agent in its Permitted Discretion, Agent will perform the searches described in clauses (i) and (ii) below against Borrowers and Guarantors (the results of which are to be consistent with Borrowers' representations and warranties under this Agreement), all at Borrowers' expense: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where any Borrower and/or any Guarantors are organized and/or maintain their respective executive offices, a place of business or assets; and (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (i) above, provided that unless an Event of Default shall have occurred and during the continuance thereof, the Borrowers shall not be required to pay for more than one such search in any fiscal quarter under clause (i) and clause (ii) above. (f) Borrowers (i) shall provide prompt written notice to its current bank to transfer all items, collections and remittances to the Concentration Account, (ii) shall provide prompt written notice to each Account Debtor (other than a Private Pay Debtor) directing them to make payments to the appropriate Lockbox Account, and Borrowers hereby authorizes Agent, upon any failure to send such notice and directions within ten (10) calendar days after the date of this Agreement (or ten (10) calendar days after the Person becomes an Account Debtor (other than a Private Pay Debtor)), to send any and all similar notices and directions to such Account Debtors and (iii) shall do such further acts and deeds that may be lawfully required by Agent to 10 make, create, maintain, continue or perfect Agent's security interest in the Lockbox Accounts or the Collateral. At Agent's request, Borrowers shall immediately deliver to Agent all items for which Agent must receive possession to obtain a perfected security interest and all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral except for promissory notes in a principal amount less than $100,000 provided that the aggregate principal amount of all such promissory notes shall be less than $500,000. 2.12. POWER OF ATTORNEY Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring Agent to act as such) with full power of substitution to do the following: (i) upon the occurrence and during the continuance of an Event of Default, endorse the name of such Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to such Borrower and constitute collections on its Accounts; (ii) execute and/or file in the name of such Borrower any financing statements, amendments to financing statements, schedules, assignments, instruments, documents, and statements that it is obligated to give Agent under any of the Loan Documents; (iii) do such further acts and deeds in the name of any Borrower that Agent may reasonably deem necessary to make, create, maintain, continue or perfect Agent's, for the benefit of itself and Lenders, security interest or lien or right in any Collateral; and (iv) upon the occurrence and during the continuance of an Event of Default, do such other and further acts and deeds in the name of such Borrower that Agent may reasonably deem necessary or desirable to enforce Agent's security interest or lien or rights in any Collateral. In addition, if any Borrower breaches its obligation hereunder to direct payments of Accounts or the proceeds of any other Collateral to the appropriate Lockbox Account, Agent, as the irrevocably made, constituted and appointed true and lawful attorney for such Borrower pursuant to this paragraph, may, by the signature or other act of any of Agent's officers or authorized signatories (without requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary to pay proceeds of Accounts or any other Collateral to the appropriate Lockbox Account. 2.13. NOTES Upon Agent's or any Lender's request, and in any event within three (3) Business Days of any such request, Borrowers shall execute and deliver to Agent new Revolving Notes and/or divide or split the Revolving Notes in exchange for then existing Revolving Notes in such smaller amounts or denominations as Agent or such Lender shall specify in their respective sole and absolute discretion, provided, that the aggregate principal amount of such new Revolving Notes does not exceed the aggregate principal amount of the Revolving Notes outstanding at the time such request is made. 2.14. REPLACEMENT OF LOST NOTES Upon receipt of evidence reasonably satisfactory to Borrowers of the mutilation, destruction, loss or theft of any Revolving Note and the ownership thereof, Borrowers shall, upon the written request of the holder of such Revolving Note, execute and deliver in replacement thereof a new Revolving Note in the same form, in the same original principal 11 amount, so mutilated, destroyed, lost or stolen; and such Revolving Note so mutilated, destroyed, lost or stolen shall then be deemed no longer outstanding hereunder. If the Revolving Note being replaced has been mutilated, it shall be surrendered to Borrowers after Agent's receipt of the replacement Revolving Note; and if such replaced Revolving Note has been destroyed, lost or stolen, the holder of such Revolving Note shall furnish Borrowers with an indemnity in writing reasonably acceptable to Borrowers to save them harmless in respect of such replaced Revolving Note. 2.15. REPLACEMENT OF LENDERS If, and on each occasion that, a Lender (i) makes a demand for additional costs or other payments pursuant to Section 6.13 below; (ii) has failed to perform its obligation to make an Advance required by such Lender hereunder; or (iii) refuses to approve any requested amendment or modification which requires unanimous Lender consent and is consented to by the Requisite Lenders, Borrowers may at their sole expense and effort, upon at least 5 Business Days' prior irrevocable written notice to each of such Lender and Agent, in whole permanently replace the Commitments of such Lender; provided that such notice (x) must be given not later than the sixtieth day following the date of a demand for additional costs or other payments made by such Lender or the date of any such refusal; and (y) may be given at any time while such failure to perform is continuing. Any such replacement Lender shall (a) be an Eligible Assignee, (b) be acceptable to Agent, such acceptance not to be unreasonably withheld or delayed, and (c) upon the effective date of replacement purchase the Obligations owed to such replaced Lender for an amount equal to the outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender (which interest and fees will be paid to the replacement Lender when collected from Borrowers) and shall thereupon for all purposes become a "Lender" hereunder. The notice from Borrowers replacing a Lender shall specify an effective date for the replacement of the Commitment of such Lender, which date shall not be later than the tenth day after the day such notice is given. Upon the effective date of repayment of any such Lender's Commitments pursuant to this Section 2.15, and the execution by the replacement Lender of a Lender Addition Agreement, such Lender shall cease to be a Lender hereunder. No such termination of the Commitment of any such Lender and the purchase of the Advances of any such Lender pursuant to this Section 2.15 shall affect (A) any liability or obligation of Borrowers or any other Lender to such terminated Lender which accrued on or prior to the date of such termination or (B) the rights of such terminated Lender hereunder in respect of any such liability or obligation. A Lender shall not be required to make any such assignment if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment cease to apply. Notwithstanding anything herein to the contrary, Borrowers shall have no right to replace a Lender pursuant to this Section 2.15 at any time that CapitalSource is the sole Lender. 12 III. FEES AND OTHER CHARGES 3.1. COMMITMENT FEE On or before the Closing Date, Borrowers shall pay to Agent 1% of the Facility Cap as a nonrefundable commitment fee. 3.2. UNUSED LINE FEE; MINIMUM LOAN FEE (a) Borrowers shall pay to Agent for the ratable benefit of Lenders an unused line fee (the "UNUSED LINE FEE") in an amount equal to 0.042% per month of the difference derived by subtracting (i) the daily average amount of the balances under the Revolving Facility outstanding during the preceding month, from (ii) the Facility Cap. The Unused Line Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). (b) In the event the daily average amount of the balances under the Revolving Facility outstanding during any calendar month is less than $3,000,000 (the "MINIMUM AVERAGE MONTHLY LOAN AMOUNT") Borrowers shall pay to Agent for the benefit of Lenders a minimum loan fee in an amount equal to 0.042% per month on the amount by which the Minimum Average Monthly Loan Amount exceeds such daily average amount of unpaid balances. Such fee shall be calculated on the basis of a year of 360 days and actual days elapsed and such fee shall be charged to Borrowers' account on the first day of each month with respect to the prior month. In the event Borrowers request that Agent cease charging the minimum loan fee set forth in this Section 3.2(b), the Unused Line Fee shall automatically increase to 0.083% per month effective on the first month following the date of such request. 3.3. COLLATERAL MANAGEMENT FEE Borrowers shall pay Agent for its own account as additional interest a monthly collateral management fee (the "COLLATERAL MANAGEMENT FEE") equal to 0.083% per month calculated on the basis of the daily average amount of the balances under the Revolving Facility outstanding during the preceding month. The Collateral Management Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). 3.4. COMPUTATION OF FEES; LAWFUL LIMITS All fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed in each calculation period, as applicable. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent, for the benefit of Lenders for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under applicable law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall have received interest or any other charges of any kind which might be deemed to be interest under applicable law in excess of 13 the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Agent and Lenders shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.4 shall control to the extent any other provision of any Loan Document is inconsistent herewith. 3.5. DEFAULT RATE OF INTEREST Upon the occurrence and during the continuation of an Event of Default, the Revolving Interest Rate of interest in effect at such time with respect to the Obligations shall be increased by 3.0% per annum (the "DEFAULT RATE"). IV. CONDITIONS PRECEDENT 4.1. CONDITIONS TO INITIAL ADVANCE AND CLOSING The obligations of Lenders to consummate the transactions contemplated herein and to make the initial Advance under the Revolving Facility (the "INITIAL ADVANCE") are subject to the satisfaction of Agent of the following: (a) (i) Borrowers shall have delivered to Agent (A) the Loan Documents to which they are a party, each duly executed by an authorized officer of each Borrower and the other parties thereto, and (B) a Borrowing Certificate for the most recent month ended 20 days or more prior to the Closing Date and an Interim Borrowing Base Certificate for the most recent week ended prior to the Closing Date for the Initial Advance under the Revolving Facility executed by an authorized officer of Borrowing Agent, and (ii) each Guarantor shall have delivered to Agent the Loan Documents to which such Guarantor is a party, each duly executed and delivered by such Guarantor or an authorized officer of such Guarantor, as applicable, and the other parties thereto; (b) all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received (i) each document (including, without limitation, any Uniform Commercial Code financing statement) required by any Loan Document or under law or reasonably requested by Agent to be filed, registered or recorded to create in favor of Agent, a perfected security interest upon the Collateral, and (ii) evidence of each such filing, registration or recordation and of the payment by Borrowers of any necessary fee, or tax relating thereto; (c) Agent shall have received (i) the Charter and Good Standing Documents, all in form and substance reasonably acceptable to Agent, (ii) a certificate of the secretary or assistant secretary of each Borrower dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents, in form and substance reasonably acceptable to Agent, (iii) the written legal opinions of counsel and/or special counsel for Borrowers, in form and substance satisfactory to Agent in its Permitted Discretion and to its counsel, and (iv) a certificate executed by an authorized officer of each Borrower, which shall constitute a representation and warranty by such Borrower as of the Closing Date that the conditions contained in this Section 4.1 shall have been satisfied; provided that for purposes of giving this 14 representation and warranty, each Borrower may assume that any condition which requires satisfaction of Agent or Lenders has been satisfied; (d) Agent shall have completed examinations, the results of which shall be satisfactory in form and substance to Agent, of the Collateral, the financial statements and the books, records, business, obligations, financial condition and operational state of each Borrower and the Guarantor, and Borrowers shall have demonstrated to Agent's reasonable satisfaction that (i) its operations comply, in all material respects, with all applicable federal, state, foreign and local laws, statutes and regulations, (ii) its operations are not the subject of any governmental investigation, evaluation or any remedial action which could reasonably be expected to result in any material expenditure or liability, and (iii) they have no liabilities or obligations (whether contingent or otherwise) that are material, other than those set forth in the financial statements or other information delivered to Agent; (e) Agent shall have received all fees, charges and expenses payable to Agent on or prior to the Closing Date pursuant to the Loan Documents; (f) all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received such consents, approvals and agreements (which shall not include any Landlord Waivers and Consents with respect to any lease set forth on Schedule 5.4) from such third parties as Agent and its counsel shall determine are necessary or desirable to (i) perfect any security interest or Lien granted to the Agent or the Lenders pursuant to the Security Documents, and/or (ii) permit the execution of and performance under the Loan Documents without any conflict with any other material agreement, document, instrument to which any Borrower is a party or by which any of its properties or assets are bound or subject; (g) Agent shall have received final fully executed and acknowledged counterparts of the Leasehold Mortgages. (h) Borrowers shall, in the reasonable judgment of Agent, be in compliance with Section 6.5, and Agent shall have received (i) summaries of all insurance policies required for compliance with Section 6.5 and (ii) original certificates of such insurance policies confirming (x) that insurance policies required for compliance with Section 6.5 are in effect, (y) that the premiums due and owing on or prior to the Closing Date with respect to such insurance policies have been paid in full and (y) that such insurance policies name Agent as sole beneficiary or loss payee and additional insured, as appropriate; (i) All corporate and other proceedings, documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of Borrowers) shall be reasonably satisfactory to Agent; (j) After giving effect to the making of the Initial Advance and the application of all proceeds of the Initial Advance (including the application of such proceeds that will occur within 30 days after the Closing Date): 15 (i) the ratio of (x) the amount of Total Debt on the Closing Date to (y) EBITDA for the twelve month period ended on the last day of the second month prior to the Closing Date shall not exceed 6.5 to 1; (ii) the ratio of (x) the amount of Senior Debt on the Closing Date to (y) EBITDA for the twelve month period ended on the last day of the second month prior to the Closing Date shall not exceed 4 to 1; and (iii) the ratio of (a) EBITDA to (b) Interest Expense, in each case for the twelve month period ended on the last day of the second month prior to the Closing Date, shall be not less than 1.75 to 1. (k) After giving effect to the Plan of Reorganization, no material default shall exist pursuant to any of Borrowers' obligations under any material contract and Borrowers shall be in material compliance with all applicable laws in all material respects; (l) Borrowers shall have established the Lockbox Accounts pursuant to Section 2.5; (m) Agent shall have received copies of all (i) material licenses and permits required for Borrowers to conduct the business in which it is currently engaged or is contemplated pursuant to the Loan Documents, and (ii) all material intercompany agreements, management agreements, documents related to borrowed money, capital leases and other contracts; (n) Agent shall have completed its legal due diligence examinations of Borrowers, the results of which shall be satisfactory in form and substance to Agent, as evidenced by Agent's execution of the Loan Documents; (o) Agent shall have received final executed copies of the Senior Mortgage Loan Documentation, the Mezzanine Loan Documentation and the Revolving Loan B Documentation, all of which shall contain terms and provisions reasonably satisfactory to Agent and the transactions contemplated therein shall be consummated concurrently with the Closing Date; (p) Agent shall have received executed copies of the Indenture, the Indenture Notes, and other related agreements, all of which shall contain terms and provisions reasonably satisfactory to Agent; (q) Agent shall have received final executed copies of the Senior Mortgage Intercreditor Agreement; (r) Agent shall have received final executed copies of the General Intercreditor Agreement and the Bergen Intercreditor Agreement; (s) Agent shall have received from The Woodlands Resource Management, L.P. and The Woodlands Healthcare Center, L.P. final executed copies of an unsecured Guaranty in form and substance reasonably satisfactory to Agent; 16 (t) Agent shall have received a certificate of the Secretary or Assistant Secretary of the Parent, dated as of the Closing Date, certifying (x) that attached thereto is a true, correct and complete copy of the Confirmation Order (including the Plan of Reorganization attached to the Confirmation Order) and (y) the effectiveness of the Confirmation Order shall not have been stayed by any court; (u) The terms and conditions of the Plan of Reorganization shall not have been amended or modified from the form of the Plan of Reorganization attached to the Confirmation Order without the approval of the Requisite Lenders; provided, however, that modifications which in the reasonable judgment of Agent do not impair or adversely affect the rights and remedies of Lenders may be implemented by Borrowers without such approval. All conditions precedent to the effectiveness of the Plan of Reorganization shall have been satisfied (or waived), the Confirmation Order shall not have been stayed by any court and the Effective Date shall have occurred or shall occur concurrently with the closing; (v) Borrowers' Available Cash on the Closing Date shall be $15,000,000 or more; (w) Borrowers shall have executed and filed IRS Form 8821 with the appropriate office of the Internal Revenue Service; (x) There shall be no Material Adverse Change in Borrowers' business or general financial condition from that existing as at December 31, 2002, including, Borrowers shall not have experienced (1) a reduction in the average Medi-Cal rate of more than 10% from the rates in effect at December 31, 2002 on the properties being financed with the Senior Mortgage Term Loan, other than material changes in Medicare Part B Therapy payments; (2) any adverse regulatory survey which could reasonably be expected to jeopardize materially the licensure of any Facility of Borrowers; (3) a reduction in average Medicaid reimbursement rates for California Facilities of more than 10%; (4) a material increase in liability insurance premiums; and (5) EBITDA of Borrowers on a Consolidated Basis, for the twelve month period ending on the last day of the most recent month prior to the Closing Date, of less than $40,000,000; and (y) Agent shall have received such other documents, certificates, consents and information as Agent may reasonably request, all in form and substance reasonably satisfactory to Agent. 4.2. CONDITIONS TO EACH ADVANCE The obligations of Lenders to make any Advance (including, without limitation, the Initial Advance) are subject to the satisfaction, in the sole judgment of Agent in its Permitted Discretion, of the following conditions precedent: (a) Borrowers shall have delivered to Agent a Borrowing Certificate or Interim Borrowing Certificate for the Advance executed by an authorized officer of Borrowing Agent on behalf of Borrowers, which shall constitute a representation and warranty by Borrowers as of the Borrowing Date of such Advance that the conditions contained in this Section 4.2 have been satisfied; 17 (b) Each of the representations and warranties made by Borrowers in or pursuant to the Loan Documents shall be accurate in all material respects, before and after giving effect to such Advance, and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to such Advance on such date; (c) Immediately after giving effect to the requested Advance, the aggregate outstanding principal amount of Advances under the Revolving Facility shall not exceed the lesser of Availability and the Facility Cap; (d) Since the Closing Date, there has been no Material Adverse Change; (e) Agent shall have received all fees, charges and expenses payable to Agent and/or Lenders on or prior to such date pursuant to the Loan Documents; and (f) no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the Advance under the Revolving Facility or the funding of the Advance on such date. V. REPRESENTATIONS AND WARRANTIES Each Borrower, jointly and severally, represents and warrants as of the date hereof, the Closing Date, and each Borrowing Date as follows: 5.1. ORGANIZATION AND AUTHORITY Each Borrower is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of its state of formation. Each Borrower (i) has all requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, (ii) is duly qualified to do business in every jurisdiction in which failure so to qualify could reasonably be expected to have a Material Adverse Effect, and (iii) has all requisite power and authority (A) to execute, deliver and perform the Loan Documents to which it is a party, (B) to borrow hereunder, (C) to consummate the transactions contemplated under the Loan Documents, and (D) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. No Borrower is an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, or is controlled by such an "investment company." 5.2. LOAN DOCUMENTS The execution, delivery and performance by each Borrower of the Loan Documents to which it is a party, and the consummation of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of each such Borrower and have been duly executed and delivered by or on behalf of such Borrower; (b) do not violate in any material respect any provisions of (i) applicable law, statute, rule, regulation, ordinance or tariff applicable to such Borrower, (ii) any order of any Governmental Authority binding on each such Borrower or any of its properties; or (iii) any material agreement between any such Borrower and its shareholders, members, partners or equity owners or among any such shareholders, 18 members, partners or equity owners; (c) do not violate any provision of the certificate of incorporation or bylaws (or any other equivalent governing agreement or document) of any such Borrower, (d) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which such Borrower is a party, or by which the properties or assets of such Borrower are bound, the effect of which could reasonably be expected to have a Material Adverse Effect; (e) except as set forth therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of any Borrower, and (f) except for those which have been obtained, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person. When executed and delivered, each of the Loan Documents to which any Borrower is a party will constitute the legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity). 5.3. SUBSIDIARIES, CAPITALIZATION AND OWNERSHIP INTERESTS As of the Closing Date, no Borrower has any Subsidiaries other than those Persons listed as Subsidiaries on Schedule 5.3. Schedule 5.3 also states, as of the Closing Date, the authorized and issued capitalization of each such Borrower and each such Subsidiary, and the number and class of equity securities and/or ownership, voting or partnership interests issued and outstanding (including options, warrants and other rights to acquire any of the foregoing). The outstanding equity securities and/or ownership, voting or partnership interests of each Borrower have been duly authorized and validly issued and are fully paid and nonassessable, and, as of the Closing Date, each Person listed on Schedule 5.3 owns beneficially and of record all the equity securities and/or ownership, voting or partnership interests it is listed as owning free and clear of any Liens other than Liens created by the Security Documents. As of the Closing Date, except as listed on Schedule 5.3, no Borrower owns an interest or participates or engages in any joint venture, partnership or similar arrangements with any Person. 5.4. PROPERTIES Each Borrower (i) is the sole owner and has good, valid and marketable title to, or a valid leasehold interest in, all of its properties and assets, including the Collateral, whether personal or real, subject to no transfer restrictions or Liens of any kind except for Permitted Liens, and (ii) is in compliance in all material respects with each lease to which it is a party or otherwise bound. Schedule 5.4 lists, as of the Closing Date, all real properties (and their locations) owned or leased by or to, and all other assets or property that are leased or licensed by, Borrowers and all leases (including leases of leased real property) covering or with respect to such properties and assets. Each Borrower enjoys peaceful and undisturbed possession under all such leases and such leases are all the leases necessary for the operation of such properties and assets, are valid and subsisting and are in full force and effect. 19 5.5. OTHER AGREEMENTS Except as set forth in Schedule 5.5, no Borrower is (i) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would materially adversely affect its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations, (ii) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, or (iii) a party or subject to any agreement, document or instrument with respect to, or obligation to pay any, service or management fee with respect to, the ownership, operation, leasing or performance of any of its business or any facility, nor is there any manager with respect to any such facility other than a Person that is a Borrower or a Guarantor. 5.6. LITIGATION Except as set forth in Schedule 5.6, there is no action, suit, proceeding or investigation pending or, to their knowledge, threatened against any Borrower that (i) questions or could prevent the validity of any of the Loan Documents or the right of any Borrower to enter into any Loan Document or to consummate the transactions contemplated thereby, (ii) could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect, or (iii) could reasonably be expected to result in any Change of Control or other change in the current ownership, control or management of Borrower. No Borrower is aware that there is any basis for the foregoing. No Borrower is a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. There is no action, suit, proceeding or investigation initiated by any Borrower currently pending that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. Borrowers have no existing accrued and/or unpaid Indebtedness to any Governmental Authority or any other governmental payor that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. 5.7. HAZARDOUS MATERIALS Each Borrower is in compliance in all material respects with all applicable Environmental Laws. No Borrower has been notified of any action, suit, proceeding or investigation (i) relating in any way to compliance by or liability of such Borrower under any Environmental Laws, (ii) which otherwise deals with any Hazardous Substance or any Environmental Law, or (iii) which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous 20 Substance, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 5.8. TAX RETURNS; GOVERNMENTAL REPORTS Except as set forth in Schedule 5.8, each Borrower (i) has filed all material federal, state, foreign (if applicable) and local tax returns and other reports which are required by law to be filed by such Borrower, and (ii) has paid all material taxes, assessments, fees and other governmental charges, including, without limitation, payroll and other employment related taxes, in each case that are due and payable, except only for items that such Borrower is contesting in good faith. 5.9. FINANCIAL STATEMENTS AND REPORTS All financial statements and financial information relating to Borrowers that have been or may hereafter be delivered to Agent by Borrowers are accurate and complete in all material respects and have been prepared in accordance with GAAP consistently applied with prior periods. No Borrower has any material obligations or liabilities of any kind not disclosed in such financial information or statements, and since the date of the most recent financial statements submitted to Agent, there has not occurred any Material Adverse Change, Material Adverse Effect or Liability Event or, to Borrower's knowledge, any other event or condition that could reasonably be expected to have a Material Adverse Effect or Liability Event. 5.10. COMPLIANCE WITH LAW Each Borrower (i) is in compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental Authority applicable to such Borrower and/or such Borrower's business, assets or operations, including, without limitation, ERISA and Healthcare Laws, and (ii) is not in violation of any order of any Governmental Authority or other board or tribunal, except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. There is no event, fact, condition or circumstance known to Borrowers which, with notice or passage of time, or both, would constitute or result in any noncompliance with, or any violation of, any of the foregoing, in each case except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. No Borrower has received any notice that such Borrower is not in compliance in any respect with any of the requirements of any of the foregoing. No Borrower has (a) engaged in any Prohibited Transactions as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, (b) failed to meet any applicable minimum funding requirements under Section 302 of ERISA in respect of its plans and no funding requirements have been postponed or delayed, (c) knowledge of any event or occurrence which would cause the Pension Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to terminate any of the employee benefit plans, (d) fiduciary responsibility under ERISA for investments with respect to any plan existing for the benefit of Persons other than its employees or former employees, or (e) withdrawn, completely or partially, from any multi-employer pension plans so as to incur liability under the MultiEmployer Pension Plan Amendments of 1980, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. With respect to each Borrower, there 21 exists no event described in Section 4043 of ERISA, excluding Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12 C.F.R. Section 2615.3 has not been waived and which individually or in the aggregate with all other such events could reasonably be expected to have a Material Adverse Effect. Each Borrower 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 best knowledge of Borrower, there are no presently existing circumstances which likely would result in material violations of the Healthcare Laws. There is no Liability Event. 5.11. INTELLECTUAL PROPERTY Except as set forth on Schedule 5.11, as of the Closing Date no Borrower owns, licenses or utilizes, and is a party to, any patents, patent applications, trademarks, trademark applications, service marks, registered copyrights, copyright applications, copyrights, trade names, trade secrets, software or licenses (collectively, the "INTELLECTUAL PROPERTY"). 5.12. LICENSES AND PERMITS; LABOR Each Borrower is in substantial compliance with and has all Permits and Intellectual Property necessary or required by applicable law or Governmental Authority for the operation of its businesses. All of the foregoing are in full force and effect and not in known conflict in any material respect with the rights of others. No Borrower is (i) in breach of or default under the provisions of any of the foregoing, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, (ii) a party to or subject to any agreement, instrument or restriction that is so unusual or burdensome that it could reasonably be expected to have a Material Adverse Effect, and (iii) has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to have a Material Adverse Effect. 5.13. NO DEFAULT There does not exist any Default or Event of Default. 5.14. DISCLOSURE No Loan Document nor any other agreement, document, certificate, or statement furnished to Agent by or on behalf of any Borrower in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty made by any Borrower in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the statements therein not materially misleading. There is no fact known to any Borrower which has not been disclosed to Agent in writing which could reasonably be expected to have a Material Adverse Effect. 5.15. EXISTING INDEBTEDNESS; INVESTMENTS, GUARANTEES AND CERTAIN CONTRACTS 22 Except as contemplated or permitted by the Loan Documents, the Plan of Reorganization or as otherwise set forth on Schedule 5.15, no Borrower (i) has any outstanding Indebtedness for Borrowed Money or Contingent Obligations, (ii) is subject or party to any mortgage, note, indenture, indemnity or guarantee of, with respect to or evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any other Person, or (iii) does not own or hold any long-term debt investments in, and does not have any outstanding advances to or any outstanding guarantees for the obligations of, or any outstanding borrowings from, any Person. Each Borrower has performed all material obligations required to be performed by such Borrower pursuant to or connection with any items listed on Schedule 5.15 and there has occurred no breach, default or event of default under any document evidencing any such items or any fact, circumstance, condition or event which, with the giving of notice or passage of time or both, would constitute or result in a breach, default or event of default thereunder, which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect. 5.16. OTHER AGREEMENTS Except as set forth on Schedule 5.16, as of the Closing Date, there are no existing or proposed agreements, arrangements, understandings or transactions between any Borrower and any of such Borrower's officers, members, managers, directors, stockholders, partners, other interest holders, employees or Affiliates or any members of their respective immediate families. 5.17. INSURANCE Each Borrower has in full force and effect such insurance policies as are customary in its industry and as may be required pursuant to Section 6.5 hereof. All such insurance policies as of the Closing Date are listed and described on Schedule 5.17. 5.18. NAMES; LOCATION OF OFFICES, RECORDS AND COLLATERAL During the preceding five years prior to the Closing Date, no Borrower has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 5.18A. Borrowers are the sole owner of all of its names listed on Schedule 5.18A, and any and all business done and invoices issued in such names are Borrowers' sales, business and invoices. Each trade name of each Borrower represents a division or trading style of such Borrower. As of the Closing Date, each Borrower maintains its places of business and chief executive offices only at the locations set forth on Schedule 5.18B, and all Accounts of each Borrower arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidence the Collateral are located and shall be only, in and at such locations. All of the Collateral is located only in the continental United States. 5.19. NON-SUBORDINATION The Obligations are not subordinated in any way to any other obligations of any Borrower or to the rights of any other Person except to the extent any Lien may have priority over the Liens of Agent in certain of the Collateral (other than Accounts) as contemplated in the Plan of Reorganization. 23 5.20. ACCOUNTS In determining which Accounts are Eligible Receivables, Agent may rely on all statements and representations made in this Agreement or in the Borrowing Certificate, Interim Borrowing Certificate or any other writing delivered by Borrowers with respect to Accounts. Unless otherwise indicated in writing to Agent or except as hereafter set forth, each Account of Borrowers (i) is genuine and in all respects what is purports to be and is not evidenced by a judgment, (ii) arises out of a completed, bona fide sale and delivery of goods or rendering of Services by Borrowers in the ordinary course of business and in accordance with the terms and conditions of all purchase orders, contracts, certifications, participations, certificates of need and other documents relating thereto or forming a part of the contract between the applicable Borrower and the applicable Account Debtor, (iii) is for a liquidated amount maturing as stated in a claim or invoice covering such sale of goods or rendering of Services, a copy of which has been furnished or is available to Agent, (iv) together with Agent's security interest therein, is not and will not be in the future (by voluntary act or omission by Borrowers), subject to any offset, lien, deduction, defense, dispute, counterclaim or other adverse condition, is absolutely owing to Borrowers and is not contingent in any respect or for any reason (except Accounts owed or owing by Medicaid/Medicare Account Debtors that may be subject to offset or deduction under applicable law), (v) there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the face amount of the claim or invoice and statements delivered to Agent with respect thereto, (vi) to the best of Borrowers' knowledge, (A) the Account Debtor thereunder had the capacity to contract at the time any contract or other document giving rise thereto was executed and (B) such Account Debtor is solvent, (vii) to the best of Borrowers' knowledge, subject to subsection (x) below, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectability of such Account, (viii) has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and is in compliance and conformance with any requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account, and, if due from a Medicaid/Medicare Account Debtor, is properly payable directly to the applicable Borrower, (ix) Borrowers have obtained and currently have all Permits necessary in the generation thereof, and (x) Borrowers have disclosed to Agent on each Borrowing Certificate the amount of all Accounts of Borrowers for which Medicare is the Account Debtor and for which payment has been denied and subsequently appealed pursuant to the procedure described in the definition of Eligible Receivables hereof, and Borrowers are pursuing all available appeals in respect of such Accounts. Notwithstanding anything in this Section 5.20 to the contrary, the failure of any Account other than an Eligible Receivable to satisfy the requirements of this Section 5.20 shall not constitute a Default or Event of Default unless Accounts other than Eligible Accounts having an aggregate face amount of $250,000 or greater fail to comply with the provisions of this Section 5.20. 5.21. HEALTHCARE Without limiting or being limited by any other provision of any Loan Document, Borrowers have timely filed or caused to be filed all material cost and other reports of every kind required by law, agreement or otherwise. Subject to subsection (x) of Section 5.20, there are no 24 claims, actions or appeals pending (and Borrowers have not filed any claims or reports which could reasonably result in any such claims, actions or appeals) before any commission, board or agency or other Governmental Authority, including, without limitation, any intermediary or carrier, the Provider Reimbursement Review Board or the Administrator of the Health Care Financing Administration, with respect to any state or federal Medicare or Medicaid cost reports or claims filed by Borrower, or any disallowance by any commission, board or agency or other Governmental Authority in connection with any audit of such cost reports which claims, actions or appeals, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No validation review or program integrity review related to Borrowers or the consummation of the transactions contemplated herein or to the Collateral have been conducted by any commission, board or agency or other Governmental Authority in connection with the Medicare or Medicaid programs, and to the knowledge of Borrowers, no such reviews are scheduled, pending or threatened against or affecting any of the providers, any of the Collateral or the consummation of the transactions contemplated hereby, which, individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 5.22. PLAN OF REORGANIZATION. Agent has received a copy of the Confirmation Order and the Confirmation Order has not been stayed by any court. All other conditions precedent to the confirmation and effectiveness of the Plan of Reorganization have been satisfied or waived and the Effective Date has occurred. 5.23. SURVIVAL. Each Borrower makes the representations and warranties contained herein with the knowledge and intention that Agent is relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement and the making of the Advances under the Revolving Facility. VI. AFFIRMATIVE COVENANTS Each Borrower, jointly and severally, covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement: 6.1. FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION (a) Financial Reports. Borrowers shall furnish to Agent and each Lender (i) as soon as available and in any event within one hundred twenty (120) calendar days after the end of each fiscal year of Borrowers, annual financial statements of Borrowers on a Consolidated Basis and on a consolidating basis, including the notes thereto, consisting of a consolidated and consolidating balance sheet at the end of such completed fiscal year and the related consolidated and consolidating statements of income, consolidated (but not consolidating) retained earnings, consolidated (but not consolidating) cash flows and consolidated (but not consolidating) owners' equity for such completed fiscal year, which consolidated financial statements shall be audited and shall be accompanied by an opinion of a Big Four accounting firm (or other independent certified public accounting firm reasonably satisfactory to Agent), which opinion shall not be 25 qualified as to going concern or scope of audit; (ii) as soon as available and in any event within forty-five (45) calendar days after the end of each fiscal quarter of Borrowers (other than the last fiscal quarter of each fiscal year), unaudited financial statements of Borrowers on a Consolidated Basis and on a consolidating basis consisting of a consolidated and consolidating balance sheet and consolidated and consolidating statements of income, consolidated (but not consolidating) retained earnings and consolidated (but not consolidating) cash flows and consolidated (but not consolidating) owners' equity as of the end of such fiscal quarter; and (iii) as soon as available and in any event within thirty (30) calendar days after the end of each calendar month (other than the last calendar month of a fiscal quarter), unaudited financial statements of Borrowers on a Consolidated Basis consisting of a balance sheet and statements of income, retained earnings, cash flows and owners' equity as of the end of the immediately preceding calendar month. All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods. With each such financial statement, Borrowing Agent shall also deliver a certificate of its chief financial officer stating that (A) such person has reviewed the relevant terms of the Loan Documents and the condition of Borrowers, (B) no Default or Event of Default has occurred or is continuing, or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto, and (C) Borrowers are in compliance with all financial covenants attached as Annex I hereto. Such certificate shall be accompanied by the calculations necessary to show compliance with the financial covenants in a form reasonably satisfactory to Agent. All consolidating statements required under this Section 6.1(a) or elsewhere in this Agreement shall be prepared for each Business Group of Borrowers and its Subsidiaries and not with respect to any individual Borrower or Subsidiary. (b) Other Materials. Borrowers shall furnish to Agent as soon as available, and in any event within ten (10) calendar days after the preparation or issuance thereof or at such other time as set forth below: (i) any reports, returns, information, notices and other materials that Parent shall send to its stockholders, members, partners or other equity owners at any time, (ii) all Medicare and Medicaid cost reports and other document and materials filed by Borrowers and any other reports, materials or other information regarding or otherwise relating to Medicaid or Medicare prepared by, for or on behalf of Borrowers, (iii) concurrently with the delivery of financial statements under Section 6.1(a), any other material reports, materials or other information regarding or otherwise relating to Medicaid or Medicare prepared by, for, or on behalf of, Borrowers or any of their Subsidiaries during the period to which such financial statements relate, including, without limitation, (A) copies of material licenses and permits required by any applicable federal, state, foreign or local law, statute ordinance or regulation or Governmental Authority for the operation of its business, (B) Medicare and Medicaid provider numbers and material agreements, (C) state surveys pertaining to any healthcare facility operated or owned or leased by Borrowers or any of their Affiliates or Subsidiaries and (D) material participating agreements relating to medical plans, (iv) within twenty (20) calendar days after the end of each calendar month for such month, a revenue report and accounts receivable and accounts payable aging schedules, (v) within thirty (30) calendar days after the end of each calendar month for such month, a report of census and occupancy percentage by payor type, (vi) promptly upon receipt thereof, copies of any reports, if any, submitted to Borrowers by their independent accountants in connection with any interim audit of the books of such Person or any of its Affiliates and copies of each management control letter, if any, provided by such independent accountants, and (vii) such additional information, documents, statements, reports 26 and other materials as Agent may reasonably request from a credit or security perspective or otherwise from time to time. (c) Notices. Borrowers shall promptly, and in any event within five (5) Business Days after any Borrower or any authorized officer of any Borrower obtain knowledge thereof, notify Agent in writing of (i) any pending or threatened litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative proceeding brought or initiated by any Borrower or otherwise affecting or involving or relating to any Borrower or any of its property or assets to the extent (A) (x) with respect to professional liability claims, the amount in controversy exceeds $5,000,000 (provided that Borrowers shall notify Agent if in their judgment any such claim has merit and the Borrowers' potential exposure with respect thereto is greater than $500,000), and (y) with respect to all other claims the amount in controversy exceeds $500,000 or (B) to the extent any of the foregoing seeks injunctive relief which could reasonably be expected to have a Material Adverse Effect, (ii) the occurrence of any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iii) any other development, event, fact, circumstance or condition that could reasonably be expected to have a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (iv) any notice received by any Borrower from any payor of a material claim, suit or other action such payor has, claims or has filed against Borrower, (v) any matter(s) materially and adversely affecting the value, enforceability or collectability of the Collateral, including, without limitation, claims or disputes in the amount of $250,000 or more in the aggregate, in existence at any one time, (vi) any notice given by any Borrower to any other lender of any Borrower (with a copy of such notice), (vii) receipt of any notice or request from any Governmental Authority or governmental payor regarding any material liability or claim of liability, (viii) receipt of any notice by any Borrower regarding termination of any manager of any facility owned, operated or leased by Borrowers, and/or (ix) if any Account becomes evidenced or secured by an Instrument or Chattel Paper. (d) Consents. Borrowers shall use reasonable efforts (which shall not include the unreasonable payment of money) to obtain and deliver from time to time all required consents, approvals and agreements from such third parties as Agent shall determine are necessary or desirable in its Permitted Discretion and that are reasonably satisfactory to Agent to (i) perfect any security interest or lien granted to the Agent or the Lenders pursuant to the Security Documents, and/or (ii) permit the execution of and performance under the Loan Documents without any conflict with any other material agreement, document or instrument to which any Borrower is a party or by which any of its properties or assets are bound or subject (but in no event shall any Landlord Waivers or Consents be required with respect to leases in existence on the Closing Date so long as for any books and records kept at a location for which Borrowers are not able to obtain a Landlord Consent and Waiver, Borrowers keep a duplicate up to date set of such books and records at a location owned by a Borrower or with respect to which a Landlord Waiver and Consent had been obtained which is reasonably acceptable to Agent). (e) Operating Budget. Borrowers shall furnish to Agent on or prior to the Closing Date and for each fiscal year of Borrowers thereafter not more than sixty (60) calendar days after the commencement of such fiscal year, consolidated and consolidating by Business Group month by month projected operating budgets, annual projections, profit and loss 27 statements, balance sheets and cash flow reports of and for Borrowers on Consolidated Basis for such upcoming fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), in each case prepared in accordance with GAAP consistently applied with prior periods. 6.2. PAYMENT OF OBLIGATIONS Borrowers shall make full and timely indefeasible payment in cash of the principal of and interest on the Loans, Advances and all other Obligations. 6.3. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS Each Borrower shall (i) conduct its business in accordance with good business practices customary to the industry, (ii) engage principally in the same or similar lines of business substantially as heretofore conducted, (iii) collect its Accounts in the ordinary course of business, (iv) maintain all of its material properties, assets and equipment used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the Loan Documents and otherwise as determined by such Borrower using commercially reasonable business judgment), (v) from time to time to make all necessary or desirable repairs, renewals and replacements thereof, as determined by such Borrower using commercially reasonable business judgment, (vi) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in each jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be likely to have a Material Adverse Effect, and (vii) remain in good standing and maintain operations in all jurisdictions in which failure to do so could reasonably be expected to have a Material Adverse Effect. 6.4. COMPLIANCE WITH LEGAL AND OTHER OBLIGATIONS Each Borrower shall (i) comply in all material respects with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to it or its business, assets or operations, (ii) pay all material taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind, except liabilities being contested in good faith and against which adequate reserves have been established, (iii) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound, except where the failure to comply, pay or perform could not reasonably be expected to have a Material Adverse Effect, (iv) maintain and comply in all material respects with all Permits necessary to conduct its business and comply in all material respects with any new or additional requirements that may be imposed on it or its business, and (v) appropriately file all Medicaid/Medicare cost reports. 6.5. INSURANCE Each Borrower shall (i) keep all of its insurable properties and assets adequately insured in all material respects against losses, damages and hazards as are customarily insured 28 against by businesses engaging in similar activities or owning similar assets or properties and at least the minimum amount required by applicable law, including, without limitation, medical malpractice and professional liability insurance, as applicable; and maintain general public liability insurance at all times against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions as are customary for a business engaged in activities similar to those of such Borrower; and (ii) maintain insurance under all applicable workers' compensation laws; all of the foregoing insurance policies to (A) be reasonably satisfactory in form and substance to Agent, (B) name Agent as loss payee and/or additional insured thereunder, and (C) expressly provide that they cannot be altered, amended, modified or canceled without thirty (30) Business Days prior written notice to Agent and that they inure to the benefit of Agent notwithstanding any action or omission or negligence of or by any Borrower or any insured thereunder. By the funding of the Initial Advance, the Agent hereby acknowledges that the insurance in place on the Closing Date is satisfactory to Agent. 6.6. TRUE BOOKS Each Borrower shall (i) keep true, complete and accurate books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its and their dealings and transactions in all material respects; and (ii) set up and maintain on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business, and include such reserves in its quarterly as well as year end financial statements. 6.7. INSPECTION; PERIODIC AUDITS Each Borrower shall permit the representatives of Agent, at the expense of Borrowers, from time to time during normal business hours upon reasonable notice, to (i) visit and inspect any of such Borrower's offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine or audit all of such Borrower's books of account, records, reports and other papers, (ii) make copies and extracts therefrom, and (iii) discuss such Borrower's business, operations, prospects, properties, assets, liabilities, condition and/or Accounts with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing); provided that so long as no Default or Event of Default has occurred and is continuing, Borrowers shall not have to pay expenses (x) for more than three (3) audits in any fiscal year and (y) in respect of audits in excess of $100,000 in the aggregate per fiscal year. 6.8. FURTHER ASSURANCES; POST CLOSING At Borrowers' cost and expense, Borrowers shall (i) within five (5) Business Days after Agent's demand, take such further actions, obtain such consents and approvals and duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion to give effect to or carry out the terms of the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence of a Default or Event of Default, (ii) without limiting and notwithstanding any other 29 provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth on Schedule 6.8, and (iii) upon the exercise by Agent or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization. Without limiting the foregoing, upon the exercise by Agent or any of its Affiliates of any right or remedy under any Loan Document which requires any consent, approval or registration with, consent, qualification or authorization by, any Person, Borrowers shall execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that Agent, any Lender or their respective Affiliates may be required to obtain for such consent, approval, registration, qualification or authorization. 6.9. PAYMENT OF INDEBTEDNESS Except as otherwise prescribed in the Loan Documents, Borrowers shall pay, discharge or otherwise satisfy at or before maturity (subject to applicable grace periods and, in the case of trade payables, to ordinary course payment practices) all of its material obligations and liabilities, except when the amount or validity thereof is being contested in good faith by appropriate proceedings and against which adequate reserves have been established. 6.10. LIEN SEARCHES If Liens other than Permitted Liens exist, Borrowers immediately shall take, execute and deliver all actions, documents and instruments necessary to release and terminate such Liens, unless such Liens are being contested in good faith by appropriate proceedings and against which adequate reserves have been established. 6.11. USE OF PROCEEDS Borrowers shall use the proceeds from the Revolving Facility only for the purposes set forth in the first "WHEREAS" clause of this Agreement. 6.12. COLLATERAL DOCUMENTS; SECURITY INTEREST IN COLLATERAL Each Borrower shall (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Agent to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Agent and Agent's perfected first priority Lien on the Collateral (and each Borrower irrevocably grants Agent the right, at Agent's option, to file any or all of the foregoing), (ii) immediately upon learning thereof, report to Agent any reclamation, return or repossession of goods in excess of $100,000.00 (individually or in the aggregate), and (iii) defend the Collateral and Agent's 30 perfected first priority Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent or any Lender, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys' fees and expenses) in connection with such defense, which may at Agent's discretion be added to the Obligations. 6.13. TAXES AND OTHER CHARGES All payments and reimbursements to Agent, for the benefit of Lenders, made under any Loan Document shall be free and clear of and without deduction for all taxes, levies, imposts, deductions, assessments, charges or withholdings, and all liabilities with respect thereto of any nature whatsoever, excluding taxes to the extent imposed on each Lender's net income or franchise taxes imposed in lieu of taxes on net income. If Borrowers shall be required by law to deduct any such amounts from or in respect of any sum payable under any Loan Document to Agent, for the benefit of Lenders, then the sum payable to Agent, for the benefit of Lenders, shall be increased as may be necessary so that, after making all required deductions, each Lender receives an amount equal to the sum it would have received had no such deductions been made. Notwithstanding any other provision of any Loan Document, if at any time after the Closing (a) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (b) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (c) compliance by Agent or any Lender with any request or directive (whether or not having the force of law) from any Governmental Authority: (i) subjects Agent or such Lender to any tax, levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the basis of taxation of payments to Agent, for the benefit of Lenders, of any amount payable thereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of Agent and/or each Lender), or (ii) imposes on Agent or Lenders any other condition or increased cost in connection with the transactions contemplated thereby or participations therein; and the result of any of the foregoing is to increase the cost to Agent or Lenders of making or continuing any Loan hereunder or to reduce any amount receivable hereunder, then, in any such case, Borrowers shall promptly pay to Agent, for the benefit of Lenders, any additional amounts necessary to compensate Agent and each Lender, on an after-tax basis, for such additional cost or reduced amount as determined by such Lender; provided that the Borrowers shall not be obligated to compensate the Agent or any Lender for any such additional amounts that relate to a period prior to 180 days before the date of notice from the Agent or the applicable Lender of such additional cost. If Agent or any Lender becomes entitled to claim any additional amounts pursuant to this Section 6.13 it shall promptly notify Borrowing Agent of the event by reason of which Agent or such Lender has become so entitled, and each such notice of additional amounts payable pursuant to this Section 6.13 submitted by Agent or such Lender to Borrowers shall, absent manifest error, be final, conclusive and binding for all purposes. At the request of Agent, Borrowers shall cause to be delivered to Agent within ten (10) calendar days after the end of each calendar month a report of ADP wire transfers evidencing payment of payroll taxes for the immediately preceding calendar month. 6.14. NEW SUBSIDIARIES 31 Within thirty (30) calendar days of any Person becoming a Subsidiary (other than an Excluded Subsidiary) after the Closing Date, Borrowers shall cause such Person to (a) deliver to Agent a Joinder Agreement to this Agreement and to each other Loan Document or a Guaranty and Security Agreement to which Borrowers or Guarantors are a party duly executed by such Person, which Joinder Agreement or Guaranty and Security Agreement shall be in the forms of the attached Exhibits C and D, respectively, (b) provide Agent with copies of such Person's organizational documents, material contracts, financial information, and any other information reasonably requested by Agent, on behalf of the Lenders, in order to perform legal and financial diligence and Uniform Commercial Code, tax and judgment lien searches, (c) cause to be delivered a written legal opinion of counsel substantially consistent with the opinions of counsel delivered on the Closing Date and otherwise in form and substance reasonably satisfactory to Agent which shall cover such matters incident to the transactions contemplated by this Section 6.14 and the other agreements and instruments executed and delivered pursuant hereto in substantially the form as delivered at the Closing and (d) cause such Person to duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion with respect to the purposes, terms and conditions of the Loan Documents. 6.15. RIGHT OF FIRST OFFER If at any time Borrowers propose to enter into any type of financing to refinance in full the outstanding Obligations (a "FINANCING"), then Borrowers shall, before entering into such Financing with any third party, notify the Agent in writing of their desire to enter into a Financing, such notice (the "PROPOSAL NOTICE") to set out with particularity the type of Financing that the Borrowers wish to consummate. Agent shall have five (5) Business Days (the "ACCEPTANCE PERIOD") after Receipt of the Proposal Notice to inform the Borrowers of its willingness to provide the Financing (the "ACCEPTANCE NOTICE"), which Acceptance Notice shall be accompanied by a term sheet or proposal letter setting forth in detail the proposed terms and conditions upon which Agent would be prepared to provide the Financing. After the receipt of the Acceptance Notice, the Borrowers shall have the right, within five (5) Business Days (the "NEGOTIATION PERIOD") to accept such proposal, during which period the Agent and the Borrowers may negotiate in good faith the terms of the Agent's proposal and to execute a mutually acceptable commitment letter. If no Acceptance Notice is received by Borrowing Agent by the end of the Acceptance Period or if the parties are unable to agree to the terms of the Financing by the end of the Negotiation Period, then Borrowers shall have the right, for a period of one hundred eighty (180) days following the expiration of the later of the Acceptance Period or the Negotiation Period (the "CLOSING PERIOD"), to offer the Financing to a third party as set forth in the Proposal Notice on terms and conditions which are, in the aggregate, more beneficial to the Borrowers than the terms set forth in the Acceptance Notice. If the Borrowers are not able to consummate such Financing prior to the expiration of the Closing Period, the Borrowers shall not be entitled to consummate the Financing with a third party without again complying with this Section 6.15. Any failure by Agent or any Lender to issue an Acceptance Notice shall not be construed as a waiver of any of the terms, covenants or conditions of any of the Loan Documents. For purposes of this Section 6.15, "Lender" shall include CapitalSource Finance LLC and any of its parents, subsidiaries or Affiliates. 6.16. SUPPLEMENTAL DISCLOSURE 32 From time to time as may be reasonably requested by Agent (which request may not be more frequent than once per fiscal quarter unless an Event of Default shall have occurred and be continuing), the Borrowers shall supplement the following Schedules: Schedule 2.4, Schedule 5.3, Schedule 5.11, Schedule 5.18A and Schedule 5.18B. VII. NEGATIVE COVENANTS Each Borrower, jointly and severally, covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement: 7.1. FINANCIAL COVENANTS No Borrower shall violate the financial covenants set forth on Annex I to this Agreement, which is incorporated herein and made a part hereof. 7.2. PERMITTED INDEBTEDNESS No Borrower shall create, incur, assume or suffer to exist any Indebtedness for Borrowed Money, except the following (collectively, "PERMITTED INDEBTEDNESS"): (a) Indebtedness under the Loan Documents; (b) guaranty Indebtedness under the Mezzanine Loan; (c) any Indebtedness set forth on Schedule 7.2 and any Indebtedness which refinances or replaces such Indebtedness to the extent such refinanced Indebtedness does not increase the total principal amount thereof, extend the maturity date, accelerate the amortization or is otherwise on terms and conditions which are not materially more onerous to the Borrowers ("PERMITTED REFINANCED INDEBTEDNESS"); (d) (i) Capitalized Lease Obligations incurred after the Closing Date and Indebtedness incurred pursuant to purchase money Liens permitted by Section 7.3(v) and any Permitted Refinanced Indebtedness with respect thereto, provided that the aggregate amount thereof outstanding at any time shall not exceed $5,000,000; (ii) Indebtedness on a non-recourse (other than customary carve-outs for non-recourse financings) basis to any assets of any Borrower or any Guarantor other than the asset or assets that are collateral securing such Indebtedness and which is secured by a Lien permitted pursuant to Section 7.3(v) and any Permitted Refinancing Indebtedness with respect thereto and (iii) Indebtedness incurred in connection with the Eureka Transaction; provided that the aggregate amount outstanding at any time under 7.2(d)(ii) plus 7.2(d)(iii) shall not exceed $30,000,000; (e) Indebtedness in connection with advances made by a stockholder in order to cure any default of the financial covenants set forth on Annex I; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Obligations and to all of Agent's rights and in form and substance reasonably satisfactory to Agent; (f) borrowings incurred in the ordinary course of business and not exceeding $10,000,000 individually or in the aggregate outstanding at any one time; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Obligations and to all of Agent's rights and in form and substance satisfactory to Agent; (g) Indebtedness from time to time owing to any Borrower; (h) Indebtedness of any Borrower arising out of an Interest Rate Agreement entered into in the ordinary course of business; (i) Subordinated Debt, provided, however, the aggregate principal amount of Subordinated Debt (I) evidenced by the Indenture and the Indenture Notes and any Permitted Refinanced Indebtedness with respect thereto shall 33 not exceed $106,761,608 and (II) evidenced by the Bergen Note and any Permitted Refinanced Indebtedness with respect thereto shall not exceed $1,237,325.46, (j) Indebtedness constituting Priority Claims; (k) Indebtedness in respect of insurance premiums payable to the Insurance Subsidiary in an aggregate amount not to exceed $10,000,000 and (k) additional unsecured Indebtedness in the ordinary course of business in an aggregate amount not to exceed $2,000,000. Notwithstanding anything in this Section 7.2 or this Agreement to the contrary, the aggregate amount of Indebtedness for Borrowed Money of Borrowers on a Consolidated Basis, exclusive of the Obligations and the "Obligations" as such term is defined in the Revolving Loan B Agreement, shall not exceed $255,000,000 in the aggregate. 7.3. PERMITTED LIENS No Borrower shall create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of, any of the Collateral or any of its properties or assets, whether now owned or hereafter acquired, except the following (collectively, "PERMITTED LIENS"): (i) Liens under the Loan Documents or otherwise arising in favor of Agent; (ii) Liens securing guaranty Indebtedness pursuant to the Mezzanine Loan Documentation as permitted in Section 7.9(d) hereof; (iii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (iv) (A) statutory Liens of landlords (provided that with respect to any landlord for leased locations acquired after the Closing Date, the applicable Borrower shall have used reasonable efforts (which shall not include the unreasonable payment of money) to cause such landlord to execute a Landlord Waiver and Consent in form and substance reasonably satisfactory to Agent in its Permitted Discretion; provided, further, in the event Borrowers are unable to obtain any such Landlord Waiver and Consent, Borrowers shall maintain a duplicate up to date set of any books and records maintained at the location related to the real property owned by the applicable landlord at a location owned by a Borrower or with respect to which a Landlord Waiver and Consent reasonably satisfactory to Agent shall have been obtained) and of carriers, warehousemen, mechanics, materialmen, and (B) other Liens imposed by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (v) Liens (A) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of progress payments under government contracts; (vi) purchase money Liens and Liens securing Capitalized Lease Obligations (A) securing Indebtedness permitted under Section 7.2(c), or (B) in connection with the purchase by such Person of assets in the normal course of business, provided that (x) such payables shall not exceed any limits on Indebtedness provided for herein and shall otherwise be Permitted Indebtedness hereunder and (y) with respect to Indebtedness incurred pursuant to Section 7.2(c)(ii) such Liens shall not extend to or cover any property of such Borrower other than the property being acquired and improvements thereon or which is the subject of the applicable Capital Lease, (vii) easements, rights-of-way, restrictions and other 34 similar encumbrances which do not materially interfere with the conduct of the business of Borrowers and their Subsidiaries; (viii) any intercompany Liens between a Borrower or Guarantor on the one hand and another Borrower or Guarantor on the other; (ix) any interest or title of a lessor under a operating lease; (x) Liens pursuant to Subordinated Debt; (xi) Liens securing the Priority Claims; (xii) the Vendor's Lien in accordance with the Plan of Reorganization so long as the amount secured does not exceed $8,000,000 and is otherwise subject to the General Intercreditor Agreement; (xiii) Liens securing Class 10 Deferred Obligations and Continuing Creditor Deferred Obligations in accordance with the Plan of Reorganization so long as the amount secured does not exceed $25,000,000 and is otherwise subject to the General Intercreditor Agreement; and (xiv) Liens disclosed on Schedule 7.3. 7.4. INVESTMENTS; NEW FACILITIES OR COLLATERAL; SUBSIDIARIES No Borrower, directly or indirectly, shall (a) purchase, own, hold, invest in or otherwise acquire obligations or stock or securities of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture or (b) make or permit to exist any loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (collectively, an "INVESTMENT"), in each case, other than (i) Investments in any Borrower or any Subsidiary of any Borrower; (ii) Investments in any Person to the extent such Person either (x) becomes a Borrower or a Guarantor under this Agreement, (y) with respect to investments by Parent in any Person or Subsidiary (other than a Borrower), becomes a borrower or a guarantor under the Revolving Loan B Documentation or the Mezzanine Loan Documentation or (z) with respect to investments existing on the Closing Date by Parent in any Person or Subsidiary which is a borrower or guarantor under the Senior Mortgage Loan Documentation; (iii) Investments in Cash Equivalents; (iv) Investments listed on Schedule 7.4; (v) trade credit extended in the ordinary course of business, (vi) advances for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees, (vii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (vii) guaranties by any Borrower or any Guarantor of obligations of another Borrower or another Guarantor, to the extent the obligation guaranteed is otherwise permitted under this Agreement; (viii) Investments in the Insurance Subsidiary in an amount not to exceed $1,500,000; and (ix) additional Investments in an amount not to exceed $2,000,000. No Borrower, directly or indirectly, shall purchase, own, operate, hold, invest in or otherwise acquire any facility, property or assets or any Collateral that is not located at the locations set forth on Schedule 5.18B unless such Borrower shall provide to Agent at least ten (10) Business Days prior written notice. No Borrower shall have any Subsidiaries other than (i) another Borrower, or (ii) such Subsidiaries which execute a Joinder Agreement or a Guaranty and Security Agreement pursuant to Section 6.14 or (iii) Excluded Subsidiaries. 7.5. DIVIDENDS; REDEMPTIONS No Borrower shall (i) declare, pay or make any dividend or distribution on any shares of capital stock or other securities or interests (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock); (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any capital stock or other securities or interests or of any options to purchase or acquire any of the foregoing (provided, 35 however, that such Borrower may redeem its capital stock from any terminated employee pursuant to, but only to the extent required or permitted under, the terms of the related employment or other agreements with such employee, as long as no Default or Event of Default has occurred and is continuing or would be caused by or result therefrom), or (iii) otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person's capacity as an equity owner. Notwithstanding the foregoing, (x) any Borrower (other than Parent) may make Distributions and other payments to the owner of such Borrower; and (y) after the payment in full of the Mezzanine Loan and the Special Advance Amount, and provided no Default or Event of Default shall have occurred, be continuing or would exist after giving effect thereto, any Borrower may make dividends or Distribution. In addition, no Borrower shall make any payment of any management, service or related or similar fee to any Person or with respect to any facility owned, operated or leased by Borrower except in the manner permitted under the Management Agreements and the Management Fee Subordination Agreements; provided that Borrower shall not make or suffer to exist any payment of fees under any Management Agreement if a Default of Event of Default has occurred and is continuing or would result therefrom. 7.6. TRANSACTIONS WITH AFFILIATES Except as set forth on Schedule 7.6, no Borrower shall enter into or consummate any transaction of any kind with any of its Affiliates or any Guarantor or any of their respective Affiliates other than: (i) salary, bonus, employee stock option and other compensation and employment arrangements with directors or officers in the ordinary course of business, provided, that no payment of any bonus shall be permitted if an Event of Default under Section (VIII)(a) has occurred and remains in effect or would be caused by or result from such payment; (ii) distributions and dividends permitted pursuant to Section 7.4 or Section 7.5, (iii) transactions on overall terms at least as favorable to such Borrower as would be the case in an arm's length transaction between unrelated parties of equal bargaining power, and (iv) payments permitted under and pursuant to written agreements entered into by and between such Borrower and one or more of its Affiliates that both (A) reflect and constitute transactions on overall terms at least as favorable to such Borrower as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power, and (B) are subject to such terms and conditions as determined by Agent in its Permitted Discretion; provided, that notwithstanding the foregoing or any provision of any Loan Document, no Borrower shall (Y) enter into or consummate any transaction or agreement pursuant to which it becomes a party to any mortgage, note, indenture or guarantee evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any of its Affiliates (other than a Borrower or Guarantor pursuant to the Loan Documents) or otherwise becomes responsible or liable, as a guarantor, surety or otherwise, pursuant to any agreement for any Indebtedness for Borrowed Money or Contingent Obligations of any such Affiliate (other than a Borrower or Guarantor pursuant to the Loan Documents) or (Z) make any payment to any of its Affiliates in excess of $100,000 without the prior written consent of Agent. By execution of this Agreement, the Agent consents to the payments made to Affiliates pursuant to the agreements set forth on Schedule 7.6. 7.7. CHARTER DOCUMENTS; FISCAL YEAR; DISSOLUTION; USE OF PROCEEDS 36 No Borrower shall (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents in a manner that would be adverse to Agent or any Lender, (ii) change its fiscal year unless Borrowers demonstrate to Agent's reasonable satisfaction compliance with the covenants contained herein for both the fiscal year in effect prior to any change and the new fiscal year period by delivery to Agent of appropriate interim and annual pro forma, historical and current compliance certificates for such periods and such other information as Agent may reasonably request, (iii) amend, alter or suspend or terminate or make provisional in any material way, any Permit material to the business of such Borrower without the prior written consent of Agent, which consent shall not be unreasonably withheld or delayed, or (iv) use any proceeds of any Advance for "purchasing" or "carrying" "margin stock" as defined in Regulations U, T or X of the Board of Governors of the Federal Reserve System. 7.8. TRANSFER OF ASSETS No Borrower shall sell, lease, transfer, pledge, assign or otherwise dispose of any Collateral or any interest therein or agree to do any of the foregoing, except that: (a) any Borrower may lease (other than by a sale-leaseback transaction) as lessee real or personal property or surrender all or a portion of a lease of the same, in each case in the ordinary course of business (so long as such lease does not create or result in and is not otherwise a Capitalized Lease Obligation prohibited under this Agreement) provided that, if books and records regarding Collateral included on any Borrowing Base Certificate, are to be kept at any new leased location, a Landlord Waiver is executed, reasonably satisfactory in form and substance to Agent; (b) any Borrower may sell obsolete, worn-out or replaced assets or excess assets no longer needed in the ordinary course of business; (c) any Borrower may sell Inventory in the ordinary course of business; (d) any Borrower may sell or transfer Collateral (other than Accounts) to any Borrower or any Guarantor so long as after giving effect thereto Agent retains a perfected security interest in such Collateral with the same priority as the Agent had in such Collateral prior to such sale or transfer; (e) the sale, transfer, lease or other disposition by any Borrower or any Guarantor of assets aggregating for all Borrowers and Guarantors not more than $5,000,000 during the Term; and (f) the sale, transfer, lease or other disposition by any Borrower or any Guarantor of not more than five (5) Facilities during the Term, provided that any such sale, transfer, lease or other disposition shall not result in a Default or Event of Default; and (g) the sale, transfer, lease or other disposition by any Borrower or any Guarantor of all or any portion of the pharmacy business or the locomotion business, provided that any such sale, transfer, lease or other disposition shall not result in a Default or an Event of Default. 37 7.9. CONTINGENT OBLIGATIONS No Borrower shall enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person except for (a) Contingent Obligations permitted pursuant to Section 7.2 or Section 7.4; (b) Contingent Obligations of any Borrower or any Guarantor for any Borrower or any Guarantor, to the extent the underlying obligation is otherwise permitted under this Agreement; (c) Contingent Obligations of Parent for any borrower or a guarantor under the Revolving Loan B Documentation, the Mezzanine Loan Documentation or the Senior Mortgage Loan Documentation, to the extent the underlying obligations is otherwise permitted under this Agreement; (d) Contingent Obligations of any Borrower for any borrower or a guarantor under the Mezzanine Loan Documentation; (e) Contingent Obligations set forth in Schedule 7.9 hereof; and (f) refinancings and replacements of Contingent Obligations otherwise permitted hereunder. 7.10 IRS FORM 8821 No Borrower shall alter, amend, restate, or otherwise modify, or withdraw, terminate or re-file the IRS Form 8821 required to be filed pursuant to the Conditions Precedent in Section 4.1 hereof. 7.11. PAYMENT ON SUBORDINATED DEBT No Borrower shall (i) make any payment of any part or all of any Subordinated Debt or repurchase, redeem or retire any instrument evidencing any such Subordinated Debt prior to maturity except, in each case, to the extent permitted in the General Intercreditor Agreement, the Bergen Intercreditor Agreement, Article 12 of the Indenture as in effect on the Closing Date or the applicable Subordination Agreement, provided that (x) no payment, repurchase or redemption may be made in respect of Subordinated Debt if an Event of Default shall exist or be continuing or would exist after giving effect to such payment and (y) no principal prepayments may be made in respect of the Indenture Notes, the Continuing Creditor Deferred Obligation, or the Class 10 Deferred Obligations until the outstanding balance of the Mezzanine Loan and the Senior Mortgage Term Loan B has been paid in full and the Special Advance Amount has been reduced to zero; or (ii) enter into any agreement (oral or written) which could in any way be construed to amend, modify, alter or terminate any one or more instruments or agreements evidencing or relating to any Subordinated Debt (other than the Vendors Lien) which increases the principal amount of such Subordinated Indebtedness, increases the interest rate charged with respect thereto, accelerates the maturity date of any payment of principal or interest or increases any fees or other compensation payable thereunder or amends any event of default or any other material covenant or agreement of any obligor thereunder or in respect thereof in a manner materially adverse to Agent or any Lender; provided, however, so long as (x) no Default or Event of Default shall exist or be continuing at the time of or after giving effect to any such payment and (y) the outstanding balance of the Mezzanine Loan and the Senior Mortgage Term Loan B has been paid in full and the Special Advance Amount has been reduced to zero, Borrowers may make prepayments of Subordinated Indebtedness; and provided, further, no mandatory prepayments or redemptions from excess cash flow of Borrowers may be made in respect of Subordinated Indebtedness until all mandatory prepayments from excess cash flow have been made in accordance with the Mezzanine Loan 38 Documentation, Senior Mortgage Term Loan B and the Special Advance Amount has been reduced to zero. 7.12. NEGATIVE PLEDGE No Borrower shall pledge or grant a Lien (other than a Lien pursuant to the Mezzanine Loan Documentation) on any stock or other equity interests of any Subsidiary which it owns at any time to any Person other than to Agent for itself and the benefit of Lenders. VIII. EVENTS OF DEFAULT The occurrence of any one or more of the following shall constitute an "EVENT OF DEFAULT": (a) any Borrower shall fail to pay any amount on the Obligations or provided for in any Loan Document when due (whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise); (b) any representation, statement or warranty made or deemed made by any Borrower or any Guarantor in any Loan Document or in any other certificate, document, report or opinion delivered in conjunction with any Loan Document to which it is a party, shall not be true and correct in all material respects or shall have been false or misleading in any material respect on the date when made or deemed to have been made; (c) any Borrower or any Guarantor or other party thereto other than Agent or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, any Loan Document and such violation, breach, default or failure shall not be cured within a fifteen (15) calendar day cure period commencing from the earlier of (i) Receipt by such Person of written notice of such breach, default, violation or failure, and (ii) the time at which such Person or any authorized officer thereof knew or became aware, or should have known or been aware, of such failure, violation, breach or default; provided that, (A) the cure period set forth above shall not apply to any other Default or Event of Default set forth in any other provision of this Article VIII as to which no cure period or a different cure period is provided and (B) with respect to the covenants set forth in Sections 6.1, 6.2, 6.3(i), (ii) and (iii), 6.5, 6.8, 6.9, 6.11, 6.12, 6.14 and Article VII there shall be no cure period; (d) (i) any of the Loan Documents ceases to be in full force and effect, or (ii) any Lien created thereunder ceases to constitute a valid perfected first priority Lien on the Collateral (other than Priority Liens) in accordance with the terms thereof, or Agent ceases to have a valid perfected first priority security interest (subject only to Priority Liens) in any of the Collateral or any securities pledged to Agent pursuant to the Security Documents; (e) one or more judgments or decrees is rendered against any Borrower or Guarantor in an amount in excess of $2,000,000 individually or in the aggregate, which is/are not satisfied, stayed, vacated or discharged of record for a period of thirty (30) consecutive calendar days after being rendered; 39 (f) (i) any default occurs, which is not cured or waived (x) in the payment of any amount with respect to Indebtedness under the Senior Mortgage Loan Documentation, the Mezzanine Loan Documentation, the Revolving Loan B Documentation, the Indenture, any Subordinated Debt, any Priority Claims or in respect of any other Indebtedness (other than the Obligations) of any Borrower or Guarantor in excess of $2,000,000; or (y) in the performance, observance or fulfillment of any provision contained in any agreement, contract, document or instrument under or pursuant to which any Indebtedness described in clause (x) above was issued, created, assumed, guaranteed or secured and such default continues for more than any applicable grace period or permits the holder of any such Indebtedness to accelerate the maturity thereof; or (ii) any such Indebtedness of any Borrower or Guarantor is declared to be due and payable or is required to be prepaid (other than by a regularly scheduled payment or a mandatory or voluntary prepayment permitted under this Agreement) prior to the stated maturity thereof, or any obligation of such Person for the payment of Indebtedness (other than the Obligations) is not paid when due or within any applicable grace period, or any such obligation becomes or is declared to be due and payable before the expressed maturity thereof (other than as a result of a mandatory or voluntary prepayment permitted under this Agreement); (g) any Borrower or any Guarantor shall (i) be unable to pay its debts generally as they become due, (ii) make a general assignment for the benefit of its creditors, (iii) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property, or (iv) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute; (h) (i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any Borrower or Guarantor or the whole or any substantial part of any such Person's properties, which shall continue unstayed and in effect for a period of sixty (60) consecutive calendar days, (B) shall approve a petition filed against any Borrower or Guarantor seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other applicable law or statute, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other applicable law or statute, assume custody or control of any Borrower or Guarantor or of the whole or any substantial part of any such Person's properties, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against any Borrower or Guarantor any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which any Borrower or Guarantor takes any action to indicate its approval of or consent to; (i) (i) any Change of Control occurs, (ii) any Material Adverse Effect or Material Adverse Change occurs, or (iii) any Liability Event occurs; (j) Agent receives any indication or evidence that any Borrower or Guarantor may have directly or indirectly been engaged in any type of activity which, in Agent's Permitted Discretion, might result in forfeiture of any material Collateral to any Governmental Authority which shall have continued unremedied for a period of ten (10) calendar days after written notice from Agent; 40 (k) an Event of Default occurs under any other Loan Document; (l) any Borrower or Guarantor is criminally indicted or convicted under any law that could lead to a forfeiture of any Collateral; (m) the issuance of any process for levy, attachment or garnishment or execution upon or prior to any judgment against any Borrower or Guarantor or any of their property or assets in an aggregate amount greater than $2,000,000; then, and in any such event, notwithstanding any other provision of any Loan Document, Agent may (and at the request of Requisite Lenders, shall), by notice to Borrowers (i) terminate its obligations to make Advances hereunder, whereupon the same shall immediately terminate and (ii) declare all or any of the Revolving Notes, all interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under Section VIII(g) or (h), in which event all of the foregoing shall automatically and without further act by Agent be due and payable), provided that, with respect to non-material breaches or violations that constitute Events of Default under clause (ii) of Section VIII(d), there shall be a three (3) Business Day cure period commencing from the earlier of (A) Receipt by the applicable Person of written notice of such breach or violation or of any event, fact or circumstance constituting or resulting in any of the foregoing, and (B) the time at which such Person or any authorized officer thereof knew or became aware, or should have known or been aware, of such breach or violation and resulting Event of Default or of any event, fact or circumstance constituting or resulting in any of the foregoing)), in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower. IX. RIGHTS AND REMEDIES AFTER DEFAULT 9.1. RIGHTS AND REMEDIES (a) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and continuation of an Event of Default, Agent shall have the right to (and at the request of Requisite Lenders, shall) exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of any Borrower held by Agent, for the benefit of Lenders to reduce the Obligations, (ii) foreclose the Liens created under the Security Documents, (iii) realize upon, take possession of and/or sell any Collateral or securities pledged (other than Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law) with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as any Borrower, as applicable, might exercise (other than with respect to Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), (v) collect and send notices regarding the Collateral (other than with respect to Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral and/or pledged securities are located, or dispose of the Collateral and/or pledged securities on such premises without any liability for rent, storage, utilities, or other sums (other than amounts agreed to by Agent in any 41 agreement with any landlord or lessor), and no Borrower shall resist or interfere with such action, (vii) at Borrowers' expense, require that all or any part of the Collateral be assembled and made available to Agent at any reasonable place designated by Agent, (viii) reduce or otherwise change the Facility Cap, and/or (ix) relinquish or abandon any Collateral or securities pledged or any Lien thereon. Notwithstanding any provision of any Loan Document, Agent, in its Permitted Discretion, shall have the right, at any time that any Borrower fails to do so, and from time to time, without prior notice, to: (i) obtain insurance covering any of the Collateral to the extent required hereunder; (ii) pay for the performance of any of Obligations; (iii) discharge taxes or Liens on any of the Collateral that are in violation of any Loan Document unless such Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (iv) pay for the maintenance and preservation of the Collateral. Such expenses and advances shall be added to the Obligations until reimbursed to Agent and shall be secured by the Collateral, and such payments by Agent shall not be construed as a waiver by Agent or Lenders of any Event of Default or any other rights or remedies of Agent and Lenders. (b) Borrowers agree that notice received by any of them it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Agent without prior notice to Borrowers. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by Borrowers which right is hereby waived and released. Borrowers covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Agent's exercise of its rights and remedies with respect to the Collateral. Agent, in dealing with or disposing of the Collateral or any part thereof, shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process. 9.2. APPLICATION OF PROCEEDS In addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all reasonable costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrowers' business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Agent or Lenders may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Agent or Lenders may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, reasonable in house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein and as determined by 42 Agent in its sole discretion; (iii) third, to the satisfaction of other Indebtedness secured by any subordinate security interest of record in the Collateral as provided in the General Intercreditor Agreement, the Bergen Intercreditor Agreement or any applicable Subordination Agreement if written notification of demand therefor is received before distribution of the proceeds is completed, provided, that, if requested by Agent, the holder of a subordinate security interest shall furnish reasonable proof of its interest, and unless it does so, Agent and Lenders need not address their claims; and (iv) fourth, to the payment of any surplus then remaining to Borrowers, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Borrowers shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section. 9.3. RIGHTS OF AGENT TO APPOINT RECEIVER Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent and Lenders shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Borrowers and to collect all revenues and profits thereof and apply the same to the payment of all reasonable expenses and other charges of such receivership including the reasonable compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. 9.4. RIGHTS AND REMEDIES NOT EXCLUSIVE Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent or Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way modify or affect any of Agent's or Lenders' rights, Liens or remedies under any Loan Document, applicable law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent or Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy. X. WAIVERS AND JUDICIAL PROCEEDINGS 10.1. WAIVERS (a) Except as expressly provided for herein, each Borrower hereby waives set-off, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. Each Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Agent or any Lender to obtain an order of court recognizing the assignment of, or Lien of Agent, for the benefit of itself and Lenders, in and to, any Collateral, 43 whether or not payable by a Medicaid/Medicare Account Debtor. With respect to any action hereunder, Agent conclusively may rely upon, and shall incur no liability to Borrowers in acting upon, any request or other communication that Agent reasonably believes to have been given or made by a person authorized on Borrower's behalf, whether or not such person is listed on the incumbency certificate delivered pursuant to Section 4.1 hereof. In each such case, each Borrower hereby waives the right to dispute Agent's action based upon such request or other communication, absent manifest error. (b) If it is at any time determined that any Borrower is liable as a guarantor of any portion of the Obligations (and not as a co-obligor or co-borrower), the liability of each Borrower hereunder shall be absolute and unconditional irrespective of (a) the insolvency of, or the voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization or other similar proceedings affecting any other Borrower or any of its assets, or (b) any other circumstance or claim which might otherwise constitute a defense available to, or a discharge of, any Person that is a Borrower in respect of the Obligations. No payment made by any Borrower, or received or collected by Agent or any Lender from any Borrower by virtue of any action, proceeding or set-off in reduction or in payment of the Obligations shall be deemed to modify, release or otherwise affect the liability of any Borrower under the Loan Documents, and each Borrower shall remain liable for the Obligations until all Obligations are paid in full. 10.2. DELAY; NO WAIVER OF DEFAULTS No course of action or dealing, renewal, release or extension of any provision of any Loan Document, or single or partial exercise of any such provision, or delay, failure or omission on Agent's or Lenders' part in enforcing any such provision shall affect the liability of any Borrower or Guarantor or operate as a waiver of such provision or affect the liability of any Borrower or Guarantor or preclude any other or further exercise of such provision. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by making Advances, neither Agent nor any Lender waives any breach of any representation or warranty of under any Loan Document, and all of Agent's and Lenders' claims and rights resulting from any such breach or misrepresentation are specifically reserved. 10.3. JURY WAIVER EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE LOAN DOCUMENTS OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT 44 MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY. 10.4 AMENDMENT AND WAIVERS (a) Except as otherwise provided herein, no amendment, modification, termination, or waiver of any provision of this Agreement or any Loan Document, or consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Requisite Lenders, Agent and Borrowers; provided, that no amendment, modification, termination, or waiver shall, unless in writing and signed by each Lender directly affected thereby, do any of the following: (i) increase the Commitment of such Lender; (ii) reduce the principal of, rate of interest (other than default interest) on or fees payable with respect to any Loan; (iii) extend the scheduled due date or reduce the amount due on any scheduled due date, of any installment of principal, interest, or fees payable with respect to any Loan, or waive, forgive, extend, defer or postpone the payment thereof; (iv) change the percentage of the Commitments, of the aggregate unpaid principal amount of the Loans, or of Lenders which shall be required for Lenders or any of them to take any action hereunder; (v) except as otherwise permitted herein or in the other Loan Documents, release any Guaranty or release any material portion of the Collateral (provided, that consent to such release shall not be required if such release is made after and during the continuance of an Event of Default in connection with the sale or disposition of the Collateral by Agent); (vi) amend, modify or waive this Section 10.4 or the definitions of the terms used in this Section 10.4 insofar as the definitions affect the substance of this Section 10.4; (vii) consent to the assignment or other transfer by Borrowers or any other party (other than any Lender) to any Loan Documents of any of their rights and obligations under any Loan Document; or (viii) increase the Advance Rate or change the definition of Eligible Receivables or Borrowing Base; and, provided, further, that no amendment, modification, termination or waiver affecting the rights or duties of Agent under any Loan Document shall in any event be effective, unless in writing and signed by Agent, in addition to Lenders required herein above to take such action. (b) Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document. (c) Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.4 shall be binding upon each Lender and Borrowers. XI. EFFECTIVE DATE AND TERMINATION 11.1. EFFECTIVENESS AND TERMINATION Subject to Agent's and Lenders' rights to accelerate the Loans and terminate and cease making and funding Advances if any Event of Default has occurred and is continuing, this Agreement shall continue in full force and effect until the full performance and indefeasible payment in cash of all Obligations, unless terminated sooner as provided in this Section 11.1. 45 Borrowers may terminate this Agreement at any time upon not less than fifteen (15) calendar days' prior written notice to Agent and upon full performance and indefeasible payment in full in cash of all Obligations on or prior to such 15th calendar day after Receipt by Agent of such written notice, provided, however, that, notwithstanding any other provision of any Loan Document, (x) Borrowers shall have no right to terminate this Agreement until the second anniversary of the Closing Date (unless either (i) Borrowers shall pay to Agent, for the pro rata benefit of Lenders, an amount equal to the Unused Line Fee that would accrue during the period from such termination to such second anniversary or (ii) such termination occurs in connection with a Change of Control); and (y) Borrowers shall have no right to terminate this Agreement until the termination and indefeasible payment in full of all Obligations (other than Unmatured Surviving Obligations) hereunder and all obligations under the Mezzanine Loan Documentation and the Senior Mortgage Term Loan B. All of the Obligations shall be immediately due and payable upon any such termination on the termination date stated in any notice of termination (the "TERMINATION DATE"); provided that, notwithstanding any other provision of any Loan Document, the Termination Date shall be effective no earlier than the first Business Day following the expiration of the fifteen (15) calendar days' prior written notice period. Notwithstanding any other provision of any Loan Document, no termination of this Agreement shall affect any Lender's or Agent's rights or any of the Obligations existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations (other than Unmatured Surviving Obligations) have been fully performed and indefeasibly paid in cash in full. The Liens granted to Agent, for the benefit of itself and Lenders, under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Agent and Lenders shall continue in full force and effect notwithstanding the fact that Borrowers' borrowings hereunder may from time to time be in a zero or credit position until all of the Obligations (other than Unmatured Surviving Obligations) have been fully performed and indefeasibly paid in full in cash. 11.2. SURVIVAL All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by any Borrower in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making of the Advances and any termination of this Agreement until all Obligations (other than Unmatured Surviving Obligations) are fully performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 3.4, 3.5, 6.13, 10.1, 10.3, 11.1, 11.2, 14.4, 14.7 and 14.9 shall survive termination of the Loan Documents and any payment, in full or in part, of the Obligations. XII. AGENCY PROVISIONS 12.1. AGENT (a) Appointment. Each Lender hereby designates and appoints CapitalSource as the administrative agent and the collateral agent, under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes CapitalSource, as the administrative agent and the collateral agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this 46 Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article. Except for rights specifically noted, the provisions of this Article are solely for the benefit of Agent and Lenders, and Borrowers shall have no rights as a third-party beneficiary of any of the provisions hereof. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. (b) Nature of Duties. In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders and its duties are administrative in nature and it does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or for Borrowers. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Except for information, notices, reports, and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, each Lender shall make its own independent investigation of the financial condition and affairs of Borrowers in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrowers, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to each Lender. Agent shall promptly notify (in writing) each Lender any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto. (c) Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder, and Agent shall be liable with respect to its own gross negligence or willful misconduct. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrowers herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrowers. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrowers, or the existence or possible existence of any Default or Event of Default. 47 Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the applicable percentage of Lenders and notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees or agents to any personal liability unless Agent receives an indemnification reasonably satisfactory to it from Lenders with respect to such action. (d) Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion. (e) Indemnification. Each Lender, severally and not jointly, agrees to reimburse and indemnify Agent and its officers, directors, managers, members, equity owners, employees and agents (to the extent not reimbursed by Borrowers or the Guarantors), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding obligations (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 their Pro Rata Share immediately prior to such date of the total outstanding obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any of its officers, directors, managers, members, equity owners, employees or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct. The obligations of Lenders under this Article XII shall survive the payment in full of the Obligations and the termination of this Agreement. (f) CapitalSource Individually. With respect to the Loans made by it, and the Revolving Notes issued to it, CapitalSource shall have and may exercise the same rights and powers hereunder and under the other Loan Documents and is subject to the same obligations and liabilities as and to the extent set forth herein and the other Loan Documents as any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the 48 context clearly otherwise indicates, include CapitalSource in its individual capacity as a Lender or one of the Requisite Lenders. CapitalSource may lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Subsidiary of any Borrower as if it were not acting as Agent pursuant hereto. (g) Successor Agent. (i) Resignation. Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) days' prior written notice to Borrowers and Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (ii) below or as otherwise provided below. (ii) Appointment of Successor. Upon any such notice of resignation pursuant to clause (g)(i) above, Requisite Lenders shall appoint a successor Agent with, so long as no Event of Default shall have occurred and be continuing, the consent of Borrowing Agent (which consent shall not be unreasonably withheld or delayed). If a successor Agent shall not have been so appointed within said thirty (30) day period, the retiring Agent, upon notice to Borrowers, may, on behalf of Lenders, then appoint a successor Agent who shall serve as Agent until such time, as Requisite Lenders (with, so long as no Event of Default shall have occurred and be continuing, the consent of Borrowing Agent (which consent shall not be unreasonably withheld or delayed)), appoint a successor Agent as provided above. If no successor Agent has been appointed pursuant to the foregoing within said thirty (30) day period, the resignation shall become effective and Requisite Lenders shall thereafter perform all the duties of Agent hereunder, until such time, if any, as Requisite Lenders appoint a successor Agent as provided above. (iii) Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and, upon the earlier of such acceptance or the effective date of the retiring Agent's resignation, the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, except that any indemnity rights or other rights in favor of such retiring Agent shall continue. After any retiring Agent's resignation as Agent under the Loan Documents, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. (h) Collateral Matters. (i) Collateral. Each Lender agrees that any action taken by Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater proportion of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Requisite Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan 49 Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by Borrowers or any of their Subsidiaries; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral, and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (ii) Release of Collateral. Lenders hereby irrevocably authorize Agent, and Agent and Lenders agree for the benefit of Borrowers, to release any Lien granted to or held by Agent for the benefit of Lenders upon (A) all Collateral upon termination of this Agreement and payment and satisfaction in full of all Obligations (other than Unmatured Surviving Obligations); or (B) any portion of the Collateral which is sold, transferred or otherwise disposed of in accordance with the provisions of this Agreement, if Borrowers certify to Agent that such sale, transfer or other disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry). Upon at least five (5) Business Days prior written request by any Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent for the benefit of Lenders herein or pursuant hereto upon all or any portion of the Collateral in accordance with the previous sentence. (iii) Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by Borrowers or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 12.1(h) or in any of the Loan Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Loan Documents or any act, omission, or event related thereto, Agent may act in any manner consistent with the provisions of this Agreement and the other Loan Documents and as it may otherwise deem appropriate, in its Permitted Discretion, given Agent's own interest in property covered by this Agreement or the Loan Documents as one of Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account. Notwithstanding the foregoing, Agent shall be liable with respect to its own gross negligence or willful misconduct. (i) Agency for Perfection. Each Lender hereby appoints Agent as agent for the purpose of perfecting Lenders' security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify 50 Agent thereof, and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. (j) Exercise of Remedies. Except as set forth in Section 12.3, each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize upon any collateral security for the Loans, it being understood and agreed that such rights and remedies may be exercised only by Agent. 12.2. CONSENTS (a) In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent so long as such request contained a notice stating that such failure to respond within five (5) Business Days would be deemed to be a consent by such Lender. (b) In the event Agent requests the consent of a Lender in a situation where such Lender's consent would be required and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Loans to Agent for a price equal to the then outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender, which interest and fees will be paid when collected from Borrowers. In the event that Agent elects to require any Lender to assign its interest to Agent pursuant to this Section 12.2, Agent will so notify such Lender in writing within forty-five (45) days following such Lender's denial, and such Lender will assign its interest to Agent no later than five (5) days following receipt of such notice. 12.3. SET OFF AND SHARING OF PAYMENTS In addition to any rights and remedies now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Borrowers at any time or from time to time, to the fullest extent permitted by law, with reasonably prompt subsequent notice to Borrowers or to any other Person (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrowers or the Guarantors (regardless of whether such balances are then due to Borrowers or the Guarantors), and (b) other property at any time held or owing by such Lender or such holder to or for the credit or for the account of Borrowers or the Guarantors, against and on account of any of the Obligations which are not paid when due; except that no Lender shall exercise any such right without the prior written consent of Agent; provided, however, that the failure to give notice to Borrowers shall not affect the validity of such set-off and application. Any Lender which has exercised its right to set off or otherwise has received any payment on account of the Obligations shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of Lenders on account of such Obligations, purchase for cash participations in each such other Lender's Pro Rata Share of Obligations as would be necessary to cause such Lender to share such excess with each other Lender or holder in accordance with their respective Pro Rata Shares; provided, however, that if all or any portion 51 of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrowers agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (b) any Lender or holder so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans and other Obligations in the amount of such participation. 12.4. DISBURSEMENT OF FUNDS Agent may, on behalf of Lenders, disburse funds to Borrowers for Advances requested. Each Lender shall reimburse Agent on demand for its Pro Rata Share of all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of any Advance before Agent disburses same to Borrowers. If Agent elects to require that funds be made available prior to disbursement to Borrowers, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender's Pro Rata Share of such requested Advance no later than one (1) Business Day prior to the funding date applicable thereto, and each such Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent's account not later than 3:00 p.m. (Eastern Time) on the day prior to the funding date. If any Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrowers, and Borrowers shall immediately repay such amount to Agent. Any repayment required pursuant to this Section 12.4 shall be without premium or penalty. Nothing in this Section 12.4 or elsewhere in this Agreement or the other Loan Documents, including without limitation the provisions of Section 12.5, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrowers may have against any Lender as a result of any default by such Lender hereunder. 12.5. SETTLEMENTS; PAYMENTS AND INFORMATION (a) Advances and Payments; Interest and Fee Payments. (i) The amount outstanding pursuant to Advances may fluctuate from day to day through Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender notwithstanding terms to the contrary set forth in Section 12.4, Advances and repayments may be settled according to the procedures described in Sections 12.5(a)(ii) and 12.5(a)(iii) of this Agreement. Payments of principal, interest and fees in respect of the Loans will be settled, in accordance with each Lender's Pro Rata Share on the first Business Day after such payments are received. Notwithstanding these procedures, each Lender's obligation to fund its Pro Rata Share of any advances made by Agent to Borrowers will commence on the date such advances are made by Agent. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind. 52 (ii) Once each week, or more frequently (including daily), if Agent so elects (each such day being a "SETTLEMENT DATE"), Agent will advise each Lender by 1 p.m. (Eastern Time) by telephone, telex, or telecopy of the amount of each such Lender's Pro Rata Share of the outstanding Advances. In the event payments are necessary to adjust the amount of such Lender's share of the Advances to such Lender's Pro Rata Share of the Advances, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than 3:00 p.m. (Eastern Time) on the Business Day following the Settlement Date. (iii) On the first Business Day of each month ("INTEREST SETTLEMENT DATE"), Agent will advise each Lender by telephone or facsimile of the amount of interest and fees charged to and collected from Borrowers for the proceeding month in respect of the Advances. Provided that such Lender has made all payments required to be made by it under this Agreement, Agent will pay to such Lender, by wire transfer to such Lender's account (as specified by such Lender on Schedule 2 of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein) not later than 3 p.m. (Eastern Time) on the next Business Day following the Interest Settlement Date such Lender's share of such interest and fees. (b) Availability of Lenders' Pro Rata Share. (i) Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender's intention not to fund its Pro Rata Share of the Advance amount requested by Borrowers, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable. If such amount is not, in fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim, or deduction of any kind. (ii) Nothing contained in this Section 12.5(b) will be deemed to relieve a Lender of its obligation to fulfill its commitments or to prejudice any rights Agent or Borrowers may have against such Lender as a result of any default by such Lender under this Agreement. (c) Return of Payments. (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrowers and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrowers or paid to any other Person pursuant to any solvency law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to 53 such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrowers or such other Person, without set-off, counterclaim or deduction of any kind. such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrowers or such other Person, without set-off, counterclaim or deduction of any kind. 12.6. DISSEMINATION OF INFORMATION Agent will distribute promptly to each Lender copies of all notices, schedules, reports, projections, financial statements, agreements and other material and other information, including, but not limited to, Borrowers' requests for Advances and financial and reporting information received from Borrowers or its Subsidiaries or generated by a third party (and excluding only internal information generated by CapitalSource for its own use as a Lender or as Agent), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall promptly give notice to Lenders of the receipt or sending of any notice, schedule, report, projection, financial statement or other document or information pursuant to this Agreement or any of the other Loan Documents and shall promptly forward a copy thereof to each Lender. Agent shall request information from Borrowers or its Subsidiaries as Lenders may request from time to time. Agent shall not be liable to Lenders for any failure to comply with its obligations under this Section 12.6, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. XIII. BORROWING AGENCY; IRS FORMS 13.1. BORROWING AGENCY PROVISIONS; ACKNOWLEDGEMENT OF JOINT AND SEVERAL LIABILITY (a) Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower, and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in accordance with the request of Parent. (b) The handling of this credit facility as a co-borrowing facility and the designation by each Borrower of Borrowing Agent as its borrowing agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request. None of Agent nor any Lender shall incur liability to any Borrower as a result thereof. To induce Agent and Lenders to do so and in consideration thereof, each Borrower hereby indemnifies Agent and each Lender and holds Agent and each Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Agent or any Lender by any Person arising from or incurred by reason of the handling of the financing arrangements of Borrowers as provided herein, reliance by Agent or any Lender on any request or instruction from Borrowing Agent or any other action taken by Agent or any Lender with respect to this Section 13 except due to willful misconduct or gross negligence by the indemnified party. (c) All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted by Agent or any Lender to any other Borrower, failure of Agent or any Lender to give such Borrower notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or preserve its rights against any other Borrower, the release by 54 Agent or any Lender of any Collateral now or thereafter acquired from any other Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to the other Borrowers or any Collateral for such Borrower's Obligations or the lack thereof. (d) Each Borrower expressly understands, agrees and acknowledges that (i) Borrowers are all Affiliated entities by common ownership, (ii) each Borrower desires to have the availability of one common credit facility instead of separate credit facilities, (iii) each Borrower has requested that Lenders extend such a common credit facility on the terms herein provided, (iv) Lenders will be lending against, and relying on a lien upon, all of Borrowers' assets even though the proceeds of any particular loan made hereunder may not be advanced directly to a particular Borrower, (v) each Borrower will nonetheless benefit by the making of all such loans by each Lender and the availability of a single credit facility of a size greater than each could independently warrant, (vi) all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in the Loan Documents shall be applicable to and shall be binding upon each Borrower and (vii) each Borrower has executed the Revolving Notes as co-makers of the Revolving Notes and that it would not be able to obtain the credit provided by Lenders hereunder without the financial support provided by the other Borrowers. (e) Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Persons directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers' property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations (other than the Unmatured Surviving Obligations). 13.2. WITHHOLDING TAX. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Internal Revenue Code, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Borrowers: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and, if applicable, IRS Form W-9; and 55 (iii) such other form or forms as may be required under the Internal Revenue Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. Such Lender agrees to promptly notify Agent and Borrowers of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form FW-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to notify Borrowers and Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrowers to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Internal Revenue Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the Internal Revenue Service or any other Governmental Authority of the United States of America or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Agent and Borrowers fully for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent and Borrowers under this Section, together with all costs and expenses (including reasonably attorneys fees and expenses). The obligation of Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. XIV. MISCELLANEOUS 14.1. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS; VENUE The Loan Documents shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding 56 against Borrowers with respect to the Obligations, any Loan Document or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a "New York Court," and all such courts collectively, the "New York Courts"), provided nothing in this Agreement shall be deemed or operate to preclude Agent from bringing suit or taking other legal action in any jurisdiction to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations (any such court and any New York Court, individually a "Qualified Court" and collectively, the "Qualified Courts"), and provided, further that Agent, Lenders and Borrowers acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of each Loan Document to which it is a party, each Borrower (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 14.5 hereof and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Agent or any Lender involving, directly or indirectly, the Obligations, any Loan Document or any related agreement shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 14.2. SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS; NEW LENDERS (a) Each Lender may at any time assign all or a portion of its rights and delegate all or a portion of its obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loans) to one or more Persons (a "TRANSFEREE"); provided, that (i) (x) unless an Event of Default shall have occurred and be continuing or (y) such Transferee is an Eligible Assignee, the Borrowing Agent shall have consented to such Transferee (such consent not to be unreasonably withheld or delayed) and (ii) such Transferee and such assigning Lender shall execute and deliver to Agent for acceptance and recording in the Register, a Lender Addition Agreement, satisfactory to Agent. Agent shall give Borrowers notice if Agent sells or assigns its rights and obligations hereunder. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Lender Addition Agreement, (i) the Transferee thereunder shall be a party hereto and, to the extent provided in such Lender Addition Agreement, shall have the same rights, benefits and obligations as it would if it were a Lender hereunder, and (ii) the assigning Lender shall be relieved of its obligations hereunder with respect to its Commitment or assigned portion thereof, as the case may be, to the extent that such obligations shall have been expressly assumed by the Transferee pursuant to such Lender Addition Agreement. Borrowers hereby acknowledge and agree that any assignment will give rise to a direct obligation of Borrowers to the Transferee and that the Transferee shall be considered to be a "Lender" hereunder. Borrowers may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including Borrowers' rights, title, interests, remedies, powers, and duties hereunder or thereunder without the prior written consent of Agent and each Lender. In order to assist a Lender in assigning its rights to a potential 57 Transferee as provided herein, Borrowers shall, if requested by Agent, arrange for an opinion of counsel, in form and substance satisfactory to Agent and such Transferee (it being agreed that an opinion substantially in the form delivered by Latham & Watkins on the Closing Date is satisfactory), to be delivered to Agent and such Transferee. (b) Each Lender may at any time sell participations in all or any part of its rights and obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loans) to one or more Persons (a "PARTICIPANT"). In the event of any such sale by a Lender of a participation 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 (and any Revolving Note evidencing such Loan) for all purposes under this Agreement and the other Loan Documents and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. Any agreement pursuant to which any Lender shall sell any such participation shall provide that such Lender shall retain the sole right and responsibility to exercise such Lender's rights and enforce each of Borrowers' obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents; provided, that such participation agreement may provide that such Lender will not agree, without the consent of the Participant, to any amendment, supplement, modification or waiver of: (i) any reduction in the principal amount, interest rate (other than default interest) or fees payable with respect to any Loan in which such holder participates; (ii) any extension of the termination date of this Agreement or the date fixed for any payment of principal, interest or fees payable with respect to any Loan in which such holder participates; and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents). (c) Agent, on behalf of Borrowers, shall maintain at its address referred to in Section 14.5 a copy of each Lender Addition Agreement delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of Lenders and the Commitment of, and the principal amount of the Loans owing to, and the Revolving Notes evidencing such Loans owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, each of Borrowers, Agent and Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loan, the Revolving Notes and the Commitment recorded therein for all purposes of this Agreement. The Register shall be available for inspection by Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Notwithstanding anything in this Agreement to the contrary, no assignment under Subsection 14.2(a) of any rights or obligations under or in respect of the Loans or the Revolving Notes evidencing such Loans shall be effective unless and until Agent shall have recorded the assignment pursuant to Subsection 14.2(c). Upon its receipt of a Lender Addition Agreement executed by an assigning Lender and a Transferee, Agent shall (i) promptly accept such Lender Addition Agreement and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to Lenders and Borrowers. On or prior to such effective date, the assigning Lender shall surrender any outstanding Revolving Notes held by it all or a portion of 58 which are being assigned, and Borrowers, at their own expense, shall, upon the request of Agent by the assigning Lender or the Transferee, as applicable, execute and deliver to Agent new Revolving Notes to reflect the interest held by the assigning Lender and its Transferee. (e) Except as otherwise provided in this Section 14.2 no Lender shall, as between Borrowers and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Each Lender may furnish any information concerning Borrowers and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants); provided, however, that prior to the disclosure by a Lender of such information, Lender shall obtain an agreement from the Person to whom such disclosure is proposed to be made to hold such information confidential in accordance with the provisions of Section 14.10. (f) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement, including, without limitation, the Loans owing to it and the Revolving Notes held by it. (g) Borrowers agree to use their commercially reasonable efforts to assist any Lender (at such Lender's expense) in assigning or selling participations in all or any part of any Loans made by such Lender to another Person identified by such Lender. (h) Notwithstanding anything in the Loan Documents to the contrary, (i) CapitalSource and its Affiliates shall not be required to execute and deliver a Lender Addition Agreement in connection with any transaction involving its Affiliates or lenders, (ii) no lender to or funding source of CapitalSource or its Affiliates shall be considered a Transferee and (iii) there shall be no limitation or restriction on CapitalSource's ability to assign or otherwise transfer any Loan Document to any such Affiliate or lender; provided, however, CapitalSource shall continue to be liable as a "Lender" under the Loan Documents unless such Affiliate or lender executes a Lender Addition Agreement and thereby becomes a "Lender." 14.3. APPLICATION OF PAYMENTS; REINSTATEMENT Any payments with respect to the Obligations and any and all proceeds of Collateral shall be credited and applied in such manner and order as Agent shall decide in its Permitted Discretion, subject to the express terms regarding application of proceeds in the Concentration Account provided in Section 2.5 hereof. To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent or any Lender. 14.4. INDEMNITY Borrowers jointly and severally shall indemnify Agent, each Lender, its and their Affiliates and its and their respective managers, members, officers, employees, Affiliates, agents, 59 representatives, successors, assigns, accountants and attorneys (collectively, the "INDEMNIFIED PERSONS") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits and costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of such Indemnified Person. If any Indemnified Person uses in-house counsel for any purpose for which Borrowers are responsible to pay or indemnify, Borrowers expressly agree that their indemnification obligations include reasonable charges for such work. Agent agrees to give Borrowers reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 14.4, and Agent may elect (but is not obligated) to direct the defense thereof, provided that the selection of counsel shall be subject to Borrowers' consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an "INSURED EVENT"), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Borrowers' insurer to deny coverage; provided, however, that Agent reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent or any Lender obtains recovery from a third party other than an Indemnified Person of any of the amounts that Borrowers have paid to Agent or any Lender pursuant to the indemnity set forth in this Section 14.4, then Agent and/or any Lender shall promptly pay to Borrowers the amount of such recovery. Without limiting any of the foregoing, Borrowers jointly and severally indemnify the Indemnified Parties for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Party has directly contracted in writing) which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby. 14.5. NOTICE Any notice or request under any Loan Document shall be given to any party to this Agreement at such party's address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 14.5. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a "RECEIPT"): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable. 60 14.6. SEVERABILITY; CAPTIONS; COUNTERPARTS; FACSIMILE SIGNATURES If any provision of any Loan Document is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of the Loan Documents which shall be given effect so far as possible. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. The Loan Documents may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party. 14.7. EXPENSES Borrowers shall pay, whether or not the Closing occurs, all reasonable costs and expenses incurred by Agent and/or its Affiliates, including, without limitation, documentation and diligence fees and expenses, all out-of-pocket charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable attorneys' fees and expenses, (i) in any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (ii) in connection with entering into, negotiating, preparing, reviewing and executing the Loan Documents and/or any related agreements, documents or instruments, (iii) arising in any way out of administration of the Obligations, (iv) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Agent's Liens in any of the Collateral or securities pledged under the Loan Documents, whether through judicial proceedings or otherwise, (v) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Agent's and Lenders' transactions with Borrowers, (vi) in seeking, obtaining or receiving any advice with respect to its rights and obligations under any Loan Document and any related agreement, document or instrument, and/or (vii) in connection with any modification, restatement, supplement, amendment, waiver or extension of any Loan Document and/or any related agreement, document or instrument. All of the foregoing shall be charged to Borrowers' account and shall be part of the Obligations. If Agent or any Lender uses in-house counsel for any purpose under any Loan Document for which Borrowers is responsible to pay or indemnify, Borrowers expressly agree that their Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent, any Lender or such Affiliate in its sole discretion for the work performed. Without limiting the foregoing, Borrowers shall pay all taxes (other than taxes based upon or measured by each Lender's income or revenues or any personal property tax), if any, in connection with the issuance of any Revolving Note and the filing and/or recording of any documents and/or financing statements. 14.8. ENTIRE AGREEMENT This Agreement and the other Loan Documents to which Borrowers are parties constitute the entire agreement between Borrowers, Agent and Lenders with respect to the 61 subject matter hereof and thereof, and supersede all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrowers, Agent and Lenders, as appropriate. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Agent, Requisite Lenders and Borrowers. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 14.9. AGENT APPROVALS Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent or Lenders with respect to any matter that is subject of any Loan Document may be granted or withheld by Agent in its Permitted Discretion. 14.10. CONFIDENTIALITY AND PUBLICITY Borrowers, Agent and Lenders agree, and agree to cause each of their respective Affiliates, (i) not to transmit or disclose provision of any Loan Document to any Person (other than to their respective directors, advisors and officers on a need-to-know basis and except as set forth in this Section 14.10) without the prior written consent of Agent, in the case of Borrowers, or Borrowing Agent, in the case of Agent and Lenders, (ii) to inform all Persons of the confidential nature of the Loan Documents and to direct them not to disclose the same to any other Person and to require each of them to be bound by these provisions. Agent and each Lender reserves the right to review and approve all materials that Borrowers or any of their Affiliates prepare that contain Agent's or such Lender's name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby. Each Borrower reserves the right to review and approve all materials that Agent, Lenders or any of their Affiliates prepare that contain such Borrower's name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby. No Borrower shall, and shall not permit any of its Affiliates to, use Agent's or any Lender's name (or the name of any of Agent's Affiliates) in connection with any of its business operations. Neither Agent nor any Lender shall, and shall not permit any of its respective Affiliates to, use any Borrower's name (or the name of any of any Borrower's Affiliates) in connection with any of its business operations. Nothing contained in any Loan Document is intended to permit or authorize any Borrower or any of its Affiliates to contract on behalf of Agent or any Lender, or except as expressly provided in the Loan Documents to permit Agent or any Lender to contract on behalf of any Borrower. Further, Borrowers agree that Agent or any Lender or any Affiliate of Agent or any Lender may (i) disclose a general description of transactions arising under the Loan Documents for advertising, marketing or other similar purposes, (ii) use any Borrower's or Guarantor's name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes, (iii) disclose confidential information (it being understood that with respect to (a) and (b) below the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) (a) to its examiners, lenders, affiliates, outside auditors, counsel and 62 other professional advisors, (b) to Agent, any Lender or to any prospective Transferees and Participant, (c) as required or requested by any Governmental Authority or representative thereof, (d) to the extent required by applicable laws or regulations or by subpoena or similar legal process, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) with the consent of Borrowers or (h) to the extent such information becomes publicly available other than as a result of a breach of this Section or becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the Borrowers or any of its Affiliates. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 63 IN WITNESS WHEREOF, each of the parties has duly executed this Revolving Credit and Security Agreement as of the date first written above. BORROWERS FOUNTAIN VIEW, INC. ALEXANDRIA CARE CENTER, INC. ALTA CARE CENTER, LLC ANAHEIM TERRACE CARE CENTER, LLC BAY CREST CARE CENTER, LLC BRIER OAK ON SUNSET, INC. CARSON SENIOR ASSISTED LIVING, LLC ELMCREST CARE CENTER, INC. FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. HALLMARK INVESTMENT GROUP, INC. HALLMARK REHABILITATION GP, LLC HALLMARK REHABILITATION LP By: Hallmark Rehabilitation GP, LLC, its general partner HANCOCK PARK REHABILITATION CENTER, INC. HANCOCK PARK SENIOR ASSISTED LIVING, INC. HEMET SENIOR ASSISTED LIVING, LLC LEASEHOLD RESOURCE GROUP, LLC MONTEBELLO CARE CENTER, LLC RIO HONDO SUBACUTE AND NURSING CENTER, INC. ROYALWOOD CARE CENTER, LLC SHARON CARE CENTER, LLC SKILLED HEALTHCARE, LLC SUMMIT CARE CORPORATION SUMMIT CARE TEXAS MANAGEMENT, LLC SUMMIT CARE PHARMACY, INC. SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC, its general partner SYCAMORE PARK CARE CENTER, INC. WOODLAND CARE CENTER, LLC By: /s/ Roland G. Rapp --------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net AGENT CAPITALSOURCE FINANCE LLC By: /s/ Jim Pieczynski ------------------------------------ Name: Jim Pieczynski Its: Director Address for Notices: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Telephone: (301) 841-2700 Facsimile: (301) 841-2340 E-Mail: aheller@capitalsource.com EXHIBITS Exhibit A -- Form of Borrowing Base Certificate Exhibit B -- Form of Interim Borrowing Base Certificate Exhibit C -- Form of Joinder Agreement Exhibit D -- Form of Guaranty and Security Agreement Exhibit E Calculation of Excess Cash Flow SCHEDULES Schedule 1 -- Subsidiary Borrowers Schedule 2 -- Commitments Schedule 2.4 -- Borrower's Deposit Accounts Schedule 5.3 -- Capitalization, Organization Chart (including all subsidiaries and authorized/issued capitalization and Joint Ventures Schedule 5.4 -- Liens; Real and Personal Property Owned or Leased; Leases Schedule 5.5 -- Defaults; Service Fees; Managers Schedule 5.6 -- Litigation Schedule 5.8 -- Taxes Schedule 5.10 -- Liability Event Schedule 5.11 -- Intellectual Property Schedule 5.15 -- Existing Indebtedness Schedule 5.16 -- Shareholder Agreements Schedule 5.17 -- Insurance Schedule 5.18A -- Corporate Names Schedule 5.18B -- Places of Business Schedule 6.8 -- Further Assurances/Post Closing Schedule 7.2 -- Permitted Indebtedness Schedule 7.3 -- Liens Schedule 7.4 -- Investments Schedule 7.6 -- Affiliate Transactions Schedule 7.9 -- Contingent Obligations ANNEX I FINANCIAL COVENANTS 1) Minimum EBITDA Borrowers shall not permit EBITDA as of the end of any fiscal quarter during any fiscal year (calculated for the four fiscal quarter period ended as of the end of such fiscal quarter) to be less than the amounts set forth below corresponding to such fiscal year.
FISCAL YEAR ENDED MINIMUM EBITDA ----------------- -------------- ~~12/31/03 $ 42,000,000 12/31/04 and as at the end of each fiscal quarter during each fiscal year thereafter $ 45,000,000~~
2) Net Total Leverage Ratio (Total Debt to EBITDA) Borrowers shall not permit the Net Total Leverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 6.5 to 1. 3) Net Senior Leverage Ratio (Senior Debt to EBITDA) Borrowers shall not permit the Net Senior Leverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 4 to 1. 4) Net Interest Coverage Ratio (EBITDA/Interest Expense) Borrowers shall not permit the Net Interest Coverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to be less than 1.75 to 1. 5) Fixed Charge Coverage Ratio (EBITDA/Fixed Charges) Borrowers shall not permit the Fixed Charge Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to be less than the ratio set forth below for such fiscal year:
FISCAL YEAR ENDED FIXED CHARGE COVERAGE RATIO ----------------- --------------------------- ~~December 31, 2003 1.10 to 1~~
Annex 1 - Page 1 December 31, 2004 and 1.25 to 1 at the end of each fiscal quarter during each fiscal year thereafter 6) Tangible Net Worth Until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations), Borrowers on a Consolidated Basis will at all times maintain Tangible Net Worth of not less than ($100,000,000). 7) Minimum Liquidity At Closing and at all other times Borrowers shall have not less than $3,000,000 of Available Cash on hand. 8) Capital Expenditures Borrowers on a Consolidated Basis shall not permit Maintenance Capital Expenditures made during any fiscal year to exceed $7,000,000. For purposes of the covenants set forth in this Annex I, the terms listed below shall have the following meanings: "Available Cash" shall mean, for any date of determination, the sum without duplication of the following for Borrowers: (a) unrestricted cash on hand on such date, (b) Cash Equivalents held on such date, and (c) the unborrowed Availability on and as of such date. "EBITDA" shall mean, for any period, the sum, without duplication, of the following for Borrowers on a Consolidated Basis (i) Net Income, (ii) Interest Expense, (iii) taxes on income, whether paid, payable or accrued, (iv) depreciation expense, (v) amortization expense, (vi) the impact on Net Income of FASB 121 and 142, (vii) Restructuring Costs and (viii) the impact on Net Income of any gains and losses from the sales of fixed assets, and (ix) the impact on Net Income of any extraordinary items, each calculated for such period in accordance with GAAP. "Fixed Charge Coverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) EBITDA to (ii) Fixed Charges, in each case for the four fiscal quarter period ended as of such date of determination. "Fixed Charges" shall mean for any period for Borrowers on a Consolidated Basis, the sum during such period of (i) Total Debt Service, (ii) Capital Expenditures not financed with Non-Recourse Indebtedness, (iii) taxes on income whether paid, payable or accrued, and (iv) dividends whether paid, payable or accrued, each calculated in accordance with GAAP. Annex 1 - Page 2 "Intangible Assets" means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income, restricted funds, investments in Subsidiaries, intercompany receivables and accumulated depreciation. "Interest Expense" shall mean, for any period, total interest expense (including attributable to Capital Leases in accordance with GAAP) of Borrowers on a Consolidated Basis for such period, calculated in accordance with GAAP, including capitalized interest, provided, however, for purposes of this Agreement for any fiscal quarter ended prior to September 30, 2004, Interest Expense shall be calculated as follows: (i) for the four fiscal quarters ended September 30, 2003 Interest Expense shall equal $23,700,000, (ii) for the four fiscal quarters ended December 31, 2003, Interest Expense shall equal actual Interest Expense for the fiscal quarter ended December 31, 2003 multiplied by 4, (iii) for the four fiscal quarters ended March 31, 2004, Interest Expense shall equal actual Interest Expense for the 2 fiscal quarters ended March 31, 2004 multiplied by 2 and (iv) for the four fiscal quarters ended June 30, 2004, Interest Expense shall equal actual Interest Expense for the three fiscal quarters ended June 30, 2004 multiplied by 1.33. "Maintenance Capital Expenditures" shall mean Capital Expenditures other than Capital Expenditures that are made in connection with the acquisition by Borrower or any Subsidiary of Borrower of a Facility or the operations related to a Facility. "Net Income" shall mean, for any period, the net income (or loss) of Borrowers on a Consolidated Basis for such period, determined in conformity with GAAP, provided that there shall be excluded (i) the income (or loss) of any Person in which any other Person (other than Borrowers) has a joint interest, but the amount of dividends or other distributions actually paid to a Borrower by such Person shall be included in net income (or loss), (ii) the income (or loss) of any Person accrued prior to the date it became a Borrower or is merged into or consolidated with a Borrower or that Person's assets are acquired by a Borrower, (iii) the income of any Subsidiary of any Borrower to the extent that the declaration or payment of dividends or similar distributions of that income by such Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, (iv) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of any Borrower or any Subsidiary of any Borrower, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or any Subsidiary thereof, and (v) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (v) of this definition of Net Income. "Net Interest Coverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) EBITDA, to (ii) Interest Expense, in each case for the four fiscal quarter period ended as of such date of determination. "Net Senior Leverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) the amount of Senior Debt as of such date of Annex 1 - Page 3 determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Net Total Leverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) the amount of Total Debt as of such date of determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Restructuring Costs" shall mean, for any period, restructuring and/or reorganization costs relating to the Bankruptcy Case incurred by Borrowers on a Consolidated Basis during such period, calculated in accordance with GAAP. "Senior Debt" shall mean at any date of determination, the sum of the amount (determined in accordance with GAAP) on such date of determination of (i) the Obligations, (ii) Indebtedness in respect of the Senior Mortgage Loan, (iii) Indebtedness in respect of the Mezzanine Loan, (iv) Indebtedness in respect of the Revolving Loan B and (v) Indebtedness in respect of Priority Claims. "Tangible Net Worth" shall mean assets (excluding Intangible Assets) less liabilities (determined in accordance with GAAP). "Total Debt" shall mean, as of any date of determination, the aggregate amount of Indebtedness for Borrowed Money on such date of determination of Borrowers, on a Consolidated Basis calculated in accordance with GAAP. "Total Debt Service" shall mean for any period the sum during such period of (i) scheduled or other required payments of principal on Total Debt during such period, and (ii) Interest Expense during such period, in each case calculated exclusive of payments on Total Debt (x) which was repaid or satisfied in full prior to the Closing Date and which does not survive after the Closing Date and (y) required to be made pursuant to the Plan of Reorganization on, or within thirty (30) days after, the Closing Date. Annex 1 - Page 4 APPENDIX A DEFINITIONS "Account Debtor" shall mean any Person who is obligated under an Account. "Accounts" shall mean all "accounts" (as defined in the UCC) of Borrowers (or, if referring to another Person, of such other Person), including without limitation, accounts, accounts receivables, monies due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, Instruments, General Intangibles or Chattel Paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Advance" shall mean a borrowing under the Revolving Facility. Any amounts paid by Agent or any Lender on behalf of Borrowers or any Guarantor under any Loan Document shall be an Advance for purposes of the Agreement. "Affiliate" shall mean, as to any Person, any other Person (a) that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person, or (c) which, directly or indirectly through one or more intermediaries, is the beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, as the same is in effect on the date hereof) of ten percent (10%) or more of any class of the outstanding voting stock, securities or other equity or ownership interests of such Person. For purposes of this definition, the term "control" (and the correlative terms, "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests, by contract or otherwise. "Agent" shall have the meaning given in the introductory paragraph to this Agreement. "Agreement" shall have the meaning given in the introductory paragraph to this Agreement. "Availability" shall have the meaning given in Section 2.1(a) of this Agreement. "Bank Midwest Loan" shall mean that certain $5,633,333 loan by Bank Midwest N.A. to The Woodlands Resource Management, L.P. and The Woodlands Healthcare Center, L.P. pursuant to (i) that certain Deed of Trust Note, dated March 6, 1985, made by Woodlands Place Nursing Center, Inc., a Texas corporation ("WPNC") and predecessor in interest to the Bank Midwest Borrowers, as maker, in favor of Mitchell Mortgage Company, as supplemented by (x) that certain Second Deed of Trust Note dated January 19, 1989; (y) that certain Renewal, Modification, Extension and Consolidation Deed of Trust Note (Multifamily) dated December 1, Appendix A - 1 1993, made by WPNC in favor of the Secretary of Housing and Urban Development; and (z) and that certain Amendment to Deed of Trust Note, dated _______________, 2003, made by The Woodlands Resource Management, L.P. and The Woodlands Healthcare Center, L.P. in favor of Bank Midwest, N.A.; (ii) that certain promissory note dated ____________________, 2003, in the principal amount of $706,206.13 made by the Bank Midwest Borrowers payable to Bank Midwest; and (iii) all other agreements, documents, instruments and certificates executed and delivered in connection therewith, as each may be amended, modified and supplemented from time to time. "Bankruptcy Case" shall mean the bankruptcy case described in and which is the subject of the Plan of Reorganization. "Bergen Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of the Closing Date by and among Agent, Mezzanine Agent, the Senior Mortgage Term Loan B Lender, AmerisourceBergen Drug Corporation, Parent and certain of the Subsidiary Borrowers. "Bergen Note" shall mean the promissory note in a principal amount not to exceed $1,237,880 to be issued by Summit Care Pharmacy to AmerisourceBergen Drug Corporation (or its designee) pursuant to the Plan of Reorganization. "Borrowers" and "Borrower" shall have the meaning given in the introductory paragraph to this Agreement. "Borrowing Agent" shall mean Skilled Healthcare, LLC, a Delaware limited liability company, in its capacity as agent for Borrowers, as specified in Section 13.1. "Borrowing Base" shall mean, as of any date of determination, the net collectible U.S. Dollar value of Eligible Receivables, as determined with reference to the most recent Borrowing Certificate or Interim Borrowing Certificate and otherwise in accordance with this Agreement; provided, however, that if as of such date the most recent Borrowing Certificate or Interim Borrowing Base Certificate is as of a date more than four Business Days before, the Borrowing Base shall be determined by Agent in its sole discretion. For purposes hereof, "net collectible U.S. Dollar value" shall mean the amount Borrowers bill third-party payors less deductible obligations and contractual allowances. "Borrowing Certificate" shall mean a Borrowing Certificate substantially in the form of Exhibit A. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which the Federal Reserve, any Lender or the Cash Management Bank is closed. "Business Group" shall mean (a) the Subsidiaries of Parent that are borrowers under the Revolving Loan B Documentation, the Mezzanine Loan Documentation or the Senior Mortgage Loan Documentation or Subsidiaries of such borrowers; (b) the long term care business (other than such business as is covered by clause (a)); (c) the pharmacy business; (d) the locomotion business, and (e) corporate headquarters and overhead. Appendix A - 2 "Capital Expenditures" shall mean, for any period, the sum (without duplication) of all expenditures (whether paid in cash or accrued as liabilities) during such period that are or should be treated as capital expenditures under GAAP. "Capital Lease" shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a "capital lease" in accordance with GAAP. "Capitalized Lease Obligations" shall mean all obligations of any Person under Capital Leases, in each case, taken at the amount thereof accounted for as a liability in accordance with GAAP. "CapitalSource" shall have the meaning given in the introductory paragraph to this Agreement. "Cash Equivalents" shall mean (a) securities issued, or directly and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, or (ii) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor's Ratings Services ("S&P") is at least A-2 or the equivalent thereof or from Moody's Investors Service, Inc. ("MOODY'S") is at least P-2 or the equivalent thereof in each case with maturities of not more than six months from the date of acquisition (any bank meeting the qualifications specified in clauses (b)(i), (ii) or (iii), an "APPROVED BANK"), (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a), above, entered into with any Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or the equivalent thereof, from S&P or A2 or the equivalent thereof from Moody's and in each case maturing within six months after the date of acquisition and (e) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (a) through (d) above. "Cash Management Bank" shall mean Wells Fargo Bank, in its capacity as the cash management bank for Borrowers, or any other cash management bank selected by Borrowers in accordance with the provisions of this Agreement. "Change of Control" shall mean, (a) with respect to Parent, the occurrence of any of the following: (i) a merger, consolidation, reorganization, recapitalization or share or interest exchange, sale or transfer or any other transaction or series of transactions in which its stockholders, managers, partners or interest holders immediately prior to such transaction or series of transactions receive, in exchange for the stock or interests owned by them, cash, property or securities of the resulting or surviving entity or any Affiliate thereof, and, as a result Appendix A - 3 thereof, Persons who, individually or in the aggregate, were holders of 35% or more of its voting stock, securities or equity, partnership or ownership interests immediately prior to such transaction or series of transactions hold less than 35% of the voting stock, securities or other equity, partnership or ownership interests of the resulting or surviving entity or such Affiliate thereof, calculated on a fully diluted basis, (ii) a direct or indirect sale, transfer or other conveyance or disposition, in any single transaction or series of transactions, of all or substantially all of its assets, or (iii) any "change in/of control" or "sale" or "disposition" or similar event as defined in any document governing indebtedness of Parent which gives the holder of such indebtedness the right to accelerate or otherwise require payment of such indebtedness prior to the maturity date thereof and (b) Parent shall cease to own or control, directly or indirectly, 100% of the equity interests of each Subsidiary Borrower. "Charter and Good Standing Documents" shall mean, for each Borrower (i) a copy of the certificate of incorporation or formation (or other charter document) certified as of a date before the Closing Date reasonably satisfactory to Agent by the applicable Governmental Authority of the jurisdiction of incorporation or organization of such Person, (ii) a copy of the bylaws or similar organizational documents of certified as of a date before the Closing Date reasonably satisfactory to Agent by the corporate secretary or assistant secretary of such Person, (iii) an original certificate of good standing as of a date reasonably acceptable to Agent issued by the applicable Governmental Authority of the jurisdiction of incorporation or organization of such Person and of every other jurisdiction in which such Person is required to be in good standing, and (iv) copies of the resolutions of the Board of Directors or managers (or other applicable governing body) and, if required, stockholders, members or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party, certified by an authorized officer of such Person as of the Closing Date. "Claims Agent" shall mean Development Specialists, Inc., as Claims Agent under the Claims Agent Agreement, and any successor thereto. "Claims Agent Agreement" shall mean that certain General Claim Holder Agency Agreement, entered into as of August 19, 2003 by and between the Claims Agent, on the one hand, and Parent and certain of its subsidiaries on the other hand, as amended, modified and supplemented. "Class 10 Deferred Obligations" shall have the meaning set forth in the Plan of Reorganization. "Closing" shall mean the satisfaction, or written waiver by Agent and the Requisite Lenders, of all of the conditions precedent set forth in the Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby. "Closing Date" shall mean the date the Closing occurs. "Collateral" shall mean, collectively and each individually, all collateral and/or security granted to Agent, for the benefit of itself and Lenders, by Borrowers and/or the Guarantors pursuant to the Loan Documents. Appendix A - 4 "Collateral Agency Agreement" shall mean that certain Collateral Agency Agreement, dated as of August 19, 2003, by and among the Borrowers, the Claims Agent and U.S. Bank National Association, as Indenture Trustee and as Collateral Agent, as amended, modified and supplemented. "Collateral Agent" shall mean US Bank, National Association, as Collateral Agent under the Collateral Agency Agreement, and any successor thereto. "Collateral Patent, Trademark and Copyright Assignment" shall mean any patent, trademark, or copyright assignment or acknowledgement executed by and between Borrowers and Agent, as such may be modified, amended or supplemented from time to time. "Commitment" or "Commitments" shall mean (a) as to any Lender, the aggregate commitment of such Lender to make Advances and draws, as set forth on Schedule 2 or in the most recent Lender Addition Agreement executed by such Lender, and (b) as to all Lenders, the aggregate commitment of all Lenders to make Advances and draws. "Confirmation Order" shall mean the order pursuant to Section 1129 of the Bankruptcy Code confirming Borrowers' Plan of Reorganization entered by the court in Borrower's case on July 10, 2003, which order shall be in form and substance reasonably acceptable to Agent. "Consolidated Basis" shall mean, with respect to Borrowers, the consolidation in accordance with GAAP of the accounts or other items of Parent and its Subsidiaries. "Contingent Obligations" shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guaranty any Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) 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 (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term "Contingent Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "Continuing Creditor Deferred Obligation" shall have the meaning set forth in the Plan of Reorganization. "Debtor Relief Law" shall mean, collectively, the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time. Appendix A - 5 "Default" shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time or both, would constitute or be or result in an Event of Default. "Deposit Account" shall mean, collectively, the Lockbox Accounts and all bank or other depository accounts of Borrowers. "Distribution" shall mean any fee, payment, bonus or other remuneration of any kind, and any repayment of or debt service on loans or other indebtedness. "Eligible Assignee" means (a) a commercial bank, commercial finance company, asset based lender, insurance company, mutual fund entity or other financial institution having total assets in excess of $250,000,000 and which is regularly engaged in making, purchasing or investing in revolving loans; (b) any Lender; (c) any Affiliate of any Lender; (d) Highbridge/Zwirn Capital Management, LLC or any of its Affiliates, and (e) any other Person consented to by Borrowing Agent (such consent not to be unreasonably withheld or delayed). "Eligible Receivables" shall mean each Account arising in the ordinary course of Borrowers' business from the sale of goods or rendering of Services unless: (a) it is not subject to a valid perfected first priority security interest in favor of Agent, subject to no other Lien (other than Liens in favor of the Collateral Agent and expressly subordinated to Agent's Lien and otherwise subject to the General Intercreditor Agreement); (b) it is not evidenced by an invoice, statement or other documentary evidence reasonably satisfactory to Agent; provided, that Agent in its Permitted Discretion may from time to time include as Accounts that are not evidenced by an invoice, statement or other documentary evidence reasonably satisfactory to Agent as Eligible Receivables and determine the advance rate, liquidity factors and reserves applicable to Advances made on any such Accounts; (c) it or any portion thereof (in which case only such portion shall not be an Eligible Receivable) is payable by a beneficiary, recipient or subscriber individually and not directly by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to the Agent; (d) it arises out of services rendered or a sale made to, or out of any other transaction between Borrowers or any of their Subsidiaries and, one or more Affiliates of Borrowers or any of their Subsidiaries; (e) it remains unpaid for longer than the earlier of (i) 150 calendar days after the first to occur of the claim date or the invoice date, and (ii) 180 calendar days after the applicable Services were rendered; (f) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates, if more than ten 10% of the aggregate balance of all such Accounts (other than accounts being disputed by such Account Debtor) owing from such Account Debtor and/or its Affiliates remain unpaid for longer than the earlier of (i) 150 calendar days after the first to Appendix A - 6 occur of the claim date or the invoice date, and (ii) 180 calendar days after the applicable Services were rendered; (g) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates, 25% or more of all such Accounts are not deemed Eligible Receivables for any reason hereunder (which percentage may, in Agent's sole discretion, be increased or decreased); (h) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates (except Medicaid/Medicare Account Debtors), if, and only to the extent, such Accounts exceed 20% of the aggregate value of all Eligible Receivables included in Borrowing Base at any one time (including Accounts from Medicaid/Medicare Account Debtors); (i) any covenant, agreement, representation or warranty contained in any Loan Document with respect to such Account has been breached and remains uncured after applicable cure periods; (j) the Account Debtor for such Account has commenced a voluntary case under any Debtor Relief Law or has made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in respect of such Account Debtor in an involuntary case under any Debtor Relief Law, or any other petition or application for relief under any Debtor Relief Law has been filed against such Account Debtor, or such Account Debtor has failed, suspended business, ceased to be solvent, or has consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; (k) it arises from the sale of property or services rendered to one or more Account Debtors outside the continental United States or that have their principal place of business or chief executive offices outside the continental United States; (l) it represents the sale of goods or rendering of services to an Account Debtor on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by Chattel Paper or an Instrument of any kind or has been determined pursuant to judgment; (m) the applicable Account Debtor for such Account is any Governmental Authority, unless rights to payment of such Account have been assigned to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727, et seq. and 41 U.S.C. Section 15, et seq.), or otherwise all with applicable statutes or regulations respecting the assignment of government Accounts have been complied with (for example, with respect to all Account payable directly by a Medicaid/Medicare Account Debtor); (n) to the extent, but only to the extent that, it is subject to any offset, credit (including any resource or other income credit or offset) deduction, defense, discount, chargeback, freight claim, allowance, adjustment, dispute or counterclaim, or is contingent in any respect or for any reason; Appendix A - 7 (o) there is any agreement with an Account Debtor for any deduction from such Account, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each invoice related thereto, such that only the discounted amount of such Account after giving effect to such discounts and allowances shall be considered an Eligible Receivable; (p) to the extent, but only to the extent that, any return, rejection or repossession of goods or services related to it has occurred; (q) it is not payable to Borrowers; (r) to the extent, but only to the extent that, any of Borrowers has agreed to accept or has accepted any non-cash payment for such Account; (s) with respect to any Account arising from the sale of goods, the goods have not been shipped to the Account Debtor or its designee; (t) with respect to any Account arising from the performance of Services, the Services have not been actually performed or the Services were undertaken in material violation of any applicable law; or (u) such Account fails to meet such other specifications and requirements which may from time to time be established by Agent in its Permitted Discretion. "Environmental Laws" shall mean, collectively and each individually ,the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, any other "Superfund" or "Superlien" law and all other federal, state and local and foreign environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances, in each case, as amended, and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of Governmental Authorities with respect thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "Eureka Transaction" shall mean the transactions contemplated by that certain Option Agreement dated as of May 30, 2003 (as amended, modified or supplement from time to time with the consent of the Agent (such consent not to be unreasonably withheld), the "Option Agreement") by and among Thomas E. Sutton and Sandra A. Sutton, Trustees of the Sutton Family Living Trust, Landlord and Parent, including without limitation, (i) the entering into of that certain Commercial Lease to be entered into pursuant to the Option Agreement by and between Matmel Enterprises, Inc. as "Landlord", and Parent or a Subsidiary of Parent, as "Tenant" with respect to the lease by such Tenant of the premises commonly known as Sunset Care Center, 2353 23rd Street, Eureka, California 95501, the Granada Care Center, 2885 Harris Appendix A - 8 Street, Eureka, California 95501, the Pacific Care Center, 2211 Harrison Avenue, Eureka, California 95501, the Seaview Care Center, 8400 Purdue Drive, Eureka, California 95503 (collectively, the "Care Centers") and the Redwood Care Center Office Building, 2353 23rd Street, Eureka, California 95501 (the "Office Building" and collectively with the Care Centers, the "Eureka Premises") and (ii) the purchase by Parent or a Subsidiary of Parent of the Eureka Premises or all of the equity interests in the entity that owns the Eureka Premises, in each case pursuant to the Option Agreement. "Event of Default" shall mean the occurrence of any event set forth in Article VIII. "Excess Cash Flow" shall have the meaning set forth in Exhibit E to this Agreement. "Exchange Act" shall mean Securities Exchange Act of 1934, as amended. "Excluded Subsidiary" shall mean any Subsidiary that is (i) a Mezzanine Loan Borrower, (ii) a borrower under the Senior Mortgage Loan Documentation, (iii) a Revolving Loan B Borrower, (iv) a partner in an entity described in clause (i), (ii) or (iii), and (iv) a Person designated by Borrowing Agent as an excluded Subsidiary. "Facility" shall mean, individually, any facility providing Services and operated by any of Borrowers. "Facility Cap" shall have the meaning given in the first WHEREAS clause in this Agreement. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time as applied by nationally recognized accounting firms. "General Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of the Closing Date by and among Agent, the Mezzanine Agent, the Indenture Trustee , the Claims Agent, the Senior Mortgage Term B Lender and the Borrowers. "Government Accounts" shall be defined to mean all Accounts arising out of or with respect to any Government Contract. "Government Contracts" shall be defined to mean all contracts with any Government Authority, and all amendments thereto. "Governmental Authority" shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia. Appendix A - 9 "Guarantor" shall mean, collectively and each individually, all guarantors of the Obligations or any part thereof. "Guaranty" shall mean any guaranty of the obligations of Borrowers executed by a Guarantor in favor of Agent for its benefit and for the ratable benefit of Lenders. "Hazardous Substances" shall mean, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials as defined in or subject to any applicable Environmental Law. "Healthcare Laws" shall mean all applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority with respect to regulatory matters primarily relating to patient healthcare, healthcare providers and healthcare services (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"). "Indebtedness" of any Person shall mean, without duplication, (a) all items (other than trade payables and current accrued liabilities) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute a capital lease, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. "Indebtedness for Borrowed Money" of any Person shall mean, without duplication, (a) all Indebtedness of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capitalized Lease Obligations of such Person, (c) all Indebtedness of such Person secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (d) all Indebtedness for the deferred purchase price of property and (e) all direct or indirect guaranties of any or all of the foregoing. "Indemnified Persons" shall have the meaning assigned to it in Section 14.4 hereof. Appendix A - 10 "Indenture" shall mean the Indenture dated as of August 19, 2003 by Parent, as Issuer, the subsidiaries of the Parent party thereto as Guarantors and the Indenture Trustee, pursuant to which the Indenture Notes were issued as the same may be amended, supplemented or modified from time to time. "Indenture Notes" shall mean the $106,761,608 of Senior Subordinated Increasing Rate Secured Notes due 2008 issued pursuant to the Indenture. "Indenture Trustee" shall mean US Bank, National Association, as Trustee under the Indenture, and any successor thereto. "Insurance Subsidiary" shall mean the offshore insurance subsidiary to be formed by the Parent. "Insurer" shall mean a Person that insures another Person against any costs incurred in the receipt by such other Person of Services, or that has an agreement with any Borrower to compensate it for providing Services to such Person. "Intellectual Property" shall have the meaning assigned to it in Section 5.11 hereof. "Interest Rate Agreement" shall mean any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to hedge the position with respect to interest rates. "Interim Borrowing Certificate" shall mean an Interim Borrowing Certificate substantially in the form of Exhibit B. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Inventory" shall mean all "inventory" (as defined in the UCC) of Borrowers (or, if referring to another Person, of such other Person), now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Joinder Agreement" shall mean an agreement in form and substance acceptable to Agent in its Permitted Discretion, the material terms of which shall provide that a Person shall become a party to and become bound by the terms of this Agreement and/or the other Loan Documents in the same capacity and to the same extent as a Borrower. "Landlord Waiver and Consent" shall mean a waiver/consent in form and substance reasonably satisfactory to Agent from the owner/lessor of any premises not owned by Borrowers at which any of the Collateral is now or hereafter located for the purpose of providing Agent access to such Collateral, in each case as such may be modified, amended or supplemented from time to time. Appendix A - 11 "Leasehold Mortgage" shall mean, with respect to each Leasehold Property, that certain Leasehold Deed of Trust, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Filing executed and delivered as security for the Loan and encumbering such Leasehold Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Leasehold Property" shall mean those properties identified as leasehold properties on Schedule 5.4 and/or any other leasehold property of Borrowers upon which the Agent is entitled to a Lien pursuant to this Agreement. "Lender Addition Agreement" shall mean an agreement among Agent, a Lender and such Lender's assignee regarding their respective rights and obligations with respect to assignments of the Loans and other interests under this Agreement. "Lenders" shall mean the financial institutions, from time to time named on Schedule 2 under the heading "Lenders", their respective successors and permitted assigns (but not, except as expressly set forth herein, any participant that is not otherwise a party to this Agreement). "Liability Event" shall mean any event, fact, condition or circumstance or series thereof (i) in or for which any Borrower becomes liable or otherwise responsible for any material amount owed or owing to any Medicaid or Medicare program by a provider under common ownership with such Borrower or any provider owned by such Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority after the failure of any such provider to pay any such amount when owed or owing, (ii) in which material Medicaid or Medicare payments to any Borrower are lawfully set-off against payments to such or any other Borrowers to satisfy any liability of or for any material amounts owed or owing to any Medicaid or Medicare program by a provider under common ownership with such Borrower or any provider owned by such Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority, or (iii) any of the foregoing under clauses (i) or (ii) in each case pursuant to statutory or regulatory provisions that are similar to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority referenced in clauses (i) and (ii) above or successor provisions thereto. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, restriction, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes. "Loan" or "Loans" shall mean, individually and collectively, all Advances under the Revolving Facility. "Loan Documents" shall mean, collectively and each individually, this Agreement, the Revolving Notes, the Security Documents, the Guaranties (if any), the Subordination Agreements, the General Intercreditor Agreement, the Bergen Intercreditor Agreement, the Landlord Waiver and Consents, the Borrowing Certificates, and all other Appendix A - 12 agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Agent or Lenders in connection with any of the foregoing or the Loans, as the same may be amended, modified or supplemented from time to time. "Lockbox Accounts" shall mean the accounts maintained by Borrowers at the Lockbox Banks into which all collections or payments on their Accounts and other Collateral are paid. "Lockbox Agreements" shall have the meaning given in Section 2.5 of this Agreement. "Lockbox Banks" shall have the meaning given in Section 2.5 of this Agreement. "Management Agreement" shall have the meaning given such term in the Management Fee Subordination Agreement. "Management Fee Subordination Agreement" shall mean that certain Management Fees Subordination Agreement among Agent, the managers and Borrowers executed in connection herewith, as the same may be amended, modified, restated or supplemented from time to time. "Material Adverse Effect" or "Material Adverse Change" shall mean any event, condition or circumstance or set of events, conditions or circumstances or any change(s) which (i) has, had or could reasonably be expected to have any material adverse effect upon or change in the validity or enforceability of any Loan Document, (ii) has been or could reasonably be expected to be material and adverse to the value of the Collateral or to the business, operations, prospects, properties, assets, liabilities or condition of Borrowers and the Guarantors taken as a whole, or (iii) has materially impaired or could reasonably be expected to materially impair the ability of any Borrower or Guarantor to perform the Obligations or to consummate the transactions under the Loan Documents executed by such Person. "Maturity Date" shall mean the earliest of (i) the occurrence of any automatic acceleration upon an Event of Default as provided for in this Agreement, (ii) Agent's acceleration and demand for payment following an Event of Default pursuant to the provisions of this Agreement and (iii) the last day of the Term. "Medicaid/Medicare Account Debtor" shall mean any Account Debtor which is (i) the United States of America acting under the Medicaid or Medicare program established pursuant to the Social Security Act or any other federal healthcare program, including, without limitation, CHAMPUS, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or any other state health care program, or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. "Mezzanine Loan" shall mean that certain $23,000,000 term loan made by the Mezzanine Loan Lenders in favor of the Mezzanine Borrowers pursuant to the Mezzanine Loan Documentation. Appendix A - 13 "Mezzanine Loan Agent" shall mean CapitalSource Finance LLC and any successor agent under the Mezzanine Loan Documentation. "Mezzanine Loan Agreement" shall mean that certain Mezzanine Loan Agreement dated as of the Closing Date by and among the Mezzanine Loan Lenders, the Mezzanine Loan Borrowers and Parent. "Mezzanine Loan Borrowers" shall mean Borrowers under the Mezzanine Loan Agreement from time to time. "Mezzanine Loan Documentation" shall mean, collectively, the Mezzanine Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Mezzanine Loan Lenders" shall mean Lenders party to the Mezzanine Loan Documentation from time to time and shall include their successors and assigns. "Mortgage" shall mean, with respect to each Mortgaged Property, that certain Deed of Trust, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Filing given by Borrowers in favor of Agent pursuant to which Borrowers have granted Agent a first priority mortgage on, among other things, the Mortgaged Property and other collateral as more fully described in the Mortgage, as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time. "Mortgaged Property" shall mean those properties identified as owned properties on Schedule 5.4 and/or any other owned real property of Borrowers upon which the Agent is entitled to a Lien pursuant to this Agreement. "Non-Recourse Indebtedness" means Indebtedness for Borrowed Money permitted to be incurred by Parent or any Subsidiary of Parent pursuant to Section 7.2(d)(ii) or (iii) of this Agreement or Section 7.2(d)(ii) of the Revolving Loan B Agreement. "Obligations" shall mean all present and future obligations, Indebtedness and liabilities of Borrowers and/or the Guarantors to Agent or Lenders at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to Revolving Notes and/or Loans, including, without limitation, all applicable fees, charges and expenses and/or all amounts paid or advanced by Agent or any Lender on behalf of or for the benefit of any Borrower and/or any Guarantor for any reason at any time, including in each case obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against any such Person. "Parent" shall have the meaning given in the introductory paragraph to this Agreement. Appendix A - 14 "Payment Office" shall mean initially the address set forth beneath Agent's name on the signature page of this Agreement, and thereafter, such other office of Agent within the United States, if any, which it may designate by notice to Borrowers to be the Payment Office. "Permits" shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other rights. "Permitted Discretion" shall mean a determination or judgment made by Agent in good faith in the exercise of reasonable (from the perspective of a secured lender) business judgment. "Permitted Liens" shall have the meaning given in Section 7.3 of this Agreement. "Permitted Refinanced Indebtedness" shall have the meaning given in Section 7.2 of this Agreement. "Person" shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature. "Plan of Reorganization" or "Plan" shall mean Debtors' Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678BB through LA 01-39697BB and LA 01-45516BB, LA 01-45520BB and LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time. "Pledge Agreement" shall mean, collectively and each individually, that certain Pledge Agreement by and among Borrowers and Agent executed in connection herewith, as such may be modified, amended or supplemented from time to time. "Prime Rate" shall mean a fluctuating interest rate per annum equal at all times to the rate of interest announced publicly from time to time by Citibank, N.A. as its base or prime rate; provided, that such rate is not necessarily the best rate offered to its customers, and, should Agent be unable to determine such rate, such other indication of the prevailing prime rate of interest for substantial money center lending institutions as may reasonably be chosen by Agent. Each change in the Prime Rate shall result in a corresponding and simultaneously change in the interest rate applicable to Advances under this Agreement. "Priority Claims" shall mean Class 1, Class 2, Class 3, Class 4 and Class 7 claims under the Plan of Reorganization and any other liens given priority under the Plan of Reorganization and outstanding on the Closing Date. "Priority Liens" shall mean Liens permitted pursuant to Section 7.3(ii), (iii), (iv), (v), (vi), (vii), (ix), (xi) and Liens set forth on Part A of Schedule 7.3. "Private Pay Debtor" shall mean an Account Debtor that is not a Government Authority or a commercial medical insurance carrier. Appendix A - 15 "Pro Rata Share" shall mean with respect to matters relating to a particular Commitment of a Lender, the percentage obtained by dividing (i) such Commitment of such Lender by (ii) all such Commitments of all Lenders; provided, however, that if any Commitment of Lenders is terminated pursuant to the terms hereof, then "Pro Rata Share" shall mean the percentage obtained by dividing (x) the aggregate amount of such Lender's outstanding Loans related to such Commitment by (y) the aggregate amount of all outstanding Loans related to such Commitment; in any case as such percentage may be adjusted by assignments permitted pursuant to Section 14.2. "Receipt" shall have the meaning given in Section 14.5 of this Agreement. "Register" shall have the meaning given in Section 14.2(c) of this Agreement. "Requisite Lenders" shall mean Lenders holding or being responsible for (i) 100%, if there are only two Lenders, and (ii) at least 66-2/3% if there are more than two Lenders, in each case, of the sum of (a) all outstanding Loans and (b) all unutilized Commitments. "Revolving Facility" shall have the meaning given in the first WHEREAS clause in this Agreement. "Revolving Interest Rate" shall mean the rate of interest set forth in Section 2.3 hereof. "Revolving Loan B" shall mean that certain $11,000,000 maximum amount of revolving loans made by the Revolving Loan B Lenders in favor of the Revolving Loan B Borrowers pursuant to the Revolving Loan B Documentation. "Revolving Loan B Agreement" shall mean that certain Revolving Credit and Security Agreement dated as of the Closing Date by and among the Revolving Loan B Borrowers, CapitalSource, as agent for the Revolving Loan B Lenders, and the Revolving Loan B Lenders. "Revolving Loan B Borrowers" shall mean Borrowers from time to time under the Revolving Loan B Agreement. "Revolving Loan B Documentation" shall mean, collectively, the Revolving Loan B Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Revolving Loan B Lenders" shall mean the parties other than the Revolving Loan B Borrowers party to the Revolving Loan B Documentation from time to time and shall include their successors and assigns. "Revolving Note" shall mean, collectively and each individually, the promissory note(s) payable to the order of Agent executed by Borrowers evidencing the Revolving Facility, as the same may be modified, amended or supplemented from time to time. Appendix A - 16 "Security Documents" shall mean this Agreement, the Collateral Patent, Trademark, and Copyright Assignment, the Pledge Agreement, the Lockbox Agreements, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time. "Senior Mortgage Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated the Closing Date by and among Mezzanine Loan Agent and the Senior Mortgage Loan Lender. "Senior Mortgage Loan" shall mean that certain $95,000,000 Senior Mortgage Loan made by the Senior Mortgage Loan Lender in favor of the Senior Mortgage Loan Borrowers pursuant to the Senior Mortgage Loan Documentation. "Senior Mortgage Loan Agreement" shall mean that certain Loan Agreement dated as of the Closing Date among Senior Mortgage Loan Lender and the Senior Mortgage Loan Borrowers. "Senior Mortgage Loan Borrowers" shall mean the borrowers party to the Senior Mortgage Loan Agreement from time to time and shall include their respective successors and assigns. "Senior Mortgage Loan Documentation" shall mean, collectively, the Senior Mortgage Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Senior Mortgage Loan Lender" shall mean Column Financial, Inc. and its successors and assigns under the Senior Mortgage Loan Documentation. "Senior Mortgage Term Loan B" shall mean that certain $10,000,000 Term Loan B under the Senior Mortgage Loan Documentation. "Senior Mortgage Term Loan B Lender" shall mean, collectively, the holders of the Senior Mortgage Term Loan B and their respective successors and assigns under the Senior Mortgage Loan Documentation. "Services" shall mean medical and health care services provided to a Person, including, but not limited to, medical and health care services which are covered by a policy of insurance issued by an Insurer, physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, pharmacy services, residential and out-patient behavioral healthcare services. "Special Advance Amount" shall mean $6,000,000 on the Closing Date, and shall be reduced by $250,000 on the first day of the first full calendar month after the Closing Date and on the first day of each calendar month thereafter until the Special Advance Amount has been reduced to $0. Appendix A - 17 "Subordinated Debt" shall mean Indebtedness under the Indenture, the Bergen Note, the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation and the Vendor's Lien and any other Indebtedness which is expressly subordinated to the Obligations pursuant to a Subordination Agreement or otherwise in a manner satisfactory to Agent. "Subordination Agreement" shall mean, collectively and each individually, any subordination agreements to which Agent and other service providers or creditors of any Borrower are a party and any other agreement in form and substance reasonably satisfactory to Agent pursuant to which a Person agrees to subordinate its Indebtedness and/or Liens to the Obligations. "Subsidiary" shall mean, as to any other Person, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person's Subsidiaries. "Subsidiary Borrowers" and "Subsidiary Borrower" shall have the meaning given in the introductory paragraph to this Agreement. "Subsidiary Stock" shall mean all stock, membership interests, limited partnership interests and other securities of each Subsidiary Borrower and their respective Subsidiaries. "Target Excess Cash Flow" shall have the meaning set forth in Exhibit E to this Agreement. "Term" shall mean the period commencing on the date set forth on the first page hereof and ending on the date that is five (5) years after the Closing Date. "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. "Union Bank Loan" shall mean that certain loan made by Union Bank to Summit Care Corporation pursuant to that certain Amended and Restated Promissory Note dated April 1, 2001, as amended, modified, supplemented and extended to date, in the principal amount of $823,333.04 and all other agreements, documents, instruments and certificates executed and delivered in connection therewith, as each may be amended, modified and supplemented from time to time. "Unmatured Surviving Obligations" shall mean indemnity Obligations with respect to which no claim has been made and which pursuant to the provisions of this Agreement survive termination of this Agreement. "Vendors' Lien" shall have the meaning set forth in the Plan of Reorganization. "Woodlands Place Loan" shall mean that certain loan by Woodlands Place Nursing Center, L.P. to The Woodlands Resource Management, L.P. and The Woodlands Healthcare Center, L.P. pursuant to that certain Amended and Restated Promissory Note dated August 19, 2003, in the principal amount of $1,887,866.62 and all other agreements, documents, Appendix A - 18 instruments and certificates executed and delivered in connection therewith, as each may be amended, modified and supplemented from time to time. Appendix A - 19 EXHIBIT A BORROWING CERTIFICATE dated as of _________________ , 2003 SKILLED HEALTHCARE, LLC, a Delaware limited liability company ("BORROWING AGENT"), as Borrowing Agent for itself and for the other Borrowers (as defined in the Revolving Credit and Security Agreement dated as of ___________________, 2003, by and among Borrowers and CapitalSource Finance LLC, as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and the Lenders party thereto, (as amended, supplemented or modified from time to time, the "LOAN AGREEMENT"; all capitalized terms not defined herein have the meanings given them in the Loan Agreement)) by the undersigned officer hereby certifies to Agent in accordance with the Loan Agreement and other Loan Documents that: A. Borrowing Base and Compliance Pursuant to the Security Documents, Agent, on behalf of Lenders, has been granted a lien on all Accounts of Borrowers. Set forth on Schedule 1 is a true and correct calculation of Availability calculated in accordance with the Loan Agreement. All of the Accounts included as Eligible A/R on Schedule 1 are Eligible Receivables. B. Borrowing Notice (TO BE COMPLETED AND EFFECTIVE ONLY IF BORROWERS ARE REQUESTING AN ADVANCE) (1) In accordance with Sections 2.4 and 4.2(a) of the Loan Agreement, Borrowing Agent on behalf of Borrowers hereby irrevocably requests from Agent an Advance under the Revolving Facility pursuant to the Loan Agreement in the aggregate principal amount of $_________ ("REQUESTED ADVANCE") to be made on _________________, _________ (the "BORROWING DATE"), which day is a Business Day. (2) Immediately after giving effect to the Requested Advance, the aggregate outstanding principal amount of Advances will not exceed the lesser of (i) the Availability and (ii) the Facility Cap. C. General Certifications Borrowing Agent further certifies to Agent that each of the conditions contained in Section 4.2 of the Loan Agreement are as of the date hereof, and will be as of the Borrowing Date (if applicable), satisfied, including, without limitation, receipt by Agent of all fees, charges and expenses payable to Agent on or prior to such Borrowing Date pursuant to the Loan Documents. Exhibit A - 1 IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the day first written above. SKILLED HEALTHCARE, LLC, AS BORROWING AGENT By: ___________________________________________ Name: _________________________________________ Title: ________________________________________ Exhibit A - 2 SCHEDULE 1 TO [NAMES OF BORROWERS] BORROWING CERTIFICATE FOR PERIOD ENDING - (__/__/__)
Private Medicare Medicaid Insurance Pay Total ------------------------------------------------------------------- A SECTION A: A/R AVAILABILITY 1 Beginning A/R (from prev. certificate) - ------------------------------------------------------------------- 2 (+) Sales (New A/R) - ------------------------------------------------------------------- 3 (+/-) Debit/Credit Memos - ------------------------------------------------------------------- 4 (+/-) Adjustments - ------------------------------------------------------------------- 5 (-) Posted A/R Collections - ------------------------------------------------------------------- 6 Ending A/R (Date ----------) 0 0 0 0 - ------------------------------------------------------------------- 7 Ineligible Receivables (A) 0 - ------------------------------------------------------------------- 8 Eligible A/R (6-7) 0 0 0 0 - ------------------------------------------------------------------- 9 Liquidity Factor 100.0% 100.0% 100.0% 100.0% ------------------------------------------------------------------- 10 Net Eligible A/R (8*9) 0 0 0 0 - ------------------------------------------------------------------- 11 (-) Unposted A/R Collections - ------------------------------------------------------------------- 12 Adjusted Net A/R Availability (10-9) - ------------------------------------------------------------------- 13 Advance Rate 85% ------------------------------------------------------------------- 14 A/R Availability (12*13) - ------------------------------------------------------------------- B SECTION B: GROSS AVAILABILITY 1 A/R Availability - ------- 2 (+) Approved Overadvance - ------- 3 (-) Reserves - ------- 4 Collateral Availability (1+2-3) - ------- 5 Facility Cap - ------- 6 Gross Availability (lesser of Collateral Availability and Facility Cap) - -------
(A) Attach a supporting schedule showing all Receivables that are not Eligible Receivables pursuant to the definitions in the Loan Agreement. If there is any discrepancy between the definition of Eligible Receivables as set forth in the Loan Agreement and any of the information set forth in this certificate, Schedule 1 or any supporting documentation, the provisions of the Loan Agreement shall control. Exhibit A - 3 EXHIBIT B INTERIM BORROWING CERTIFICATE dated as of ________________, 2003 SKILLED HEALTHCARE, LLC, a Delaware limited liability company ("BORROWING AGENT"), as Borrowing Agent for itself and for the other Borrowers (as defined in the Revolving Credit and Security Agreement dated as of ___________________, 2003, by and among Borrowers and CapitalSource Finance LLC, as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and the Lenders party thereto, (as amended, supplemented or modified from time to time, the "LOAN AGREEMENT"; all capitalized terms not defined herein have the meanings given them in the Loan Agreement)) by the undersigned officer hereby certifies to Agent in accordance with the Loan Agreement and other Loan Documents that: A. Borrowing Base and Compliance Pursuant to the Security Documents, Agent, on behalf of Lenders, has been granted a lien on all Accounts of Borrowers. Set forth on Schedule 1 is a true and correct calculation of Availability calculated in accordance with the Loan Agreement. All of the Accounts included as Eligible A/R on Schedule 1 are Eligible Receivables. B. Borrowing Notice (TO BE COMPLETED AND EFFECTIVE ONLY IF BORROWERS ARE REQUESTING AN ADVANCE) (1) In accordance with Sections 2.4 and 4.2(a) of the Loan Agreement, Borrowing Agent on behalf of Borrowers hereby irrevocably requests from Agent an Advance under the Revolving Facility pursuant to the Loan Agreement in the aggregate principal amount of $_________ ("REQUESTED ADVANCE") to be made on _________________, _________ (the "BORROWING DATE"), which day is a Business Day. (2) Immediately after giving effect to the Requested Advance, the aggregate outstanding principal amount of Advances will not exceed the lesser of (i) the Availability and (ii) the Facility Cap. C. General Certifications Borrowing Agent further certifies to Agent that each of the conditions contained in Section 4.2 of the Loan Agreement are as of the date hereof, and will be as of the Borrowing Date (if applicable), satisfied, including, without limitation, receipt by Agent of all fees, charges and expenses payable to Agent on or prior to such Borrowing Date pursuant to the Loan Documents. Exhibit B - 1 IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the day first written above. SKILLED HEALTHCARE, LLC, AS BORROWING AGENT By: ___________________________________ Name:__________________________________ Title: ________________________________ Exhibit B - 2 SCHEDULE 1 TO [NAMES OF BORROWERS] INTERIM BORROWING CERTIFICATE FOR PERIOD ENDING - (__/__/__)
Private Medicare Medicaid Insurance Pay Total -------------------------------------------------------------- A SECTION A: A/R AVAILABILITY Beginning Eligible A/R (Line 8 from prev. 1 Borrowing Certificate) - -------------------------------------------------------------- 2 (+) Estimated Sales (Beds * Days * Rate) - -------------------------------------------------------------- 3 (-) Posted A/R Collections - -------------------------------------------------------------- 4 Ending Estimated Eligible A/R (Date --------) 0 0 0 0 - -------------------------------------------------------------- 5 Liquidity Factor 100.0% 100.0% 100.0% 100.0% -------------------------------------------------------------- 6 Net Eligible A/R (4*5) 0 0 0 0 - -------------------------------------------------------------- 7 (-) Unposted A/R Collections - -------------------------------------------------------------- 8 Adjusted Net A/R Availability (6-7) - -------------------------------------------------------------- 9 Advance Rate 85% -------------------------------------------------------------- 10 A/R Availability (8*9) - -------------------------------------------------------------- B SECTION B: GROSS AVAILABILITY 1 A/R Availability - ------ 2 (+) Approved Overadvance - ------ 3 (-) Reserves - ------ 4 Collateral Availability (1+2-3) - ------ 5 Facility Cap - ------ 6 Gross Availability (lesser of Collateral Availability and Facility Cap) - ------
Exhibit B - 3 EXHIBIT C TO THE CREDIT AGREEMENT FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of ______________ __, 20__ (this "Joinder Agreement"), made by the entity or entities that are signatories hereto (collectively, the "Additional Borrowers"), in favor of CapitalSource Finance LLC ("CapitalSource"), as administrative agent and collateral agent (in such capacity, "Agent") for the Lenders (as defined below). W I T N E S S E T H : WHEREAS, Fountain View, Inc., a Delaware corporation (together with any assignee of its rights and obligations thereunder as provided for therein, "Parent"), the other borrowers party thereto from time to time (collectively, and together with Parent, "Borrowers," and each, a "Borrower"), the lenders party thereto from time to time (the "Lenders"), and Agent are parties to that certain Revolving Credit and Security Agreement, dated as of August 19, 2003 (as such may from time to time be renewed, refunded, replaced, refinanced, amended, amended and restated, modified or supplemented, the "Credit Agreement"). Capitalized terms not defined herein have the meanings given to them in the Credit Agreement. WHEREAS, the parties to this Joinder Agreement wish to amend Schedule 1 to the Credit Agreement in the manner hereinafter set forth and, pursuant to Section 6.l4 of the Credit Agreement, join the Additional Borrowers as Borrowers under the Credit Agreement. NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: A G R E E M E N T: 1. Each of the undersigned Additional Borrowers hereby acknowledges that it has received and reviewed a copy of the Credit Agreement and acknowledges and agrees to: (a) join the Credit Agreement as a Borrower (with the same effect as if initially named therein), as indicated with its signature below; (b) be bound by all covenants, agreements and acknowledgements attributable to a Borrower in the Credit Agreement, including, without limitation, the grant of security interest in the Collateral (as defined in the Credit Agreement) under the Credit Agreement; and Exhibit C - 1 (c) perform all obligations and duties required of it by the Credit Agreement as a Borrower. 2. Each of the undersigned hereby represents and warrants that the representations and warranties with respect to it contained in Article 5 of the Credit Agreement and in each of the other Loan Documents to which such signatory is a party, by virtue of this Joinder Agreement or otherwise, or which are contained in any certificate furnished by or on behalf of such signatory, are true and correct on the date hereof as if made on and as of the date hereof (except where such representation or warranty expressly relates to an earlier date, in which case such representation or warranty was true and correct as of such date). 3. The address and jurisdiction of incorporation of each of the undersigned is set forth below its name on the signature pages hereto. 4. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW). [Remainder of page intentionally blank] Exhibit C - 2 IN WITNESS WHEREOF, each of the undersigned has caused this JOINDER AGREEMENT to be duly executed by its proper and duly authorized officer as of the date first set forth above. ADDITIONAL BORROWER: ________________________, a _______________________ By: _____________________________ Name: Title: Address: Jurisdiction of Incorporation: ACKNOWLEDGED AND AGREED TO: CAPITALSOURCE FINANCE LLC By: ___________________________ Name: Title: Exhibit C - 3 EXHIBIT D TO LOAN AGREEMENT EXHIBIT D GUARANTY AND SECURITY AGREEMENT THIS GUARANTY AND SECURITY AGREEMENT(this "AGREEMENT") is made as of ___________ 20___, by ______________________________, a _____________ corporation ("GUARANTOR"), to and for the benefit of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company as administrative agent and collateral agent for the Lenders (as defined below) ("AGENT"). WHEREAS, FOUNTAIN VIEW, INC., a Delaware corporation ("PARENT"), the other borrowers party thereto ("SUBSIDIARY BORROWERS" and together with Parent, each a "BORROWER" and collectively, "BORROWERS"), Agent and the Lenders party thereto ("LENDERS") have entered into that certain Revolving Credit and Security Agreement (as amended, supplemented or modified from time to time, the "CREDIT AGREEMENT"), dated as of ______________, 2003 (the "Closing Date"), pursuant to which Borrowers have agreed to borrow from Lenders, and Lenders have agreed to lend to Borrowers, certain amounts pursuant to a revolving credit facility, all in accordance with and subject to the terms and conditions set forth in the Credit Agreement, which borrowings are evidenced by the Revolving Notes executed and delivered to Lenders by Borrowers, dated as of the Closing Date (together collectively and each individually, the "NOTE", and together with all of the other agreements, documents, instruments, certificates, reports and financing statements heretofore or hereafter executed or delivered in connection therewith or with the Advances to be made under the Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "LOAN DOCUMENTS"); WHEREAS, Guarantor has become a Subsidiary (as defined in the Credit Agreement) of a Borrower and, pursuant to Section 6.14 of the Credit Agreement, as a condition incident to the obligation of Lenders to make additional Advances to Borrowers, Guarantor is required, and has agreed, to execute and deliver this Agreement and to grant to Agent on behalf of Lenders a security interest in the Collateral as security for Guarantor's obligations under this Agreement; WHEREAS, Lenders are willing to make additional Advances under the Credit Agreement and the other Loan Documents only upon the condition that Guarantor executes and delivers to Agent this Agreement and agrees to perform and to comply with its obligations under this Agreement; and WHEREAS, Guarantor acknowledges and confirms that, as [an affiliate] [a subsidiary] of a Borrower, (a) it will benefit from the advancement of funds under the Revolving Facility to Borrowers, (b) the Loans by Lenders constitute valuable consideration to Guarantor, (c) this Agreement is intended to be an inducement to Lenders to continue to extend credit and the Loans to Borrowers, and (d) Lenders are relying upon this Agreement in making and advancing the Loans to Borrowers. NOW, THEREFORE, in consideration of the foregoing and of the covenants and agreements hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, and as an inducement for Lenders to continue making Advances to Borrowers under the Credit Agreement and the other Loan Documents, Guarantor, intending to be legally bound hereby, agrees as follows: 5. All capitalized terms in this Agreement and not defined herein shall have the defined meanings provided in the Credit Agreement. 6. Guarantor unconditionally and absolutely guarantees (i) the due and punctual payment and performance when due of the principal of the Note and the interest thereon and of the Obligations and any and all other monies and amounts due or which may become due on or with respect to any of the foregoing, and the due and punctual performance and observance by Borrowers of all of the other terms, covenants, agreements and conditions of the Loan Documents, in any case whether according to the present terms thereof, at any earlier or accelerated date or dates or pursuant to any extension of time or to any change in the terms, covenants, agreements and conditions thereof now or at any time hereafter made or granted, (ii) all liabilities and obligations of Guarantor hereunder, and (iii) all costs, expenses and liabilities (including, without limitation, reasonable attorneys fees and expenses, documentation and diligence fees and legal expenses, and search, audit, recording, professional and filing fees and expenses) that may be incurred or advanced by Agent and/or Lenders in any way in connection with the foregoing and/or otherwise required to be paid by Guarantor hereunder (collectively, such items in clauses (i) through (iii) being the "GUARANTEED OBLIGATIONS"). Guarantor acknowledges that this Agreement shall be deemed a continuing guaranty of the Guaranteed Obligations under the Loan Documents. 7. This Agreement is a guaranty of payment and not a guaranty of collection. If any Guaranteed Obligation is not satisfied when due, whether by acceleration or otherwise, Guarantor shall forthwith satisfy such Guaranteed Obligation, upon demand, and no such satisfaction shall discharge the obligations of Guarantor hereunder until all Guaranteed Obligations have been indefeasibly paid in cash and performed and satisfied in full and the Credit Agreement terminated. The liability of Guarantor under this Agreement shall be primary and direct and not conditional or contingent upon the enforceability of any obligation, the solvency of Borrowers, any Borrower or any other Person, any obligation or circumstance which might otherwise constitute a legal or equitable discharge or defense of a surety or guaranty or the pursuit by Agent of any remedies it may have against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person. Without limiting the generality of the foregoing, Agent shall not be required to make any demand on Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or to sell at foreclosure or otherwise pursue or exhaust its remedies against any Collateral of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person before, simultaneously with or after enforcing its rights and remedies hereunder against Guarantor, and any one or more successive and/or concurrent actions may be brought against Guarantor in the same action brought against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or in separate actions, as often as Agent may deem advisable, in its sole discretion. The obligations of Guarantor hereunder shall not in any way be affected by any action taken or not taken by Agent, which action or inaction is hereby consented and agreed to by Guarantor, or by the partial or complete unenforceability or invalidity of any other guaranty or surety agreement, pledge, assignment, Lien or other security interest or security for any of the Guaranteed Obligations or of the value, genuineness, validity or enforceability of the Collateral or any of the Guaranteed Obligations. 8. (A) To secure the payment and performance of the Guaranteed Obligations, Guarantor hereby grants to Agent, for the benefit of itself and Lenders, a continuing security interest in and Lien upon, and pledges to Agent, for the benefit of itself and Lenders, all of its right, title and interest in and to and upon all of Guarantor's assets, now owned or hereafter acquired (collectively and each individually, the "Collateral"), including, without limitation, all of the following property and interests in property of Guarantor which security interest is intended to be a first priority security interest: (i) all of its tangible personal property, including without limitation all present and future Inventory and Equipment (including items of Equipment which are or become Fixtures), now owned or hereafter acquired; (ii) all of its intangible personal property, including without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Chattel Paper, Documents, Instruments, Deposit Accounts, Letter of Credit Rights and Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing; (iii) all of its present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by Guarantor; provided, however, that Agent shall not have a security interest in any rights under any Government Contract of Guarantor or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, Section 203 or Title 41, Section 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; and (iv) any and all additions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing. (B) Notwithstanding the foregoing provisions of this Section 4, such grant of a security interest shall not extend to, and the term "Collateral" shall not include, (x) any General Intangible, contract, agreement or document of Guarantor to the extent that (i) such General Intangible, contract, agreement or document is not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; (y) any asset of Guarantor to the extent that (i) such asset subject to a contract, agreement or document otherwise permitted pursuant to this Agreement, which contract, agreement or document restricts the grant of such security interest (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral" ; and (z) any Permit of Guarantor to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Guarantor shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent, provided, however in the event Guarantor is unable to obtain the required Landlord Consent and Waiver for any location at which books and records are kept, Guarantor shall maintain a duplicate set of such books and records at a location owned by a Guarantor or with respect to which a Landlord Consent and Waiver reasonably satisfactory to Agent shall have been obtained. [(C) In addition to the foregoing, to secure the payment and performance of the Obligations, Guarantor has (i) entered into a pledge agreement pledging all of its Subsidiary Stock to Agent and (ii) entered into and recorded leasehold mortgages or deeds of trust in the appropriate jurisdictions. Agent has received a perfected security interest in Guarantors leaseholds and real property.] (D) Guarantor shall promptly notify Agent of any material Commercial Tort Claim in which Guarantor has an interest arising after the Closing Date and shall provide all necessary information concerning such Commercial Tort Claim and make all necessary filings with respect thereto to perfect Agent's (for its benefit and the benefit of Lenders) first priority security interest therein. (E) Upon the execution and delivery of this Agreement, and upon the proper filing of the necessary financing statements, the proper recordation of the Collateral Patent, Trademark and Copyright Assignment in the United States Patent and Trademark Office and/or the United States Copyright Office, the proper recordation of any Leasehold Mortgages or deeds of trust with respect to Guarantors' leaseholds and/or real property and proper delivery of the necessary stock certificates, in each case as applicable, then without any further action, Agent will have a good, valid and perfected first priority Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person except for Permitted Liens, except for security interests in (x) motor vehicles subject to a certificate of title, and (y) money. No financing statement relating to any of the Collateral is on file in any public office except those (i) on behalf of Agent, and/or (ii) in connection with or with respect to the Permitted Liens. (F) Guarantor shall (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Agent to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Agent and Agent's perfected first priority Lien on the Collateral (and Guarantor irrevocably grants Agent the right, at Agent's option, to file any or all of the foregoing), (ii) immediately upon learning thereof, report to Agent any reclamation, return or repossession of goods in excess of $100,000.00 (individually or in the aggregate), and (iii) defend the Collateral and Agent's perfected first priority Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent or any Lender, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys' fees and expenses) in connection with such defense, which may at Agent's discretion be added to the Obligations.. (G) Guarantor agrees that notice received by it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Agent without prior notice to Guarantor. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by Guarantor which right is hereby waived and released. Guarantor covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Agent's exercise of its rights and remedies with respect to the Collateral. Agent, in dealing with or disposing of the Collateral or any part thereof, shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process. (H) In addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all reasonable costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Guarantors' business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Agent or Lenders may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Agent or Lenders may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, reasonable in house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein and as determined by Agent in its sole discretion; (iii) third, to the satisfaction of other Indebtedness secured by any subordinate security interest of record in the Collateral as provided in the General Intercreditor Agreement, the Bergen Intercreditor Agreement or any applicable Subordination Agreement if written notification of demand therefor is received before distribution of the proceeds is completed, provided, that, if requested by Agent, the holder of a subordinate security interest shall furnish reasonable proof of its interest, and unless it does so, Agent and Lenders need not address their claims; and (iv) fourth, to the payment of any surplus then remaining to Guarantor, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Guarantor shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section. (I) Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under this Agreement, the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent and Lenders shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Guarantor and to collect all revenues and profits thereof and apply the same to the payment of all reasonable expenses and other charges of such receivership including the reasonable compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. (J) All Collateral (except Deposit Accounts and equipment located at the premises of clients and used in their ordinary course of business) will at all times be kept by Guarantor at the locations set forth on Schedule 4(J) hereto, and such other locations as Guarantor shall identify to Agent upon ten (10) calendar days prior written notice, and in any case shall not be moved outside the continental United States. (K) Guarantor shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit such records to Agent on such periodic bases as Agent may request. In addition, if Accounts of Guarantor in an aggregate face amount in excess of $200,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Receivables, Guarantor shall notify Agent of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Agent, after the occurrence and during the continuance of an Event of Default, Guarantor shall execute and deliver to Agent formal written assignments of all of its Accounts weekly or daily as Agent may request, including all Accounts created since the date of the last assignment, together with copies of claims, invoices and/or other information related thereto. To the extent that collections from such assigned accounts exceed the amount of the Obligations, such excess amount shall not accrue interest in favor of Guarantor, but shall be available to Guarantor upon Guarantors' written request. (L) Whether or not an Event of Default has occurred, any of Agent's officers, employees, representatives or agents shall have the right, at any time during normal business hours, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts of Guarantor; provided unless an Event of Default has occurred and is continuing, such verification shall only verify account balances and shall not give notice of Agent's security interest. Guarantor shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. (M) To expedite collection, Guarantor shall endeavor in the first instance to make collection of its Accounts for Agent. Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify (i) Account Debtors owing Accounts to Guarantor other than Medicaid/Medicare Account Debtors that their Accounts have been assigned to Agent and to collect such Accounts directly in its own name and to charge collection costs and expenses, including reasonable attorney's fees, to Guarantor, and (ii) Medicaid/Medicare Account Debtors that Guarantor has waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Agent to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Agent is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. (N) As and when determined by Agent in its Permitted Discretion, Agent will perform the searches described in clauses (i) and (ii) below against Guarantor (the results of which are to be consistent with Guarantors' representations and warranties under this Agreement), all at Guarantors' expense: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where Guarantor is organized and/or maintains its executive offices, a place of business or assets; and (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (i) above, provided that unless an Event of Default shall have occurred and during the continuance thereof, Guarantor shall not be required to pay for more than one such search in any fiscal quarter under clause (i) and clause (ii) above. (O) Guarantor (i) shall provide prompt written notice to its current bank to transfer all items, collections and remittances to the Concentration Account, (ii) shall provide prompt written notice to each Account Debtor (other than a Private Pay Debtor) directing them to make payments to the appropriate Lockbox Account, and Guarantor hereby authorizes Agent, upon any failure to send such notice and directions within ten (10) calendar days after the date of this Agreement (or ten (10) calendar days after the Person becomes an Account Debtor (other than a Private Pay Debtor)), to send any and all similar notices and directions to such Account Debtors and (iii) shall do such further acts and deeds that may be lawfully required by Agent to make, create, maintain, continue or perfect Agent's security interest in the Lockbox Accounts or the Collateral. At Agent's request, Guarantor shall immediately deliver to Agent all items for which Agent must receive possession to obtain a perfected security interest and all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral except for promissory notes in a principal amount less than $100,000 provided that the aggregate principal amount of all such promissory notes shall be less than $500,000. 9. Guarantor hereby represents and warrants to Agent (which representations and warranties shall survive the execution and delivery of this Agreement and the making of Advances under the Credit Agreement) as follows: (A) Guarantor is a corporation, duly organized, validly existing and in good standing under the laws of the State of [INSERT], and all of Guarantor's issued and outstanding shares of capital stock, equity securities and other ownership interests are owned of record and beneficially directly by [ ], free and clear of all Liens, mortgages, pledges, security interests, hypothecations, assignments, charges, rights, encumbrances or transfer or other restrictions (individually, "ENCUMBRANCE" and collectively, "ENCUMBRANCES") in favor of any other Person or otherwise, except for Encumbrances in favor of Agent pursuant to the Loan Documents; (B) Guarantor (i) has all requisite power and authority to own the Collateral and its properties and assets and to carry on its business as now being conducted, and (ii) is duly qualified to do business in every jurisdiction in which failure so to qualify could reasonably be expected to have or result in a Material Adverse Effect; (C) Guarantor has all requisite power and authority (i) to execute, deliver and perform this Agreement, (ii) to consummate the transactions contemplated hereunder, and (iii) to grant the Liens and security interests with regard to the Collateral granted hereby; (D) The execution, delivery and performance by Guarantor of this Agreement and the consummation of the transactions contemplated hereby, (a) have been duly authorized by all requisite action of Guarantor and have been duly executed and delivered by or on behalf of Guarantor; (b) do not violate in any material respect any provisions of (i) applicable law, statute, rule, regulation, ordinance or tariff applicable to Guarantor, (ii) any order of any Governmental Authority binding on Guarantor or any of its properties; or (iii) any material agreement between Guarantor and its shareholders, members, partners or equity owners or among any such shareholders, members, partners or equity owners; (c) do not violate any provision of the certificate of incorporation or bylaws (or any other equivalent governing agreement or document) of Guarantor, (d) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Guarantor is a party, or by which the properties or assets of Guarantor are bound, the effect of which could reasonably be expected to have a Material Adverse Effect; (e) except as set forth therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of Guarantor, and (f) except for those which have been obtained, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person. When executed and delivered, this Agreement will constitute the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity). (E) Guarantor is not (i) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would materially adversely affect its ability to execute and deliver, or perform under, this Agreement or to pay the Guaranteed Obligations, (ii) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to have a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period, could reasonably be expected to have a Material Adverse Effect, or (iii) a party or subject to any agreement, document or instrument with respect to, or obligation to pay any, service or management fee with respect to, the ownership, operation, leasing or performance of any of its business or any facility, nor is there any manager with respect to any such facility other than a Person that is a Borrower or a Guarantor; (F) Guarantor (i) is in compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental Authority applicable to Guarantor and/or Guarantor's business, assets or operations, including, without limitation, ERISA and Healthcare Laws, and (ii) is not in violation of any order of any Governmental Authority or other board or tribunal, except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. There is no event, fact, condition or circumstance known to Guarantor which, with notice or passage of time, or both, would constitute or result in any noncompliance with, or any violation of, any of the foregoing, in each case except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. Guarantor has not received any notice that Guarantor is not in compliance in any respect with any of the requirements of any of the foregoing; (G) There is no action, suit, proceeding or investigation pending or, to its knowledge, threatened against Guarantor that (i) questions or could prevent the validity of this Agreement or the right of Guarantor to enter into this Agreement or to consummate the transactions contemplated hereby, (ii) could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect, or (iii) could reasonably be expected to result in any Change of Control or other change in the current ownership, control or management of Guarantor. Guarantor is not aware that there is any basis for the foregoing. Guarantor is not a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. There is no action, suit, proceeding or investigation initiated by Guarantor currently pending that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. Guarantor has no existing accrued and/or unpaid Indebtedness to any Governmental Authority or any other governmental payor that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect.; (H) None of the business or properties of Guarantor, any relationship between Guarantor and any other Person, any circumstance in connection with the execution, delivery and performance of this Agreement, or the consummation of the transactions contemplated hereby, requires a consent, approval or authorization of, or filing, registration or qualification which has not been obtained with, any Governmental Authority or any other Person; (I) Guarantor is not a party to and has not entered into any agreement, document or instrument that conflicts with this Agreement or that otherwise relates to the Guaranteed Obligations; (J) The obligations of Guarantor under this Agreement are not subordinated in any way to any other obligations of Guarantor or to the rights of any other Person; (K) Guarantor is in substantial compliance with and has all Permits and Intellectual Property necessary or required by applicable law or Governmental Authority for the operation of its businesses. All of the foregoing are in full force and effect and not in known conflict in any material respect with the rights of others. Guarantor is not (i) in breach of or default under the provisions of any of the foregoing, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, (ii) a party to or subject to any agreement, instrument or restriction that is so unusual or burdensome that it could reasonably be expected to have a Material Adverse Effect, and (iii) has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to have a Material Adverse Effect; (L) No representation or warranty made by Guarantor in this Agreement contains any untrue statement of material fact or omits to state any fact necessary to make the statements herein or therein not materially misleading. There is no fact known to Guarantor which Guarantor has not disclosed to Agent in writing which could reasonably be expected to have a Material Adverse Effect; (M) During the five years prior to the date hereof, Guarantors has not conducted business under or used any other name (whether corporate, partnership or assumed); (N) The foregoing representations and warranties are made with the knowledge and intention that Agent is relying and will rely thereon. All such representations and warranties shall survive the execution and delivery of this Agreement. 10. Guarantor hereby waives demand, presentment, protest, notice of dishonor or non-payment, as well as all defenses with respect to any and all instruments, notice of acceptance hereof, notice of Loans or Advances made, credit extended, collateral received or delivered, or any other action taken by Agent in reliance hereon, and all other demands and notices of any description, except such as are expressly provided for herein, it being the intention hereof that Guarantor shall remain liable as a principal until the full amount of all Guaranteed Obligations shall have been indefeasibly paid in full in cash and performed and satisfied in full (other than the Unmatured Surviving Obligations) and the Credit Agreement terminated, notwithstanding any act, omission, or anything else which might otherwise operate as a legal or equitable discharge of Guarantor. . 11. Guarantor acknowledges and agrees that its obligations as Guarantor shall not be impaired, modified, changed, released or limited in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or its estate in bankruptcy resulting from the operation of any present or future provision of the bankruptcy laws or other similar statute, or from the decision of any court. 12. Guarantor acknowledges and agrees that Agent shall have the full right and power, in its sole discretion and without any notice to or consent from Guarantor and without affecting or discharging, in whole or in part, the liability of Guarantor hereunder to deal in any manner with the Guaranteed Obligations and any security or guaranties therefor, including, without limitation, to (A) release, extend, renew, compromise or substitute and administer the Guaranteed Obligations and other obligations under the Loan Documents in any manner it sees fit, (B) release any or all collateral for the Guaranteed Obligations, (C) release any guarantor of the Guaranteed Obligations, (D) extend the time for payment of the Guaranteed Obligations or any part thereof, (D) change the interest rate on the Guaranteed Obligations or any Note under the Credit Agreement, (E) reduce or increase the outstanding principal amount of the Guaranteed Obligations or any Note under the Credit Agreement, (F) accelerate the Guaranteed Obligations, (G) make any change, amendment or modification whatsoever to the terms or conditions of the Loan Documents, (H) extend, in whole or in part, on one or any number of occasions, the time for the payment of any principal or interest or any other amount pursuant to any Note or for the performance of any term or condition of the Loan Documents, (I) settle, compromise, release, substitute, impair, enforce or exercise, or fail or refuse to enforce or exercise, any claims, rights, or remedies, of any kind or nature, which Agent may at any time have against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person, or with respect to any security interest of any kind held by Agent at any time, whether under any Loan Document or otherwise, (J) release or substitute any security interest of any kind held by Agent at any time, (K) collect and retain or liquidate any collateral subject to such security interest, (L) make advances for the purpose of performing any term or covenant contained in the Loan Documents with respect to which Borrowers or any other guarantor of the Guaranteed Obligations is in default, (M) foreclose on any of the Collateral, (N) grant waivers or indulgences, (O) take additional collateral, (P) obtain any additional guarantors, (Q) take a deed in lieu of foreclosure and/or (R) take or fail to take any other action whatsoever with respect to the Guaranteed Obligations. Guarantor hereby waives and agrees not to assert against Agent any rights which a guarantor or surety could exercise. Notwithstanding any other provision of this Agreement or any other Loan Document, Guarantor agrees that Agent has no duties of any nature whatsoever to Guarantor, whether express or implied, by virtue of this Agreement, operation of law or otherwise. 13. Guarantor agrees that its obligations hereunder are irrevocable and independent of the obligations of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person. Guarantor shall take all necessary and appropriate actions to ensure that this Agreement is and remains enforceable against Guarantor in accordance with its terms and that Guarantor complies with each of its obligations hereunder and thereunder. Guarantor shall not (a) cause or permit to be done, or enter into or make or become a party to any agreement (oral or written), arrangement or commitment to do or cause to be done, any of the things prohibited by this Agreement or that would breach this Agreement or any other instrument, agreement, arrangement, commitment or document to which Guarantor is a party or by which it or any of its properties or assets is or may be bound or subject, or (b) enter into or make or become a party to any agreement, document or instrument or arrangement that conflicts with this Agreement or that would prevent Guarantor from complying with and performing under this Agreement. 14. Guarantor agrees that it shall have no right of subrogation whatever with respect to the Guaranteed Obligations guaranteed hereby or to any collateral securing such Guaranteed Obligations unless and until such Guaranteed Obligations have been irrevocably and indefeasibly paid in full in cash and performed in full (other than the Unmatured Surviving Obligations) and the Credit Agreement and this Agreement have been terminated. 15. Guarantor agrees that this Agreement shall inure to the benefit of, and may be enforced by, Agent and Lenders, all future holders of any Note or any of the Guaranteed Obligations or any of the Collateral and all Transferees (as defined below), and each of their respective successors and permitted assigns, and shall be binding upon and enforceable against Guarantor and Guarantor's assigns and successors. Guarantor agrees that it may not assign, delegate or transfer this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Agent. Nothing contained in this Agreement or any other Loan Document shall be construed as a delegation to Agent of Guarantor's duty of performance, including, without limitation, any duties under any account or contract in which Agent has a security interest or Lien. GUARANTOR ACKNOWLEDGES THAT AGENT AT ANY TIME AND FROM TIME TO TIME may sell, assign or GRANT PARTICIPATING INTERESTS IN OR transfer all or any part of its rights or obligations under, this AGREEMENT, ANY Note, THE GUARANTEED OBLIGATIONS, THE COLLATERAL and/or the Loan Documents TO one or more OTHER PERSONS, INCLUDING, WITHOUT LIMITATION, FINANCIAL INSTITUTIONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A "TRANSFEREE"). In such case, the Transferee shall have all of the rights and benefits with respect to the portion of such Guaranteed Obligations, any Note, this Agreement, the Collateral and the Loan Documents held by it as fully as if such Transferee were the original holder thereof (including without limitation rights of set-off and recoupment), and shall become vested with all of the powers and rights given to Agent hereunder with respect thereto, and shall be deemed to be "Agent" for all purposes hereunder, the predecessor Agent shall thereafter be forever released and fully discharged from any liability or responsibility hereunder with respect to the rights and interests so assigned, and either Agent or any Transferee may be designated as the sole agent to manage the transactions and obligations contemplated herein. Notwithstanding any other provision of this Agreement, Agent may disclose to any Transferee all information, and may furnish to such Transferee copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any Loan Document. 16. Guarantor hereby agrees to take or cause to be taken such further actions, to obtain such consents and approvals and to duly execute, deliver and file or cause to be executed, delivered and filed such further agreements, assignments, instructions, documents and instruments as may be necessary or as may be reasonably requested by Agent in its sole discretion in order to fully effectuate the purposes, terms and conditions of this Agreement and the consummation of the transactions contemplated hereby and performance and payment of the Guaranteed Obligations hereunder, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence of a Default or Event of Default under any Loan Document. 17. Notwithstanding and without limiting or being limited by any other provision of this Agreement or the Loan Documents, Guarantor shall pay all costs and expenses incurred by Agent or any of its Affiliates, including, without limitation, documentation and diligence fees and expenses, all search, audit, appraisal, recording, professional and filing fees and expenses and all other out-of-pocket charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches), and reasonable attorneys' fees and expenses (a) in any effort to enforce this Agreement and/or any related agreement, document or instrument, or to effect collection hereunder or thereunder, (b) in connection with entering into, negotiating, preparing, reviewing and executing this Agreement, (c) arising in any way out of administration of the Guaranteed Obligations or the security interests or Liens created with respect thereto, including without limitation, any wire transfer fees or audit expenses or filing or recordation fees, (d) in connection with instituting, maintaining, preserving and enforcing Agent's rights hereunder or under all related agreements, documents and instruments, (e) in defending or prosecuting any actions, claims or proceedings arising out of or relating to this Agreement and/or any related agreement, document or instrument, (f) in seeking or receiving any advice with respect to its rights and obligations under this Agreement and/or all related agreements, documents and instruments, and/or (g) in connection with any modification, amendment, supplement, waiver or extension of this Agreement and/or any related agreement, document or instrument, and all of the same shall be part of the Guaranteed Obligations. If Agent or any of its Affiliates uses in-house counsel for any of the purposes set forth above or any other purposes under this Agreement for which Guarantor is responsible to pay or indemnify, Guarantor expressly agrees that its Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent or such Affiliate in its sole discretion for the work performed. 18. Any notice or request under this Agreement shall be given to any party to this Agreement at such party's address set forth below, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 14. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a "RECEIPT"): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable. If to Agent: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Loan Management Officer Telephone: (301) 841-2700 Facsimile: (301) 841-2340 E-mail: aheller@capitalsource.com If to Guarantors: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: Roland Rapp, Esq., General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-mail: rrapp@fountainviewinc.net 19. No course of action or dealing, renewal, release or extension of any provision of this Agreement, or single or partial exercise of any such provision, or delay, failure or omission on Agent's part in enforcing any such provision shall affect the liability of Guarantor or operate as a waiver of such provision or affect the liability of Guarantor or preclude any other or further exercise of such provision. No waiver by any party to this Agreement of any one or more defaults by any other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. 20. If any term or provision of this Agreement is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity or unenforceability without affecting the validity or enforceability of, the remainder of this Agreement which shall be given effect so far as possible. 21. Agent shall have the right in its sole discretion to determine which rights, powers, Liens, security interests or remedies Agent may at any time pursue, relinquish, subordinate or modify or to take any other action with respect thereto and such determination will not in any way modify or affect any of Agent's rights, powers, Liens, security interests or remedies hereunder or under any of the Loan Documents or under applicable law or at equity. The enumeration of the rights and remedies herein is not intended to be exhaustive. The rights and remedies of Agent described herein are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent or Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy. 22. This Agreement shall be effective on the date hereof and shall continue in full force and effect until full performance (other than Unmatured Surviving Obligations) and indefeasible payment in full in cash of all Guaranteed Obligations and termination of this Agreement and the Credit Agreement, all in accordance with the Credit Agreement, and the rights and powers granted to Agent hereunder shall continue in full force and effect notwithstanding the termination of this Agreement or the fact that Borrower's borrowings under the Credit Agreement may from time to time be temporarily in a zero or credit position until all of the Guaranteed Obligations have been indefeasibly paid in full in cash and performed and satisfied in full. Guarantor waives any rights which it may have under the UCC or otherwise to demand the filing of termination statements with respect to the Collateral, and Agent shall not be required to send such termination statements to Guarantor, or to file them with any filing office, unless and until this Agreement and the Credit Agreement shall have been terminated in accordance with their respective terms and all Guaranteed Obligations shall have been performed in full (other than Unmatured Surviving Obligations) and indefeasibly paid in full in cash. 23. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding with respect to the Obligations, any Loan Document or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a "New York Court," and all such courts collectively, the "New York Courts"), provided nothing in this Agreement shall be deemed or operate to preclude Agent from bringing suit or taking other legal action in any jurisdiction to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations (any such court and any New York Court, individually a "Qualified Court" and collectively, the "Qualified Courts"), and provided, further that Agent, Lenders and Guarantor acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of this Agreement, Guarantor (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 14 hereof and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Agent or any Lender involving, directly or indirectly, the Obligations, any Loan Document or any related agreement shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 24. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. This Agreement may be executed by facsimile transmission, which facsimile signatures shall be considered original executed counterparts for purposes of this Section 21, and Guarantor agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party to this Agreement. 25. Notwithstanding and without limiting any other provision of this Agreement or any Loan Document, Guarantor shall indemnify Agent, each Lender, its and their Affiliates and its and their respective managers, members, officers, employees, Affiliates, agents, representatives, successors, assigns, accountants and attorneys (collectively, the "INDEMNIFIED PERSONS") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits and costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, this Agreement or any agreement, document or transaction contemplated hereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of such Indemnified Person. If any Indemnified Person uses in-house counsel for any purpose for which Guarantor is responsible to pay or indemnify, Guarantor expressly agrees that its indemnification obligations include reasonable charges for such work. Agent agrees to give Guarantor reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 21, and Agent may elect (but is not obligated) to direct the defense thereof, provided that the selection of counsel shall be subject to Guarantor's consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an "INSURED EVENT"), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Guarantor's insurer to deny coverage; provided, however, that Agent reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent or any Lender obtains recovery from a third party other than an Indemnified Person of any of the amounts that Guarantor has paid to Agent or any Lender pursuant to the indemnity set forth in this Section 21, then Agent and/or any Lender shall promptly pay to Guarantor the amount of such recovery. Without limiting any of the foregoing, Guarantor indemnifies the Indemnified Parties for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Party has directly contracted in writing) which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, this Agreement or any agreement, document or transaction contemplated thereby. 26. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY. 27. This Agreement constitutes the entire agreement between Guarantor, Agent and Lenders with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Guarantor, Agent and Lenders, as appropriate. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Agent, Requisite Lenders and Guarantor. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 28. This Agreement is not intended to benefit or confer any rights upon Borrowers or upon any third party other than Agent and Lenders, who are intended beneficiaries hereof and for whose benefit this Agreement is explicitly made. 29. Guarantor, Agent and Lenders agree (a) to treat this Agreement and all provisions hereof confidentially and not to transmit any copy hereof or thereof or disclose the contents hereof or thereof, in whole or in part, to any Person (including, without limitation, any financial institution or intermediary) without Agent's prior written consent, other than to Guarantor's advisors and officers on a need-to-know basis, (b) to inform all such Persons who receive information concerning this Agreement of the confidential nature hereof and shall direct them to treat the same confidentially and not to disclose it to any other Person, and (c) to be bound by these provisions. Agent and Lenders shall have the right to review and approve all materials that Guarantor or any Guarantors prepare that contain Agent's name or describe or refer to this Agreement or any of the terms hereof or thereof or any of the transactions contemplated hereby or thereby. Guarantor reserves the right to review and approve all materials that Agent, Lenders or any of their Affiliates prepare that contain Guarantor's name or describe or refer to this Agreement, any of the terms hereof or thereof or any of the transactions contemplated hereby or thereby. Notwithstanding any other provision of this Agreement, Guarantor shall not, and shall not permit any of its Subsidiaries to, use Agent's name (or the name of any of Agent's Affiliates) in connection with any of its business operations. Nothing contained in this Agreement is intended to permit or authorize Guarantor to make any contract on behalf of Agent. Neither Agent nor Lenders shall, and shall not permit any of its respective Affiliates to, use Guarantor's name (or the name of any of either Guarantor's Affiliates) in connection with any of its business operations. 30. Upon the exercise by Agent or any of its Affiliates of any power, right, privilege or remedy pursuant to this Agreement or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, Guarantor will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization. 31. In addition to and notwithstanding any other provision of this Agreement, Agent, in its sole discretion, shall have the right, at any time that Guarantor fails to do so, without prior notice to Guarantor, to (i) obtain insurance covering any of the Collateral as and to the extent required under the Credit Agreement; (ii) pay for the performance of any of the Guarantor's obligations hereunder; (iii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Guarantor is in good faith with due diligence by appropriate proceedings contesting those items; and (iv) pay for the maintenance and preservation of any of the Collateral. Such expenses and advances shall be added to the Guaranteed Obligations until reimbursed to Agent and shall be secured by the Collateral. Any such payments and advances by Agent shall not be construed as a waiver by Agent of an Event of Default or any other rights, remedies or powers of Agent or Lenders hereunder or otherwise. 32. Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent or Lenders with respect to any matter that is subject of this Agreement may be granted or withheld by Agent in its Permitted Discretion. 33. In any litigation, arbitration or other dispute resolution proceeding relating to this Agreement, or to any of the other Loan Documents, Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to any director, officer, employee or agent of Guarantor and/or its and their Affiliates being deemed to be employees or managing agents of Guarantor for purposes of all applicable law or court rules regarding the production of witnesses by notice for testimony (whether in a deposition, at trial or otherwise). Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to Agent's counsel in any such dispute resolution proceeding examining any such individuals as if under cross-examination and using any discovery deposition of any of them in that proceeding as if it were an evidence deposition. Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to it using all commercially reasonable efforts to produce in any such dispute resolution proceeding, at the time and in the manner requested by Agent, all Persons, documents (whether in tangible, electronic or other form) and/or other things under its control and relating to the dispute in any jurisdiction that recognizes that (or any similar) distinction. [SIGNATURE APPEARS ON THE FOLLOWING PAGE] IN WITNESS WHEREOF, Guarantor has executed this Guaranty and Security Agreement as of the day and year first above written. _________________________________________ By:______________________________________ Its:_____________________________________ CAPITALSOURCE FINANCE LLC By:______________________________________ Its:_____________________________________ Schedule 4(J) Location of Collateral EXCESS CASH FLOW "Asset Sale Proceeds" means, for any fiscal year, the aggregate amount of all net cash proceeds (i.e., cash proceeds net of all amounts paid or payable in connection with such sale or other disposition of assets (including, without limitation, indebtedness paid and federal and state income taxes paid or payable in connection therewith)) realized by Parent and its Subsidiaries during such fiscal year in connection with any sale or other disposition of any asset (other than the sales of inventory in the ordinary course of business); provided that, for purposes of this definition, such net cash proceeds will not be deemed to be realized until the earlier to occur of (a) 360 days after the receipt by Parent and its Subsidiaries of such net cash proceeds and (b) the date Parent and its Subsidiaries apply such net cash proceeds to prepay indebtedness, to make capital expenditures or to make acquisitions. "Excess Cash Flow" means for any fiscal year of Parent, (a) the sum, without duplication, of (i) the net income or loss of Parent and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by Parent or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (vi) the Asset Sales Proceeds for such fiscal year; and (vii) an amount equal to any decrease in the Working Capital during such fiscal year; minus (b) the sum, without duplication, of (i) the Maintenance Capital Expenditures for such fiscal year; (ii) the aggregate amount of all non-financed acquisitions (other than the non-cash portion of any acquisitions) by Parent and its Subsidiaries during such fiscal year; (iii) the aggregate amount of all interest expense of Parent and its Subsidiaries paid or payable during such fiscal year; (iv) the aggregate amount of all federal and state income taxes of Parent and its Subsidiaries paid or payable during such fiscal year; (v) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (vi) an amount equal to any increase in the Working Capital during such fiscal year; and (vii) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such fiscal year with respect to the Senior Mortgage Loan, the Senior Mortgage Term Loan B, the Bank Midwest Loan, the Woodlands Place Loan, the Union Bank Loan, the Mezzanine Loan, the Revolving Loan A, the Revolving Loan B, the Bergen Note, the Indenture Notes, the Class 10 Deferred Obligations and the Continuing Creditor Deferred Obligations; and (vi) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Senior Mortgage Loan, Exhibit E - 1 the Senior Mortgage Term Loan B, the Mezzanine Loan, the Revolving Loan A (solely to the extent that such prepayment is accompanied by a reduction in the commitments thereunder) and the Revolving Loan B (solely to the extent that such prepayment is accompanied by a reduction in the commitments thereunder. "Maintenance Capital Expenditures" means, for any fiscal year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection with an acquisition) incurred or made by Parent and its Subsidiaries during such fiscal year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any fiscal year (for any fiscal year, the "Maximum Amount") shall not exceed (a) for fiscal year 2003, $7,000,000 and (b) for any fiscal year thereafter, $7,000,000 plus the Maximum Amount for the immediately preceding fiscal year minus the actual amount of Maintenance Capital Expenditures included in the definition of Target Excess Cash Flow and Excess Cash Flow in such immediately preceding fiscal year. "Target Excess Cash Flow" means for any fiscal year of Parent, (a) the sum, without duplication, of (i) the net income or loss of Parent and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by Parent or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; and (vi) an amount equal to any decrease in the Working Capital during such fiscal year up to $2,000,000 per year; minus (b) the sum, without duplication, of (i) the Maintenance Capital Expenditures for such fiscal year; (ii) the aggregate amount of all interest expense of Parent and its Subsidiaries paid or payable during such fiscal year, (iii) the aggregate amount of all federal and state income taxes of Parent and its Subsidiaries paid or payable during such fiscal year; (iv) an amount equal to any increase in the Working Capital during such fiscal year up to $2,000,000 per year; (v) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such fiscal year with respect to the Senior Mortgage Loan, the Bank Midwest Loan, the Woodlands Place Loan, the Union Bank Loan, the Mezzanine Loan and the Senior Mortgage Term Loan B, (vi) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Senior Mortgage Loan, the Mezzanine Loan and the Senior Mortgage Term Loan B and (vii) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of Parent and its Subsidiaries during such fiscal year, calculated in accordance with GAAP. Exhibit E - 2 "Working Capital" means, as of any date, (a) the sum, without duplication, of (i) current assets (other than cash and cash equivalents) and (ii) cash and cash equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long term debt) and (ii) long term liabilities related to accrued insurance, in each case calculated on such date for Parent and its Subsidiaries. Exhibit E - 3 SCHEDULE 1 SUBSIDIARY BORROWERS 1. Summit Care Corporation, a California corporation 2. Summit Care Pharmacy, Inc., a California corporation, d/b/a Skilled Care Pharmacy 3. Alexandria Care Center, Inc., a California corporation 4. Brier Oak on Sunset, Inc., a California corporation 5. Elmcrest Care Center, Inc., a California corporation 6. Hancock Park Rehabilitation Center, Inc., a California corporation 7. Hancock Park Senior Assisted Living, Inc., a California corporation 8. Fountain View Subacute and Nursing Center, Inc., a California corporation 9. Rio Hondo Subacute and Nursing Center, Inc., a California corporation 10. Sycamore Park Care Center, Inc., a California corporation 11. Anaheim Terrace Care Center, LLC, a Delaware limited liability company 12. Bay Crest Care Center, LLC, a Delaware limited liability company 13. Alta Care Center, LLC, a Delaware limited liability company 14. Royalwood Care Center, LLC, a Delaware limited liability company 15. Sharon Care Center, LLC, a Delaware limited liability company 16. Woodland Care Center, LLC, a Delaware limited liability company 17. Carson Senior Assisted Living, LLC, a Delaware limited liability company 18. Hemet Senior Assisted Living, LLC, a Delaware limited liability company 19. Montebello Care Center, LLC, a Delaware limited liability company 20. Hallmark Rehabilitation, LP, a Delaware limited partnership 21. Leasehold Resource Group, LLC, a Delaware limited liability company 22. Skilled Healthcare, LLC, a Delaware limited liability company 23. Summit Care Texas, L.P., a Texas limited partnership 24. Summit Care Texas Management, LLC, a Delaware limited liability company 25. Hallmark Investment Group, Inc., a Delaware corporation 26. Hallmark Rehabilitation GP, LLC, a Delaware limited liability company Schedule 1 - Page 1 SCHEDULE 2 Lenders Commitment CAPITALSOURCE FINANCE LLC $21,000,000 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Corporate Finance Group Portfolio Manager Telephone: 301-841-2700 Facsimile: 301-841-2360 E-Mail: aheller@capitalsource.com Wire Instructions: Bank: Bank of America, Baltimore, Maryland Account: 003930559738 ABA: 052001633 Account Name: CapitalSource Funding LLC Reference: Fountain View Schedule 1 SUBSIDIARY BORROWERS 1. Summit Care Corporation, a California corporation 2. Summit Care Pharmacy, Inc., a California corporation, d/b/a Skilled Care Pharmacy 3. Alexandria Care Center, Inc., a California corporation 4. Brier Oak on Sunset, Inc., a California corporation 5. Elmcrest Care Center, Inc., a California corporation 6. Hancock Park Rehabilitation Center, Inc., a California corporation 7. Hancock Park Senior Assisted Living, Inc., a California corporation 8. Fountain View Subacute and Nursing Center, Inc., a California corporation 9. Rio Hondo Subacute and Nursing Center, Inc., a California corporation 10. Sycamore Park Care Center, Inc., a California corporation 11. Anaheim Terrace Care Center, LLC, a Delaware limited liability company 12. Bay Crest Care Center, LLC, a Delaware limited liability company 13. Alta Care Center, LLC, a Delaware limited liability company 14. Royalwood Care Center, LLC, a Delaware limited liability company 15. Sharon Care Center, LLC, a Delaware limited liability company 16. Woodland Care Center, LLC, a Delaware limited liability company 17. Carson Senior Assisted Living, LLC, a Delaware limited liability company 18. Hemet Senior Assisted Living, LLC, a Delaware limited liability company 19. Montebello Care Center, LLC, a Delaware limited liability company 20. Hallmark Rehabilitation, LP, a Delaware limited partnership 21. Leasehold Resource Group, LLC, a Delaware limited liability company 22. Skilled Healthcare, LLC, a Delaware limited liability company 23. Summit Care Texas, L.P., a Texas limited partnership 24. Summit Care Texas Management, LLC, a Delaware limited liability company 25. Hallmark Investment Group, Inc., a Delaware corporation 26. Hallmark Rehabilitation GP, LLC, a Delaware limited liability company Schedule 2 COMMITMENTS Lenders Commitment CAPITALSOURCE FINANCE LLC $21,000,000 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Corporate Finance Group Portfolio Manager Telephone: 301-841-2700 Facsimile: 301-841-2360 E-Mail: aheller@capitalsource.com Wire Instructions: Bank: Bank of America, Baltimore, Maryland Account: 003930559738 ABA: 052001633 Account Name: CapitalSource Funding LLC Reference: Fountain View Schedule 2.4 BORROWER'S DEPOSIT ACCOUNTS
BANK ADDRESS ABA ROUTING # ACCOUNT NUMBER - ---------------- -------------- ------------- -------------- ~~Wells Fargo Bank 2030 Main Street 121-000-248 4010010932 Irvine, CA 92614- 7255~~
Schedule 5.3 CAPITALIZATION, ORGANIZATION CHART (INCLUDING ALL SUBSIDIARIES, AUTHORIZED/ISSUED CAPITALIZATION) AND JOINT VENTURES
JURISDICTION OF NAME TYPE ORGANIZATION OWNER TYPE OF INTEREST/PERCENTAGE - ----------------------------------------------------------------------------------------------------------------------------------- Fountain View, Inc. Corp. Delaware Stockholders Those with 5% or more ownership: 1) Heritage Fund II, LP 2) Robert M. Snukal and Sheila S. Snukal 3) GS private Equity Partners, LP 4) PMI Mezzanine Fund, LP 5) Baylor Health Care System - ----------------------------------------------------------------------------------------------------------------------------------- Summit Care Corporation Corp. California Fountain View, Inc. 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Summit Care Pharmacy, Inc. d/b/a Corp. California Summit Care Corporation 100% Capital Stock Skilled Care Pharmacy - ----------------------------------------------------------------------------------------------------------------------------------- SHG Property Resources, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Leasehold Resource Group, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- The Woodlands Resource Management GP, LLC Delaware Leasehold Resource Group, LLC Sole Member LLC LLC - ----------------------------------------------------------------------------------------------------------------------------------- The Woodlands Resource Management, LP LP Delaware The Woodlands Resource Management 1% General Partner/ 99% Limited LLC/ Leasehold Resource Group, LLC Partner - ----------------------------------------------------------------------------------------------------------------------------------- Alexandria Care Center, Inc. Corp. California Summit Care Corporation 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Brier Oak on Sunset, Inc. Corp. California Summit Care Corporation 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Elmcrest Care Center, Inc. Corp. California Summit Care Corporation 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Hancock Park Rehabilitation Center, Corp. California Summit Care Corporation 100% Capital Stock Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Hancock Park Senior Assisted Living, Corp. California Summit Care Corporation 100% Capital Stock Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Fountain View Subacute and Nursing Corp. California Summit Care Corporation 100% Capital Stock Center, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Rio Hondo Subacute and Nursing Center, Corp. California Summit Care Corporation 100% Capital Stock Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Sycamore Park Care Center, Inc. Corp. California Summit Care Corporation 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Skilled Healthcare, LLC LLC Delaware Fountain View, Inc. Sole Member LLC - -----------------------------------------------------------------------------------------------------------------------------------
Schedule 5.3
JURISDICTION OF NAME TYPE ORGANIZATION OWNER TYPE OF INTEREST/PERCENTAGE - ----------------------------------------------------------------------------------------------------------------------------------- Skilled Healthcare II, LLC LLC Delaware Skilled Healthcare, LLC Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Hallmark Investment Group, Inc. Corp. Delaware Fountain View, Inc. 100% Capital Stock - ----------------------------------------------------------------------------------------------------------------------------------- Hallmark Rehabilitation GP, LLC LLC Delaware Hallmark Investment Group, Inc. Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Hallmark Rehabilitation, LP LP Delaware Hallmark Rehabilitation GP, 1% General Partner/99% Limited LLC/Hallmark Investment Group, Inc. Partner - ----------------------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. LP Texas Summit Care Texas Management, 1% General Partner/99% Limited LLC/Summit Care Corporation Partner - ----------------------------------------------------------------------------------------------------------------------------------- Summit Care Texas Management, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- SHG Investments, LLC LLC Delaware Summit Care Texas, L.P. Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Anaheim Terrace Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Alta Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Bay Crest Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Carson Senior Assisted Living, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Hemet Senior Assisted Living, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Montebello Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Royalwood Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Sharon Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - ----------------------------------------------------------------------------------------------------------------------------------- Woodland Care Center, LLC LLC Delaware Summit Care Corporation Sole Member LLC - -----------------------------------------------------------------------------------------------------------------------------------
JOINT VENTURES: None. Schedule 5.4 OWNED PROPERTIES:
PROPERTY DESCRIPTION - --------------------------------------------------------------------------------------------- Hemet, California Residential property adjacent to Devonshire Care Center [Further details to be provided at a later date] - --------------------------------------------------------------------------------------------- LaGrange, Texas Property of 12.267 acres adjacent to Monument Hill Nursing Homes [Further details to be provided at a later date]o - --------------------------------------------------------------------------------------------- White Settlement, Texas Property adjacent to West Side Campus of Care [Further details to be provided at a later date] - ---------------------------------------------------------------------------------------------
LEASEHOLD PROPERTIES
TENANT/ SUBTENANT/ PROPERTY ADDRESS CURRENT LESSOR / LANDLORD SUBLESSOR OPERATOR - -------------------------------------------------------------------------------------------------------------------- Alexandria Convalescent 1515 N. Alexandria Alexandria Convalescent Investments Leasehold Alexandria Hospital Avenue, Los Angeles, 316 N. Las Palmas Ave. Resource Group, Care Center, CA 90027 Los Angeles, CA 90004 LLC Inc. - -------------------------------------------------------------------------------------------------------------------- Brier Oak Terrace Care 5154 Sunset Blvd., Bernard Bubman, Arnold & Elaine Leasehold Brier Oak on Center Los Angeles, CA Friedman As Trustees For The Arnold Resource Group, Sunset, Inc. 90027 And Elaine Friedman Family Trust Of LLC September 7th, 1993, Irene Weiss, And Sunset Motel And Development Co. 17000 Ventura Boulevard, Ste 315 Encino, Ca 91316 - -------------------------------------------------------------------------------------------------------------------- Elmcrest Convalescent 3111 Santa Anita Jay-Gar Associates, L.P. Leasehold Elmcrest Care Avenue, Los Angeles, c/o Nigro, Karlin, & Segal CPAs Resource Group, Center, Inc. CA 91733 10100 Santa Monica Blvd. LLC Los Angeles, CA 90067 - -------------------------------------------------------------------------------------------------------------------- Hancock Park 505 N La Brea La Brea Convalescent Investments Leasehold Hancock Park Convalescent Avenue, Los Angeles, 8417 Beverly Blvd., #205 Resource Group, Rehabilitation CA 90036 Los Angeles, CA 90048 LLC Center, Inc. - --------------------------------------------------------------------------------------------------------------------
Schedule 5.4
TENANT/ SUBTENANT/ PROPERTY ADDRESS CURRENT LESSOR / LANDLORD SUBLESSOR OPERATOR - -------------------------------------------------------------------------------------------------------------------- Hancock Park 515 N. La Brea La Brea Convalescent Investments Leasehold Hancock Park Retirement Hotel Avenue, Los Angeles, 8417 Beverly Blvd., #205 Resource Group, Senior CA 90036 Los Angeles, CA 90048 LLC Assisted Living, Inc. - -------------------------------------------------------------------------------------------------------------------- Fountainview 5310 Fountain Robert Snukal and Shelia Snukal Leasehold Fountain View Convalescent Avenue, Los Angeles, 10284 Century Wood Drive Resource Group, Subacute and CA 90029 Los Angeles, CA 90067 LLC Nursing Center, Inc. - -------------------------------------------------------------------------------------------------------------------- Rio Hondo Nursing Center 273 E. Beverly Robert Snukal and Shelia Snukal Leasehold Rio Hondo Blvd., Montebello, 10284 Century Wood Drive Resource Group, Subacute and CA 90640 Los Angeles, CA LLC Nursing 90067 Center, Inc. - -------------------------------------------------------------------------------------------------------------------- Sycamore Park 4585 N. Figueroa Robert Snukal and Shelia Snukal Leasehold Sycamore Park Convalescent Street, Los Angeles, 10284 Century Wood Drive Resource Group, Care Center, CA 90065 Los Angeles, CA LLC Inc. 90067 - -------------------------------------------------------------------------------------------------------------------- Montebello Convalescent 1036 W. Beverly Robert Snukal and Shelia Snukal Leasehold Montebello Blvd., Montebello, 10284 Century Wood Drive Resource Group, Care Center, CA 90640 Los Angeles, CA LLC LLC 90067 - -------------------------------------------------------------------------------------------------------------------- Anaheim Terrace Care 141 S. Knott Avenue, Sam Menlo, Trustee of the Menlo Leasehold Anaheim Center Anaheim, CA 92804 Trust U/T/I 5/22/83 Resource Group, Terrace Care c/o Quality Management, Suite 210 LLC Center, LLC 4221 Wilshire Boulevard Los Angeles, CA 90010 - -------------------------------------------------------------------------------------------------------------------- Bay Crest Care Center 3750 Garnet Street, South Bay Sanitarium and Leasehold Bay Crest Care Torrance, CA 90503 Convalescent Hospital Resource Group, Center, LLC c/o Dr. Steve Brodie LLC 17111 Village 17 Camarillo, CA 93012 - --------------------------------------------------------------------------------------------------------------------
Schedule 5.4
TENANT/ SUBTENANT/ PROPERTY ADDRESS CURRENT LESSOR / LANDLORD SUBLESSOR OPERATOR - -------------------------------------------------------------------------------------------------------------------- Palm Grove Care Center 13075 Blackbird, Palmcrest Associates, Ltd. Leasehold Alta Care Garden Grove, CA 4314 Marina City Dr., Ste 616 Cts., Resource Group, Center, LLC 92643 Marina del Rey, CA 90292 LLC - -------------------------------------------------------------------------------------------------------------------- Royalwood Care Center 22520 Maple Avenue, Jack H. Cramer and Walter Lee Brown, Leasehold Royalwood Care Torrance, CA 90505 Jr. Resource Group, Center, LLC 484 Mobile Avenue, ST 38 LLC Camarillo CA 93010 - -------------------------------------------------------------------------------------------------------------------- Sharon Care Center 8167 W. Third R.E.M. Properties Leasehold Sharon Care Street, Los Angeles, 1801 Fairburn Avenue Resource Group, Center, LLC CA 90048 Los Angeles, CA LLC 90025 - -------------------------------------------------------------------------------------------------------------------- Woodland Care Center 7120 Corbin Avenue, Uni-Cal Associates Leasehold Woodland Care Reseda, CA 91335 Nigro, Karlin & Segal, Ste 1300 Resource Group, Center, LLC 10100 Santa Monica Blvd. LLC Los Angeles, CA 90067 - -------------------------------------------------------------------------------------------------------------------- Carson Retirement 345 East Carson St. Carson - Dolores Prop Inc., Leasehold Carson Senior (ground lease) Carson, CA 90745 801 N. Brand Blvd., Ste 1010 Resource Group, Assisted Glendale, CA 91203 LLC Living, LLC - -------------------------------------------------------------------------------------------------------------------- Hemet Assisted Living 1353 E. Devonshire I.T.E. Ltd. Lessor Leasehold Hemet Senior Retirement Center Avenue 6363 Christie Ave., 2925 Resource Group, Assisted (ground lease) Hemet, CA 92544 Emerville, CA 94608 LLC Living, LLC - -------------------------------------------------------------------------------------------------------------------- Foothill Ranch 27442 Portola CT Foothill 10/241, LLC Skilled N/A (Corporate Office) Parkway, Suite 200, 3501 Jamboree Road, Suite 2000 Healthcare, LLC Foothill Ranch, CA Newport Beach, CA 92660 92610 - --------------------------------------------------------------------------------------------------------------------
Schedule 5.4
TENANT/ SUBTENANT/ PROPERTY ADDRESS CURRENT LESSOR / LANDLORD SUBLESSOR OPERATOR - -------------------------------------------------------------------------------------------------------------------- Texas Regional Office 19365 FM 2252, Tony Overman, dba Overman Skilled N/A Suite 5, Garden Properties IV Healthcare, LLC Ridge, TX 78266 18965 FM 2252 Garden Ridge, Texas 78266 - -------------------------------------------------------------------------------------------------------------------- Skilled Care 222 E. Huntington The Employees Retirement System, Summit Care N/A Pharmacy (Monrovia) Drive #111, The State of Hawaii Pharmacy, Inc. Monrovia, CA Trammell Crow Company dba Skilled Care 91016 c/o Tooley & Company Pharmacy 108 W. Walnut, Ste. 201 Gardena, CA 90248 - -------------------------------------------------------------------------------------------------------------------- Skilled Care Pharmacy 22607 Old Canal North Orange County Business Summit Care N/A (Yorba Linda) Road, Yorba Linda, Parks Pharmacy, Inc. CA 92887 File 30036 dba Skilled Care P.O. Box 6000 Pharmacy San Francisco, CA 9160-0001 - --------------------------------------------------------------------------------------------------------------------
Schedule 5.5 DEFAULTS; SERVICE FEES; MANAGERS None. Schedule 5.6 LITIGATION None. Schedule 5.8 TAX LIENS None. Schedule 5.10 LIABILITY EVENT None. Schedule 5.11 INTELLECTUAL PROPERTY REGISTERED TRADEMARKS AND SERVICE MARKS
TRADEMARK OR SERVICE MARK HOLDER REGISTRATION DATE REGISTRATION NO. - ------------------------------------------------------------------------------------------------ Design of man with outstretched Summit Care Corporation 10/20/98 2197216 arms standing on top of a medicinal tablet - ------------------------------------------------------------------------------------------------ "Innovative Solutions In Health Summit Care Corporation 10/06/98 2193214 Care" - ------------------------------------------------------------------------------------------------ "RXPertise" Summit Care Corporation 03/03/98 2140771 - ------------------------------------------------------------------------------------------------ "SCP Systems" Summit Care Corporation 03/20/01 2436075 - ------------------------------------------------------------------------------------------------ "Skilled Care Pharmacy" Summit Care Corporation 03/07/00 2325082 - ------------------------------------------------------------------------------------------------ "SkilledCare Pharmacy" (including Summit Care Corporation 03/07/00 2325083 design of man with outreached arms standing on top of a medicinal tablet) - ------------------------------------------------------------------------------------------------
REGISTERED PATENTS None. REGISTERED COPYRIGHTS None. Schedule 5.15 EXISTING INDEBTEDNESS NONE. Schedule 5.16 SHAREHOLDER AGREEMENTS Stockholder's Agreement, dated March 27, 1998, among the holders of the Existing Class A Common Stock, Existing Class B Common Stock, Existing Class C Common Stock, and the Existing Preferred Stock, as subsequently amended on May 4, 1998, and amended further as of August 15, 2003. Schedule 5.17 INSURANCE
DESC. OF INSURANCE POLICY POLICY LIMITS OF RETRO COVERAGE CARRIER NUMBER PERIOD INSURANCE DATE - ------------------------------------------------------------------------------------------------------- Professional/ Lexington (AIG) 2004776 4/10/01 - Professional Liability Summit = General Liability 04/10/04 $4,000,000 Per Med. Inc. 4/10/2001 $5,000,000 Agg. Per Loc. FV9 = General Liability 4/10/2002 $1,000,000 Each Occ. $5,000,000 Agg. Per Loc. $50,000 Fire Damage $5,000 Med. Expense $5,000,000 Policy Aggregate - ------------------------------------------------------------------------------------------------------- California Workers' State 1672742-02 1/1/03- $1,000,000 Statutory N/A Compensation Compensation 1/1/04 Limits - W/C and Insurance Fund Employers Liability - ------------------------------------------------------------------------------------------------------- Employment Lexington (AIG) 1052217 3/1/03- $5,000,000 Ea. Event 3/1/2000 Practices Liability 3/1/04 $5,000,000 Policy Agg. - ------------------------------------------------------------------------------------------------------- Texas Excess Lexington (AIG) 650-0147 4/1/03 - $5,000,000 Ea. Event N/A Employers Liability 4/1/04 $5,000,000 Policy Agg. - ------------------------------------------------------------------------------------------------------- DESC. OF SIR/ ANNUAL BROKER/ COVERAGE DEDUCTIBLE PREMIUM CONTACT - ------------------------------------------------------------------------- Professional/ $250,000 CA per $ 360,938 Dennis Heney General Liability claim Chris Mc Tigue Aon LA $1,000,000 TX per claim No SIR Aggregate - ------------------------------------------------------------------------- California Workers' None $7,200,000 Dennis Heney Compensation Chris Mc Tigue Carol Gibson Aon LA - ------------------------------------------------------------------------- Employment $50,000 $ 345,516 Dennis Heney Practices Liability Christopher Mc Tigue Aon LA - ------------------------------------------------------------------------- Texas Excess $1,000,000 $ 426,164 Dennis Heney Employers Liability Christopher Mc Tigue Aon LA - -------------------------------------------------------------------------
Schedule 5.17
DESC. OF INSURANCE POLICY POLICY LIMITS OF RETRO COVERAGE CARRIER NUMBER PERIOD INSURANCE DATE - ------------------------------------------------------------------------------------------------------- Property Travelers 4/15/03 - Blanket Limit - $150 million N/A 4/15/04 Replacement Cost Quake/Windstorm/Flood Incl. CA Earthquake $25 million - ------------------------------------------------------------------------------------------------------- California Auto American Home 64597-78 5/30/03 - $1,000,000 CSL N/A (AIG) 05/30/04 $1,000,000 UM/UIM $5,000 MEDICAL - ------------------------------------------------------------------------------------------------------- Texas Auto American Home 64597-79 5/30/03 - $1,000,000 CSL N/A (AIG) 05/30/04 $1,000,000 UM/UIM $5,000 MEDICAL - ------------------------------------------------------------------------------------------------------- Directors & AIG 002410795 5/31/03 - $10,000,000 Aggregate 1/13/1997 Officers Liability 5/31/04 - ------------------------------------------------------------------------------------------------------- Fiduciary Liability AIG 002410704 5/31/03 - $2,000,000 Aggregate 5/31/2003 5/31/04 - ------------------------------------------------------------------------------------------------------- DESC. OF SIR/ ANNUAL BROKER/ COVERAGE DEDUCTIBLE PREMIUM CONTACT - ------------------------------------------------------------------------- Property Ded. All Risk $ 537,823 Heritage Program $100,000/Quake 5% Lockton Kansas City Windstorm 5% Tim Fortin Bob Eckhart - ------------------------------------------------------------------------- California Auto $500 Deductible $ 52,761 Dennis Heney Comprehensive Christopher $500 Deductible Mc Tigue Collision Aon LA - ------------------------------------------------------------------------- Texas Auto $500 Deductible $ 58,750 Dennis Heney Comprehensive Christopher $500 Deductible Mc Tigue Collision Aon LA - ------------------------------------------------------------------------- Directors & $100,000 SIR $ 154,515 Heritage Program Officers Liability (Incl. $ 6,615 Lockton NY Broker fee) - ------------------------------------------------------------------------- Fiduciary Liability $10,000 SIR $ 6,630 Heritage Program Lockton NY - -------------------------------------------------------------------------
Schedule 5.17
DESC. OF INSURANCE POLICY POLICY LIMITS OF RETRO COVERAGE CARRIER NUMBER PERIOD INSURANCE DATE - ------------------------------------------------------------------------------------------------------- Travel Accident The Hartford ETB 104559 4/9/02 - $150,000 Benefit N/A 4/9/05 Per employee Accidental Death or Dismemberment $1,000,000 Aggregate - ------------------------------------------------------------------------------------------------------- Crime National Union 8526611 9/22/02- $2,000,000 N/A (AIG) 9/22/03 Employee Dishonesty Forgery or Alteration Theft - inside and outside Robbery and Safe Burglary Computer Fraud Money Orders and Counterfeit - ------------------------------------------------------------------------------------------------------- DESC. OF SIR/ ANNUAL BROKER/ COVERAGE DEDUCTIBLE PREMIUM CONTACT - ------------------------------------------------------------------------- Travel Accident None $ 4,392 Aon LA Karen Frick - ------------------------------------------------------------------------- Crime $75,000 Each Claim $ 20,747 Dennis Heney Christopher Mc Tigue Aon LA - ------------------------------------------------------------------------- TOTAL $9,168,236
Schedule 5.18A CORPORATE NAMES CURRENT NAMES (AS OF EFFECTIVE DATE) 1. Fountain View Inc., a California corporation 2. Summit Care Corporation, a California corporation 3. Summit Care Pharmacy, Inc., a California corporation, d/b/a Skilled Care Pharmacy 4. Alexandria Care Center, Inc., a California corporation 5. Brier Oak on Sunset, Inc., a California corporation 6. Elmcrest Care Center, Inc., a California corporation 7. Hancock Park Rehabilitation Center, Inc., a California corporation 8. Hancock Park Senior Assisted Living, Inc., a California corporation 9. Fountain View Subacute and Nursing Center, Inc., a California corporation 10. Rio Hondo Subacute and Nursing Center, Inc., a California corporation 11. Sycamore Park Care Center, Inc., a California corporation 12. Anaheim Terrace Care Center, LLC, a Delaware limited liability company 13. Bay Crest Care Center, LLC, a Delaware limited liability company 14. Alta Care Center, LLC, a Delaware limited liability company 15. Royalwood Care Center, LLC, a Delaware limited liability company 16. Sharon Care Center, LLC, a Delaware limited liability company 17. Woodland Care Center, LLC, a Delaware limited liability company 18. Carson Senior Assisted Living, LLC, a Delaware limited liability company 19. Hemet Senior Assisted Living, LLC, a Delaware limited liability company 20. Montebello Care Center, LLC, a Delaware limited liability company 21. Hallmark Rehabilitation, LP, a Delaware limited partnership 22. Leasehold Resource Group, LLC, a Delaware limited liability company 23. Skilled Healthcare, LLC, a Delaware limited liability company 24. Summit Care Texas, L.P., a Texas limited partnership 25. Summit Care Texas Management, LLC, a Delaware limited liability company 26. Hallmark Investment Group, Inc., a Delaware corporation 27. Hallmark Rehabilitation GP, LLC, a Delaware limited liability company Schedule 5.18A PREVIOUS NAMES (PRIOR TO EFFECTIVE DATE) 1. AIB Corp., dba Hancock Park Convalescent, a California corporation 2. Alexandria Convalescent Hospital, Inc., a California corporation 3. Anaheim Terrace Care Center (California) 4. Bay Crest Care Center (California) 5. BIA Hotel Corp. dba Hancock Park Retirement Hotel, a California corporation 6. Brier Oak Convalescent, Inc., a California corporation 7. Brier Oak Terrace Care Center (California) 8. Carson Retirement Center (California) 9. Elmcrest Convalescent Hospital, a California corporation 10. Elmcrest Convalescent Hospital, a California corporation 11. Fountain View Convalescent Hospital (California) 12. Fountain View Management, Inc., a California corporation 13. Fountain View Management, Inc., a Delaware corporation 14. Fountain View, Inc, a Delaware corporation 15. Fountainview Convalescent Hospital, a California corporation 16. FV-SCC Acquisition Corp. , a Delaware corporation 17. Hemet Assisted Living Center (California) 18. Knott Convalescent, Inc. (California) 19. Locomotion Holdings, Inc., a Delaware corporation 20. Locomotion Therapy, Inc., a Delaware corporation (d/b/a Texas Locomotion Therapy) 21. Locomotion Therapy, Inc., a Delaware corporation 22. Montebello Convalescent (California) 23. Montebello Convalescent, Inc. (California) 24. Palm Grove Center (California) 25. Palm Grove Convalescent Center (California) 26. Rio Hondo Nursing Center, a California corporation 27. Rio Hondo Nursing Center, Inc. (California) 28. Riverside Manors, Inc. dba Hemet Retirement Center (California) 29. Royalwood Care Center (California) 30. Sharon Care Center (California) Schedule 5.18A 31. Summit Care California, Inc., a California corporation 32. Summit Care California, Inc., a California corporation (f/k/a Knott Convalescent, Inc.) 33. Summit Care Corporation dba Los Olivos Healthcare Center (Arizona) 34. Summit Care Corporation, a California corporation 35. Summit Care Pharmacy, Inc., dba Skilled Care Pharmacy, a California corporation 36. Sycamore Park Convalescent Hospital, a California corporation 37. Texas Locomotion Therapy (Texas) 38. Woodland Care Center (California) Schedule 5.18B PLACES OF BUSINESS CHIEF EXECUTIVE OFFICE: 1. 27442 Portola Parkway, Suite 200, Foothill Ranch, CA 92610 PLACES OF BUSINESS: 1. 2600 W. Magnolia Blvd., Burbank, CA 91505 2. 1515 N. Alexandria Avenue, Los Angeles, CA 90027 3. 5154 Sunset Blvd., Los Angeles, CA 90027 4. 3111 Santa Anita Avenue, Los Angeles, CA 91733 5. 505 N La Brea Avenue, Los Angeles, CA 90036 6. 515 N. La Brea Avenue, Los Angeles, CA 90036 7. 5310 Fountain Avenue, Los Angeles, CA 90029 8. 273 E. Beverly Blvd., Montebello, CA 90640 9. 4585 N. Figueroa Street, Los Angeles, CA 90065 10. 1036 W. Beverly Blvd., Montebello, CA 90640 11. 141 S. Knott Avenue, Anaheim, CA 92804 12. 3750 Garnet Street, Torrance, CA 90503 13. 13075 Blackbird, Garden Grove, CA 92643 14. 22520 Maple Avenue, Torrance, CA 90505 15. 8167 W. Third Street, Los Angeles, CA 90048 16. 7120 Corbin Avenue, Reseda, CA 91335 17. 345 East Carson St., Carson, CA 90745 18. 1353 E. Devonshire Avenue, Hemet, CA 92544 19. 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 20. 222 E. Huntington Drive #111, Monrovia, CA 91016 21. 22607 Old Canal Road, Yorba Linda, CA 92887 Schedule 6.8 FURTHER ASSURANCES/POST CLOSING 1. Fourteen (14) days after the Closing Date, healthcare regulatory opinion covering facilities operating in the State of California. 2. Thirty (30) days after the Closing Date, certified copies of all insurance policies required to be delivered pursuant to sECTION 4.1(g). 3. Thirty (30) days after the Closing Date, correction of legal descriptions and subsequent resubmission of those leasehold deeds of trust, if any, rejected for recordation by the appropriate county recorders offices due to the insufficiency of the attached legal description. 4. One-hundred and twenty (120) days after the Closing Date, delivery of Mortgages relating to those fee properties listed on Schedule 5.4. Schedule 7.2 PERMITTED INDEBTEDNESS Indebtedness as contemplated or permitted by the Loan Documents and the Plan of Reorganization. Schedule 7.3 LIENS
DEBTOR LIEN COLLATERAL (SEARCH NAME) JURISDICTION SECURED PARTY TYPE FILING INFO DESCRIPTION - --------------------------------------------------------------------------------------------------------------------- Fountain View Inc. Woodland Care California Minolta Business Systems UCC 9821760613 Equipment Center Secretary of State Inc. filed: 8-3-98 7120 Corbin Ave Po Box 728 Reseda, CA 91335 Park Ridge, NJ 07656 - --------------------------------------------------------------------------------------------------------------------- Hancock Park Convalescent Hospital California BCL Capital UCC 199823960967 Equipment 505 North LA Brea Avenue Secretary of State 115 W. College Dr filed: 8-27-98 Los Angeles, CA 90036 Marshall, MN 56258 - --------------------------------------------------------------------------------------------------------------------- Rio Hondo Convalescent Hospital California Ecolab Inc. UCC 199932360360 Equipment 273 East Beverly Blvd. Secretary of State 370 Wabasha St filed: 11-12-99 Los Angeles, CA 90640 St. Paul, MN 90540 - --------------------------------------------------------------------------------------------------------------------- Summit Care-California, Inc. California Safeco Credit Co, Inc. UCC 0112961109 Equipment 1835 W. LA Veta Ave Secretary of State dba Safeline Leasing filed: 5-7-01 Orange, CA 92868 10915 Willows Rd NE Redmond, WA 98052 and Fountain Care Center 1835 W. LA Veta Ave Orange, CA 92868 - --------------------------------------------------------------------------------------------------------------------- Summit Care Corp., Texas Secretary of IKON Office Solutions UCC 9900115658 Equipment dba Oak Crest Nursing Center State 2090 Woodward filed: 6-7-99 1902 FM 3036 Austin, TX 78744 Rockport, TX 78382 - --------------------------------------------------------------------------------------------------------------------- Summit Care Corporation Texas Secretary of Mellon First United UCC 9800136642 Equipment 1300 Old Blanco Rd., Ste 150 State Leasing filed: 7-3-98 San Antonio, TX 78216 100 Corporate North Brannockburn, IL 60015 - ---------------------------------------------------------------------------------------------------------------------
Schedule 7.3
DEBTOR LIEN COLLATERAL (SEARCH NAME) JURISDICTION SECURED PARTY TYPE FILING INFO DESCRIPTION - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Shackelford Incorporated UCC 9800160360 Equipment 2600 West Magnolia Blvd. State 10900 Northwest Frwy Ste filed: 8-6-03 Burbank, CA 91505 103 Houston, TX 77092 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Safeco Credit Co., Inc. UCC 0100088987 Equipment 1950 Las Vegas Trail South State dba Safeline Leasing filed: 5-7-01 White Settlement, TX 76108 10950 Willows Rd NE Redmond, WA 98052 and West Side Campus Care 1950 Las Vegas Trail South White Settlement, TX 76108 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Norwest Financial UCC 9900093404 Equipment 1751 N. 15th St State Leasing, Inc. filed: 5-10-99 Abilene, TX 79601 1700 Iowa Ave., Ste 240 Riverside, CA 92507 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Dan Tipps UCC 020008568685 Equipment 4710 Slide Rd. State PO Box 12380 filed: 5-10-99 Lubbock, TX 79414 Lubbock, TX 79452 - ---------------------------------------------------------------------------------------------------------------------
Schedule 7.4 INVESTMENTS None. Schedule 7.6 AFFILIATE TRANSACTIONS 1. Agreements, whether written or oral, regarding the reimbursement of certain out-of-pocket and allocated overhead expenses incurred by Heritage Partners in connection with the management and operation of the Company. 2. $32,000,000 Promissory Note by SHG Investments, LLC in favor of Summit Care Texas, L.P. 3. Long-term care facilities leases with Robert and Shelia Snukal: a. Fountainview Convalescent Hospital, 5310 Fountain Avenue, Los Angeles, CA. b. Rio Hondo Nursing Center, 237 East Beverly Boulevard, Montebello, CA. c. Sycamore Park Convalescent Hospital, 4585 North Figueroa Street, Los Angeles, CA. d. Montebello Convalescent Hospital, 1035 West Beverly Boulevard, Montebello, CA 4. Intercompany agreements to provide services and supplies at the facilities. Schedule 7.9 CONTINGENT OBLIGATIONS None. EX-10.2 12 a94359exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 REVOLVING NOTE U.S. $20,000,000.00 Dated as of: August 19, 2003 FOR VALUE RECEIVED, the undersigned, FOUNTAIN VIEW, INC., a Delaware corporation ("Parent") and the companies listed on the signature page hereto (collectively with Parent, each individually a "BORROWER" and collectively, "BORROWERS"), hereby promise to pay to CAPITALSOURCE FINANCE LLC, as administrative agent and collateral agent (in such capacities, "AGENT"), for the benefit of the Lenders party to the Loan Agreement (as hereinafter defined), the unpaid principal amount of all Advances made by the Lenders to Borrowers under the Revolving Facility, with interest thereon, and all other Obligations under the Revolving Credit and Security Agreement, dated as of the date hereof, among Borrowers, Agent and Lenders (as it may be amended, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"), all at the times and in the manner set forth in the Loan Agreement. Capitalized terms used but not defined herein shall have the meanings given them in the Loan Agreement. 1. INTEREST AND PAYMENTS. (a) Borrowers promise to pay interest on the outstanding principal amount of the Revolving Facility in accordance with the provisions of the Loan Agreement. (b) Payments of interest and other Obligations shall be made, when due, by the application of funds advanced under the Revolving Facility or otherwise in accordance with the provisions of the Loan Agreement. 2. MATURITY. Unless earlier due and payable or accelerated under the Loan Agreement, this Revolving Note shall mature, and the outstanding principal balance hereunder and other Obligations, together with all other outstanding amounts due hereunder and under the Loan Agreement, shall become due and payable in full on the Maturity Date. 3. LOAN AGREEMENT AND SECURITY AGREEMENT. (a) This Revolving Note is referred to in, made pursuant to, and entitled to the benefits of, the Loan Agreement. The Loan Agreement, among other things, (i) provides for the making of the Revolving Facility by Lenders to Borrowers in the Dollar amount first mentioned above, (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified, and (iii) contains provisions defining an Event of Default and the rights and remedies of Agent and Lenders upon the occurrence of an Event of Default. (b) This Revolving Note is a secured note, entitled to the benefits of and security interests granted in, among other things, the Loan Agreement and the other Security Documents. 4. PREPAYMENTS. This Revolving Note may be prepaid in whole or in part upon notice to Agent and shall be prepaid in whole under certain circumstances, in each case as provided or required in the Loan Agreement. 5. LAWFUL LIMITS. This Revolving Note is expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent and each Lender for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under applicable law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or any Lender shall have received interest or any other charges of any kind which might be deemed to be interest under applicable law in excess of the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance hereunder, Agent and each Lender shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. 6. GOVERNING LAW. This Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of laws provisions. BORROWERS --------- FOUNTAIN VIEW, INC. ALEXANDRIA CARE CENTER, INC. ALTA CARE CENTER, LLC ANAHEIM TERRACE CARE CENTER, LLC BAY CREST CARE CENTER, LLC BRIER OAK ON SUNSET, INC. CARSON SENIOR ASSISTED LIVING, LLC ELMCREST CARE CENTER, INC. FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. HALLMARK INVESTMENT GROUP, INC. HALLMARK REHABILITATION GP, LLC HALLMARK REHABILITATION LP By: Hallmark Rehabilitation GP, LLC, its general partner HANCOCK PARK REHABILITATION CENTER, INC. HANCOCK PARK SENIOR ASSISTED LIVING, INC. HEMET SENIOR ASSISTED LIVING, LLC LEASEHOLD RESOURCE GROUP, LLC MONTEBELLO CARE CENTER, LLC RIO HONDO SUBACUTE AND NURSING CENTER, INC. ROYALWOOD CARE CENTER, LLC SHARON CARE CENTER, LLC SKILLED HEALTHCARE, LLC SUMMIT CARE CORPORATION SUMMIT CARE TEXAS MANAGEMENT, LLC SUMMIT CARE PHARMACY, INC. SUMMIT CARE TEXAS, LP By: Summit Care Texas Management, LLC, its general partner SYCAMORE PARK CARE CENTER, INC. WOODLAND CARE CENTER, LLC By: \s\ Roland G. Rapp ---------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: -------------------- Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net EX-10.3 13 a94359exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 REVOLVING NOTE U.S. $1,000,000.00 Dated as of: August 19, 2003 FOR VALUE RECEIVED, the undersigned, FOUNTAIN VIEW, INC., a Delaware corporation ("Parent") and the companies listed on the signature page hereto (collectively with Parent, each individually a "BORROWER" and collectively, "BORROWERS"), hereby promise to pay to CAPITALSOURCE FINANCE LLC, as administrative agent and collateral agent (in such capacities, "AGENT"), for the benefit of the Lenders party to the Loan Agreement (as hereinafter defined), the unpaid principal amount of all Advances made by the Lenders to Borrowers under the Revolving Facility, with interest thereon, and all other Obligations under the Revolving Credit and Security Agreement, dated as of the date hereof, among Borrowers, Agent and Lenders (as it may be amended, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"), all at the times and in the manner set forth in the Loan Agreement. Capitalized terms used but not defined herein shall have the meanings given them in the Loan Agreement. 1. INTEREST AND PAYMENTS. (a) Borrowers promise to pay interest on the outstanding principal amount of the Revolving Facility in accordance with the provisions of the Loan Agreement. (b) Payments of interest and other Obligations shall be made, when due, by the application of funds advanced under the Revolving Facility or otherwise in accordance with the provisions of the Loan Agreement. 2. MATURITY. Unless earlier due and payable or accelerated under the Loan Agreement, this Revolving Note shall mature, and the outstanding principal balance hereunder and other Obligations, together with all other outstanding amounts due hereunder and under the Loan Agreement, shall become due and payable in full on the Maturity Date. 3. LOAN AGREEMENT AND SECURITY AGREEMENT. (a) This Revolving Note is referred to in, made pursuant to, and entitled to the benefits of, the Loan Agreement. The Loan Agreement, among other things, (i) provides for the making of the Revolving Facility by Lenders to Borrowers in the Dollar amount first mentioned above, (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified, and (iii) contains provisions defining an Event of Default and the rights and remedies of Agent and Lenders upon the occurrence of an Event of Default. (b) This Revolving Note is a secured note, entitled to the benefits of and security interests granted in, among other things, the Loan Agreement and the other Security Documents. 4. PREPAYMENTS. This Revolving Note may be prepaid in whole or in part upon notice to Agent and shall be prepaid in whole under certain circumstances, in each case as provided or required in the Loan Agreement. 5. LAWFUL LIMITS. This Revolving Note is expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent and each Lender for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under applicable law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or any Lender shall have received interest or any other charges of any kind which might be deemed to be interest under applicable law in excess of the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance hereunder, Agent and each Lender shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. 6. GOVERNING LAW. This Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of laws provisions. BORROWERS --------- FOUNTAIN VIEW, INC. ALEXANDRIA CARE CENTER, INC. ALTA CARE CENTER, LLC ANAHEIM TERRACE CARE CENTER, LLC BAY CREST CARE CENTER, LLC BRIER OAK ON SUNSET, INC. CARSON SENIOR ASSISTED LIVING, LLC ELMCREST CARE CENTER, INC. FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. HALLMARK INVESTMENT GROUP, INC. HALLMARK REHABILITATION GP, LLC HALLMARK REHABILITATION LP By: Hallmark Rehabilitation GP, LLC, its general partner HANCOCK PARK REHABILITATION CENTER, INC. HANCOCK PARK SENIOR ASSISTED LIVING, INC. HEMET SENIOR ASSISTED LIVING, LLC LEASEHOLD RESOURCE GROUP, LLC MONTEBELLO CARE CENTER, LLC RIO HONDO SUBACUTE AND NURSING CENTER, INC. ROYALWOOD CARE CENTER, LLC SHARON CARE CENTER, LLC SKILLED HEALTHCARE, LLC SUMMIT CARE CORPORATION SUMMIT CARE TEXAS MANAGEMENT, LLC SUMMIT CARE PHARMACY, INC. SUMMIT CARE TEXAS, LP By: Summit Care Texas Management, LLC, its general partner SYCAMORE PARK CARE CENTER, INC. WOODLAND CARE CENTER, LLC By: \s\ Roland G. Rapp ---------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: -------------------- Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net EX-10.4 14 a94359exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 REVOLVING CREDIT AND SECURITY AGREEMENT AMONG THE BORROWERS LISTED ON SCHEDULE 1 ANNEXED HERETO, AS BORROWERS and CAPITALSOURCE FINANCE LLC, AS AGENT and CAPITALSOURCE FINANCE LLC, AS SOLE LENDER DATED AS OF AUGUST 19, 2003 REVOLVING CREDIT AGREEMENT TABLE OF CONTENTS
Page ---- I. DEFINITIONS.................................................................................. 1 1.1. General Terms....................................................................... 1 II. ADVANCES, PAYMENT AND INTEREST............................................................... 1 2.1. The Revolving Facility.............................................................. 1 2.2. The Revolving Notes; Maturity....................................................... 2 2.3. Interest on the Revolving Notes..................................................... 3 2.4. Revolving Facility Disbursements; Requirement to Deliver Borrowing Certificate...... 3 2.5. Revolving Facility Collections; Repayment; Borrowing Availability and Lockbox....... 4 2.6. Promise to Pay; Manner of Payment................................................... 5 2.7. Repayment of Excess Advances........................................................ 6 2.8. Other Mandatory Prepayments......................................................... 6 2.9. Payments by Agent................................................................... 6 2.10. Grant of Security Interest; Collateral.............................................. 6 2.11. Collateral Administration........................................................... 8 2.12. Power of Attorney................................................................... 10 2.13. Notes............................................................................... 10 2.14. Replacement of Lost Notes........................................................... 10 2.15. Replacement of Lenders.............................................................. 11 III. FEES AND OTHER CHARGES....................................................................... 11 3.1. Commitment Fee...................................................................... 11 3.2. Unused Line Fee; Minimum Loan Fee................................................... 11 3.3. Collateral Management Fee........................................................... 12 3.4. Computation of Fees; Lawful Limits.................................................. 12 3.5. Default Rate of Interest............................................................ 13 IV. CONDITIONS PRECEDENT......................................................................... 13 4.1. Conditions to Initial Advance and Closing........................................... 13 4.2. Conditions to Each Advance.......................................................... 16 V. REPRESENTATIONS AND WARRANTIES............................................................... 16 5.1. Organization and Authority.......................................................... 16 5.2. Loan Documents...................................................................... 17 5.3. Subsidiaries, Capitalization and Ownership Interests................................ 17 5.4. Properties.......................................................................... 18 5.5. Other Agreements.................................................................... 18 5.6. Litigation.......................................................................... 18 5.7. Hazardous Materials................................................................. 19
i 5.8. Tax Returns; Governmental Reports................................................... 19 5.9. Financial Statements and Reports.................................................... 19 5.10. Compliance with Law................................................................. 19 5.11. Intellectual Property............................................................... 20 5.12. Licenses and Permits; Labor......................................................... 20 5.13. No Default.......................................................................... 21 5.14. Disclosure.......................................................................... 21 5.15. Existing Indebtedness; Investments, Guarantees and Certain Contracts................ 21 5.16. Other Agreements.................................................................... 21 5.17. Insurance........................................................................... 21 5.18. Names; Location of Offices, Records and Collateral.................................. 22 5.19. Non-Subordination................................................................... 22 5.20. Accounts............................................................................ 22 5.21. Healthcare. ........................................................................ 23 5.22. Plan of Reorganization.............................................................. 23 5.23. Survival. .......................................................................... 24 VI. AFFIRMATIVE COVENANTS........................................................................ 24 6.1. Financial Statements, Reports and Other Information................................. 24 6.2. Payment of Obligations.............................................................. 26 6.3. Conduct of Business and Maintenance of Existence and Assets......................... 26 6.4. Compliance with Legal and Other Obligations......................................... 27 6.5. Insurance........................................................................... 27 6.6. True Books.......................................................................... 28 6.7. Inspection; Periodic Audits......................................................... 28 6.8. Further Assurances; Post Closing.................................................... 28 6.9. Payment of Indebtedness............................................................. 29 6.10. Lien Searches....................................................................... 29 6.11. Use of Proceeds..................................................................... 29 6.12. Collateral Documents; Security Interest in Collateral............................... 29 6.13. Taxes and Other Charges............................................................. 29 6.14. New Subsidiaries.................................................................... 30 6.15. Right of First Offer................................................................ 31 6.16. Supplemental Disclosure............................................................. 31 VII. NEGATIVE COVENANTS........................................................................... 31 7.1. Financial Covenants................................................................. 31 7.2. Permitted Indebtedness.............................................................. 32 7.3. Permitted Liens..................................................................... 32 7.4. Investments; New Facilities or Collateral; Subsidiaries............................. 33 7.5. Dividends; Redemptions.............................................................. 34 7.6. Transactions with Affiliates........................................................ 34 7.7. Charter Documents; Fiscal Year; Dissolution; Use of Proceeds........................ 35 7.8. Transfer of Assets.................................................................. 35 7.9. Contingent Obligations.............................................................. 36 7.10 IRS Form 8821....................................................................... 36 7.11. Negative Pledge..................................................................... 36 VIII. EVENTS OF DEFAULT............................................................................ 36

ii IX. RIGHTS AND REMEDIES AFTER DEFAULT............................................................ 38 9.1. Rights and Remedies................................................................. 38 9.2. Application of Proceeds............................................................. 40 9.3. Rights of Agent to Appoint Receiver................................................. 40 9.4. Rights and Remedies not Exclusive................................................... 40 X. WAIVERS AND JUDICIAL PROCEEDINGS............................................................. 41 10.1. Waivers............................................................................. 41 10.2. Delay; No Waiver of Defaults........................................................ 41 10.3. Jury Waiver......................................................................... 42 10.4 Amendment and Waivers............................................................... 42 XI. EFFECTIVE DATE AND TERMINATION............................................................... 43 11.1. Effectiveness and Termination....................................................... 43 11.2. Survival............................................................................ 43 XII. AGENCY PROVISIONS............................................................................ 44 12.1. Agent............................................................................... 44 12.2. Consents............................................................................ 48 12.3. Set Off and Sharing of Payments..................................................... 48 12.4. Disbursement of Funds............................................................... 49 12.5. Settlements; Payments and Information............................................... 49 12.6. Dissemination of Information........................................................ 51 XIII. BORROWING AGENCY; IRS FORMS................................................................. 51 13.1. Borrowing Agency Provisions; Acknowledgement of Joint and Several Liability......... 51 13.2. Withholding Tax. ................................................................... 52 XIV. MISCELLANEOUS................................................................................ 54 14.1. Governing Law; Jurisdiction; Service of Process; Venue.............................. 54 14.2. Successors and Assigns; Assignments and Participations; New Lenders................. 54 14.3. Application of Payments; Reinstatement.............................................. 56 14.4. Indemnity........................................................................... 57 14.5. Notice.............................................................................. 58 14.6. Severability; Captions; Counterparts; Facsimile Signatures.......................... 58 14.7. Expenses............................................................................ 58 14.8. Entire Agreement.................................................................... 59 14.9. Agent Approvals..................................................................... 59 14.10. Confidentiality and Publicity....................................................... 59

iii REVOLVING CREDIT AND SECURITY AGREEMENT THIS REVOLVING CREDIT AND SECURITY AGREEMENT (this "AGREEMENT") dated as of August 19, 2003, is entered into by and among the Borrowers listed on Schedule 1 to this Agreement (each individually a "BORROWER" and collectively, the "BORROWERS") and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company ("CAPITALSOURCE"), as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and Lenders party hereto. WHEREAS, Borrowers have requested that Lenders make available to Borrowers a revolving credit facility (the "REVOLVING FACILITY") in a maximum principal amount at any time outstanding of up to Eleven Million Dollars ($11,000,000) (the "FACILITY CAP"), the proceeds of which shall be used by Borrowers (i) to fund distributions under, and comply with certain requirements of, the Plan of Reorganization (as defined herein) and (ii) to finance the working capital and other general corporate needs of Borrowers in the ordinary course of business and as permitted in this Agreement in connection with their skilled nursing home and assisted living business and to conduct other activities incidental thereto (the "BUSINESS"); and WHEREAS, Lenders are willing to make the Revolving Facility available to Borrowers upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrowers, Agent and Lenders hereby agree as follows: I. DEFINITIONS 1.1. GENERAL TERMS For purposes of this Agreement and the other Loan Documents, in addition to the definitions above and elsewhere in this Agreement, the terms listed in Appendix A hereto shall have the meanings given such terms in Appendix A, which is incorporated herein and made a part hereof. All capitalized terms used which are not specifically defined shall have meanings provided in Article 9 of the UCC in effect on the date hereof to the extent the same are used or defined therein. Unless otherwise specified herein or in Appendix A, this Agreement and any agreement or contract referred to herein or in Appendix A shall mean such agreement as modified, amended or supplemented from time to time. Unless otherwise specified, as used in the Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the Loan Documents, all accounting terms not defined in Appendix A elsewhere in this Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with GAAP. II. ADVANCES, PAYMENT AND INTEREST 2.1. THE REVOLVING FACILITY (a) Subject to the provisions of this Agreement, each Lender agrees to make available its Pro Rata Share of Advances to Borrowers under the Revolving Facility from time to time during the Term, provided that, (i) the Pro Rata Share of the Advances of any Lender shall not at any time exceed its separate Commitment, and (ii) the aggregate amount of all Advances at any one time outstanding under the Revolving Facility shall not exceed the lesser of (a) the Facility Cap, and (b) the Availability. The obligations of Lenders hereunder shall be several and not joint. The Revolving Facility is a revolving credit facility, which may be drawn, repaid and redrawn, from time to time as permitted under this Agreement. Any determination as to whether there is Availability shall be made by reference to the most recent Borrowing Certificate or Interim Borrowing Certificate delivered by Borrowers (subject to Agent's right to set reserves pursuant to this Agreement). Unless otherwise permitted by Agent, each Advance shall be in an amount of at least $1,000. Subject to the provisions of this Agreement, Borrowers may request Advances under the Revolving Facility up to and including the value, in U.S. Dollars, of the sum of (i) eighty five percent (85%) of the Borrowing Base minus (ii) if applicable, amounts reserved pursuant to this Agreement (such calculated amount being referred to herein as the "Availability"). Advances under the Revolving Facility automatically shall be made for the payment of interest on the Revolving Notes and other Obligations on the date when due to the extent available and as provided for herein. (b) Agent has established the above-referenced advance rate for Availability based upon Borrowers' actual recent collection history for the Eligible Receivables for each payor class (i.e., Medicare, Medicaid, commercial insurance, etc.) in a manner consistent with Agent's underwriting practices and procedures, including without limitation Agent's review and analysis of, among other things, Borrowers' historical returns, rebates, discounts, credits and allowances (collectively, the "DILUTION ITEMS"), and throughout the Term, if there are adverse changes in the collection history or the Dilution Items, Agent, upon five (5) Business Days prior written notice to Borrowing Agent, may, in its Permitted Discretion and as warranted by Agent's underwriting practices and procedures in its credit judgment exercised in its Permitted Discretion, adjust the liquidity factors and the advance rate for Availability. Also, based on changes related to Borrowers after the Closing Date, Agent shall have the right to establish from time to time, in its credit judgment exercised in its Permitted Discretion, reserves against the Borrowing Base, which reserves shall have the effect of reducing the amounts otherwise eligible to be disbursed to Borrowers under the Revolving Facility pursuant to this Agreement. 2.2. THE REVOLVING NOTES; MATURITY (a) All Advances under the Revolving Facility shall be evidenced by the Revolving Notes, payable to the order of each Lender in the principal amount of the Commitment of such Lender, duly executed and delivered by Borrowers. The Revolving Notes shall evidence the aggregate Indebtedness of Borrowers to Lenders resulting from Advances under the Revolving Facility, from time to time. Each Lender hereby is authorized, but is not obligated, to enter the amount of such Lender's Pro Rata Share of each Advance under the Revolving Facility and the amount of each payment or prepayment of principal or interest thereon in the appropriate spaces on the reverse of or on an attachment to such Lender's Revolving Note(s). Agent will account to Borrowers monthly with a statement of Advances under the Revolving Facility and any charges and payments made pursuant to this Agreement, and in the absence of manifest error, such accounting rendered by Agent shall be deemed final, 2 binding and conclusive unless Agent is notified by Borrowers in writing to the contrary within fifteen (15) calendar days of Receipt of each accounting, which notice shall be deemed an objection only to items specifically objected to therein. (b) All amounts outstanding under the Revolving Notes and other Obligations under the Revolving Facility shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. 2.3. INTEREST ON THE REVOLVING NOTES Interest on Advances under the Revolving Notes shall accrue from the respective dates of the Advances until the respective dates of repayment of the Advances, in each case at an annual rate of the Prime Rate plus 2.5%, provided, however, that, notwithstanding any provision of any Loan Document, the interest on outstanding Advances under the Revolving Notes shall not be less than 7.25%, in each case calculated on the basis of a 360-day year and for the actual number of calendar days elapsed in each interest calculation period. Interest accrued on each Advance under the Revolving Notes shall be due and payable on the first day of each calendar month in accordance with the procedures provided for in Section 2.5 and Section 2.9, commencing on the first day of the first calendar month after the Closing Date, and continuing until the later of the expiration of the Term and the full performance and irrevocable payment in full in cash of the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement. 2.4. REVOLVING FACILITY DISBURSEMENTS; REQUIREMENT TO DELIVER BORROWING CERTIFICATE So long as no Default or Event of Default shall have occurred and be continuing, Borrowing Agent on behalf of Borrowers and Senior Mortgage Lender (but only to the extent permitted in the Senior Mortgage/Revolving Lender Intercreditor Agreement) may give Agent irrevocable written notice requesting an Advance of a specified amount under the Revolving Facility by notifying Agent not later than 11:00 a.m. (New York City time) at least one (1) but not more than four (4) Business Days before the proposed borrowing date of such requested Advance (the "BORROWING DATE"), and delivering to Agent by noon (New York City time) on the date of the proposed borrowing, a completed Interim Borrowing Certificate and relevant supporting documentation satisfactory to Agent in its Permitted Discretion, which shall (i) specify the proposed Borrowing Date of such Advance, which shall be a Business Day, (ii) specify the principal amount of such requested Advance, and (iii) certify the matters contained in Section 4.2. On a monthly basis, within thirty (30) days after the end of each month, Borrowing Agent on behalf of Borrowers shall specify to Agent the amount of any Medicare or Medicaid recoupments and/or recoupments of any third party payor being sought, requested or claimed, or, to Borrowers' knowledge, threatened against any Borrower or any Borrower's Affiliates. Each time a request for an Advance is made, and, in any event and regardless of whether an Advance is being requested, on Tuesday of each week during the Term (and more frequently if Lender shall so request after and during the continuance of an Event of Default) until the Obligations (other than Unmatured Surviving Obligations) are indefeasibly paid in cash in full and this Agreement is terminated, Borrowers shall deliver to Agent an Interim Borrowing Certificate, and on the date twenty (20) days after the end of each calendar month, 3 Borrower shall deliver to Agent a Borrowing Certificate. On each Borrowing Date, each Borrower irrevocably authorizes Agent to disburse the proceeds of the requested Advance to the appropriate Borrower's account(s) as set forth on Schedule 2.4 (or to such other account as to which the appropriate Borrower shall instruct Agent), in all cases for credit to the appropriate Borrower, via Federal funds wire transfer no later than 4:00 p.m. (New York City time). Notwithstanding the foregoing, so long as the Senior Mortgage Loan remains outstanding all proceeds of each requested Advance shall be disbursed to the Senior Mortgage Loan Blocked Account in accordance with the Senior Mortgage/Revolving Lender Intercreditor Agreement. 2.5. REVOLVING FACILITY COLLECTIONS; REPAYMENT; BORROWING AVAILABILITY AND LOCKBOX Each Borrower shall maintain one or more lockbox accounts or blocked accounts (individually, a "LOCKBOX ACCOUNT," and collectively, the "LOCKBOX ACCOUNTS") with one or more financial institutions reasonably acceptable to Agent (individually, a "LOCKBOX BANK," and collectively, the "LOCKBOX BANKS"), and shall execute with each Lockbox Bank one or more agreements reasonably acceptable to Agent (individually a "LOCKBOX AGREEMENT," and collectively, the "LOCKBOX AGREEMENTS"), and such other agreements related thereto as Agent may reasonably require. Each Borrower shall ensure that all collections of its Accounts and all other cash payments received by such Borrower are paid and delivered directly from Account Debtors and other Persons into the appropriate Lockbox Account, provided, however, Borrowers may directly receive collections from Private Pay Debtors so long as such collections are remitted to the appropriate Lockbox Account within two (2) Business Days of receipt by such Borrower. The Lockbox Agreements shall provide that the Lockbox Banks immediately will transfer all funds paid into the Lockbox Accounts into a depository account or accounts maintained by Agent or an Affiliate of Agent at a financial institution selected by Agent from time to time (such account or accounts, collectively, the "CONCENTRATION ACCOUNT"), except, with respect only to Accounts payable by Medicaid/Medicare Account Debtors, as instructed by the applicable Borrower to whom such Accounts are payable as permitted pursuant to the applicable Lockbox Agreement. Agent agrees that, notwithstanding the foregoing, (I) it shall instruct each Lockbox Bank to follow the instructions of Borrowers until the earlier of (x) the occurrence and during the continuance of an Event of Default or (y) the date upon which the outstanding balance of Advances shall exceed $2,000,000 for a period of thirty (30) consecutive days prior to the date of determination, at which time Agent may direct each Lockbox Bank to remit funds into the Concentration Account; and (II) if, pursuant to clause (I) it has directed each Lockbox Bank to remit funds into the Concentration Account, and thereafter (x) the outstanding balance of Advances shall be equal to or less than $2,000,000 for a period of thirty (30) consecutive days prior to the date of determination, and (y) no Event of Default shall have occurred and be continuing, Agent shall instruct each Lockbox Bank to follow the instructions of Borrowers, and shall not require that each Lockbox Bank remit funds into the Concentration Account. Notwithstanding and without limiting any other provision of any Loan Document, Agent shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to the Lockbox Agreement and this Section 2.5, (i) if no Event of Default shall have occurred and be continuing, to the payment of the Advances, with any excess after payment of all outstanding Advances to be returned to Borrowers, and (ii) if an Event of Default shall have occurred and be continuing, in such order and manner as determined by Agent in accordance with this Agreement, with any excess after repayment of the Obligations to be returned to 4 Borrowers or, so long as the Senior Mortgage Loan remains outstanding, to the Senior Mortgage Loan Blocked Account in accordance with the Senior Mortgage/Revolving Lender Intercreditor Agreement. To the extent that any Accounts collections of any Borrower or any other cash payments received by any Borrower are not sent directly to the appropriate Lockbox Account but are received by any Borrower, such collections and proceeds shall be held in trust for the benefit of Agent and Lenders and immediately remitted (and in any event within two (2) Business Days), in the form received, to the appropriate Lockbox Account for immediate transfer to the Concentration Account. Each Borrower acknowledges and agrees that compliance with the terms of this Section 2.5 is an essential term of this Agreement, and that, in addition to and notwithstanding any other rights Agent may have hereunder, under any other Loan Document, under applicable law or at equity, upon each and every failure by any Borrower or any of their Affiliates to comply with any such terms Agent shall be entitled to assess a non-compliance fee which shall operate to increase the Revolving Interest Rate by two percent (2.0%) per annum during any period of non-compliance, whether or not a Default or an Event of Default occurs or is declared, provided that nothing shall prevent Agent from considering any failure to comply with the terms of this Section 2.5 to be a Default or an Event of Default. All funds transferred to the Concentration Account for application to the Obligations under the Revolving Facility shall be applied to reduce the Obligations under the Revolving Facility, but, for purposes of calculating interest hereunder, shall be subject to a seven (7) Business Day clearance period. If as the result of collections of Accounts and/or any other cash payments received by any Borrower pursuant to this Section 2.5 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of the appropriate Borrower, but shall be available to the appropriate Borrower in accordance with the terms of this Agreement. Notwithstanding the foregoing, so long as the Senior Mortgage Loan remains outstanding (i) any amounts to be transferred to Borrowers (including, without limitation, funds to be distributed from the Lockbox Accounts) shall be disbursed to the Senior Mortgage Loan Blocked Account in accordance with the Senior Mortgage/Revolving Lender Intercreditor Agreement and (ii) the Lockbox Account and the Concentration Account shall be an Eligible Deposit Account. If applicable, at any time prior to the execution of all or any of the Lockbox Agreements and operation of all or any of the Lockbox Accounts, each Borrower shall direct all collections or proceeds it receives on Accounts or from other Collateral to the account(s) and in the manner specified by Agent in its Permitted Discretion. 2.6. PROMISE TO PAY; MANNER OF PAYMENT. (a) Any payments made by Borrowers (other than payments automatically paid through Advances under the Revolving Facility as provided herein), shall be made only by ACH or wire transfer on the date when due, without offset or counterclaim, in U.S. Dollars, in immediately available funds to such account within the domestic United States as may be indicated in writing by Agent to Borrowers from time to time. Any such payment received after 4:00 p.m. New York City time on any date shall be deemed received on the following Business Day. Whenever any payment hereunder shall be stated to be due or shall become due and payable on a day other than a Business Day, the due date thereof shall be extended to, and such payment shall be made on, the next succeeding Business Day, and such extension of time in such case shall be included in the computation of payment of any interest (at the Revolving Interest Rate then in effect during such extension) and/or fees, as the case may be. 5 (b) Borrowers absolutely and unconditionally promise to pay the Obligations hereunder in accordance with the manner and terms hereof, without any deduction whatsoever, without setoff, recoupment or counterclaim, each of which claim or defense hereby is waived. 2.7. REPAYMENT OF EXCESS ADVANCES Any balance of Advances under the Revolving Facility outstanding at any time in excess of the lesser of the Facility Cap or the Availability shall be immediately due and payable by Borrowers without the necessity of any demand, at the Payment Office, whether or not a Default or Event of Default has occurred or is continuing and shall be paid in the manner specified in Section 2.9. 2.8. OTHER MANDATORY PREPAYMENTS In addition to and without limiting any provision of any Loan Document, if a Change of Control occurs, on or prior to the first Business Day following the date of such Change of Control, Borrowers shall prepay the Advances and all other Obligations (other than Unmatured Surviving Obligations) in full in cash together with accrued interest thereon to the date of prepayment and all other amounts owing to Agent and Lenders under the Loan Documents. 2.9. PAYMENTS BY AGENT Should any amount required to be paid under any Loan Document or, following the payment in full of the Senior Mortgage Loan, under any of the Mezzanine Loan Documentation be unpaid, such amount may be paid by Agent, for the account of Lenders or Mezzanine Loan Lenders, as the case may be, which payment shall be treated as an Advance under the Revolving Facility as of the date such payment is due, and each Borrower irrevocably authorizes disbursement of any such funds to Agent, for the benefit of Lenders or Mezzanine Loan Lenders, as the case may be, by way of direct payment of the relevant amount, interest or Obligations without necessity of any demand in accordance with Section 2.6 whether or not a Default or Event of Default has occurred or is continuing. No payment or prepayment of any amount by Agent, Lenders or any other Person shall entitle any Person to be subrogated to the rights of Agent or Lenders under any Loan Document unless and until the Obligations (other than Unmatured Surviving Obligations) have been fully performed and paid irrevocably in cash and this Agreement has been terminated. Any sums expended by Agent or Lenders as a result of any Borrower's or any Guarantor's failure to pay, perform or comply with any Loan Document or any of the Obligations, or, following the payment in full of the Senior Mortgage Loan, with respect to any failure to pay, perform or comply with any of the Mezzanine Loan Documentation, may be charged to Borrowers' account as an Advance under the Revolving Facility and added to the Obligations. 2.10. GRANT OF SECURITY INTEREST; COLLATERAL (a) To secure the payment and performance of the Obligations, each Borrower hereby grants to Agent, for the benefit of itself and Lenders, a continuing security interest in and 6 Lien upon, and pledges to Agent, for the benefit of itself and Lenders, all of its right, title and interest in and to and upon all of the following property and interests in property of such Borrower, now owned or hereafter acquired (collectively and each individually, the "COLLATERAL"): (i) all of such Borrower's present and future Accounts, and all Instruments, Contracts and Chattel Paper relating to or arising out of any Accounts; (ii) all of such Borrower's present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by such Borrower; provided, however, that Agent shall not have a security interest in any rights under any Government Contract of such Borrower or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, Section 203 or Title 41, Section 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; (iii) all now owned or hereafter acquired Deposit Accounts into which proceeds from Accounts are deposited; (iv) all Books and Records, whether now owned or hereafter acquired; and (v) any and all replacements and proceeds of any of the foregoing. (b) Notwithstanding the foregoing provisions of this Section 2.10, such grant of a security interest shall not extend to, and the term "Collateral" shall not include, (x) any General Intangible, contract, agreement or document of any Borrower to the extent that (i) such General Intangible, contract, agreement or document is not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; (y) any asset of any Borrower to the extent that (i) such asset subject to a contract, agreement or document otherwise permitted pursuant to this Agreement, which contract, agreement or document restricts the grant of such security interest 7 (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral" ; and (z) any Permit of any Borrower to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Each Borrower shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent, provided, however in the event Borrowers are unable to obtain the required Landlord Consent and Waiver for any location at which books and records are kept, Borrowers shall maintain a duplicate set of such books and records at a location owned by a Borrower or with respect to which a Landlord Consent and Waiver reasonably satisfactory to Agent shall have been obtained. (c) Upon the execution and delivery of this Agreement, and upon the proper filing of the necessary financing statements, the proper delivery of the necessary stock certificates, without any further action, Agent will have a good, valid and perfected first priority Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person except for Permitted Liens, except for security interests in money. No financing statement relating to any of the Collateral is on file in any public office except those (i) on behalf of Agent, and/or (ii) in connection with or with respect to Permitted Liens. 2.11. COLLATERAL ADMINISTRATION (a) All Collateral (except Deposit Accounts) will at all times be kept by Borrowers at the locations set forth on Schedule 5.18B hereto, and such other locations as Borrowers shall identify to Agent upon ten (10) calendar days prior written notice, and in any case shall not be moved outside the continental United States. (b) Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit such records to Agent on such periodic bases as Agent may request. In addition, if Accounts of any Borrower in an aggregate face amount in excess of $200,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Receivables, Borrowers shall notify Agent of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Agent, after the occurrence and during the continuance of an Event of Default, Borrowers shall execute and deliver to Agent formal written assignments of all of its Accounts weekly or daily as Agent may request, including all Accounts created since the date of the last assignment, together with copies of claims, invoices and/or other information related thereto. Subject to the Senior Mortgage/Revolving Lender Intercreditor Agreement, to the extent that collections from such assigned accounts exceed the amount of the Obligations, such excess amount shall not accrue 8 interest in favor of Borrowers, but shall be available to Borrowers upon Borrowers' written request and so long as the Senior Mortgage Loan shall remain outstanding, shall be disbursed on each Business Day to the Senior Mortgage Loan Blocked Account. (c) Whether or not an Event of Default has occurred, any of Agent's officers, employees, representatives or agents shall have the right, at any time during normal business hours, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts of Borrower; provided that unless an Event of Default has occurred and is continuing, such verification shall only verify account balances and shall not give notice of Agent's security interest. Borrowers shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, each Borrower shall endeavor in the first instance to make collection of its Accounts for Agent. Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify (i) Account Debtors owing Accounts to Borrowers other than Medicaid/Medicare Account Debtors that their Accounts have been assigned to Agent and to collect such Accounts directly in its own name and to charge collection costs and expenses, including reasonable attorney's fees, to Borrowers, and (ii) Medicaid/Medicare Account Debtors that Borrowers have waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Agent to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Agent is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. (e) As and when determined by Agent in its Permitted Discretion, Agent will perform the searches described in clauses (i) and (ii) below against Borrowers and Guarantors (the results of which are to be consistent with Borrowers' representations and warranties under this Agreement), all at Borrowers' expense: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where any Borrower and/or any Guarantors are organized and/or maintain their respective executive offices, a place of business or assets; and (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (i) above, provided that unless an Event of Default shall have occurred and during the continuance thereof, the Borrowers shall not be required to pay for more than one such search in any fiscal quarter under clause (i) and clause (ii) above. (f) Borrowers (i) shall provide prompt written notice to its current bank to transfer all items, collections and remittances to the Concentration Account, (ii) shall provide prompt written notice to each Account Debtor (other than a Private Pay Debtor) directing them to make payments to the appropriate Lockbox Account, and Borrowers hereby authorizes Agent, upon any failure to send such notice and directions within ten (10) calendar days after the date of this Agreement (or ten (10) calendar days after the Person becomes an Account Debtor (other than a Private Pay Debtor)), to send any and all similar notices and directions to such Account Debtors and (iii) shall do such further acts and deeds that may be lawfully required by Agent to make, create, maintain, continue or perfect Agent's security interest in the Lockbox Accounts or the Collateral. At Agent's request, Borrowers shall immediately deliver to Agent all items for 9 which Agent must receive possession to obtain a perfected security interest and all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral except for promissory notes in a principal amount less than $100,000 provided that the aggregate principal amount of all such promissory notes shall be less than $500,000. 2.12. POWER OF ATTORNEY Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring Agent to act as such) with full power of substitution to do the following: (i) upon the occurrence and during the continuance of an Event of Default, endorse the name of such Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to such Borrower and constitute collections on its Accounts; (ii) execute and/or file in the name of such Borrower any financing statements, amendments to financing statements, schedules, assignments, instruments, documents, and statements that it is obligated to give Agent under any of the Loan Documents; (iii) do such further acts and deeds in the name of any Borrower that Agent may reasonably deem necessary to make, create, maintain, continue or perfect Agent's, for the benefit of itself and Lenders, security interest or lien or right in any Collateral; and (iv) upon the occurrence and during the continuance of an Event of Default, do such other and further acts and deeds in the name of such Borrower that Agent may reasonably deem necessary or desirable to enforce Agent's security interest or lien or rights in any Collateral. In addition, if any Borrower breaches its obligation hereunder to direct payments of Accounts or the proceeds of any other Collateral to the appropriate Lockbox Account, Agent, as the irrevocably made, constituted and appointed true and lawful attorney for such Borrower pursuant to this paragraph, may, by the signature or other act of any of Agent's officers or authorized signatories (without requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary to pay proceeds of Accounts or any other Collateral to the appropriate Lockbox Account. 2.13. NOTES Upon Agent's or any Lender's request, and in any event within three (3) Business Days of any such request, Borrowers shall execute and deliver to Agent new Revolving Notes and/or divide or split the Revolving Notes in exchange for then existing Revolving Notes in such smaller amounts or denominations as Agent or such Lender shall specify in their respective sole and absolute discretion, provided, that the aggregate principal amount of such new Revolving Notes does not exceed the aggregate principal amount of the Revolving Notes outstanding at the time such request is made. 2.14. REPLACEMENT OF LOST NOTES Upon receipt of evidence reasonably satisfactory to Borrowers of the mutilation, destruction, loss or theft of any Revolving Note and the ownership thereof, Borrowers shall, upon the written request of the holder of such Revolving Note, execute and deliver in replacement thereof a new Revolving Note in the same form, in the same original principal amount, so mutilated, destroyed, lost or stolen; and such Revolving Note so mutilated, destroyed, lost or stolen shall then be deemed no longer outstanding hereunder. If the Revolving Note 10 being replaced has been mutilated, it shall be surrendered to Borrowers after Agent's receipt of the replacement Revolving Note; and if such replaced Revolving Note has been destroyed, lost or stolen, the holder of such Revolving Note shall furnish Borrowers with an indemnity in writing reasonably acceptable to Borrowers to save them harmless in respect of such replaced Revolving Note. 2.15. REPLACEMENT OF LENDERS If, and on each occasion that, a Lender (i) makes a demand for additional costs or other payments pursuant to Section 6.13 below; (ii) has failed to perform its obligation to make an Advance required by such Lender hereunder; or (iii) refuses to approve any requested amendment or modification which requires unanimous Lender consent and is consented to by the Requisite Lenders, Borrowers may at their sole expense and effort, upon at least 5 Business Days' prior irrevocable written notice to each of such Lender and Agent, in whole permanently replace the Commitments of such Lender; provided that such notice (x) must be given not later than the sixtieth day following the date of a demand for additional costs or other payments made by such Lender or the date of any such refusal; and (y) may be given at any time while such failure to perform is continuing. Any such replacement Lender shall (a) be an Eligible Assignee (or, if the Senior Mortgage Loan is outstanding, a Qualified Transferee), (b) be acceptable to Agent, such acceptance not to be unreasonably withheld or delayed, and (c) upon the effective date of replacement purchase the Obligations owed to such replaced Lender for an amount equal to the outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender (which interest and fees will be paid to the replacement Lender when collected from Borrowers) and shall thereupon for all purposes become a "Lender" hereunder. The notice from Borrowers replacing a Lender shall specify an effective date for the replacement of the Commitment of such Lender, which date shall not be later than the tenth day after the day such notice is given. Upon the effective date of repayment of any such Lender's Commitments pursuant to this Section 2.15, and the execution by the replacement Lender of a Lender Addition Agreement, such Lender shall cease to be a Lender hereunder. No such termination of the Commitment of any such Lender and the purchase of the Advances of any such Lender pursuant to this Section 2.15 shall affect (A) any liability or obligation of Borrowers or any other Lender to such terminated Lender which accrued on or prior to the date of such termination or (B) the rights of such terminated Lender hereunder in respect of any such liability or obligation. A Lender shall not be required to make any such assignment if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment cease to apply. Notwithstanding anything herein to the contrary, Borrowers shall have no right to replace a Lender pursuant to this Section 2.15 at any time that CapitalSource is the sole Lender. III. FEES AND OTHER CHARGES 3.1. COMMITMENT FEE On or before the Closing Date, Borrowers shall pay to Agent 1% of the Facility Cap as a nonrefundable commitment fee. 3.2. UNUSED LINE FEE; MINIMUM LOAN FEE 11 (a) Borrowers shall pay to Agent for the ratable benefit of Lenders an unused line fee (the "UNUSED LINE FEE") in an amount equal to 0.042% per month of the difference derived by subtracting (i) the daily average amount of the balances under the Revolving Facility outstanding during the preceding month, from (ii) the Facility Cap. The Unused Line Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). (b) In the event the daily average amount of the balances under the Revolving Facility outstanding during any calendar month is less than $2,000,000 (the "MINIMUM AVERAGE MONTHLY LOAN AMOUNT") Borrowers shall pay to Agent for the benefit of Lenders a minimum loan fee in an amount equal to 0.042% per month on the amount by which the Minimum Average Monthly Loan Amount exceeds such daily average amount of unpaid balances. Such fee shall be calculated on the basis of a year of 360 days and actual days elapsed and such fee shall be charged to Borrowers' account on the first day of each month with respect to the prior month. In the event Borrowers request that Agent cease charging the minimum loan fee set forth in this Section 3.2(b), the Unused Line Fee shall automatically increase to 0.083% per month effective on the first month following the date of such request. 3.3. COLLATERAL MANAGEMENT FEE Borrowers shall pay Agent for its own account as additional interest a monthly collateral management fee (the "COLLATERAL MANAGEMENT FEE") equal to 0.083% per month calculated on the basis of the daily average amount of the balances under the Revolving Facility outstanding during the preceding month. The Collateral Management Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). 3.4. COMPUTATION OF FEES; LAWFUL LIMITS All fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed in each calculation period, as applicable. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent, for the benefit of Lenders for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under applicable law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall have received interest or any other charges of any kind which might be deemed to be interest under applicable law in excess of the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Agent and Lenders shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.4 shall control to the extent any other provision of any Loan Document is inconsistent herewith. 12 3.5. DEFAULT RATE OF INTEREST Upon the occurrence and during the continuation of an Event of Default, the Revolving Interest Rate of interest in effect at such time with respect to the Obligations shall be increased by 3.0% per annum (the "DEFAULT RATE"). IV. CONDITIONS PRECEDENT 4.1. CONDITIONS TO INITIAL ADVANCE AND CLOSING The obligations of Lenders to consummate the transactions contemplated herein and to make the initial Advance under the Revolving Facility (the "INITIAL ADVANCE") are subject to the satisfaction of Agent of the following: (a) (i) Borrowers shall have delivered to Agent (A) the Loan Documents to which they are a party, each duly executed by an authorized officer of each Borrower and the other parties thereto, and (B) a Borrowing Certificate for the most recent month ended 20 days or more prior to the Closing Date and an Interim Borrowing Certificate for the most recent week ended prior to the Closing Date for the Initial Advance under the Revolving Facility executed by an authorized officer of Borrowing Agent, and (ii) each Guarantor shall have delivered to Agent the Loan Documents to which such Guarantor is a party, each duly executed and delivered by such Guarantor or an authorized officer of such Guarantor, as applicable, and the other parties thereto; (b) all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received (i) each document (including, without limitation, any Uniform Commercial Code financing statement) required by any Loan Document or under law or reasonably requested by Agent to be filed, registered or recorded to create in favor of Agent, a perfected security interest upon the Collateral, and (ii) evidence of each such filing, registration or recordation and of the payment by Borrowers of any necessary fee, or tax relating thereto; (c) Agent shall have received (i) the Charter and Good Standing Documents, all in form and substance reasonably acceptable to Agent, (ii) a certificate of the secretary or assistant secretary of each Borrower dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents, in form and substance reasonably acceptable to Agent, (iii) the written legal opinions of counsel and/or special counsel for Borrowers, in form and substance satisfactory to Agent in its Permitted Discretion and to its counsel, and (iv) a certificate executed by an authorized officer of each Borrower, which shall constitute a representation and warranty by such Borrower as of the Closing Date that the conditions contained in this Section 4.1 shall have been satisfied; provided that for purposes of giving this representation and warranty, each Borrower may assume that any condition which requires satisfaction of Agent or Lenders has been satisfied; (d) Agent shall have completed examinations, the results of which shall be satisfactory in form and substance to Agent, of the Collateral, the financial statements and the books, records, business, obligations, financial condition and operational state of each Borrower and the Guarantor, and Borrowers shall have demonstrated to Agent's reasonable satisfaction that (i) its operations comply, in all material respects, with all applicable federal, state, foreign and local laws, statutes and regulations, (ii) its operations are not the subject of any 13 governmental investigation, evaluation or any remedial action which could reasonably be expected to result in any material expenditure or liability, and (iii) they have no liabilities or obligations (whether contingent or otherwise) that are material, other than those set forth in the financial statements or other information delivered to Agent; (e) Agent shall have received all fees, charges and expenses payable to Agent on or prior to the Closing Date pursuant to the Loan Documents; (f) all in form and substance satisfactory to Agent in its Permitted Discretion, Agent shall have received such consents, approvals and agreements (which shall not include any Landlord Waivers and Consents with respect to any lease set forth on Schedule 5.4) from such third parties as Agent and its counsel shall determine are necessary or desirable to (i) perfect any security interest or Lien granted to the Agent or the Lenders pursuant to the Security Documents, and/or (ii) permit the execution of and performance under the Loan Documents without any conflict with any other material agreement, document, instrument to which any Borrower is a party or by which any of its properties or assets are bound or subject; (g) Borrowers shall, in the reasonable judgment of Agent, be in compliance with Section 6.5, and Agent shall have received (i) summaries of all insurance policies required for compliance with Section 6.5 and (ii) original certificates of such insurance policies confirming (x) that insurance policies required for compliance with Section 6.5 are in effect, (y) that the premiums due and owing on or prior to the Closing Date with respect to such insurance policies have been paid in full and (y) that, subject to Senior Mortgage/Revolving Lender Intercreditor Agreement, such insurance policies name Agent as an additional insured; (h) All corporate and other proceedings, documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of Borrowers) shall be reasonably satisfactory to Agent; (i) After giving effect to the making of the Initial Advance and the application of all proceeds of the Initial Advance (including the application of such proceeds that will occur within 30 days after the Closing Date): (i) the ratio of (x) the amount of Total Debt on the Closing Date to (y) EBITDA for the twelve month period ended on the last day of the second month prior to the Closing Date shall not exceed 6.5 to 1; (ii) the ratio of (x) the amount of Senior Debt on the Closing Date to (y) EBITDA for the twelve month period ended on the last day of the second month prior to the Closing Date shall not exceed 4 to 1; and (iii) the ratio of (a) EBITDA to (b) Interest Expense, in each case for the twelve month period ended on the last day of the second month prior to the Closing Date, shall be not less than 1.75 to 1. 14 (j) After giving effect to the Plan of Reorganization, no material default shall exist pursuant to any of Borrowers' obligations under any material contract and Borrowers shall be in material compliance with all applicable laws in all material respects; (k) Borrowers shall have established the Lockbox Accounts pursuant to Section 2.5; (l) Agent shall have received copies of all (i) material licenses and permits required for Borrowers to conduct the business in which it is currently engaged or is contemplated pursuant to the Loan Documents, and (ii) all material intercompany agreements, management agreements, documents related to borrowed money, capital leases and other contracts; (m) Agent shall have completed its legal due diligence examinations of Borrowers, the results of which shall be satisfactory in form and substance to Agent, as evidenced by Agent's execution of the Loan Documents; (n) Agent shall have received final executed copies of the Senior Mortgage Loan Documentation, the Mezzanine Loan Documentation and the Revolving Loan A Documentation, all of which shall contain terms and provisions reasonably satisfactory to Agent and the transactions contemplated therein shall be consummated concurrently with the Closing Date; (o) Agent shall have received final executed copies of the Senior Mortgage Intercreditor Agreement and the Senior Mortgage/Revolving Lender Intercreditor Agreement; (p) Agent shall have received a certificate of the Secretary or Assistant Secretary of the Parent, dated as of the Closing Date, certifying (x) that attached thereto is a true, correct and complete copy of the Confirmation Order (including the Plan of Reorganization attached to the Confirmation Order) and (y) the effectiveness of the Confirmation Order shall not have been stayed by any court; (q) The terms and conditions of the Plan of Reorganization shall not have been amended or modified from the form of the Plan of Reorganization attached to the Confirmation Order without the approval of the Requisite Lenders; provided, however, that modifications which in the reasonable judgment of Agent do not impair or adversely affect the rights and remedies of Lenders may be implemented by Borrowers without such approval. All conditions precedent to the effectiveness of the Plan of Reorganization shall have been satisfied (or waived), the Confirmation Order shall not have been stayed by any court and the Effective Date shall have occurred or shall occur concurrently with the closing; (r) Borrowers shall have executed and filed IRS Form 8821 with the appropriate office of the Internal Revenue Service; (s) There shall be no Material Adverse Change in Borrowers' business or general financial condition from that existing as at December 31, 2002, including, Borrowers shall not have experienced (1) a reduction in the average Medi-Cal rate of more than 10% from the rates in effect at December 31, 2002 on the properties being financed with the Senior 15 Mortgage Term Loan, other than material changes in Medicare Part B Therapy payments; (2) any adverse regulatory survey which could reasonably be expected to jeopardize materially the licensure of any Facility of Borrowers; (3) a reduction in average Medicaid reimbursement rates for California Facilities of more than 10%; (4) a material increase in liability insurance premiums; and (5) EBITDA of Borrowers on a Consolidated Basis, for the twelve month period ending on the last day of the most recent month prior to the Closing Date, of less than $40,000,000; and (t) Agent shall have received such other documents, certificates, consents and information as Agent may reasonably request, all in form and substance reasonably satisfactory to Agent. 4.2. CONDITIONS TO EACH ADVANCE The obligations of Lenders to make any Advance (including, without limitation, the Initial Advance) are subject to the satisfaction, in the sole judgment of Agent in its Permitted Discretion, of the following conditions precedent: (a) Borrowers shall have delivered to Agent a Borrowing Certificate or Interim Borrowing Certificate for the Advance executed by an authorized officer of Borrowing Agent on behalf of Borrowers, which shall constitute a representation and warranty by Borrowers as of the Borrowing Date of such Advance that the conditions contained in this Section 4.2 have been satisfied; (b) Each of the representations and warranties made by Borrowers in or pursuant to the Loan Documents shall be accurate in all material respects, before and after giving effect to such Advance, and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to such Advance on such date; (c) Immediately after giving effect to the requested Advance, the aggregate outstanding principal amount of Advances under the Revolving Facility shall not exceed the lesser of Availability and the Facility Cap; (d) Since the Closing Date, there has been no Material Adverse Change; (e) Agent shall have received all fees, charges and expenses payable to Agent and/or Lenders on or prior to such date pursuant to the Loan Documents; and (f) no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the Advance under the Revolving Facility or the funding of the Advance on such date. V. REPRESENTATIONS AND WARRANTIES Each Borrower, jointly and severally, represents and warrants as of the date hereof, the Closing Date, and each Borrowing Date as follows: 5.1. ORGANIZATION AND AUTHORITY 16 Each Borrower is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of its state of formation. Each Borrower (i) has all requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, (ii) is duly qualified to do business in every jurisdiction in which failure so to qualify could reasonably be expected to have a Material Adverse Effect, and (iii) has all requisite power and authority (A) to execute, deliver and perform the Loan Documents to which it is a party, (B) to borrow hereunder, (C) to consummate the transactions contemplated under the Loan Documents, and (D) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. No Borrower is an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, or is controlled by such an "investment company." 5.2. LOAN DOCUMENTS The execution, delivery and performance by each Borrower of the Loan Documents to which it is a party, and the consummation of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of each such Borrower and have been duly executed and delivered by or on behalf of such Borrower; (b) do not violate in any material respect any provisions of (i) applicable law, statute, rule, regulation, ordinance or tariff applicable to such Borrower, (ii) any order of any Governmental Authority binding on each such Borrower or any of its properties; or (iii) any material agreement between any such Borrower and its shareholders, members, partners or equity owners or among any such shareholders, members, partners or equity owners; (c) do not violate any provision of the certificate of incorporation or bylaws (or any other equivalent governing agreement or document) of any such Borrower, (d) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which such Borrower is a party, or by which the properties or assets of such Borrower are bound, the effect of which could reasonably be expected to have a Material Adverse Effect; (e) except as set forth therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of any Borrower, and (f) except for those which have been obtained, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person. When executed and delivered, each of the Loan Documents to which any Borrower is a party will constitute the legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity). 5.3. SUBSIDIARIES, CAPITALIZATION AND OWNERSHIP INTERESTS As of the Closing Date, no Borrower has any Subsidiaries other than those Persons listed as Subsidiaries on Schedule 5.3. Schedule 5.3 also states, as of the Closing Date, the authorized and issued capitalization of each such Borrower and each such Subsidiary, and the 17 number and class of equity securities and/or ownership, voting or partnership interests issued and outstanding (including options, warrants and other rights to acquire any of the foregoing). The outstanding equity securities and/or ownership, voting or partnership interests of each Borrower have been duly authorized and validly issued and are fully paid and nonassessable, and, as of the Closing Date, each Person listed on Schedule 5.3 owns beneficially and of record all the equity securities and/or ownership, voting or partnership interests it is listed as owning free and clear of any Liens other than Liens created by the Security Documents. As of the Closing Date, except as listed on Schedule 5.3, no Borrower owns an interest or participates or engages in any joint venture, partnership or similar arrangements with any Person. 5.4. PROPERTIES Each Borrower (i) is the sole owner and has good, valid and marketable title to, or a valid leasehold interest in, all of its properties and assets, including the Collateral, whether personal or real, subject to no transfer restrictions other than the transfer provisions set forth in the Senior Loan Documents or Liens of any kind except for Permitted Liens, and (ii) is in compliance in all material respects with each lease to which it is a party or otherwise bound. Schedule 5.4 lists, as of the Closing Date, all real properties (and their locations) owned or leased by or to, and all other assets or property that are leased or licensed by, Borrowers and all leases (including leases of leased real property) covering or with respect to such properties and assets. Each Borrower enjoys peaceful and undisturbed possession under all such leases and such leases are all the leases necessary for the operation of such properties and assets, are valid and subsisting and are in full force and effect. 5.5. OTHER AGREEMENTS Except as set forth in Schedule 5.5, no Borrower is (i) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would materially adversely affect its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations, (ii) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, or (iii) a party or subject to any agreement, document or instrument with respect to, or obligation to pay any, service or management fee with respect to, the ownership, operation, leasing or performance of any of its business or any facility, nor is there any manager with respect to any such facility other than a Person that is a Borrower or a Guarantor. 5.6. LITIGATION Except as set forth in Schedule 5.6, there is no action, suit, proceeding or investigation pending or, to their knowledge, threatened against any Borrower that (i) questions or could prevent the validity of any of the Loan Documents or the right of any Borrower to enter 18 into any Loan Document or to consummate the transactions contemplated thereby, (ii) could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect, or (iii) could reasonably be expected to result in any Change of Control or other change in the current ownership, control or management of Borrower. No Borrower is aware that there is any basis for the foregoing. No Borrower is a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. There is no action, suit, proceeding or investigation initiated by any Borrower currently pending that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. Borrowers have no existing accrued and/or unpaid Indebtedness to any Governmental Authority or any other governmental payor that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. 5.7. HAZARDOUS MATERIALS Each Borrower is in compliance in all material respects with all applicable Environmental Laws. No Borrower has been notified of any action, suit, proceeding or investigation (i) relating in any way to compliance by or liability of such Borrower under any Environmental Laws, (ii) which otherwise deals with any Hazardous Substance or any Environmental Law, or (iii) which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Substance, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 5.8. TAX RETURNS; GOVERNMENTAL REPORTS Except as set forth in Schedule 5.8, each Borrower (i) has filed all material federal, state, foreign (if applicable) and local tax returns and other reports which are required by law to be filed by such Borrower, and (ii) has paid all material taxes, assessments, fees and other governmental charges, including, without limitation, payroll and other employment related taxes, in each case that are due and payable, except only for items that such Borrower is contesting in good faith. 5.9. FINANCIAL STATEMENTS AND REPORTS All financial statements and financial information relating to Borrowers that have been or may hereafter be delivered to Agent by Borrowers are accurate and complete in all material respects and have been prepared in accordance with GAAP consistently applied with prior periods. No Borrower has any material obligations or liabilities of any kind not disclosed in such financial information or statements, and since the date of the most recent financial statements submitted to Agent, there has not occurred any Material Adverse Change, Material Adverse Effect or Liability Event or, to Borrower's knowledge, any other event or condition that could reasonably be expected to have a Material Adverse Effect or Liability Event. 5.10. COMPLIANCE WITH LAW 19 Each Borrower (i) is in compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental Authority applicable to such Borrower and/or such Borrower's business, assets or operations, including, without limitation, ERISA and Healthcare Laws, and (ii) is not in violation of any order of any Governmental Authority or other board or tribunal, except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. There is no event, fact, condition or circumstance known to Borrowers which, with notice or passage of time, or both, would constitute or result in any noncompliance with, or any violation of, any of the foregoing, in each case except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. No Borrower has received any notice that such Borrower is not in compliance in any respect with any of the requirements of any of the foregoing. No Borrower has (a) engaged in any Prohibited Transactions as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, (b) failed to meet any applicable minimum funding requirements under Section 302 of ERISA in respect of its plans and no funding requirements have been postponed or delayed, (c) knowledge of any event or occurrence which would cause the Pension Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to terminate any of the employee benefit plans, (d) fiduciary responsibility under ERISA for investments with respect to any plan existing for the benefit of Persons other than its employees or former employees, or (e) withdrawn, completely or partially, from any multi-employer pension plans so as to incur liability under the MultiEmployer Pension Plan Amendments of 1980, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. With respect to each Borrower, there exists no event described in Section 4043 of ERISA, excluding Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12 C.F.R. Section 2615.3 has not been waived and which individually or in the aggregate with all other such events could reasonably be expected to have a Material Adverse Effect. Each Borrower 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 best knowledge of Borrower, there are no presently existing circumstances which likely would result in material violations of the Healthcare Laws. There is no Liability Event. 5.11. INTELLECTUAL PROPERTY Except as set forth on Schedule 5.11, as of the Closing Date no Borrower owns, licenses or utilizes, and is a party to, any patents, patent applications, trademarks, trademark applications, service marks, registered copyrights, copyright applications, copyrights, trade names, trade secrets, software or licenses (collectively, the "INTELLECTUAL PROPERTY"). 5.12. LICENSES AND PERMITS; LABOR Each Borrower is in substantial compliance with and has all Permits and Intellectual Property necessary or required by applicable law or Governmental Authority for the operation of its businesses. All of the foregoing are in full force and effect and not in known conflict in any material respect with the rights of others. No Borrower is (i) in breach of or default under the provisions of any of the foregoing, nor is there any event, fact, condition or 20 circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, (ii) a party to or subject to any agreement, instrument or restriction that is so unusual or burdensome that it could reasonably be expected to have a Material Adverse Effect, and (iii) has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to have a Material Adverse Effect. 5.13. NO DEFAULT There does not exist any Default or Event of Default. 5.14. DISCLOSURE No Loan Document nor any other agreement, document, certificate, or statement furnished to Agent by or on behalf of any Borrower in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty made by any Borrower in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the statements therein not materially misleading. There is no fact known to any Borrower which has not been disclosed to Agent in writing which could reasonably be expected to have a Material Adverse Effect. 5.15. EXISTING INDEBTEDNESS; INVESTMENTS, GUARANTEES AND CERTAIN CONTRACTS Except as contemplated or permitted by the Loan Documents, the Plan of Reorganization or as otherwise set forth on Schedule 5.15, no Borrower (i) has any outstanding Indebtedness for Borrowed Money or Contingent Obligations, (ii) is subject or party to any mortgage, note, indenture, indemnity or guarantee of, with respect to or evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any other Person, or (iii) does not own or hold any long-term debt investments in, and does not have any outstanding advances to or any outstanding guarantees for the obligations of, or any outstanding borrowings from, any Person. Each Borrower has performed all material obligations required to be performed by such Borrower pursuant to or connection with any items listed on Schedule 5.15 and there has occurred no breach, default or event of default under any document evidencing any such items or any fact, circumstance, condition or event which, with the giving of notice or passage of time or both, would constitute or result in a breach, default or event of default thereunder, which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect. 5.16. OTHER AGREEMENTS Except as set forth on Schedule 5.16, as of the Closing Date, there are no existing or proposed agreements, arrangements, understandings or transactions between any Borrower and any of such Borrower's officers, members, managers, directors, stockholders, partners, other interest holders, employees or Affiliates or any members of their respective immediate families. 5.17. INSURANCE 21 Each Borrower has in full force and effect such insurance policies as are customary in its industry and as may be required pursuant to Section 6.5 hereof. All such insurance policies as of the Closing Date are listed and described on Schedule 5.17. 5.18. NAMES; LOCATION OF OFFICES, RECORDS AND COLLATERAL During the preceding five years prior to the Closing Date, no Borrower has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 5.18A. Borrowers are the sole owner of all of its names listed on Schedule 5.18A, and any and all business done and invoices issued in such names are Borrowers' sales, business and invoices. Each trade name of each Borrower represents a division or trading style of such Borrower. As of the Closing Date, each Borrower maintains its places of business and chief executive offices only at the locations set forth on Schedule 5.18B, and all Accounts of each Borrower arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidence the Collateral are located and shall be only, in and at such locations. All of the Collateral is located only in the continental United States. 5.19. NON-SUBORDINATION The Obligations are not subordinated in any way to any other obligations of any Borrower or to the rights of any other Person except to the extent any Lien may have priority over the Liens of Agent in certain of the Collateral (other than Accounts) as contemplated in the Plan of Reorganization. 5.20. ACCOUNTS In determining which Accounts are Eligible Receivables, Agent may rely on all statements and representations made in this Agreement or in the Borrowing Certificate, Interim Borrowing Certificate or any other writing delivered by Borrowers with respect to Accounts. Unless otherwise indicated in writing to Agent or except as hereafter set forth, each Account of Borrowers (i) is genuine and in all respects what is purports to be and is not evidenced by a judgment, (ii) arises out of a completed, bona fide sale and delivery of goods or rendering of Services by Borrowers in the ordinary course of business and in accordance with the terms and conditions of all purchase orders, contracts, certifications, participations, certificates of need and other documents relating thereto or forming a part of the contract between the applicable Borrower and the applicable Account Debtor, (iii) is for a liquidated amount maturing as stated in a claim or invoice covering such sale of goods or rendering of Services, a copy of which has been furnished or is available to Agent, (iv) together with Agent's security interest therein, is not and will not be in the future (by voluntary act or omission by Borrowers), subject to any offset, lien, deduction, defense, dispute, counterclaim or other adverse condition, is absolutely owing to Borrowers and is not contingent in any respect or for any reason (except Accounts owed or owing by Medicaid/Medicare Account Debtors that may be subject to offset or deduction under applicable law), (v) there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the face amount of the claim or invoice and statements delivered to Agent with respect thereto, (vi) to the best of Borrowers' knowledge, (A) the Account Debtor thereunder had the capacity to contract at 22 the time any contract or other document giving rise thereto was executed and (B) such Account Debtor is solvent, (vii) to the best of Borrowers' knowledge, subject to subsection (x) below, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectability of such Account, (viii) has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and is in compliance and conformance with any requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account, and, if due from a Medicaid/Medicare Account Debtor, is properly payable directly to the applicable Borrower, (ix) Borrowers have obtained and currently have all Permits necessary in the generation thereof, and (x) Borrowers have disclosed to Agent on each Borrowing Certificate the amount of all Accounts of Borrowers for which Medicaid/Medicare is the Account Debtor and for which payment has been denied and subsequently appealed pursuant to the procedure described in the definition of Eligible Receivables hereof, and Borrowers are pursuing all available appeals in respect of such Accounts. Notwithstanding anything in this Section 5.20 to the contrary, the failure of any Account other than an Eligible Receivable to satisfy the requirements of this Section 5.20 shall not constitute a Default or Event of Default unless Accounts other than Eligible Accounts having an aggregate face amount of $250,000 or greater fail to comply with the provisions of this Section 5.20. 5.21. HEALTHCARE Without limiting or being limited by any other provision of any Loan Document, Borrowers have timely filed or caused to be filed all material cost and other reports of every kind required by law, agreement or otherwise. Subject to subsection (x) of Section 5.20, there are no claims, actions or appeals pending (and Borrowers have not filed any claims or reports which could reasonably result in any such claims, actions or appeals) before any commission, board or agency or other Governmental Authority, including, without limitation, any intermediary or carrier, the Provider Reimbursement Review Board or the Administrator of the Health Care Financing Administration, with respect to any state or federal Medicare or Medicaid cost reports or claims filed by Borrower, or any disallowance by any commission, board or agency or other Governmental Authority in connection with any audit of such cost reports which claims, actions or appeals, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No validation review or program integrity review related to Borrowers or the consummation of the transactions contemplated herein or to the Collateral have been conducted by any commission, board or agency or other Governmental Authority in connection with the Medicare or Medicaid programs, and to the knowledge of Borrowers, no such reviews are scheduled, pending or threatened against or affecting any of the providers, any of the Collateral or the consummation of the transactions contemplated hereby, which, individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 5.22. PLAN OF REORGANIZATION. Agent has received a copy of the Confirmation Order and the Confirmation Order has not been stayed by any court. All other conditions precedent to the confirmation and effectiveness of the Plan of Reorganization have been satisfied or waived and the Effective Date has occurred. 23 5.23. SURVIVAL. Each Borrower makes the representations and warranties contained herein with the knowledge and intention that Agent is relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement and the making of the Advances under the Revolving Facility. VI. AFFIRMATIVE COVENANTS Each Borrower, jointly and severally, covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement: 6.1. FINANCIAL STATEMENTS, REPORTS AND OTHER INFORMATION (a) Financial Reports. Borrowers shall furnish to Agent and each Lender (i) as soon as available and in any event within one hundred twenty (120) calendar days after the end of each fiscal year of Borrowers, annual financial statements of Borrowers on a Consolidated Basis and on a consolidating basis, including the notes thereto, consisting of a consolidated and consolidating balance sheet at the end of such completed fiscal year and the related consolidated and consolidating statements of income, consolidated (but not consolidating) retained earnings, consolidated (but not consolidating) cash flows and consolidated (but not consolidating) owners' equity for such completed fiscal year, which consolidated financial statements shall be audited and shall be accompanied by an opinion of a Big Four accounting firm (or other independent certified public accounting firm reasonably satisfactory to Agent), which opinion shall not be qualified as to going concern or scope of audit; (ii) as soon as available and in any event within forty-five (45) calendar days after the end of each fiscal quarter of Borrowers (other than the last fiscal quarter of each fiscal year), unaudited financial statements of Borrowers on a Consolidated Basis and on a consolidating basis consisting of a consolidated and consolidating balance sheet and consolidated and consolidating statements of income, consolidated (but not consolidating) retained earnings and consolidated (but not consolidating) cash flows and consolidated (but not consolidating) owners' equity as of the end of such fiscal quarter; and (iii) as soon as available and in any event within thirty (30) calendar days after the end of each calendar month (other than the last calendar month of a fiscal quarter), unaudited financial statements of Borrowers on a Consolidated Basis consisting of a balance sheet and statements of income, retained earnings, cash flows and owners' equity as of the end of the immediately preceding calendar month. All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods. With each such financial statement, Borrowing Agent shall also deliver a certificate of its chief financial officer stating that (A) such person has reviewed the relevant terms of the Loan Documents and the condition of Borrowers, (B) no Default or Event of Default has occurred or is continuing, or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto, and (C) Borrowers are in compliance with all financial covenants attached as Annex I hereto. Such certificate shall be accompanied by the calculations necessary to show compliance with the financial covenants in a form reasonably satisfactory to Agent. All consolidating statements required under this Section 6.1(a) or elsewhere in this Agreement shall 24 be prepared for each Business Group of Borrowers and its Subsidiaries and not with respect to any individual Borrower or Subsidiary. (b) Other Materials. Borrowers shall furnish to Agent as soon as available, and in any event within ten (10) calendar days after the preparation or issuance thereof or at such other time as set forth below: (i) any reports, returns, information, notices and other materials that Parent shall send to its stockholders, members, partners or other equity owners at any time, (ii) all Medicare and Medicaid cost reports and other document and materials filed by Borrowers and any other reports, materials or other information regarding or otherwise relating to Medicaid or Medicare prepared by, for or on behalf of Borrowers, (iii) concurrently with the delivery of financial statements under Section 6.1(a), any other material reports, materials or other information regarding or otherwise relating to Medicaid or Medicare prepared by, for, or on behalf of, Borrowers or any of their Subsidiaries during the period to which such financial statements relate, including, without limitation, (A) copies of material licenses and permits required by any applicable federal, state, foreign or local law, statute ordinance or regulation or Governmental Authority for the operation of its business, (B) Medicare and Medicaid provider numbers and material agreements, (C) state surveys pertaining to any healthcare facility operated or owned or leased by Borrowers or any of their Affiliates or Subsidiaries and (D) material participating agreements relating to medical plans, (iv) within twenty (20) calendar days after the end of each calendar month for such month, a revenue report and accounts receivable and accounts payable aging schedules, (v) within thirty (30) calendar days after the end of each calendar month for such month, a report of census and occupancy percentage by payor type, (vi) promptly upon receipt thereof, copies of any reports, if any, submitted to Borrowers by their independent accountants in connection with any interim audit of the books of such Person or any of its Affiliates and copies of each management control letter, if any, provided by such independent accountants, and (vii) such additional information, documents, statements, reports and other materials as Agent may reasonably request from a credit or security perspective or otherwise from time to time. (c) Notices. Borrowers shall promptly, and in any event within five (5) Business Days after any Borrower or any authorized officer of any Borrower obtain knowledge thereof, notify Agent in writing of (i) any pending or threatened litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative proceeding brought or initiated by any Borrower or otherwise affecting or involving or relating to any Borrower or any of its property or assets to the extent (A) (x) with respect to professional liability claims, the amount in controversy exceeds $5,000,000 (provided that Borrowers shall notify Agent if in their judgment any such claim has merit and the Borrowers' potential exposure with respect thereto is greater than $500,000), and (y) with respect to all other claims the amount in controversy exceeds $500,000 or (B) to the extent any of the foregoing seeks injunctive relief which could reasonably be expected to have a Material Adverse Effect, (ii) the occurrence of any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iii) any other development, event, fact, circumstance or condition that could reasonably be expected to have a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (iv) any notice received by any Borrower from any payor of a material claim, suit or other action such payor has, claims or has filed against Borrower, (v) any matter(s) materially and adversely affecting the value, enforceability or collectability of the 25 Collateral, including, without limitation, claims or disputes in the amount of $250,000 or more in the aggregate, in existence at any one time, (vi) any notice given by any Borrower to any other lender of any Borrower (with a copy of such notice), (vii) receipt of any notice or request from any Governmental Authority or governmental payor regarding any material liability or claim of liability, (viii) receipt of any notice by any Borrower regarding termination of any manager of any facility owned, operated or leased by Borrowers, and/or (ix) if any Account becomes evidenced or secured by an Instrument or Chattel Paper. (d) Consents. Borrowers shall use reasonable efforts (which shall not include the unreasonable payment of money) to obtain and deliver from time to time all required consents, approvals and agreements from such third parties as Agent shall determine are necessary or desirable in its Permitted Discretion and that are reasonably satisfactory to Agent to (i) perfect any security interest or lien granted to the Agent or the Lenders pursuant to the Security Documents, and/or (ii) permit the execution of and performance under the Loan Documents without any conflict with any other material agreement, document or instrument to which any Borrower is a party or by which any of its properties or assets are bound or subject (but in no event shall any Landlord Waivers or Consents be required with respect to leases in existence on the Closing Date so long as for any books and records kept at a location for which Borrowers are not able to obtain a Landlord Consent and Waiver, Borrowers keep a duplicate up to date set of such books and records at a location owned by a Borrower or with respect to which a Landlord Waiver and Consent had been obtained which is reasonably acceptable to Agent). (e) Operating Budget. Borrowers shall furnish to Agent on or prior to the Closing Date and for each fiscal year of Borrowers thereafter not more than sixty (60) calendar days after the commencement of such fiscal year, consolidated and consolidating by Business Group month by month projected operating budgets, annual projections, profit and loss statements, balance sheets and cash flow reports of and for Borrowers on Consolidated Basis for such upcoming fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), in each case prepared in accordance with GAAP consistently applied with prior periods. 6.2. PAYMENT OF OBLIGATIONS Borrowers shall make full and timely indefeasible payment in cash of the principal of and interest on the Loans, Advances and all other Obligations. 6.3. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS Each Borrower shall (i) conduct its business in accordance with good business practices customary to the industry, (ii) engage principally in the same or similar lines of business substantially as heretofore conducted, (iii) collect its Accounts in the ordinary course of business, (iv) maintain all of its material properties, assets and equipment used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the Loan Documents and otherwise as determined by such Borrower using commercially reasonable business judgment), (v) from time to time to make all necessary or desirable repairs, renewals and replacements thereof, as determined by such Borrower using commercially reasonable 26 business judgment, (vi) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in each jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and in which failure to maintain such Permits or qualification could reasonably be likely to have a Material Adverse Effect, and (vii) remain in good standing and maintain operations in all jurisdictions in which failure to do so could reasonably be expected to have a Material Adverse Effect. 6.4. COMPLIANCE WITH LEGAL AND OTHER OBLIGATIONS Each Borrower shall (i) comply in all material respects with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to it or its business, assets or operations, (ii) pay all material taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind, except liabilities being contested in good faith and against which adequate reserves have been established, (iii) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound, except where the failure to comply, pay or perform could not reasonably be expected to have a Material Adverse Effect, (iv) maintain and comply in all material respects with all Permits necessary to conduct its business and comply in all material respects with any new or additional requirements that may be imposed on it or its business, and (v) appropriately file all Medicaid/Medicare cost reports. 6.5. INSURANCE Each Borrower shall (i) keep all of its insurable properties and assets adequately insured in all material respects against losses, damages and hazards as are customarily insured against by businesses engaging in similar activities or owning similar assets or properties and at least the minimum amount required by applicable law, including, without limitation, medical malpractice and professional liability insurance, as applicable; and maintain general public liability insurance at all times against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions as are customary for a business engaged in activities similar to those of such Borrower; and (ii) maintain insurance under all applicable workers' compensation laws; all of the foregoing insurance policies to (A) be reasonably satisfactory in form and substance to Agent, (B) name Agent as loss payee with respect to insurance covering the Collateral and additional insured under any general liability policy, and (C) expressly provide that they cannot be altered, amended, modified or canceled without thirty (30) Business Days prior written notice to Agent and that they inure to the benefit of Agent notwithstanding any action or omission or negligence of or by any Borrower or any insured thereunder. By the funding of the Initial Advance, the Agent hereby acknowledges that the insurance in place on the Closing Date is satisfactory to Agent. 27 6.6. TRUE BOOKS Each Borrower shall (i) keep true, complete and accurate books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its and their dealings and transactions in all material respects; and (ii) set up and maintain on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business, and include such reserves in its quarterly as well as year end financial statements. 6.7. INSPECTION; PERIODIC AUDITS Each Borrower shall permit the representatives of Agent, at the expense of Borrowers, from time to time during normal business hours upon reasonable notice, to (i) visit and inspect any of such Borrower's offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine or audit all of such Borrower's books of account, records, reports and other papers, (ii) make copies and extracts therefrom, and (iii) discuss such Borrower's business, operations, prospects, properties, assets, liabilities, condition and/or Accounts with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing); provided that so long as no Default or Event of Default has occurred and is continuing, Borrowers shall not have to pay expenses (x) for more than three (3) audits in any fiscal year and (y) in respect of audits in excess of $100,000 in the aggregate per fiscal year. 6.8. FURTHER ASSURANCES; POST CLOSING At Borrowers' cost and expense, Borrowers shall (i) within five (5) Business Days after Agent's demand, take such further actions, obtain such consents and approvals and duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion to give effect to or carry out the terms of the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence of a Default or Event of Default, (ii) without limiting and notwithstanding any other provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth on Schedule 6.8, and (iii) upon the exercise by Agent or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization. Without limiting the foregoing, upon the exercise by Agent or any of its Affiliates of any right or remedy under any Loan Document which requires any consent, approval or registration with, consent, qualification or authorization by, any Person, Borrowers shall execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that Agent, any Lender or their respective Affiliates may be required to obtain for such consent, approval, registration, qualification or authorization. 28 6.9. PAYMENT OF INDEBTEDNESS Except as otherwise prescribed in the Loan Documents, Borrowers shall pay, discharge or otherwise satisfy at or before maturity (subject to applicable grace periods and, in the case of trade payables, to ordinary course payment practices) all of its material obligations and liabilities, except when the amount or validity thereof is being contested in good faith by appropriate proceedings and against which adequate reserves have been established. 6.10. LIEN SEARCHES If Liens other than Permitted Liens exist, Borrowers immediately shall take, execute and deliver all actions, documents and instruments necessary to release and terminate such Liens, unless such Liens are being contested in good faith by appropriate proceedings and against which adequate reserves have been established. 6.11. USE OF PROCEEDS Borrowers shall use the proceeds from the Revolving Facility only for the purposes set forth in the first "WHEREAS" clause of this Agreement. 6.12. COLLATERAL DOCUMENTS; SECURITY INTEREST IN COLLATERAL Each Borrower shall (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Agent to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Agent and Agent's perfected first priority Lien on the Collateral (and each Borrower irrevocably grants Agent the right, at Agent's option, to file any or all of the foregoing), (ii) immediately upon learning thereof, report to Agent any reclamation, return or repossession of goods in excess of $100,000.00 (individually or in the aggregate), and (iii) defend the Collateral and Agent's perfected first priority Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent or any Lender, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys' fees and expenses) in connection with such defense, which may at Agent's discretion be added to the Obligations. 6.13. TAXES AND OTHER CHARGES All payments and reimbursements to Agent, for the benefit of Lenders, made under any Loan Document shall be free and clear of and without deduction for all taxes, levies, imposts, deductions, assessments, charges or withholdings, and all liabilities with respect thereto of any nature whatsoever, excluding taxes to the extent imposed on each Lender's net income or franchise taxes imposed in lieu of taxes on net income. If Borrowers shall be required by law to deduct any such amounts from or in respect of any sum payable under any Loan Document to Agent, for the benefit of Lenders, then the sum payable to Agent, for the benefit of Lenders, shall 29 be increased as may be necessary so that, after making all required deductions, each Lender receives an amount equal to the sum it would have received had no such deductions been made. Notwithstanding any other provision of any Loan Document, if at any time after the Closing (a) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (b) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (c) compliance by Agent or any Lender with any request or directive (whether or not having the force of law) from any Governmental Authority: (i) subjects Agent or such Lender to any tax, levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the basis of taxation of payments to Agent, for the benefit of Lenders, of any amount payable thereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of Agent and/or each Lender), or (ii) imposes on Agent or Lenders any other condition or increased cost in connection with the transactions contemplated thereby or participations therein; and the result of any of the foregoing is to increase the cost to Agent or Lenders of making or continuing any Loan hereunder or to reduce any amount receivable hereunder, then, in any such case, Borrowers shall promptly pay to Agent, for the benefit of Lenders, any additional amounts necessary to compensate Agent and each Lender, on an after-tax basis, for such additional cost or reduced amount as determined by such Lender; provided that the Borrowers shall not be obligated to compensate the Agent or any Lender from any such additional amounts that relate to a period prior to 180 days before the date of notice for the Agent or the applicable Lender of such additional cost. If Agent or any Lender becomes entitled to claim any additional amounts pursuant to this Section 6.13 it shall promptly notify Borrowing Agent of the event by reason of which Agent or such Lender has become so entitled, and each such notice of additional amounts payable pursuant to this Section 6.13 submitted by Agent or such Lender to Borrowers shall, absent manifest error, be final, conclusive and binding for all purposes. At the request of Agent, Borrowers shall cause to be delivered to Agent within ten (10) calendar days after the end of each calendar month a report of ADP wire transfers evidencing payment of payroll taxes for the immediately preceding calendar month. 6.14. NEW SUBSIDIARIES Within thirty (30) calendar days of any Person becoming a Subsidiary (other than an Excluded Subsidiary) after the Closing Date, Borrowers shall cause such Person to (a) deliver to Agent a Joinder Agreement to this Agreement and to each other Loan Document or a Guaranty and Security Agreement to which Borrowers or Guarantors are a party duly executed by such Person, which Joinder Agreement or Guaranty and Security Agreement shall be in the forms of the attached Exhibits C and D, respectively, (b) provide Agent with copies of such Person's organizational documents, material contracts, financial information, and any other information reasonably requested by Agent, on behalf of the Lenders, in order to perform legal and financial diligence and Uniform Commercial Code, tax and judgment lien searches, (c) cause to be delivered a written legal opinion of counsel substantially consistent with the opinions of counsel delivered on the Closing Date and otherwise in form and substance reasonably satisfactory to Agent which shall cover such matters incident to the transactions contemplated by this Section 6.14 and the other agreements and instruments executed and delivered pursuant hereto in substantially the form as delivered at the Closing and (d) cause such Person to duly 30 execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its Permitted Discretion with respect to the purposes, terms and conditions of the Loan Documents. 6.15. RIGHT OF FIRST OFFER If at any time Borrowers propose to enter into any type of financing to refinance in full the outstanding Obligations (a "FINANCING"), then Borrowers shall, before entering into such Financing with any third party, notify the Agent in writing of their desire to enter into a Financing, such notice (the "PROPOSAL NOTICE") to set out with particularity the type of Financing that the Borrowers wish to consummate. Agent shall have five (5) Business Days (the "ACCEPTANCE PERIOD") after Receipt of the Proposal Notice to inform the Borrowers of its willingness to provide the Financing (the "ACCEPTANCE NOTICE"), which Acceptance Notice shall be accompanied by a term sheet or proposal letter setting forth in detail the proposed terms and conditions upon which Agent would be prepared to provide the Financing. After the receipt of the Acceptance Notice, the Borrowers shall have the right, within five (5) Business Days (the "NEGOTIATION PERIOD") to accept such proposal, during which period the Agent and the Borrowers may negotiate in good faith the terms of the Agent's proposal and to execute a mutually acceptable commitment letter. If no Acceptance Notice is received by Borrowing Agent by the end of the Acceptance Period or if the parties are unable to agree to the terms of the Financing by the end of the Negotiation Period, then Borrowers shall have the right, for a period of one hundred eighty (180) days following the expiration of the later of the Acceptance Period or the Negotiation Period (the "CLOSING PERIOD"), to offer the Financing to a third party as set forth in the Proposal Notice on terms and conditions which are, in the aggregate, more beneficial to the Borrowers than the terms set forth in the Acceptance Notice. If the Borrowers are not able to consummate such Financing prior to the expiration of the Closing Period, the Borrowers shall not be entitled to consummate the Financing with a third party without again complying with this Section 6.15. Any failure by Agent or any Lender to issue an Acceptance Notice shall not be construed as a waiver of any of the terms, covenants or conditions of any of the Loan Documents. For purposes of this Section 6.15, "Lender" shall include CapitalSource Finance LLC and any of its parents, subsidiaries or Affiliates. 6.16. SUPPLEMENTAL DISCLOSURE From time to time as may be reasonably requested by Agent (which request may not be more frequent than once per fiscal quarter unless an Event of Default shall have occurred and be continuing), the Borrowers shall supplement the following Schedules: Schedule 2.4, Schedule 5.3, Schedule 5.11, Schedule 5.18A and Schedule 5.18B. VII. NEGATIVE COVENANTS Each Borrower, jointly and severally, covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations) and termination of this Agreement: 7.1. FINANCIAL COVENANTS 31 No Borrower shall violate the financial covenants set forth on Annex I to this Agreement, which is incorporated herein and made a part hereof. 7.2. PERMITTED INDEBTEDNESS No Borrower shall create, incur, assume or suffer to exist any Indebtedness for Borrowed Money, except the following (collectively, "PERMITTED INDEBTEDNESS"): (a) Indebtedness under the Loan Documents; (b) the Senior Mortgage Loan; (c) any Indebtedness set forth on Schedule 7.2 and any Indebtedness which refinances or replaces such Indebtedness to the extent such refinanced Indebtedness does not increase the total principal amount thereof, extend the maturity date, accelerate the amortization or is otherwise on terms and conditions which are not materially more onerous to the Borrowers ("Permitted Refinanced Indebtedness"); (d) (i) Capitalized Lease Obligations incurred after the Closing Date and Indebtedness incurred pursuant to purchase money Liens permitted by Section 7.3(v) and any Permitted Refinanced Indebtedness with respect thereto, provided that the aggregate amount thereof outstanding at any time shall not exceed $5,000,000; and (ii) Indebtedness on a non-recourse (other than customary carve-outs for non-recourse financings) basis to any assets of any Borrower or any Guarantor other than the asset or assets that are collateral securing such Indebtedness and which is secured by a Lien permitted pursuant to Section 7.3(v) and any Permitted Refinancing Indebtedness with respect thereto; provided that the aggregate amount outstanding at any time shall not exceed $30,000,000; (e) Indebtedness in connection with advances made by a stockholder in order to cure any default of the financial covenants set forth on Annex I; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Obligations and to all of Agent's rights and in form and substance reasonably satisfactory to Agent; (f) borrowings incurred in the ordinary course of business and not exceeding $10,000,000 individually or in the aggregate outstanding at any one time; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Obligations and to all of Agent's rights and in form and substance satisfactory to Agent; (g) Indebtedness from time to time owing to any Borrower; (h) Indebtedness of any Borrower arising out of an Interest Rate Agreement entered into in the ordinary course of business; (i) Indebtedness constituting Priority Claims; (j) Indebtedness in respect of insurance premiums payable to the Insurance Subsidiary in an aggregate amount not to exceed $10,000,000 and (k) additional unsecured Indebtedness in the ordinary course of business in an aggregate amount not to exceed $2,000,000. Notwithstanding anything in this Section 7.2 or this Agreement to the contrary, the aggregate amount of Indebtedness for Borrowed Money of Borrowers on a Consolidated Basis, exclusive of the Obligations and the "Obligations" as such term is defined in the Revolving Loan A Agreement, shall not exceed $255,000,000 in the aggregate. 7.3. PERMITTED LIENS No Borrower shall create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of, any of the Collateral or any of its properties or assets, whether now owned or hereafter acquired, except the following (collectively, "PERMITTED LIENS"): (i) Liens under the Loan Documents or otherwise arising in favor of Agent; (ii) Liens securing the Senior Mortgage Loan, subject to the Senior Mortgage/Revolving Lender Intercreditor Agreement, (iii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not 32 yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (iv) (A) statutory Liens of landlords (provided that with respect to any landlord for leased locations acquired after the Closing Date, the applicable Borrower shall have used reasonable efforts (which shall not include the unreasonable payment of money) to cause such landlord to execute a Landlord Waiver and Consent in form and substance reasonably satisfactory to Agent in its Permitted Discretion; provided, further, in the event Borrowers are unable to obtain any such Landlord Waiver and Consent, Borrowers shall maintain a duplicate up to date set of any books and records maintained at the location related to the real property owned by the applicable landlord at a location owned by a Borrower or with respect to which a Landlord Waiver and Consent reasonably satisfactory to Agent shall have been obtained) and of carriers, warehousemen, mechanics, materialmen, and (B) other Liens imposed by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (v) Liens (A) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of progress payments under government contracts; (vi) purchase money Liens and Liens securing Capitalized Lease Obligations (A) securing Indebtedness permitted under Section 7.2(c), or (B) in connection with the purchase by such Person of assets in the normal course of business, provided that (x) such payables shall not exceed any limits on Indebtedness provided for herein and shall otherwise be Permitted Indebtedness hereunder and (y) with respect to Indebtedness incurred pursuant to Section 7.2(c)(ii) such Liens shall not extend to or cover any property of such Borrower other than the property being acquired and improvements thereon or which is the subject of the applicable Capital Lease, (vii) easements, rights-of-way, restrictions and other similar encumbrances which do not materially interfere with the conduct of the business of Borrowers and their Subsidiaries; (viii) any intercompany Liens between a Borrower or Guarantor on the one hand and another Borrower or Guarantor on the other; (ix) any interest or title of a lessor under a operating lease; (x) Liens securing the Priority Claims; and (xi) Liens disclosed on Schedule 7.3. 7.4. INVESTMENTS; NEW FACILITIES OR COLLATERAL; SUBSIDIARIES No Borrower, directly or indirectly, shall (a) purchase, own, hold, invest in or otherwise acquire obligations or stock or securities of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture or (b) make or permit to exist any loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (collectively, an "INVESTMENT"), in each case, other than (i) Investments in any Borrower or any Subsidiary of any Borrower; (ii) Investments in any Person to the extent such Person either (x) becomes a Borrower or a Guarantor under this Agreement, (y) with respect to investments by Parent in any Person or Subsidiary (other than a Borrower), becomes a borrower or a guarantor under the Revolving Loan A Documentation or the Mezzanine Loan Documentation or (z) with respect to investments existing on the Closing Date by Parent in any 33 Person or Subsidiary which is a borrower or guarantor under the Senior Mortgage Loan Documentation; (iii) Investments in Cash Equivalents; (iv) Investments listed on Schedule 7.4; (v) trade credit extended in the ordinary course of business, (vi) advances for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees, (vii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (vii) guaranties by any Borrower or any Guarantor of obligations of another Borrower or another Guarantor, to the extent the obligation guaranteed is otherwise permitted under this Agreement; (viii) Investments in the Insurance Subsidiary in an amount not to exceed $1,500,000; and (ix) additional Investments in an amount not to exceed $2,000,000. No Borrower, directly or indirectly, shall purchase, own, operate, hold, invest in or otherwise acquire any facility, property or assets or any Collateral that is not located at the locations set forth on Schedule 5.18B unless such Borrower shall provide to Agent at least ten (10) Business Days prior written notice. No Borrower shall have any Subsidiaries other than (i) another Borrower, or (ii) such Subsidiaries which execute a Joinder Agreement or a Guaranty and Security Agreement pursuant to Section 6.14 or (iii) Excluded Subsidiaries. 7.5. DIVIDENDS; REDEMPTIONS No Borrower shall (i) declare, pay or make any dividend or distribution on any shares of capital stock or other securities or interests (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock); (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any capital stock or other securities or interests or of any options to purchase or acquire any of the foregoing (provided, however, that such Borrower may redeem its capital stock from any terminated employee pursuant to, but only to the extent required or permitted under, the terms of the related employment or other agreements with such employee, as long as no Default or Event of Default has occurred and is continuing or would be caused by or result therefrom), or (iii) otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person's capacity as an equity owner. Notwithstanding the foregoing, (x) any Borrower may make Distributions and other payments to the owner of such Borrower or to any obligor under the Mezzanine Loan or the Senior Mortgage Term Loan B for the purpose of making required payments with respect thereto; and (y) after the payment in full of the Mezzanine Loan and the Senior Mortgage Term Loan B, and provided no Default or Event of Default shall have occurred, be continuing or would exist after giving effect thereto, any Borrower may make dividends or Distribution. In addition, no Borrower shall make any payment of any management, service or related or similar fee to any Person or with respect to any facility owned, operated or leased by Borrower except in the manner permitted under the Management Agreements and the Management Fee Subordination Agreements; provided that Borrower shall not make or suffer to exist any payment of fees under any Management Agreement if a Default of Event of Default has occurred and is continuing or would result therefrom. 7.6. TRANSACTIONS WITH AFFILIATES Except as set forth on Schedule 7.6, no Borrower shall enter into or consummate any transaction of any kind with any of its Affiliates or any Guarantor or any of their respective Affiliates other than: (i) salary, bonus, employee stock option and other compensation and employment arrangements with directors or officers in the ordinary course of business, provided, 34 that no payment of any bonus shall be permitted if an Event of Default under Section (VIII)(a) has occurred and remains in effect or would be caused by or result from such payment; (ii) distributions and dividends permitted pursuant to Section 7.4 or Section 7.5, (iii) transactions on overall terms at least as favorable to such Borrower as would be the case in an arm's length transaction between unrelated parties of equal bargaining power, and (iv) payments permitted under and pursuant to written agreements entered into by and between such Borrower and one or more of its Affiliates that both (A) reflect and constitute transactions on overall terms at least as favorable to such Borrower as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power, and (B) are subject to such terms and conditions as determined by Agent in its Permitted Discretion; provided, that notwithstanding the foregoing or any provision of any Loan Document, no Borrower shall (Y) enter into or consummate any transaction or agreement pursuant to which it becomes a party to any mortgage, note, indenture or guarantee evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any of its Affiliates (other than a Borrower or a Guarantor pursuant to the Loan Documents) or otherwise becomes responsible or liable, as a guarantor, surety or otherwise, pursuant to any agreement for any Indebtedness for Borrowed Money or Contingent Obligations of any such Affiliate (other than a Borrower or a Guarantor pursuant to the Loan Documents) or (Z) make any payment to any of its Affiliates in excess of $100,000 without the prior written consent of Agent. By execution of this Agreement, the Agent consents to the payments made to Affiliates pursuant to the agreements set forth on Schedule 7.6. 7.7. CHARTER DOCUMENTS; FISCAL YEAR; DISSOLUTION; USE OF PROCEEDS No Borrower shall (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents in a manner that would be adverse to Agent or any Lender, (ii) change its fiscal year unless Borrowers demonstrate to Agent's reasonable satisfaction compliance with the covenants contained herein for both the fiscal year in effect prior to any change and the new fiscal year period by delivery to Agent of appropriate interim and annual pro forma, historical and current compliance certificates for such periods and such other information as Agent may reasonably request, (iii) amend, alter or suspend or terminate or make provisional in any material way, any Permit material to the business of such Borrower without the prior written consent of Agent, which consent shall not be unreasonably withheld or delayed, or (iv) use any proceeds of any Advance for "purchasing" or "carrying" "margin stock" as defined in Regulations U, T or X of the Board of Governors of the Federal Reserve System. 7.8. TRANSFER OF ASSETS No Borrower shall sell, lease, transfer, pledge, assign or otherwise dispose of any Collateral or any interest therein or agree to do any of the foregoing, except that: (a) the sale, transfer, lease or other disposition by any Borrower or any Guarantor of assets aggregating for all Borrowers and Guarantors not more than $5,000,000 during in the Term; and 35 (b) the sale, transfer, lease or other disposition by any Borrower or any Guarantor of not more than five (5) Facilities during the Term, provided that any such sale, transfer, lease or other disposition shall not result in a Default or Event of Default; and 7.9. CONTINGENT OBLIGATIONS No Borrower shall enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person except for (a) Contingent Obligations permitted pursuant to Section 7.2 or Section 7.4; (b) Contingent Obligations of any Borrower or any Guarantor for any Borrower or any Guarantor, to the extent the underlying obligation is otherwise permitted under this Agreement; (c) Contingent Obligations set forth in Schedule 7.9 hereof; and (d) refinancings and replacements of Contingent Obligations otherwise permitted hereunder. 7.10 IRS FORM 8821 No Borrower shall alter, amend, restate, or otherwise modify, or withdraw, terminate or re-file the IRS Form 8821 required to be filed pursuant to the Conditions Precedent in Section 4.1 hereof. 7.11. NEGATIVE PLEDGE No Borrower shall pledge or grant a Lien on any stock or other equity interests of any Subsidiary which it owns at any time to any Person other than to Agent for itself and the benefit of Lenders. VIII. EVENTS OF DEFAULT The occurrence of any one or more of the following shall constitute an "EVENT OF DEFAULT": (a) any Borrower shall fail to pay any amount on the Obligations or provided for in any Loan Document when due (whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise); (b) any representation, statement or warranty made or deemed made by any Borrower or any Guarantor in any Loan Document or in any other certificate, document, report or opinion delivered in conjunction with any Loan Document to which it is a party, shall not be true and correct in all material respects or shall have been false or misleading in any material respect on the date when made or deemed to have been made; (c) any Borrower or any Guarantor or other party thereto other than Agent or any Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, any Loan Document and such violation, breach, default or failure shall not be cured within a fifteen (15) calendar day cure period commencing from the earlier of (i) Receipt by such Person of written notice of such breach, 36 default, violation or failure, and (ii) the time at which such Person or any authorized officer thereof knew or became aware, or should have known or been aware, of such failure, violation, breach or default; provided that, (A) the cure period set forth above shall not apply to any other Default or Event of Default set forth in any other provision of this Article VIII as to which no cure period or a different cure period is provided and (B) with respect to the covenants set forth in Sections 6.1, 6.2, 6.3(i), (ii) and (iii), 6.5, 6.8, 6.9, 6.11, 6.12, 6.14 and Article VII there shall be no cure period; (d) (i) any of the Loan Documents ceases to be in full force and effect, or (ii) any Lien created thereunder ceases to constitute a valid perfected first priority Lien on the Collateral (other than Priority Liens) in accordance with the terms thereof, or Agent ceases to have a valid perfected first priority security interest (subject only to Priority Liens) in any of the Collateral or any securities pledged to Agent pursuant to the Security Documents; (e) one or more judgments or decrees is rendered against any Borrower or Guarantor in an amount in excess of $2,000,000 individually or in the aggregate, which is/are not satisfied, stayed, vacated or discharged of record for a period of thirty (30) consecutive calendar days after being rendered; (f) (i) any default occurs, which is not cured or waived (x) in the payment of any amount with respect to Indebtedness under the Senior Mortgage Loan Documentation, the Mezzanine Loan Documentation, the Revolving Loan A Documentation, any Priority Claims or in respect of any other Indebtedness (other than the Obligations) of any Borrower or Guarantor in excess of $2,000,000; or (y) in the performance, observance or fulfillment of any provision contained in any agreement, contract, document or instrument under or pursuant to which any Indebtedness described in clause (x) above was issued, created, assumed, guaranteed or secured and such default continues for more than any applicable grace period or permits the holder of any such Indebtedness to accelerate the maturity thereof; or (ii) any such Indebtedness of any Borrower or Guarantor is declared to be due and payable or is required to be prepaid (other than by a regularly scheduled payment or a voluntary prepayment permitted under this Agreement) prior to the stated maturity thereof, or any obligation of such Person for the payment of Indebtedness (other than the Obligations) is not paid when due or within any applicable grace period, or any such obligation becomes or is declared to be due and payable before the expressed maturity thereof (other than as a result of a voluntary prepayment permitted under this Agreement); (g) any Borrower or any Guarantor shall (i) be unable to pay its debts generally as they become due, (ii) make a general assignment for the benefit of its creditors, (iii) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property, or (iv) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute; (h) (i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any Borrower or Guarantor or the whole or any substantial part of any such Person's properties, which shall continue unstayed and in effect for a period of sixty (60) consecutive calendar days, (B) shall 37 approve a petition filed against any Borrower or Guarantor seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other applicable law or statute, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other applicable law or statute, assume custody or control of any Borrower or Guarantor or of the whole or any substantial part of any such Person's properties, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against any Borrower or Guarantor any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which any Borrower or Guarantor takes any action to indicate its approval of or consent to; (i) (i) any Change of Control occurs, (ii) any Material Adverse Effect or Material Adverse Change occurs, or (iii) any Liability Event occurs; (j) Agent receives any indication or evidence that any Borrower or Guarantor may have directly or indirectly been engaged in any type of activity which, in Agent's Permitted Discretion, might result in forfeiture of any material Collateral to any Governmental Authority which shall have continued unremedied for a period of ten (10) calendar days after written notice from Agent; (k) an Event of Default occurs under any other Loan Document; (l) any Borrower or Guarantor is criminally indicted or convicted under any law that could lead to a forfeiture of any Collateral; (m) the issuance of any process for levy, attachment or garnishment or execution upon or prior to any judgment against any Borrower or Guarantor or any of their property or assets in an aggregate amount greater than $2,000,000; then, and in any such event, notwithstanding any other provision of any Loan Document, Agent may (and at the request of Requisite Lenders, shall), by notice to Borrowers (i) terminate its obligations to make Advances hereunder, whereupon the same shall immediately terminate and (ii) declare all or any of the Revolving Notes, all interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under Section VIII(g) or (h), in which event all of the foregoing shall automatically and without further act by Agent be due and payable), provided that, with respect to non-material breaches or violations that constitute Events of Default under clause (ii) of Section VIII(d), there shall be a three (3) Business Day cure period commencing from the earlier of (A) Receipt by the applicable Person of written notice of such breach or violation or of any event, fact or circumstance constituting or resulting in any of the foregoing, and (B) the time at which such Person or any authorized officer thereof knew or became aware, or should have known or been aware, of such breach or violation and resulting Event of Default or of any event, fact or circumstance constituting or resulting in any of the foregoing)), in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower. IX. RIGHTS AND REMEDIES AFTER DEFAULT 9.1. RIGHTS AND REMEDIES 38 (a) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and continuation of an Event of Default, Agent shall have the right to (and at the request of Requisite Lenders, shall) exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of any Borrower held by Agent, for the benefit of Lenders to reduce the Obligations, (ii) foreclose the Liens created under the Security Documents, (iii) realize upon, take possession of and/or sell any Collateral or securities pledged (other than Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law) with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as any Borrower, as applicable, might exercise (other than with respect to Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), (v) collect and send notices regarding the Collateral (other than with respect to Collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral and/or pledged securities are located, or dispose of the Collateral and/or pledged securities on such premises without any liability for rent, storage, utilities, or other sums (other than amounts agreed to by Agent in any agreement with any landlord or lessor), and no Borrower shall resist or interfere with such action, (vii) at Borrowers' expense, require that all or any part of the Collateral be assembled and made available to Agent at any reasonable place designated by Agent, (viii) reduce or otherwise change the Facility Cap, and/or (ix) relinquish or abandon any Collateral or securities pledged or any Lien thereon. Notwithstanding any provision of any Loan Document, Agent, in its Permitted Discretion, shall have the right, at any time that any Borrower fails to do so, and from time to time, without prior notice, to: (i) obtain insurance covering any of the Collateral to the extent required hereunder; (ii) pay for the performance of any of Obligations; (iii) discharge taxes or Liens on any of the Collateral that are in violation of any Loan Document unless such Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (iv) pay for the maintenance and preservation of the Collateral. Such expenses and advances shall be added to the Obligations until reimbursed to Agent and shall be secured by the Collateral, and such payments by Agent shall not be construed as a waiver by Agent or Lenders of any Event of Default or any other rights or remedies of Agent and Lenders. (b) Borrowers agree that notice received by any of them it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Agent without prior notice to Borrowers. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by Borrowers which right is hereby waived and released. Borrowers covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Agent's exercise of its rights and remedies with respect to the Collateral. Agent, in dealing with or disposing of the Collateral or any part thereof, shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process. 39 9.2. APPLICATION OF PROCEEDS In addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all reasonable costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrowers' business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Agent or Lenders may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Agent or Lenders may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, reasonable in house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein and as determined by Agent in its sole discretion; (iii) third, to the satisfaction of the Senior Mortgage Loan as provided in the Senior Mortgage/Revolving Lender Intercreditor Agreement; and (iv) fourth, to the payment of any surplus then remaining to Borrowers, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Borrowers shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section. 9.3. RIGHTS OF AGENT TO APPOINT RECEIVER Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent and Lenders shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Borrowers and to collect all revenues and profits thereof and apply the same to the payment of all reasonable expenses and other charges of such receivership including the reasonable compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. 9.4. RIGHTS AND REMEDIES NOT EXCLUSIVE Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent or Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way modify or affect any of Agent's or Lenders' rights, Liens or remedies under any Loan Document, applicable law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent or Lenders otherwise may 40 have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy. X. WAIVERS AND JUDICIAL PROCEEDINGS 10.1. WAIVERS (a) Except as expressly provided for herein, each Borrower hereby waives set-off, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. Each Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Agent or any Lender to obtain an order of court recognizing the assignment of, or Lien of Agent, for the benefit of itself and Lenders, in and to, any Collateral, whether or not payable by a Medicaid/Medicare Account Debtor. With respect to any action hereunder, Agent conclusively may rely upon, and shall incur no liability to Borrowers in acting upon, any request or other communication that Agent reasonably believes to have been given or made by a person authorized on Borrower's behalf, whether or not such person is listed on the incumbency certificate delivered pursuant to Section 4.1 hereof. In each such case, each Borrower hereby waives the right to dispute Agent's action based upon such request or other communication, absent manifest error. (b) If it is at any time determined that any Borrower is liable as a guarantor of any portion of the Obligations (and not as a co-obligor or co-borrower), the liability of each Borrower hereunder shall be absolute and unconditional irrespective of (a) the insolvency of, or the voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization or other similar proceedings affecting any other Borrower or any of its assets, or (b) any other circumstance or claim which might otherwise constitute a defense available to, or a discharge of, any Person that is a Borrower in respect of the Obligations. No payment made by any Borrower, or received or collected by Agent or any Lender from any Borrower by virtue of any action, proceeding or set-off in reduction or in payment of the Obligations shall be deemed to modify, release or otherwise affect the liability of any Borrower under the Loan Documents, and each Borrower shall remain liable for the Obligations until all Obligations are paid in full. 10.2. DELAY; NO WAIVER OF DEFAULTS No course of action or dealing, renewal, release or extension of any provision of any Loan Document, or single or partial exercise of any such provision, or delay, failure or omission on Agent's or Lenders' part in enforcing any such provision shall affect the liability of any Borrower or Guarantor or operate as a waiver of such provision or affect the liability of any Borrower or Guarantor or preclude any other or further exercise of such provision. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by making Advances, neither Agent nor any Lender waives any breach of any representation or 41 warranty of under any Loan Document, and all of Agent's and Lenders' claims and rights resulting from any such breach or misrepresentation are specifically reserved. 10.3. JURY WAIVER EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE LOAN DOCUMENTS OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY. 10.4 AMENDMENT AND WAIVERS (a) Except as otherwise provided herein, no amendment, modification, termination, or waiver of any provision of this Agreement or any Loan Document, or consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Requisite Lenders, Agent and Borrowers; provided, that no amendment, modification, termination, or waiver shall, unless in writing and signed by each Lender directly affected thereby, do any of the following: (i) increase the Commitment of such Lender; (ii) reduce the principal of, rate of interest (other than default interest) on or fees payable with respect to any Loan; (iii) extend the scheduled due date or reduce the amount due on any scheduled due date, of any installment of principal, interest, or fees payable with respect to any Loan, or waive, forgive, extend, defer or postpone the payment thereof; (iv) change the percentage of the Commitments, of the aggregate unpaid principal amount of the Loans, or of Lenders which shall be required for Lenders or any of them to take any action hereunder; (v) except as otherwise permitted herein or in the other Loan Documents, release any Guaranty or release any material portion of the Collateral (provided, that consent to such release shall not be required if such release is made after and during the continuance of an Event of Default in connection with the sale or disposition of the Collateral by Agent); (vi) amend, modify or waive this Section 10.4 or the definitions of the terms used in this Section 10.4 insofar as the definitions affect the substance of this Section 10.4; (vii) consent to the assignment or other transfer by Borrowers or any other party (other than any Lender) to any Loan Documents of any of their rights and obligations under any Loan Document; or (viii) increase the Advance Rate or change the definition of Eligible Receivables or Borrowing Base; and, provided, further, that no amendment, modification, termination or waiver affecting the rights or duties of Agent under any Loan Document shall in any event be effective, unless in writing and signed by Agent, in addition to Lenders required herein above to take such action. (b) Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, 42 modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document. (c) Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.4 shall be binding upon each Lender and Borrowers. XI. EFFECTIVE DATE AND TERMINATION 11.1. EFFECTIVENESS AND TERMINATION Subject to Agent's and Lenders' rights to accelerate the Loans and terminate and cease making and funding Advances if any Event of Default has occurred and is continuing, this Agreement shall continue in full force and effect until the full performance and indefeasible payment in cash of all Obligations, unless terminated sooner as provided in this Section 11.1. Borrowers may terminate this Agreement at any time upon not less than fifteen (15) calendar days' prior written notice to Agent and upon full performance and indefeasible payment in full in cash of all Obligations on or prior to such 15th calendar day after Receipt by Agent of such written notice, provided, however, that, notwithstanding any other provision of any Loan Document, (x) Borrowers shall have no right to terminate this Agreement until the second anniversary of the Closing Date (unless either (i) Borrowers shall pay to Agent, for the pro rata benefit of Lenders, an amount equal to the Unused Line Fee that would accrue during the period from such termination to such second anniversary or (ii) such termination occurs in connection with a Change of Control); and (y) Borrowers shall have no right to terminate this Agreement until the termination and indefeasible payment in full of all Obligations (other than Unmatured Surviving Obligations) hereunder and all obligations under the Mezzanine Loan Documentation and the Senior Mortgage Term Loan B. All of the Obligations shall be immediately due and payable upon any such termination on the termination date stated in any notice of termination (the "TERMINATION DATE"); provided that, notwithstanding any other provision of any Loan Document, the Termination Date shall be effective no earlier than the first Business Day following the expiration of the fifteen (15) calendar days' prior written notice period. Notwithstanding any other provision of any Loan Document, no termination of this Agreement shall affect any Lender's or Agent's rights or any of the Obligations existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations (other than Unmatured Surviving Obligations) have been fully performed and indefeasibly paid in cash in full. The Liens granted to Agent, for the benefit of itself and Lenders, under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Agent and Lenders shall continue in full force and effect notwithstanding the fact that Borrowers' borrowings hereunder may from time to time be in a zero or credit position until all of the Obligations (other than Unmatured Surviving Obligations) have been fully performed and indefeasibly paid in full in cash. 11.2. SURVIVAL All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by any Borrower in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making of the Advances and any termination of this Agreement until all Obligations (other than Unmatured Surviving Obligations) are fully 43 performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 3.4, 3.5, 6.13, 10.1, 10.3, 11.1, 11.2, 14.4, 14.7 and 14.9 shall survive termination of the Loan Documents and any payment, in full or in part, of the Obligations. XII. AGENCY PROVISIONS 12.1. AGENT (a) Appointment. Each Lender hereby designates and appoints CapitalSource as the administrative agent and the collateral agent, under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes CapitalSource, as the administrative agent and the collateral agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article. Except for rights specifically noted, the provisions of this Article are solely for the benefit of Agent and Lenders, and Borrowers shall have no rights as a third-party beneficiary of any of the provisions hereof. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. (b) Nature of Duties. In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders and its duties are administrative in nature and it does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or for Borrowers. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Except for information, notices, reports, and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, each Lender shall make its own independent investigation of the financial condition and affairs of Borrowers in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrowers, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to each Lender. Agent shall promptly notify (in writing) each Lender any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto. (c) Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder, and Agent shall be liable with respect to its own gross negligence or willful misconduct. Agent shall 44 not be liable for any apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrowers herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrowers. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrowers, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the applicable percentage of Lenders and notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees or agents to any personal liability unless Agent receives an indemnification reasonably satisfactory to it from Lenders with respect to such action. (d) Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion. (e) Indemnification. Each Lender, severally and not jointly, agrees to reimburse and indemnify Agent and its officers, directors, managers, members, equity owners, employees and agents (to the extent not reimbursed by Borrowers or the Guarantors), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding obligations (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 their Pro Rata Share immediately prior to such date of the total outstanding obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or 45 any of its officers, directors, managers, members, equity owners, employees or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct. The obligations of Lenders under this Article XII shall survive the payment in full of the Obligations and the termination of this Agreement. (f) CapitalSource Individually. With respect to the Loans made by it, and the Revolving Notes issued to it, CapitalSource shall have and may exercise the same rights and powers hereunder and under the other Loan Documents and is subject to the same obligations and liabilities as and to the extent set forth herein and the other Loan Documents as any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include CapitalSource in its individual capacity as a Lender or one of the Requisite Lenders. CapitalSource may lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Subsidiary of any Borrower as if it were not acting as Agent pursuant hereto. (g) Successor Agent. (i) Resignation. Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) days' prior written notice to Borrowers and Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (ii) below or as otherwise provided below. (ii) Appointment of Successor. Upon any such notice of resignation pursuant to clause (g)(i) above, Requisite Lenders shall appoint a successor Agent with, so long as no Event of Default shall have occurred and be continuing, the consent of Borrowing Agent (which consent shall not be unreasonably withheld or delayed). If a successor Agent shall not have been so appointed within said thirty (30) day period, the retiring Agent, upon notice to Borrowers, may, on behalf of Lenders, then appoint a successor Agent who shall serve as Agent until such time, as Requisite Lenders (with, so long as no Event of Default shall have occurred and be continuing, the consent of Borrowing Agent (which consent shall not be unreasonably withheld or delayed)), appoint a successor Agent as provided above. If no successor Agent has been appointed pursuant to the foregoing within said thirty (30) day period, the resignation shall become effective and Requisite Lenders shall thereafter perform all the duties of Agent hereunder, until such time, if any, as Requisite Lenders appoint a successor Agent as provided above. (iii) Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and, upon the earlier of such acceptance or the effective date of the retiring Agent's resignation, the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, except that any indemnity rights or other rights in favor of such retiring Agent shall continue. After any retiring Agent's resignation as Agent under the Loan Documents, the 46 provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents. (h) Collateral Matters. (i) Collateral. Each Lender agrees that any action taken by Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater proportion of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Requisite Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by Borrowers or any of their Subsidiaries; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral, and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (ii) Release of Collateral. Lenders hereby irrevocably authorize Agent, and Agent and Lenders agree for the benefit of Borrowers, to release any Lien granted to or held by Agent for the benefit of Lenders upon (A) all Collateral upon termination of this Agreement and payment and satisfaction in full of all Obligations (other than Unmatured Surviving Obligations); or (B) any portion of the Collateral which is sold, transferred or otherwise disposed of in accordance with the provisions of this Agreement, if Borrowers certify to Agent that such sale, transfer or other disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry). Upon at least five (5) Business Days prior written request by any Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent for the benefit of Lenders herein or pursuant hereto upon all or any portion of the Collateral in accordance with the previous sentence. (iii) Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by Borrowers or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 12.1(h) or in any of the Loan 47 Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Loan Documents or any act, omission, or event related thereto, Agent may act in any manner consistent with the provisions of this Agreement and the other Loan Documents and as it may otherwise deem appropriate, in its Permitted Discretion, given Agent's own interest in property covered by this Agreement or the Loan Documents as one of Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account. Notwithstanding the foregoing, Agent shall be liable with respect to its own gross negligence or willful misconduct. (i) Agency for Perfection. Each Lender hereby appoints Agent as agent for the purpose of perfecting Lenders' security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. (j) Exercise of Remedies. Except as set forth in Section 12.3, each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize upon any collateral security for the Loans, it being understood and agreed that such rights and remedies may be exercised only by Agent. 12.2. CONSENTS (a) In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent so long as such request contained a notice stating that such failure to respond within five (5) Business Days would be deemed to be a consent by such Lender. (b) In the event Agent requests the consent of a Lender in a situation where such Lender's consent would be required and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Loans to Agent for a price equal to the then outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender, which interest and fees will be paid when collected from Borrowers. In the event that Agent elects to require any Lender to assign its interest to Agent pursuant to this Section 12.2, Agent will so notify such Lender in writing within forty-five (45) days following such Lender's denial, and such Lender will assign its interest to Agent no later than five (5) days following receipt of such notice. 12.3. SET OFF AND SHARING OF PAYMENTS In addition to any rights and remedies now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Borrowers at any time or from time to time, to the fullest extent permitted by law, with reasonably prompt subsequent notice to Borrowers or to any other Person (any prior or contemporaneous notice being hereby 48 expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrowers or the Guarantors (regardless of whether such balances are then due to Borrowers or the Guarantors), and (b) other property at any time held or owing by such Lender or such holder to or for the credit or for the account of Borrowers or the Guarantors, against and on account of any of the Obligations which are not paid when due; except that no Lender shall exercise any such right without the prior written consent of Agent; provided, however, that the failure to give notice to Borrowers shall not affect the validity of such set-off and application. Any Lender which has exercised its right to set off or otherwise has received any payment on account of the Obligations shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of Lenders on account of such Obligations, purchase for cash participations in each such other Lender's Pro Rata Share of Obligations as would be necessary to cause such Lender to share such excess with each other Lender or holder in accordance with their respective Pro Rata Shares; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrowers agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (b) any Lender or holder so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans and other Obligations in the amount of such participation. 12.4. DISBURSEMENT OF FUNDS Agent may, on behalf of Lenders, disburse funds to Borrowers for Advances requested. Each Lender shall reimburse Agent on demand for its Pro Rata Share of all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of any Advance before Agent disburses same to Borrowers. If Agent elects to require that funds be made available prior to disbursement to Borrowers, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender's Pro Rata Share of such requested Advance no later than one (1) Business Day prior to the funding date applicable thereto, and each such Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent's account not later than 3:00 p.m. (Eastern Time) on the day prior to the funding date. If any Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrowers, and Borrowers shall immediately repay such amount to Agent. Any repayment required pursuant to this Section 12.4 shall be without premium or penalty. Nothing in this Section 12.4 or elsewhere in this Agreement or the other Loan Documents, including without limitation the provisions of Section 12.5, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrowers may have against any Lender as a result of any default by such Lender hereunder. 12.5. SETTLEMENTS; PAYMENTS AND INFORMATION (a) Advances and Payments; Interest and Fee Payments. 49 (i) The amount outstanding pursuant to Advances may fluctuate from day to day through Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender notwithstanding terms to the contrary set forth in Section 12.4, Advances and repayments may be settled according to the procedures described in Sections 12.5(a)(ii) and 12.5(a)(iii) of this Agreement. Payments of principal, interest and fees in respect of the Loans will be settled, in accordance with each Lender's Pro Rata Share on the first Business Day after such payments are received. Notwithstanding these procedures, each Lender's obligation to fund its Pro Rata Share of any advances made by Agent to Borrowers will commence on the date such advances are made by Agent. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind. (ii) Once each week, or more frequently (including daily), if Agent so elects (each such day being a "SETTLEMENT DATE"), Agent will advise each Lender by 1 p.m. (Eastern Time) by telephone, telex, or telecopy of the amount of each such Lender's Pro Rata Share of the outstanding Advances. In the event payments are necessary to adjust the amount of such Lender's share of the Advances to such Lender's Pro Rata Share of the Advances, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than 3:00 p.m. (Eastern Time) on the Business Day following the Settlement Date. (iii) On the first Business Day of each month ("INTEREST SETTLEMENT DATE"), Agent will advise each Lender by telephone or facsimile of the amount of interest and fees charged to and collected from Borrowers for the proceeding month in respect of the Advances. Provided that such Lender has made all payments required to be made by it under this Agreement, Agent will pay to such Lender, by wire transfer to such Lender's account (as specified by such Lender on Schedule 2 of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein) not later than 3 p.m. (Eastern Time) on the next Business Day following the Interest Settlement Date such Lender's share of such interest and fees. (b) Availability of Lenders' Pro Rata Share. (i) Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender's intention not to fund its Pro Rata Share of the Advance amount requested by Borrowers, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable. If such amount is not, in fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim, or deduction of any kind. (ii) Nothing contained in this Section 12.5(b) will be deemed to relieve a Lender of its obligation to fulfill its commitments or to prejudice any rights Agent or Borrowers may have against such Lender as a result of any default by such Lender under this Agreement. (c) Return of Payments. 50 (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrowers and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrowers or paid to any other Person pursuant to any solvency law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrowers or such other Person, without set-off, counterclaim or deduction of any kind. 12.6. DISSEMINATION OF INFORMATION Agent will distribute promptly to each Lender copies of all notices, schedules, reports, projections, financial statements, agreements and other material and other information, including, but not limited to, Borrowers' requests for Advances and financial and reporting information received from Borrowers or its Subsidiaries or generated by a third party (and excluding only internal information generated by CapitalSource for its own use as a Lender or as Agent), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall promptly give notice to Lenders of the receipt or sending of any notice, schedule, report, projection, financial statement or other document or information pursuant to this Agreement or any of the other Loan Documents and shall promptly forward a copy thereof to each Lender. Agent shall request information from Borrowers or its Subsidiaries as Lenders may request from time to time. Agent shall not be liable to Lenders for any failure to comply with its obligations under this Section 12.6, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. XIII. BORROWING AGENCY; IRS FORMS 13.1. BORROWING AGENCY PROVISIONS; ACKNOWLEDGEMENT OF JOINT AND SEVERAL LIABILITY (a) Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower, and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in accordance with the request of Borrowing Agent. (b) The handling of this credit facility as a co-borrowing facility and the designation by each Borrower of Borrowing Agent as its borrowing agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request. None of Agent nor any Lender shall incur liability to any Borrower as a result thereof. To induce Agent and Lenders to do so and in consideration thereof, each Borrower hereby indemnifies Agent and each Lender and holds Agent and each Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Agent or any Lender by any Person arising from or incurred by reason of the handling of the financing arrangements 51 of Borrowers as provided herein, reliance by Agent or any Lender on any request or instruction from Borrowing Agent or any other action taken by Agent or any Lender with respect to this Section 13 except due to willful misconduct or gross negligence by the indemnified party. (c) All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted by Agent or any Lender to any other Borrower, failure of Agent or any Lender to give such Borrower notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or preserve its rights against any other Borrower, the release by Agent or any Lender of any Collateral now or thereafter acquired from any other Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to the other Borrowers or any Collateral for such Borrower's Obligations or the lack thereof. (d) Each Borrower expressly understands, agrees and acknowledges that (i) Borrowers are all Affiliated entities by common ownership, (ii) each Borrower desires to have the availability of one common credit facility instead of separate credit facilities, (iii) each Borrower has requested that Lenders extend such a common credit facility on the terms herein provided, (iv) Lenders will be lending against, and relying on a lien upon, all of Borrowers' assets even though the proceeds of any particular loan made hereunder may not be advanced directly to a particular Borrower, (v) each Borrower will nonetheless benefit by the making of all such loans by each Lender and the availability of a single credit facility of a size greater than each could independently warrant, (vi) all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in the Loan Documents shall be applicable to and shall be binding upon each Borrower and (vii) each Borrower has executed the Revolving Notes as co-makers of the Revolving Notes and that it would not be able to obtain the credit provided by Lenders hereunder without the financial support provided by the other Borrowers. (e) Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Persons directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers' property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations (other than the Unmatured Surviving Obligations). 13.2. WITHHOLDING TAX. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Internal Revenue Code, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Borrowers: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN before the payment of any interest in the first calendar year and before 52 the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and, if applicable, IRS Form W-9; and (iii) such other form or forms as may be required under the Internal Revenue Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. Such Lender agrees to promptly notify Agent and Borrowers of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form FW-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to notify Borrowers and Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrowers to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Internal Revenue Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the Internal Revenue Service or any other Governmental Authority of the United States of America or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Agent and Borrowers fully for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the 53 amounts payable to Agent and Borrowers under this Section, together with all costs and expenses (including reasonably attorneys fees and expenses). The obligation of Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. XIV. MISCELLANEOUS 14.1. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS; VENUE The Loan Documents shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding against Borrowers with respect to the Obligations, any Loan Document or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a "New York Court," and all such courts collectively, the "New York Courts"), provided nothing in this Agreement shall be deemed or operate to preclude Agent from bringing suit or taking other legal action in any jurisdiction to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations (any such court and any New York Court, individually a "Qualified Court" and collectively, the "Qualified Courts"), and provided, further that Agent, Lenders and Borrowers acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of each Loan Document to which it is a party, each Borrower (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 14.5 hereof and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Agent or any Lender involving, directly or indirectly, the Obligations, any Loan Document or any related agreement shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 14.2. SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS; NEW LENDERS (a) Each Lender may at any time assign all or a portion of its rights and delegate all or a portion of its obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loans) to one or more Persons (a "TRANSFEREE"); provided, that (i) (x) unless an Event of Default shall have occurred and be continuing or (y) subject to the Senior Mortgage/Revolving Lender Intercreditor Agreement, such Transferee is an Eligible Assignee, the Borrowing Agent shall have consented to such Transferee (such consent not to be unreasonably withheld or delayed) and (ii) such Transferee and such assigning Lender shall execute and deliver to Agent for acceptance and recording in the Register, a Lender Addition Agreement, satisfactory to Agent. Agent shall give Borrowers notice if Agent sells or assigns its rights and obligations hereunder. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such 54 Lender Addition Agreement, (i) the Transferee thereunder shall be a party hereto and, to the extent provided in such Lender Addition Agreement, shall have the same rights, benefits and obligations as it would if it were a Lender hereunder, and (ii) the assigning Lender shall be relieved of its obligations hereunder with respect to its Commitment or assigned portion thereof, as the case may be, to the extent that such obligations shall have been expressly assumed by the Transferee pursuant to such Lender Addition Agreement. Borrowers hereby acknowledge and agree that any assignment will give rise to a direct obligation of Borrowers to the Transferee and that the Transferee shall be considered to be a "Lender" hereunder. Borrowers may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including Borrowers' rights, title, interests, remedies, powers, and duties hereunder or thereunder without the prior written consent of Agent and each Lender. (b) Each Lender may at any time sell participations in all or any part of its rights and obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loans) to one or more Persons (a "PARTICIPANT"). In the event of any such sale by a Lender of a participation 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 (and any Revolving Note evidencing such Loan) for all purposes under this Agreement and the other Loan Documents and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. Any agreement pursuant to which any Lender shall sell any such participation shall provide that such Lender shall retain the sole right and responsibility to exercise such Lender's rights and enforce each of Borrowers' obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents; provided, that such participation agreement may provide that such Lender will not agree, without the consent of the Participant, to any amendment, supplement, modification or waiver of: (i) any reduction in the principal amount, interest rate (other than default interest) or fees payable with respect to any Loan in which such holder participates; (ii) any extension of the termination date of this Agreement or the date fixed for any payment of principal, interest or fees payable with respect to any Loan in which such holder participates; and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents). (c) Agent, on behalf of Borrowers, shall maintain at its address referred to in Section 14.5 a copy of each Lender Addition Agreement delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of Lenders and the Commitment of, and the principal amount of the Loans owing to, and the Revolving Notes evidencing such Loans owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, each of Borrowers, Agent and Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loan, the Revolving Notes and the Commitment recorded therein for all purposes of this Agreement. The Register shall be available for inspection by Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. 55 (d) Notwithstanding anything in this Agreement to the contrary, no assignment under Subsection 14.2(a) of any rights or obligations under or in respect of the Loans or the Revolving Notes evidencing such Loans shall be effective unless and until Agent shall have recorded the assignment pursuant to Subsection 14.2(c). Upon its receipt of a Lender Addition Agreement executed by an assigning Lender and a Transferee, Agent shall (i) promptly accept such Lender Addition Agreement and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to Lenders and Borrowers. On or prior to such effective date, the assigning Lender shall surrender any outstanding Revolving Notes held by it all or a portion of which are being assigned, and Borrowers, at their own expense, shall, upon the request of Agent by the assigning Lender or the Transferee, as applicable, execute and deliver to Agent new Revolving Notes to reflect the interest held by the assigning Lender and its Transferee. (e) Except as otherwise provided in this Section 14.2 no Lender shall, as between Borrowers and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Each Lender may furnish any information concerning Borrowers and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants); provided, however, that prior to the disclosure by a Lender of such information, Lender shall obtain an agreement from the Person to whom such disclosure is proposed to be made to hold such information confidential in accordance with the provisions of Section 14.10. (f) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement, including, without limitation, the Loans owing to it and the Revolving Notes held by it. (g) Borrowers agree to use their commercially reasonable efforts to assist any Lender (at such Lender's expense) in assigning or selling participations in all or any part of any Loans made by such Lender to another Person identified by such Lender. (h) Notwithstanding anything in the Loan Documents to the contrary, (i) CapitalSource and its Affiliates shall not be required to execute and deliver a Lender Addition Agreement in connection with any transaction involving its Affiliates or lenders, (ii) no lender to or funding source of CapitalSource or its Affiliates shall be considered a Transferee and (iii) there shall be no limitation or restriction on CapitalSource's ability to assign or otherwise transfer any Loan Document to any such Affiliate or lender; provided, however, CapitalSource shall continue to be liable as a "Lender" under the Loan Documents unless such Affiliate or lender executes a Lender Addition Agreement and thereby becomes a "Lender." 14.3. APPLICATION OF PAYMENTS; REINSTATEMENT Any payments with respect to the Obligations and any and all proceeds of Collateral shall be credited and applied in such manner and order as Agent shall decide in its Permitted Discretion, subject to the express terms regarding application of proceeds in the Concentration Account provided in Section 2.5 hereof. To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent 56 or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent or any Lender. In order to assist a Lender in assigning its rights to a potential Transferee as provided herein, Borrowers shall, if requested by Agent, arrange for an opinion of counsel, in form and substance satisfactory to Agent and such Transferee (it being agreed that an opinion substantially in the form delivered by Latham & Watkins on the Closing Date is satisfactory), to be delivered to Agent and such Transferee. 14.4. INDEMNITY Borrowers jointly and severally shall indemnify Agent, each Lender, its and their Affiliates and its and their respective managers, members, officers, employees, Affiliates, agents, representatives, successors, assigns, accountants and attorneys (collectively, the "INDEMNIFIED PERSONS") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits and costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of such Indemnified Person. If any Indemnified Person uses in-house counsel for any purpose for which Borrowers are responsible to pay or indemnify, Borrowers expressly agree that their indemnification obligations include reasonable charges for such work. Agent agrees to give Borrowers reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 14.4, and Agent may elect (but is not obligated) to direct the defense thereof, provided that the selection of counsel shall be subject to Borrowers' consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an "INSURED EVENT"), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Borrowers' insurer to deny coverage; provided, however, that Agent reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent or any Lender obtains recovery from a third party other than an Indemnified Person of any of the amounts that Borrowers have paid to Agent or any Lender pursuant to the indemnity set forth in this Section 14.4, then Agent and/or any Lender shall promptly pay to Borrowers the amount of such recovery. Without limiting any of the foregoing, Borrowers jointly and severally indemnify the Indemnified Parties for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Party has directly contracted in writing) which may be made in connection with respect to any aspect of, or any transaction contemplated by or 57 referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby. 14.5. NOTICE Any notice or request under any Loan Document shall be given to any party to this Agreement at such party's address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 14.5. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a "RECEIPT"): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable. 14.6. SEVERABILITY; CAPTIONS; COUNTERPARTS; FACSIMILE SIGNATURES If any provision of any Loan Document is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of the Loan Documents which shall be given effect so far as possible. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. The Loan Documents may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party. 14.7. EXPENSES Borrowers shall pay, whether or not the Closing occurs, all reasonable costs and expenses incurred by Agent and/or its Affiliates, including, without limitation, documentation and diligence fees and expenses, all out-of-pocket charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable attorneys' fees and expenses, (i) in any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (ii) in connection with entering into, negotiating, preparing, reviewing and executing the Loan Documents and/or any related agreements, documents or instruments, (iii) arising in any way out of administration of the Obligations, (iv) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Agent's Liens in any of the Collateral or securities pledged under the Loan Documents, whether through judicial proceedings or otherwise, (v) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Agent's and Lenders' transactions with Borrowers, (vi) in seeking, obtaining or receiving any advice with respect to its rights and obligations under any Loan Document and any related agreement, document or instrument, and/or (vii) in connection with any modification, restatement, 58 supplement, amendment, waiver or extension of any Loan Document and/or any related agreement, document or instrument. All of the foregoing shall be charged to Borrowers' account and shall be part of the Obligations. If Agent or any Lender uses in-house counsel for any purpose under any Loan Document for which Borrowers is responsible to pay or indemnify, Borrowers expressly agree that their Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent, any Lender or such Affiliate in its sole discretion for the work performed. Without limiting the foregoing, Borrowers shall pay all taxes (other than taxes based upon or measured by each Lender's income or revenues or any personal property tax), if any, in connection with the issuance of any Revolving Note and the filing and/or recording of any documents and/or financing statements. 14.8. ENTIRE AGREEMENT This Agreement and the other Loan Documents to which Borrowers are parties constitute the entire agreement between Borrowers, Agent and Lenders with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrowers, Agent and Lenders, as appropriate. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Agent, Requisite Lenders and Borrowers. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 14.9. AGENT APPROVALS Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent or Lenders with respect to any matter that is subject of any Loan Document may be granted or withheld by Agent in its Permitted Discretion. 14.10. CONFIDENTIALITY AND PUBLICITY Borrowers, Agent and Lenders agree, and agree to cause each of their respective Affiliates, (i) not to transmit or disclose provision of any Loan Document to any Person (other than to their respective directors, advisors and officers on a need-to-know basis and except as set forth in this Section 14.10) without the prior written consent of Agent, in the case of Borrowers, or Borrowing Agent, in the case of Agent and Lenders, (ii) to inform all Persons of the confidential nature of the Loan Documents and to direct them not to disclose the same to any other Person and to require each of them to be bound by these provisions. Agent and each Lender reserves the right to review and approve all materials that Borrowers or any of their Affiliates prepare that contain Agent's or such Lender's name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby. Each Borrower reserves the right to review and approve all materials that Agent, Lenders or any of their Affiliates prepare that contain such Borrower's name or describe or refer to any Loan 59 Document, any of the terms thereof or any of the transactions contemplated thereby. No Borrower shall, and shall not permit any of its Affiliates to, use Agent's or any Lender's name (or the name of any of Agent's Affiliates) in connection with any of its business operations. Neither Agent nor any Lender shall, and shall not permit any of its respective Affiliates to, use any Borrower's name (or the name of any of any Borrower's Affiliates) in connection with any of its business operations. Nothing contained in any Loan Document is intended to permit or authorize any Borrower or any of its Affiliates to contract on behalf of Agent or any Lender, or except as expressly provided in the Loan Documents to permit Agent or any Lender to contract on behalf of any Borrower. Further, Borrowers agree that Agent or any Lender or any Affiliate of Agent or any Lender may (i) disclose a general description of transactions arising under the Loan Documents for advertising, marketing or other similar purposes, (ii) use any Borrower's or Guarantor's name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes, (iii) disclose confidential information (it being understood that with respect to (a) and (b) below the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) (a) to its examiners, lenders, affiliates, outside auditors, counsel and other professional advisors, (b) to Agent, any Lender or to any prospective Transferees and Participant, (c) as required or requested by any Governmental Authority or representative thereof, (d) to the extent required by applicable laws or regulations or by subpoena or similar legal process, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) with the consent of Borrowers or (h) to the extent such information becomes publicly available other than as a result of a breach of this Section or becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the Borrowers or any of its Affiliates. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 60 IN WITNESS WHEREOF, each of the parties has duly executed this Revolving Credit and Security Agreement as of the date first written above. BORROWERS BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC THE EARLWOOD, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation Center GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor, GP, LLC, its general partner SKILLED HEALTHCARE II, LLC SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center, GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------ Name: Roland G. Rapp Title: Secretary Address for Notices: -------------------- Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net AGENT ----- CAPITALSOURCE FINANCE LLC By: \s\ Jim Pieczynski ------------------------------ Name: Jim Pieczynski Its: Director Address for Notices: -------------------- CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Telephone: (301) 841-2700 Facsimile: (301) 841-2340 E-Mail: aheller@capitalsource.com EXHIBITS Exhibit A -- Form of Borrowing Base Certificate Exhibit B -- Form of Interim Borrowing Base Certificate Exhibit C -- Form of Joinder Agreement Exhibit D -- Form of Guaranty and Security Agreement SCHEDULES Schedule 1 -- Borrowers Schedule 2 -- Commitments Schedule 2.4 -- Borrower's Deposit Accounts Schedule 5.3 -- Capitalization, Organization Chart (including all subsidiaries and authorized/issued capitalization and Joint Ventures Schedule 5.4 -- Liens; Real and Personal Property Owned or Leased; Leases Schedule 5.5 -- Defaults; Service Fees; Managers Schedule 5.6 -- Litigation Schedule 5.8 -- Taxes Schedule 5.10 -- Liability Event Schedule 5.11 -- Intellectual Property Schedule 5.15 -- Existing Indebtedness Schedule 5.16 -- Shareholder Agreements Schedule 5.17 -- Insurance Schedule 5.18A -- Corporate Names Schedule 5.18B -- Places of Business Schedule 6.8 -- Further Assurances/Post Closing Schedule 7.2 -- Permitted Indebtedness Schedule 7.3 -- Liens Schedule 7.4 -- Investments Schedule 7.6 -- Affiliate Transactions Schedule 7.9 -- Contingent Obligations ANNEX I FINANCIAL COVENANTS 1) Minimum EBITDA Borrowers shall not permit EBITDA as of the end of any fiscal quarter during any fiscal year (calculated for the four fiscal quarter period ended as of the end of such fiscal quarter) to be less than the amounts set forth below corresponding to such fiscal year. FISCAL YEAR ENDED MINIMUM EBITDA ----------------- -------------- 12/31/03 $42,000,000 12/31/04 and as at the end of each fiscal $45,000,000 quarter during each fiscal year thereafter 2) Net Total Leverage Ratio (Total Debt to EBITDA) Borrowers shall not permit the Net Total Leverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 6.5 to 1. 3) Net Senior Leverage Ratio (Senior Debt to EBITDA) Borrowers shall not permit the Net Senior Leverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 4 to 1. 4) Net Interest Coverage Ratio (EBITDA/Interest Expense) Borrowers shall not permit the Net Interest Coverage Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to be less than 1.75 to 1. 5) Fixed Charge Coverage Ratio (EBITDA/Fixed Charges) Borrowers shall not permit the Fixed Charge Ratio of Borrowers on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to be less than the ratio set forth below for such fiscal year: FISCAL YEAR ENDED FIXED CHARGE COVERAGE RATIO ----------------- --------------------------- December 31, 2003 1.10 to 1 Annex 1 - Page 1 December 31, 2004 and at the end 1.25 to 1 of each fiscal quarter during each fiscal year thereafter 6) Tangible Net Worth Until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations), Borrowers on a Consolidated Basis will at all times maintain Tangible Net Worth of not less than ($100,000,000). 7) Minimum Liquidity At Closing and at all other times Borrowers shall have not less than $2,000,000 of Available Cash on hand. 8) Capital Expenditures Borrowers on a Consolidated Basis shall not permit Maintenance Capital Expenditures made during any fiscal year to exceed $7,000,000. For purposes of the covenants set forth in this Annex I, the terms listed below shall have the following meanings: "Available Cash" shall mean, for any date of determination, the sum without duplication of the following for Borrowers: (a) unrestricted cash on hand on such date, (b) Cash Equivalents held on such date, and (c) the unborrowed Availability on and as of such date. "EBITDA" shall mean, for any period, the sum, without duplication, of the following for Borrowers on a Consolidated Basis (i) Net Income, (ii) Interest Expense, (iii) taxes on income, whether paid, payable or accrued, (iv) depreciation expense, (v) amortization expense, (vi) the impact on Net Income of FASB 121 and 142, (vii) Restructuring Costs and (viii) the impact on Net Income of any gains and losses from the sales of fixed assets, and (ix) the impact on Net Income of any extraordinary items, each calculated for such period in accordance with GAAP. "Fixed Charge Coverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) EBITDA to (ii) Fixed Charges, in each case for the four fiscal quarter period ended as of such date of determination. "Fixed Charges" shall mean for any period for Borrowers on a Consolidated Basis, the sum during such period of (i) Total Debt Service, (ii) Capital Expenditures not financed with Non-Recourse Indebtedness, (iii) taxes on income whether paid, payable or accrued, and (iv) dividends whether paid, payable or accrued, each calculated in accordance with GAAP. Annex 1 - Page 2 "Intangible Assets" means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income, restricted funds, investments in Subsidiaries, intercompany receivables and accumulated depreciation. "Interest Expense" shall mean, for any period, total interest expense (including attributable to Capital Leases in accordance with GAAP) of Borrowers on a Consolidated Basis for such period, calculated in accordance with GAAP, including capitalized interest, provided, however, for purposes of this Agreement for any fiscal quarter ended prior to September 30, 2004, Interest Expense shall be calculated as follows: (i) for the four fiscal quarters ended September 30, 2003 Interest Expense shall equal $23,700,000, (ii) for the four fiscal quarters ended December 31, 2003, Interest Expense shall equal actual Interest Expense for the fiscal quarter ended December 31, 2003 multiplied by 4, (iii) for the four fiscal quarters ended March 31, 2004, Interest Expense shall equal actual Interest Expense for the 2 fiscal quarters ended March 31, 2004 multiplied by 2 and (iv) for the four fiscal quarters ended June 30, 2004, Interest Expense shall equal actual Interest Expense for the three fiscal quarters ended June 30, 2004 multiplied by 1.33. "Maintenance Capital Expenditures" shall mean Capital Expenditures other than Capital Expenditures that are made in connection with the acquisition by Borrower or any Subsidiary of Borrower of a Facility or the operations related to a Facility. "Net Income" shall mean, for any period, the net income (or loss) of Borrowers on a Consolidated Basis for such period, determined in conformity with GAAP, provided that there shall be excluded (i) the income (or loss) of any Person in which any other Person (other than Borrowers) has a joint interest, but the amount of dividends or other distributions actually paid to a Borrower by such Person shall be included in net income (or loss), (ii) the income (or loss) of any Person accrued prior to the date it became a Borrower or is merged into or consolidated with a Borrower or that Person's assets are acquired by a Borrower, (iii) the income of any Subsidiary of any Borrower to the extent that the declaration or payment of dividends or similar distributions of that income by such Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, (iv) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of any Borrower or any Subsidiary of any Borrower, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or any Subsidiary thereof, and (v) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (v) of this definition of Net Income. "Net Interest Coverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) EBITDA, to (ii) Interest Expense, in each case for the four fiscal quarter period ended as of such date of determination. "Net Senior Leverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) the amount of Senior Debt as of such date of Annex 1 - Page 3 determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Net Total Leverage Ratio" shall mean, as of any date of determination, the ratio for Borrowers on a Consolidated Basis of (i) the amount of Total Debt as of such date of determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Restructuring Costs" shall mean, for any period, restructuring and/or reorganization costs relating to the Bankruptcy Case incurred by Borrowers on a Consolidated Basis during such period, calculated in accordance with GAAP. "Senior Debt" shall mean at any date of determination, the sum of the amount (determined in accordance with GAAP) on such date of determination of (i) the Obligations, (ii) Indebtedness in respect of the Senior Mortgage Loan, (iii) Indebtedness in respect of the Mezzanine Loan, (iv) Indebtedness in respect of the Revolving Loan A and (v) Indebtedness in respect of Priority Claims. "Tangible Net Worth" shall mean assets (excluding Intangible Assets) less liabilities (determined in accordance with GAAP). "Total Debt" shall mean, as of any date of determination, the aggregate amount of Indebtedness for Borrowed Money on such date of determination of Borrowers, on a Consolidated Basis calculated in accordance with GAAP. "Total Debt Service" shall mean for any period the sum during such period of (i) scheduled or other required payments of principal on Total Debt during such period, and (ii) Interest Expense during such period, in each case calculated exclusive of (x) payments on Total Debt which was repaid or satisfied in full prior to the Closing Date and which does not survive after the Closing Date and (y) payments on Total Debt required to be made pursuant to the Plan of Reorganization on, or within thirty (30) days after, the Closing Date. Annex 1 - Page 4 APPENDIX A DEFINITIONS "Account Debtor" shall mean any Person who is obligated under an Account. "Accounts" shall mean all "accounts" (as defined in the UCC) of Borrowers (or, if referring to another Person, of such other Person), including without limitation, accounts, accounts receivables, monies due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, Instruments, General Intangibles or Chattel Paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Advance" shall mean a borrowing under the Revolving Facility. Any amounts paid by Agent or any Lender on behalf of Borrowers or any Guarantor under any Loan Document shall be an Advance for purposes of the Agreement. "Affiliate" shall mean, as to any Person, any other Person (a) that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to such Person, or (c) which, directly or indirectly through one or more intermediaries, is the beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, as the same is in effect on the date hereof) of ten percent (10%) or more of any class of the outstanding voting stock, securities or other equity or ownership interests of such Person. For purposes of this definition, the term "control" (and the correlative terms, "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests, by contract or otherwise. "Agent" shall have the meaning given in the introductory paragraph to this Agreement. "Agreement" shall have the meaning given in the introductory paragraph to this Agreement. "Availability" shall have the meaning given in Section 2.1(a) of this Agreement. "Bankruptcy Case" shall mean the bankruptcy case described in and which is the subject of the Plan of Reorganization. "Books and Records" means collectively, the books and records of Borrowers relating specifically to and evidencing the Accounts. A-1 "Borrowers" and "Borrower" shall have the meaning given in the introductory paragraph to this Agreement. "Borrowing Agent" shall mean Skilled Healthcare, LLC, a Delaware limited liability company, in its capacity as agent for Borrowers, as specified in Section 13.1. "Borrowing Base" shall mean, as of any date of determination, the net collectible U.S. Dollar value of Eligible Receivables, as determined with reference to the most recent Borrowing Certificate or Interim Borrowing Certificate and otherwise in accordance with this Agreement; provided, however, that if as of such date the most recent Borrowing Certificate or Interim Borrowing Base Certificate is as of a date more than four Business Days before, the Borrowing Base shall be determined by Agent in its sole discretion. For purposes hereof, "net collectible U.S. Dollar value" shall mean the amount Borrowers bill third-party payors less deductible obligations and contractual allowances. "Borrowing Certificate" shall mean a Borrowing Certificate substantially in the form of Exhibit A. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which the Federal Reserve, any Lender or the Cash Management Bank is closed. "Business Group" shall mean (a) the Subsidiaries of Parent that are borrowers under this Agreement, the Mezzanine Loan Documentation or the Senior Mortgage Loan Documentation or Subsidiaries of such borrowers; (b) the long term care business (other than such business as is covered by clause (a)); (c) the pharmacy business; (d) the locomotion business, and (e) corporate headquarters and overhead. "Capital Expenditures" shall mean, for any period, the sum (without duplication) of all expenditures (whether paid in cash or accrued as liabilities) during such period that are or should be treated as capital expenditures under GAAP. "Capital Lease" shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a "capital lease" in accordance with GAAP. "Capitalized Lease Obligations" shall mean all obligations of any Person under Capital Leases, in each case, taken at the amount thereof accounted for as a liability in accordance with GAAP. "CapitalSource" shall have the meaning given in the introductory paragraph to this Agreement. "Cash Equivalents" shall mean (a) securities issued, or directly and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, A-2 or (ii) any bank (or the parent company of such bank) whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof in each case with maturities of not more than six months from the date of acquisition (any bank meeting the qualifications specified in clauses (b)(i), (ii) or (iii), an "APPROVED BANK"), (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a), above, entered into with any Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or the equivalent thereof, from S&P or A2 or the equivalent thereof from Moody's and in each case maturing within six months after the date of acquisition and (e) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (a) through (d) above. "Cash Management Bank" shall mean Wells Fargo Bank, in its capacity as the cash management bank for Borrowers, or any other cash management bank selected by Borrowers in accordance with the provisions of this Agreement. "Change of Control" shall mean, (a) with respect to Parent, the occurrence of any of the following: (i) a merger, consolidation, reorganization, recapitalization or share or interest exchange, sale or transfer or any other transaction or series of transactions in which its stockholders, managers, partners or interest holders immediately prior to such transaction or series of transactions receive, in exchange for the stock or interests owned by them, cash, property or securities of the resulting or surviving entity or any Affiliate thereof, and, as a result thereof, Persons who, individually or in the aggregate, were holders of 35% or more of its voting stock, securities or equity, partnership or ownership interests immediately prior to such transaction or series of transactions hold less than 35% of the voting stock, securities or other equity, partnership or ownership interests of the resulting or surviving entity or such Affiliate thereof, calculated on a fully diluted basis, (ii) a direct or indirect sale, transfer or other conveyance or disposition, in any single transaction or series of transactions, of all or substantially all of its assets, or (iii) any "change in/of control" or "sale" or "disposition" or similar event as defined in any document governing indebtedness of Parent which gives the holder of such indebtedness the right to accelerate or otherwise require payment of such indebtedness prior to the maturity date thereof and (b) Parent shall cease to own or control, directly or indirectly, 100% of the equity interests of each Borrower. "Charter and Good Standing Documents" shall mean, for each Borrower (i) a copy of the certificate of incorporation or formation (or other charter document) certified as of a date before the Closing Date reasonably satisfactory to Agent by the applicable Governmental Authority of the jurisdiction of incorporation or organization of such Person, (ii) a copy of the bylaws or similar organizational documents of certified as of a date before the Closing Date reasonably satisfactory to Agent by the corporate secretary or assistant secretary of such Person, (iii) an original certificate of good standing as of a date reasonably acceptable to Agent issued by the applicable Governmental Authority of the jurisdiction of incorporation or organization of such Person and of every other jurisdiction in which such Person is required to be in good standing, and (iv) copies of the resolutions of the Board of Directors or managers (or other A-3 applicable governing body) and, if required, stockholders, members or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party, certified by an authorized officer of such Person as of the Closing Date. "Closing" shall mean the satisfaction, or written waiver by Agent and the Requisite Lenders, of all of the conditions precedent set forth in the Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby. "Closing Date" shall mean the date the Closing occurs. "Collateral" shall mean, collectively and each individually, all collateral and/or security granted to Agent, for the benefit of itself and Lenders, by Borrowers and/or the Guarantors pursuant to the Loan Documents. "Commitment" or "Commitments" shall mean (a) as to any Lender, the aggregate commitment of such Lender to make Advances and draws, as set forth on Schedule 2 or in the most recent Lender Addition Agreement executed by such Lender, and (b) as to all Lenders, the aggregate commitment of all Lenders to make Advances and draws. "Confirmation Order" shall mean the order pursuant to Section 1129 of the Bankruptcy Code confirming Borrowers' Plan of Reorganization entered by the court in Borrower's case on July 10, 2003, which order shall be in form and substance reasonably acceptable to Agent. "Consolidated Basis" shall mean, with respect to Parent and Borrowers, the consolidation in accordance with GAAP of the accounts or other items of Parent and its Subsidiaries. "Contingent Obligations" shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guaranty any Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) 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 (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term "Contingent Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "Debtor Relief Law" shall mean, collectively, the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time. A-4 "Default" shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time or both, would constitute or be or result in an Event of Default. "Deposit Account" shall mean, collectively, the Lockbox Accounts and all bank or other depository accounts of Borrowers. "Distribution" shall mean any fee, payment, bonus or other remuneration of any kind, and any repayment of or debt service on loans or other indebtedness. "Eligible Assignee" means (a) a commercial bank, commercial finance company, asset based lender, insurance company, mutual fund entity or other financial institution having total assets in excess of $250,000,000 and which is regularly engaged in making, purchasing or investing in revolving loans; (b) any Lender; (c) any Affiliate of any Lender; (d) Highbridge/Zwirn Capital Management, LLC or any of its Affiliates, and (e) any other Person consented to by Borrowing Agent (such consent not to be unreasonably withheld or delayed). "Eligible Deposit Account" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Deposit Account will not be evidenced by a certificate of deposit, passbook or other instrument. "Eligible Institution" shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least "A- 1+" by S&P, "P-1" by Moody's or "F-1+" by Fitch, if rated by such Rating Agency, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch or S&P or "Aa2" by Moody's, if rated by such Rating Agency). Notwithstanding the foregoing, (a) Bank of America and Wells Fargo Bank, N.A. shall be deemed Eligible Institutions so long as their short term unsecured debt obligations or commercial paper are rated at least "A-2+" by S&P, "P-2" by Moody's or "F-1" by Fitch, if rated by such Rating Agency, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "A" by Fitch or S&P or "A2" by Moody's, if rated by such Rating Agency) and (b) for accounts into which checks are deposited by Borrowers from Private Pay Debtors, other than the Lockbox Account, a depository institution or trust company, that insures deposits held by such a depository institution or trust company through the Federal Deposit Insurance Corporation, so long as the amounts on deposit in all accounts of any Borrower at such institution does not exceed $100,000 at any one time. A-5 "Eligible Receivables" shall mean each Account arising in the ordinary course of Borrowers' business from the sale of goods or rendering of Services unless: (a) it is not subject to a valid perfected first priority security interest in favor of Agent, subject to no other Lien (other than Liens in favor of the Senior Mortgage Loan Lender to the extent it is expressly subordinated to Agent's Lien in accordance with the Senior Mortgage/Revolving Lender Intercreditor Agreement); (b) it is not evidenced by an invoice, statement or other documentary evidence reasonably satisfactory to Agent; provided, that Agent in its Permitted Discretion may from time to time include as Accounts that are not evidenced by an invoice, statement or other documentary evidence reasonably satisfactory to Agent as Eligible Receivables and determine the advance rate, liquidity factors and reserves applicable to Advances made on any such Accounts; (c) it or any portion thereof (in which case only such portion shall not be an Eligible Receivable) is payable by a beneficiary, recipient or subscriber individually and not directly by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to the Agent; (d) it arises out of services rendered or a sale made to, or out of any other transaction between Borrowers or any of their Subsidiaries and, one or more Affiliates of Borrowers or any of their Subsidiaries; (e) it remains unpaid for longer than the earlier of (i) 150 calendar days after the first to occur of the claim date or the invoice date, and (ii) 180 calendar days after the applicable Services were rendered; (f) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates, if more than ten 10% of the aggregate balance of all such Accounts (other than accounts being disputed by such Account Debtor) owing from such Account Debtor and/or its Affiliates remain unpaid for longer than the earlier of (i) 150 calendar days after the first to occur of the claim date or the invoice date, and (ii) 180 calendar days after the applicable Services were rendered; (g) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates, 25% or more of all such Accounts are not deemed Eligible Receivables for any reason hereunder (which percentage may, in Agent's sole discretion, be increased or decreased); (h) with respect to all Accounts owed by any particular Account Debtor and/or its Affiliates (except Medicaid/Medicare Account Debtors), if, and only to the extent, such Accounts exceed 20% of the aggregate value of all Eligible Receivables included in Borrowing Base at any one time (including Accounts from Medicaid/Medicare Account Debtors); (i) any covenant, agreement, representation or warranty contained in any Loan Document with respect to such Account has been breached and remains uncured after applicable cure periods; A-6 (j) the Account Debtor for such Account has commenced a voluntary case under any Debtor Relief Law or has made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in respect of such Account Debtor in an involuntary case under any Debtor Relief Law, or any other petition or application for relief under any Debtor Relief Law has been filed against such Account Debtor, or such Account Debtor has failed, suspended business, ceased to be solvent, or has consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; (k) it arises from the sale of property or services rendered to one or more Account Debtors outside the continental United States or that have their principal place of business or chief executive offices outside the continental United States; (l) it represents the sale of goods or rendering of services to an Account Debtor on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by Chattel Paper or an Instrument of any kind or has been determined pursuant to judgment; (m) the applicable Account Debtor for such Account is any Governmental Authority, unless rights to payment of such Account have been assigned to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727, et seq. and 41 U.S.C. Section 15, et seq.), or otherwise all with applicable statutes or regulations respecting the assignment of government Accounts have been complied with (for example, with respect to all Account payable directly by a Medicaid/Medicare Account Debtor); (n) to the extent, but only to the extent that, it is subject to any offset, credit (including any resource or other income credit or offset) deduction, defense, discount, chargeback, freight claim, allowance, adjustment, dispute or counterclaim, or is contingent in any respect or for any reason; (o) there is any agreement with an Account Debtor for any deduction from such Account, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each invoice related thereto, such that only the discounted amount of such Account after giving effect to such discounts and allowances shall be considered an Eligible Receivable; (p) to the extent, but only to the extent that, any return, rejection or repossession of goods or services related to it has occurred; (q) it is not payable to Borrowers; (r) to the extent, but only to the extent that, any of Borrowers has agreed to accept or has accepted any non-cash payment for such Account; (s) with respect to any Account arising from the sale of goods, the goods have not been shipped to the Account Debtor or its designee; A-7 (t) with respect to any Account arising from the performance of Services, the Services have not been actually performed or the Services were undertaken in material violation of any applicable law; or (u) such Account fails to meet such other specifications and requirements which may from time to time be established by Agent in its Permitted Discretion. "Environmental Laws" shall mean, collectively and each individually ,the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, any other "Superfund" or "Superlien" law and all other federal, state and local and foreign environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances, in each case, as amended, and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of Governmental Authorities with respect thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "Event of Default" shall mean the occurrence of any event set forth in Article VIII. "Exchange Act" shall mean Securities Exchange Act of 1934, as amended. "Excluded Subsidiary" shall mean any Subsidiary that is (i) a Mezzanine Loan Borrower, (ii) a borrower under the Senior Mortgage Loan Documentation, (iii) a Revolving Loan A Borrower, (iv) a partner in an entity described in clause (i), (ii) or (iii), and (iv) a Person designated by Borrowing Agent as an excluded Subsidiary. "Facility" shall mean, individually, any facility providing Services and operated by any of Borrowers. "Facility Cap" shall have the meaning given in the first WHEREAS clause in this Agreement. "Fitch" shall mean Fitch, Inc. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time as applied by nationally recognized accounting firms. "Government Accounts" shall be defined to mean all Accounts arising out of or with respect to any Government Contract. "Government Contracts" shall be defined to mean all contracts with any Government Authority, and all amendments thereto. A-8 "Governmental Authority" shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia. "Guarantor" shall mean, collectively and each individually, all guarantors of the Obligations or any part thereof. "Guaranty" shall mean any guaranty of the obligations of Borrowers executed by a Guarantor in favor of Agent for its benefit and for the ratable benefit of Lenders. "Hazardous Substances" shall mean, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials as defined in or subject to any applicable Environmental Law. "Healthcare Laws" shall mean all applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority with respect to regulatory matters primarily relating to patient healthcare, healthcare providers and healthcare services (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"). "Indebtedness" of any Person shall mean, without duplication, (a) all items (other than trade payables and current accrued liabilities) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute a capital lease, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. "Indebtedness for Borrowed Money" of any Person shall mean, without duplication, (a) all Indebtedness of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capitalized Lease Obligations of such Person, (c) all Indebtedness of such Person secured by any mortgage, pledge, security, Lien or A-9 conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (d) all Indebtedness for the deferred purchase price of property and (e) all direct or indirect guaranties of any or all of the foregoing. "Indemnified Persons" shall have the meaning assigned to it in Section 14.4 hereof. "Insurance Subsidiary" shall mean the offshore insurance subsidiary to be formed by the Parent. "Insurer" shall mean a Person that insures another Person against any costs incurred in the receipt by such other Person of Services, or that has an agreement with any Borrower to compensate it for providing Services to such Person. "Intellectual Property" shall have the meaning assigned to it in Section 5.11 hereof. "Interest Rate Agreement" shall mean any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to hedge the position with respect to interest rates. "Interim Borrowing Certificate" shall mean an Interim Borrowing Certificate substantially in the form of Exhibit B. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Inventory" shall mean all "inventory" (as defined in the UCC) of Borrowers (or, if referring to another Person, of such other Person), now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Joinder Agreement" shall mean an agreement in form and substance acceptable to Agent in its Permitted Discretion, the material terms of which shall provide that a Person shall become a party to and become bound by the terms of this Agreement and/or the other Loan Documents in the same capacity and to the same extent as a Borrower. "Landlord Waiver and Consent" shall mean a waiver/consent in form and substance reasonably satisfactory to Agent from the owner/lessor of any premises not owned by Borrowers at which any of the Collateral is now or hereafter located for the purpose of providing Agent access to such Collateral, in each case as such may be modified, amended or supplemented from time to time. "Lender Addition Agreement" shall mean an agreement among Agent, a Lender and such Lender's assignee regarding their respective rights and obligations with respect to assignments of the Loans and other interests under this Agreement. A-10 "Lenders" shall mean the financial institutions, from time to time named on Schedule 2 under the heading "Lenders", their respective successors and permitted assigns (but not, except as expressly set forth herein, any participant that is not otherwise a party to this Agreement). "Liability Event" shall mean any event, fact, condition or circumstance or series thereof (i) in or for which any Borrower becomes liable or otherwise responsible for any material amount owed or owing to any Medicaid or Medicare program by a provider under common ownership with such Borrower or any provider owned by such Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority after the failure of any such provider to pay any such amount when owed or owing, (ii) in which material Medicaid or Medicare payments to any Borrower are lawfully set-off against payments to such or any other Borrowers to satisfy any liability of or for any material amounts owed or owing to any Medicaid or Medicare program by a provider under common ownership with such Borrower or any provider owned by such Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority, or (iii) any of the foregoing under clauses (i) or (ii) in each case pursuant to statutory or regulatory provisions that are similar to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority referenced in clauses (i) and (ii) above or successor provisions thereto. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, restriction, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes. "Loan" or "Loans" shall mean, individually and collectively, all Advances under the Revolving Facility. "Loan Documents" shall mean, collectively and each individually, this Agreement, the Revolving Notes, the Security Documents, the Guaranties (if any), the Senior Mortgage/Revolving Lender Intercreditor Agreement, the Landlord Waiver and Consents, the Borrowing Certificates, and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Agent or Lenders in connection with any of the foregoing or the Loans, as the same may be amended, modified or supplemented from time to time. "Lockbox Accounts" shall mean the accounts maintained by Borrowers at the Lockbox Banks into which all collections or payments on their Accounts and other Collateral are paid. "Lockbox Agreements" shall have the meaning given in Section 2.5 of this Agreement. "Lockbox Banks" shall have the meaning given in Section 2.5 of this Agreement. "Management Agreement" shall have the meaning given such term in the Management Fee Subordination Agreement. A-11 "Management Fee Subordination Agreement" shall mean that certain Management Fees Subordination Agreement among Agent, the managers and Borrowers executed in connection herewith, as the same may be amended, modified, restated or supplemented from time to time. "Material Adverse Effect" or "Material Adverse Change" shall mean any event, condition or circumstance or set of events, conditions or circumstances or any change(s) which (i) has, had or could reasonably be expected to have any material adverse effect upon or change in the validity or enforceability of any Loan Document, (ii) has been or could reasonably be expected to be material and adverse to the value of the Collateral or to the business, operations, prospects, properties, assets, liabilities or condition of Borrowers and the Guarantors taken as a whole, or (iii) has materially impaired or could reasonably be expected to materially impair the ability of any Borrower or Guarantor to perform the Obligations or to consummate the transactions under the Loan Documents executed by such Person. "Maturity Date" shall mean the earliest of (i) the occurrence of any automatic acceleration upon an Event of Default as provided for in this Agreement, (ii) Agent's acceleration and demand for payment following an Event of Default pursuant to the provisions of this Agreement and (iii) the last day of the Term. "Medicaid/Medicare Account Debtor" shall mean any Account Debtor which is (i) the United States of America acting under the Medicaid or Medicare program established pursuant to the Social Security Act or any other federal healthcare program, including, without limitation, CHAMPUS, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or any other state health care program, or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. "Mezzanine Loan" shall mean that certain $23,000,000 term loan made by the Mezzanine Loan Lenders in favor of the Mezzanine Borrowers pursuant to the Mezzanine Loan Documentation. "Mezzanine Loan Agent" shall mean CapitalSource Finance LLC and any successor agent under the Mezzanine Loan Documentation. "Mezzanine Loan Agreement" shall mean that certain Mezzanine Loan Agreement dated as of the Closing Date by and among the Mezzanine Lenders, the Mezzanine Borrowers and Parent. "Mezzanine Loan Borrowers" shall mean Borrowers under the Mezzanine Loan Agreement from time to time. "Mezzanine Loan Documentation" shall mean, collectively, the Mezzanine Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Mezzanine Loan Lenders" shall mean Lenders party to the Mezzanine Loan Documentation from time to time and shall include their successors and assigns. A-12 "Moody's" shall mean Moody's Investor Service, Inc. "Non-Recourse Indebtedness" means Indebtedness for Borrowed Money permitted to be incurred by Parent or any Subsidiary of Parent pursuant to Section 7.2(d)(ii) of this Agreement or Section 7.2(d)(ii) or (iii) of the Revolving Loan A Agreement. "Obligations" shall mean all present and future obligations, Indebtedness and liabilities of Borrowers and/or the Guarantors to Agent or Lenders at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to Revolving Notes and/or Loans, including, without limitation, all applicable fees, charges and expenses and/or all amounts paid or advanced by Agent or any Lender on behalf of or for the benefit of any Borrower and/or any Guarantor for any reason at any time, including in each case obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against any such Person. "Parent" shall mean Fountain View, Inc., a Delaware corporation. "Payment Office" shall mean initially the address set forth beneath Agent's name on the signature page of this Agreement, and thereafter, such other office of Agent within the United States, if any, which it may designate by notice to Borrowers to be the Payment Office. "Permits" shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other rights. "Permitted Discretion" shall mean a determination or judgment made by Agent in good faith in the exercise of reasonable (from the perspective of a secured lender) business judgment. "Permitted Fund Manager" means any nationally recognized manager of investment funds investing in revolving debt interests provided such entity (A) is investing through a fund with committed capital of at least Two Hundred Fifty Million and No/100 Dollars ($250,000,000.00), and (B) is not subject to a bankruptcy proceeding on the date of determination. "Permitted Liens" shall have the meaning given in Section 7.3 of this Agreement. "Permitted Refinanced Indebtedness" shall have the meaning given in Section 7.2 of this Agreement. "Person" shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature. "Plan of Reorganization" or "Plan" shall mean Debtors' Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case A-13 No. LA 01-39678BB through LA 01-39697BB and LA 01-45516BB, LA 01-45520BB and LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time. "Prime Rate" shall mean a fluctuating interest rate per annum equal at all times to the rate of interest announced publicly from time to time by Citibank, N.A. as its base or prime rate; provided, that such rate is not necessarily the best rate offered to its customers, and, should Agent be unable to determine such rate, such other indication of the prevailing prime rate of interest for substantial money center lending institutions as may reasonably be chosen by Agent. Each change in the Prime Rate shall result in a corresponding and simultaneously change in the interest rate applicable to Advances under this Agreement. "Priority Claims" shall mean Class 1, Class 2, Class 3, Class 4 and Class 7 claims under the Plan of Reorganization and any other liens given priority under the Plan of Reorganization and outstanding on the Closing Date. "Priority Liens" shall mean Liens permitted pursuant to Section 7.3(ii), (iii), (iv), (v), (vi), (vii), (ix), (xi) and Liens set forth on Part A of Schedule 7.3. "Private Pay Debtor" shall mean an Account Debtor that is not a Government Authority or a commercial medical insurance carrier. "Pro Rata Share" shall mean with respect to matters relating to a particular Commitment of a Lender, the percentage obtained by dividing (i) such Commitment of such Lender by (ii) all such Commitments of all Lenders; provided, however, that if any Commitment of Lenders is terminated pursuant to the terms hereof, then "Pro Rata Share" shall mean the percentage obtained by dividing (x) the aggregate amount of such Lender's outstanding Loans related to such Commitment by (y) the aggregate amount of all outstanding Loans related to such Commitment; in any case as such percentage may be adjusted by assignments permitted pursuant to Section 14.2. "Qualified Transferee" shall have the meaning set forth in the Senior Mortgage/Revolving Lender Intercreditor Agreement. "Rating Agencies" shall mean each of S&P, Moody's and Fitch, or any other nationally recognized statistical rating agency which has been approved by Agent. "Receipt" shall have the meaning given in Section 14.5 of this Agreement. "Register" shall have the meaning given in Section 14.2(c) of this Agreement. "Requisite Lenders" shall mean Lenders holding or being responsible for (i) 100%, if there are only two Lenders, and (ii) at least 66-2/3% if there are more than two Lenders, in each case, of the sum of (a) all outstanding Loans and (b) all unutilized Commitments. "Revolving Facility" shall have the meaning given in the first WHEREAS clause in this Agreement. A-14 "Revolving Interest Rate" shall mean the rate of interest set forth in Section 2.3 hereof. "Revolving Loan A" shall mean that certain $21,000,000 maximum amount of revolving loans made by the Revolving Loan A Lenders in favor of the Revolving Loan A Borrowers pursuant to the Revolving Loan A Documentation. "Revolving Loan A Agreement" shall mean that certain Revolving Credit and Security Agreement dated as of the Closing Date by and among the Revolving Loan A Borrowers, CapitalSource, as agent for the Revolving Loan A Lenders, and the Revolving Loan A Lenders. "Revolving Loan A Borrowers" shall mean Borrowers from time to time under the Revolving Loan A Agreement. "Revolving Loan A Documentation" shall mean, collectively, the Revolving Loan A Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Revolving Loan A Lenders" shall mean the parties other than the Revolving Loan A Borrowers party to the Revolving Loan A Documentation from time to time and shall include their successors and assigns. "Revolving Note" shall mean, collectively and each individually, the promissory note(s) payable to the order of Agent executed by Borrowers evidencing the Revolving Facility, as the same may be modified, amended or supplemented from time to time. "S&P" shall mean Standard & Poor's Ratings Group, a division of the McGraw Hill companies. "Security Documents" shall mean this Agreement, the Lockbox Agreements, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time. "Senior Mortgage Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated the Closing Date by and among Mezzanine Loan Agent and the Senior Mortgage Loan Lender. "Senior Mortgage Loan" shall mean that certain $95,000,000 Senior Mortgage Loan made by the Senior Mortgage Loan Lender in favor of the Senior Mortgage Loan Borrowers pursuant to the Senior Mortgage Loan Documentation. "Senior Mortgage Loan Agreement" shall mean that certain Loan Agreement dated as of the Closing Date among Senior Mortgage Loan Lender, the Senior Mortgage Loan Borrowers. "Senior Mortgage Loan Blocked Account" shall mean that certain Cash Management Account established by the Senior Mortgage Loan Lender pursuant to the Cash A-15 Management Agreement between Senior Mortgage Loan Borrower and Senior Mortgage Loan Lender. "Senior Mortgage Loan Borrowers" shall mean the borrowers party to the Senior Mortgage Loan Agreement from time to time and shall include their respective successors and assigns. "Senior Mortgage Loan Documentation" shall mean, collectively, the Senior Mortgage Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Senior Mortgage Loan Lender" shall mean Column Financial, Inc. and its successors and assigns under the Senior Mortgage Loan Documentation. "Senior Mortgage Term Loan B" shall mean that certain $10,000,000 Term Loan B made pursuant to the Senior Mortgage Loan Documentation. "Senior Mortgage/Revolving Lender Intercreditor Agreement" shall mean that certain Intercreditor and Subordination Agreement dated the Closing Date by and among CapitalSource, as a Revolving Loan A Lender and as agent for the Revolving Loan A Lenders, the Senior Mortgage Loan Lender, the Revolving Loan A Borrowers and the Senior Mortgage Loan Borrowers. "Services" shall mean medical and health care services provided to a Person, including, but not limited to, medical and health care services which are covered by a policy of insurance issued by an Insurer, physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, pharmacy services, residential and out-patient behavioral healthcare services. "Subsidiary" shall mean, as to any other Person, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person's Subsidiaries. "Term" shall mean the period commencing on the date set forth on the first page hereof and ending on the date that is five (5) years after the Closing Date. "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. "Unmatured Surviving Obligations" shall mean indemnity Obligations with respect to which no claim has been made and which pursuant to the provisions of this Agreement survive termination of this Agreement. A-16 EXHIBIT A BORROWING CERTIFICATE dated as of___________________, 2003 ________________, a _________ corporation, as Borrowing Agent for itself and for the other Borrowers (as defined in the Revolving Credit and Security Agreement dated as of ___________________, 2003, by and among Borrowers and CapitalSource Finance LLC, as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and the Lenders party thereto, (as amended, supplemented or modified from time to time, the "LOAN AGREEMENT"; all capitalized terms not defined herein have the meanings given them in the Loan Agreement)) by the undersigned officer hereby certifies to Agent in accordance with the Loan Agreement and other Loan Documents that: A. Borrowing Base and Compliance Pursuant to the Security Documents, Agent, on behalf of Lenders, has been granted a lien on all Accounts of Borrowers. Set forth on Schedule 1 is a true and correct calculation of Availability calculated in accordance with the Loan Agreement. All of the Accounts included as Eligible A/R on Schedule 1 are Eligible Receivables. B. Borrowing Notice (TO BE COMPLETED AND EFFECTIVE ONLY IF BORROWERS ARE REQUESTING AN ADVANCE) (1) In accordance with Sections 2.4 and 4.2(a) of the Loan Agreement, Borrowing Agent on behalf of Borrowers hereby irrevocably requests from Agent an Advance under the Revolving Facility pursuant to the Loan Agreement in the aggregate principal amount of $_________ ("REQUESTED ADVANCE") to be made on _________________, _________ (the "BORROWING DATE"), which day is a Business Day. (2) Immediately after giving effect to the Requested Advance, the aggregate outstanding principal amount of Advances will not exceed the lesser of (i) the Availability and (ii) the Facility Cap. C. General Certifications Borrowing Agent further certifies to Agent that each of the conditions contained in Section 4.2 of the Loan Agreement are as of the date hereof, and will be as of the Borrowing Date (if applicable), satisfied, including, without limitation, receipt by Agent of all fees, charges and expenses payable to Agent on or prior to such Borrowing Date pursuant to the Loan Documents. Exhibit A-1 IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the day first written above. __________________________, AS BORROWING AGENT By: ____________________________________ Name: ___________________________ Title: __________________________ Exhibit A-2 SCHEDULE 1 TO [NAMES OF BORROWERS] BORROWING CERTIFICATE FOR PERIOD ENDING - (__/__/__)
Private A SECTION A: A/R AVAILABILITY Medicare Medicaid Insurance Pay Total -------- -------- --------- --- ----- 1 Beginning A/R (from prev. certificate) - ---------------------------------------------------------------- 2 (+) Sales (New A/R) - ---------------------------------------------------------------- 3 (+/-) Debit/Credit Memos - ---------------------------------------------------------------- 4 (+/-) Adjustments - ---------------------------------------------------------------- 5 (-) Posted A/R Collections - ---------------------------------------------------------------- 6 Ending A/R (Date _____________) 0 0 0 0 - ---------------------------------------------------------------- 7 Ineligible Receivables (A) 0 - ---------------------------------------------------------------- 8 Eligible A/R (6-7) 0 0 0 0 - ---------------------------------------------------------------- 9 Liquidity Factor 100.0% 100.0% 100.0% 100.0% ---------------------------------------------------------------- 10 Net Eligible A/R (8*9) 0 0 0 0 - ---------------------------------------------------------------- 11 (-) Unposted A/R Collections - ------------ 12 Adjusted Net A/R Availability (10-9) - ------------ 13 Advance Rate 85% ------------ 14 A/R Availability (12*13) - ------------ B SECTION B: GROSS AVAILABILITY 1 A/R Availability - ------------ 2 (+) Approved Overadvance - ------------ 3 (-) Reserves - ------------ 4 Collateral Availability (1+2-3) - ------------ 5 Facility Cap - ------------ 6 Gross Availability (lesser of Collateral Availability and Facility Cap) - ------------
(A) Attach a supporting schedule showing all Receivables that are not Eligible Receivables pursuant to the definitions in the Loan Agreement. If there is any discrepancy between the definition of Eligible Receivables as set forth in the Loan Agreement and any of the information set forth in this certificate, Schedule 1 or any supporting documentation, the provisions of the Loan Agreement shall control. Exhibit A-3 EXHIBIT B INTERIM BORROWING CERTIFICATE dated as of___________________, 2003 _______________________, a ________ corporation, as Borrowing Agent for itself and for the other Borrowers (as defined in the Revolving Credit and Security Agreement dated as of ___________________, 2003, by and among Borrowers and CapitalSource Finance LLC, as administrative agent and collateral agent for Lenders (in such capacities, the "AGENT"), and the Lenders party thereto, (as amended, supplemented or modified from time to time, the "LOAN AGREEMENT"; all capitalized terms not defined herein have the meanings given them in the Loan Agreement)) by the undersigned officer hereby certifies to Agent in accordance with the Loan Agreement and other Loan Documents that: A. Borrowing Base and Compliance Pursuant to the Security Documents, Agent, on behalf of Lenders, has been granted a lien on all Accounts of Borrowers. Set forth on Schedule 1 is a true and correct calculation of Availability calculated in accordance with the Loan Agreement. All of the Accounts included as Eligible A/R on Schedule 1 are Eligible Receivables. B. Borrowing Notice (TO BE COMPLETED AND EFFECTIVE ONLY IF BORROWERS ARE REQUESTING AN ADVANCE) (1) In accordance with Sections 2.4 and 4.2(a) of the Loan Agreement, Borrowing Agent on behalf of Borrowers hereby irrevocably requests from Agent an Advance under the Revolving Facility pursuant to the Loan Agreement in the aggregate principal amount of $_________ ("REQUESTED ADVANCE") to be made on _________________, _________ (the "BORROWING DATE"), which day is a Business Day. (2) Immediately after giving effect to the Requested Advance, the aggregate outstanding principal amount of Advances will not exceed the lesser of (i) the Availability and (ii) the Facility Cap. C. General Certifications Borrowing Agent further certifies to Agent that each of the conditions contained in Section 4.2 of the Loan Agreement are as of the date hereof, and will be as of the Borrowing Date (if applicable), satisfied, including, without limitation, receipt by Agent of all fees, charges and expenses payable to Agent on or prior to such Borrowing Date pursuant to the Loan Documents. Exhibit B-1 IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the day first written above. ______________________, AS BORROWING AGENT By: _____________________________________ Name: _____________________________ Title: ____________________________ Exhibit B-2 SCHEDULE 1 TO [NAMES OF BORROWERS] INTERIM BORROWING CERTIFICATE FOR PERIOD ENDING - (__ /__ /__)
Private A SECTION A: A/R AVAILABILITY Medicare Medicaid Insurance Pay Total -------- -------- --------- --- ----- Beginning Eligible A/R (Line 8 from prev. 1 Borrowing Certificate) ---------------------------------------------------------------- 2 (+) Estimated Sales (Beds * Days * Rate) - ---------------------------------------------------------------- 3 (-) Posted A/R Collections - ---------------------------------------------------------------- Ending Estimated Eligible A/R (Date 4 __________) 0 0 0 0 - ---------------------------------------------------------------- 5 Liquidity Factor 100.0% 100.0% 100.0% 100.0% ---------------------------------------------------------------- 6 Net Eligible A/R (4*5) 0 0 0 0 - ---------------------------------------------------------------- 7 (-) Unposted A/R Collections - -------- 8 Adjusted Net A/R Availability (6-7) - -------- 9 Advance Rate 85% -------- 10 A/R Availability (8*9) - -------- B SECTION B: GROSS AVAILABILITY 1 A/R Availability - -------- 2 (+) Approved Overadvance - -------- 3 (-) Reserves - -------- 4 Collateral Availability (1+2-3) - -------- 5 Facility Cap - -------- 6 Gross Availability (lesser of Collateral Availability and Facility Cap) - --------
Exhibit B-3 EXHIBIT C FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of ______________ __, 20__ (this "Joinder Agreement"), made by the entity or entities that are signatories hereto (collectively, the "Additional Borrowers"), in favor of CapitalSource Finance LLC ("CapitalSource"), as administrative agent and collateral agent (in such capacity, "Agent") for the Lenders (as defined below). W I T N E S S E T H : WHEREAS, various borrowers party thereto from time to time (collectively, "Borrowers," and each, a "Borrower"), the lenders party thereto from time to time (the "Lenders"), and Agent are parties to that certain Revolving Credit and Security Agreement, dated as of August 19, 2003 (as such may from time to time be renewed, refunded, replaced, refinanced, amended, amended and restated, modified or supplemented, the "Credit Agreement"). Capitalized terms not defined herein have the meanings given to them in the Credit Agreement. WHEREAS, the parties to this Joinder Agreement wish to amend Schedule 1 to the Credit Agreement in the manner hereinafter set forth and, pursuant to Section 6.l4 of the Credit Agreement, join the Additional Borrowers as Borrowers under the Credit Agreement. NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: A G R E E M E N T: 1. Each of the undersigned Additional Borrowers hereby acknowledges that it has received and reviewed a copy of the Credit Agreement and acknowledges and agrees to: (a) join the Credit Agreement as a Borrower (with the same effect as if initially named therein), as indicated with its signature below; (b) be bound by all covenants, agreements and acknowledgements attributable to a Borrower in the Credit Agreement, including, without limitation, the grant of security interest in the Collateral (as defined in the Credit Agreement) under the Credit Agreement; and (c) perform all obligations and duties required of it by the Credit Agreement as a Borrower. Exhibit C-1 2. Each of the undersigned hereby represents and warrants that the representations and warranties with respect to it contained in Article 5 of the Credit Agreement and in each of the other Loan Documents to which such signatory is a party, by virtue of this Joinder Agreement or otherwise, or which are contained in any certificate furnished by or on behalf of such signatory, are true and correct on the date hereof as if made on and as of the date hereof (except where such representation or warranty expressly relates to an earlier date, in which case such representation or warranty was true and correct as of such date). 3. The address and jurisdiction of incorporation of each of the undersigned is set forth below its name on the signature pages hereto. 4. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW). [Remainder of page intentionally blank] Exhibit C-2 IN WITNESS WHEREOF, each of the undersigned has caused this JOINDER AGREEMENT to be duly executed by its proper and duly authorized officer as of the date first set forth above. ADDITIONAL BORROWER: _________________________ a _______________________ By: _____________________________ Name: Title: Address: Jurisdiction of Incorporation: ACKNOWLEDGED AND AGREED TO: CAPITALSOURCE FINANCE LLC By: ___________________________ Name: Title: Exhibit C-3 EXHIBIT D TO LOAN AGREEMENT EXHIBIT D GUARANTY AND SECURITY AGREEMENT THIS GUARANTY AND SECURITY AGREEMENT(this "AGREEMENT") is made as of ___________ 20___, by ______________________________, a _____________ corporation ("GUARANTOR"), to and for the benefit of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company as administrative agent and collateral agent for the Lenders (as defined below) ("AGENT"). WHEREAS, the borrowers party thereto (each a "BORROWER" and collectively, "BORROWERS"), Agent and the lenders party thereto ("LENDERS") have entered into that certain Revolving Credit and Security Agreement (as amended, supplemented or modified from time to time, the "CREDIT AGREEMENT"), dated as of ______________, 2003 (the "Closing Date"), pursuant to which Borrowers have agreed to borrow from Lenders, and Lenders have agreed to lend to Borrowers, certain amounts pursuant to a revolving credit facility, all in accordance with and subject to the terms and conditions set forth in the Credit Agreement, which borrowings are evidenced by the Revolving Notes executed and delivered to Lenders by Borrowers, dated as of the Closing Date (together collectively and each individually, the "NOTE", and together with all of the other agreements, documents, instruments, certificates, reports and financing statements heretofore or hereafter executed or delivered in connection therewith or with the Advances to be made under the Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "LOAN DOCUMENTS"); WHEREAS, Guarantor has become a Subsidiary (as defined in the Credit Agreement) of a Borrower and, pursuant to Section 6.14 of the Credit Agreement, as a condition incident to the obligation of Lenders to make additional Advances to Borrowers, Guarantor is required, and has agreed, to execute and deliver this Agreement and to grant to Agent on behalf of Lenders a security interest in the Collateral as security for Guarantor's obligations under this Agreement; WHEREAS, Lenders are willing to make additional Advances under the Credit Agreement and the other Loan Documents only upon the condition that Guarantor executes and delivers to Agent this Agreement and agrees to perform and to comply with its obligations under this Agreement; and WHEREAS, Guarantor acknowledges and confirms that, as [an affiliate] [a subsidiary] of a Borrower, (a) it will benefit from the advancement of funds under the Revolving Facility to Borrowers, (b) the Loans by Lenders constitute valuable consideration to Guarantor, (c) this Agreement is intended to be an inducement to Lenders to continue to extend credit and the Loans to Borrowers, and (d) Lenders are relying upon this Agreement in making and advancing the Loans to Borrowers. NOW, THEREFORE, in consideration of the foregoing and of the covenants and agreements hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, and as an inducement for Lenders to continue making Advances to Borrowers under the Credit Exhibit D-1 Agreement and the other Loan Documents, Guarantor, intending to be legally bound hereby, agrees as follows: 1. All capitalized terms in this Agreement and not defined herein shall have the defined meanings provided in the Credit Agreement. 2. Guarantor unconditionally and absolutely guarantees (i) the due and punctual payment and performance when due of the principal of the Note and the interest thereon and of the Obligations and any and all other monies and amounts due or which may become due on or with respect to any of the foregoing, and the due and punctual performance and observance by Borrowers of all of the other terms, covenants, agreements and conditions of the Loan Documents, in any case whether according to the present terms thereof, at any earlier or accelerated date or dates or pursuant to any extension of time or to any change in the terms, covenants, agreements and conditions thereof now or at any time hereafter made or granted, (ii) all liabilities and obligations of Guarantor hereunder, and (iii) all costs, expenses and liabilities (including, without limitation, reasonable attorneys fees and expenses, documentation and diligence fees and legal expenses, and search, audit, recording, professional and filing fees and expenses) that may be incurred or advanced by Agent and/or Lenders in any way in connection with the foregoing and/or otherwise required to be paid by Guarantor hereunder (collectively, such items in clauses (i) through (iii) being the "GUARANTEED OBLIGATIONS"). Guarantor acknowledges that this Agreement shall be deemed a continuing guaranty of the Guaranteed Obligations under the Loan Documents. 3. This Agreement is a guaranty of payment and not a guaranty of collection. If any Guaranteed Obligation is not satisfied when due, whether by acceleration or otherwise, Guarantor shall forthwith satisfy such Guaranteed Obligation, upon demand, and no such satisfaction shall discharge the obligations of Guarantor hereunder until all Guaranteed Obligations have been indefeasibly paid in cash and performed and satisfied in full and the Credit Agreement terminated. The liability of Guarantor under this Agreement shall be primary and direct and not conditional or contingent upon the enforceability of any obligation, the solvency of Borrowers, any Borrower or any other Person, any obligation or circumstance which might otherwise constitute a legal or equitable discharge or defense of a surety or guaranty or the pursuit by Agent of any remedies it may have against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person. Without limiting the generality of the foregoing, Agent shall not be required to make any demand on Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or to sell at foreclosure or otherwise pursue or exhaust its remedies against any Collateral of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person before, simultaneously with or after enforcing its rights and remedies hereunder against Guarantor, and any one or more successive and/or concurrent actions may be brought against Guarantor in the same action brought against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or in separate actions, as often as Agent may deem advisable, in its sole discretion. The obligations of Guarantor hereunder shall not in any way be affected by any action taken or not taken by Agent, which action or inaction is hereby consented and agreed to by Guarantor, or by the partial or complete unenforceability or invalidity of any other guaranty or surety agreement, pledge, assignment, Lien or other security interest or security for any of the Guaranteed Obligations or of Exhibit D-2 the value, genuineness, validity or enforceability of the Collateral or any of the Guaranteed Obligations. 4. (A) To secure the payment and performance of the Guaranteed Obligations, Guarantor hereby grants to Agent, for the benefit of itself and Lenders, a continuing security interest in and Lien upon, and pledges to Agent, for the benefit of itself and Lenders, all of its right, title and interest in and to and upon all of the following property and interests in property of Guarantor, now owned or hereafter acquired (collectively and each individually, the "Collateral"), which security interest is intended to be a first priority security interest: (i) all of its present and future Accounts, and all Instruments, Contracts and Chattel Paper relating to or arising out of any Accounts; (ii) all of its present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by Guarantor; provided, however, that Agent shall not have a security interest in any rights under any Government Contract of Guarantor or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, Section 203 or Title 41, Section 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; (iii) all now owned or hereafter acquired Deposit Accounts into which proceeds from Accounts are deposited; (iv) all Books and Records, whether now owned or hereafter acquired; and (v) any and all replacements and proceeds of any of the foregoing. (B) Notwithstanding the foregoing provisions of this Section 4, such grant of a security interest shall not extend to, and the term "Collateral" shall not include, (x) any General Intangible, contract, agreement or document of Guarantor to the extent that (i) such General Intangible, contract, agreement or document is not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or Exhibit D-3 other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; (y) any asset of Guarantor to the extent that (i) such asset subject to a contract, agreement or document otherwise permitted pursuant to this Agreement, which contract, agreement or document restricts the grant of such security interest (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral" ; and (z) any Permit of Guarantor to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Guarantor shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent, provided, however in the event Guarantor is unable to obtain the required Landlord Consent and Waiver for any location at which books and records are kept, Guarantor shall maintain a duplicate set of such books and records at a location owned by a Guarantor or with respect to which a Landlord Consent and Waiver reasonably satisfactory to Agent shall have been obtained. (C) Upon the execution and delivery of this Agreement, and upon the proper filing of the necessary financing statements, the proper delivery of the necessary stock certificates, in each case as applicable, then without any further action, Agent will have a good, valid and perfected first priority Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person except for Permitted Liens, except for security interests in money. No financing statement relating to any of the Collateral is on file in any public office except those (i) on behalf of Agent, and/or (ii) in connection with or with respect to the Permitted Liens. (D) Guarantor shall (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Agent to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Agent and Agent's perfected first priority Lien on the Collateral (and Guarantor irrevocably grants Agent the right, at Agent's option, to file any or all of the foregoing), (ii) immediately upon learning thereof, report to Agent any reclamation, return or repossession of goods in excess of $100,000.00 (individually or in the aggregate), and (iii) defend the Collateral and Agent's perfected first priority Lien thereon against all claims and demands of all Persons at any time claiming the same or Exhibit D-4 any interest therein adverse to Agent or any Lender, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys' fees and expenses) in connection with such defense, which may at Agent's discretion be added to the Obligations.. (E) Guarantor agrees that notice received by it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Agent without prior notice to Guarantor. At any sale or disposition of Collateral or securities pledged, Agent may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by Guarantor which right is hereby waived and released. Guarantor covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Agent's exercise of its rights and remedies with respect to the Collateral. Agent, in dealing with or disposing of the Collateral or any part thereof, shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process. (F) In addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all reasonable costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Guarantors' business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Agent or Lenders may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Agent or Lenders may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, reasonable in house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein and as determined by Agent in its sole discretion; (iii) third, to the satisfaction of the Senior Mortgage Loan as provided in the Senior Mortgage/Revolving Lender Intercreditor Agreement; and (iv) fourth, to the payment of any surplus then remaining to Guarantor, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Guarantor shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section. (G) Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under this Agreement, the Loan Documents, the UCC, at law or Exhibit D-5 in equity, upon the occurrence and continuation of an Event of Default, Agent and Lenders shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue the operation of the business of Guarantor and to collect all revenues and profits thereof and apply the same to the payment of all reasonable expenses and other charges of such receivership including the reasonable compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. (H) All Collateral (except Deposit Accounts) will at all times be kept by Guarantor at the locations set forth on Schedule 4(H) hereto, and such other locations as Guarantor shall identify to Agent upon ten (10) calendar days prior written notice, and in any case shall not be moved outside the continental United States. (I) Guarantor shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit such records to Agent on such periodic bases as Agent may request. In addition, if Accounts of Guarantor in an aggregate face amount in excess of $200,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Receivables, Guarantor shall notify Agent of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Agent, after the occurrence and during the continuance of an Event of Default, Guarantor shall execute and deliver to Agent formal written assignments of all of its Accounts weekly or daily as Agent may request, including all Accounts created since the date of the last assignment, together with copies of claims, invoices and/or other information related thereto. Subject to the Senior Mortgage/Revolving Lender Intercreditor Agreement, to the extent that collections from such assigned accounts exceed the amount of the Obligations, such excess amount shall not accrue interest in favor of Guarantor, but shall be available to Guarantor upon Guarantors' written request and so long as the Senior Mortgage Loan shall remain outstanding, shall be disbursed on each Business Day to the Senior Mortgage Loan Blocked Account. (J) Whether or not an Event of Default has occurred, any of Agent's officers, employees, representatives or agents shall have the right, at any time during normal business hours, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts of Guarantor; provided unless an Event of Default has occurred and is continuing, such verification shall only verify account balances and shall not give notice of Agent's security interest. Guarantor shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. (K) To expedite collection, Guarantor shall endeavor in the first instance to make collection of its Accounts for Agent. Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default to notify (i) Account Debtors owing Accounts to Guarantor other than Medicaid/Medicare Account Debtors Exhibit D-6 that their Accounts have been assigned to Agent and to collect such Accounts directly in its own name and to charge collection costs and expenses, including reasonable attorney's fees, to Guarantor, and (ii) Medicaid/Medicare Account Debtors that Guarantor has waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Agent to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Agent is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Agent in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. (L) As and when determined by Agent in its Permitted Discretion, Agent will perform the searches described in clauses (i) and (ii) below against Guarantor (the results of which are to be consistent with Guarantors' representations and warranties under this Agreement), all at Guarantors' expense: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where Guarantor is organized and/or maintains its executive offices, a place of business or assets; and (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (i) above, provided that unless an Event of Default shall have occurred and during the continuance thereof, Guarantor shall not be required to pay for more than one such search in any fiscal quarter under clause (i) and clause (ii) above. (M) Guarantor (i) shall provide prompt written notice to its current bank to transfer all items, collections and remittances to the Concentration Account, (ii) shall provide prompt written notice to each Account Debtor (other than a Private Pay Debtor) directing them to make payments to the appropriate Lockbox Account, and Guarantor hereby authorizes Agent, upon any failure to send such notice and directions within ten (10) calendar days after the date of this Agreement (or ten (10) calendar days after the Person becomes an Account Debtor (other than a Private Pay Debtor)), to send any and all similar notices and directions to such Account Debtors and (iii) shall do such further acts and deeds that may be lawfully required by Agent to make, create, maintain, continue or perfect Agent's security interest in the Lockbox Accounts or the Collateral. At Agent's request, Guarantor shall immediately deliver to Agent all items for which Agent must receive possession to obtain a perfected security interest and all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral except for promissory notes in a principal amount less than $100,000 provided that the aggregate principal amount of all such promissory notes shall be less than $500,000. 5. Guarantor hereby represents and warrants to Agent (which representations and warranties shall survive the execution and delivery of this Agreement and the making of Advances under the Credit Agreement) as follows: (A) Guarantor is a corporation, duly organized, validly existing and in good standing under the laws of the State of [INSERT], and all of Guarantor's issued and outstanding shares of capital stock, equity securities and other ownership interests are owned of record and beneficially directly by [ ], free and clear of all Liens, Exhibit D-7 mortgages, pledges, security interests, hypothecations, assignments, charges, rights, encumbrances or transfer or other restrictions (individually, "ENCUMBRANCE" and collectively, "ENCUMBRANCES") in favor of any other Person or otherwise, except for Encumbrances in favor of Agent pursuant to the Loan Documents; (B) Guarantor (i) has all requisite power and authority to own the Collateral and its properties and assets and to carry on its business as now being conducted, and (ii) is duly qualified to do business in every jurisdiction in which failure so to qualify could reasonably be expected to have or result in a Material Adverse Effect; (C) Guarantor has all requisite power and authority (i) to execute, deliver and perform this Agreement, (ii) to consummate the transactions contemplated hereunder, and (iii) to grant the Liens and security interests with regard to the Collateral granted hereby; (D) The execution, delivery and performance by Guarantor of this Agreement and the consummation of the transactions contemplated hereby, (a) have been duly authorized by all requisite action of Guarantor and have been duly executed and delivered by or on behalf of Guarantor; (b) do not violate in any material respect any provisions of (i) applicable law, statute, rule, regulation, ordinance or tariff applicable to Guarantor, (ii) any order of any Governmental Authority binding on Guarantor or any of its properties; or (iii) any material agreement between Guarantor and its shareholders, members, partners or equity owners or among any such shareholders, members, partners or equity owners; (c) do not violate any provision of the certificate of incorporation or bylaws (or any other equivalent governing agreement or document) of Guarantor, (d) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Guarantor is a party, or by which the properties or assets of Guarantor are bound, the effect of which could reasonably be expected to have a Material Adverse Effect; (e) except as set forth therein, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of Guarantor, and (f) except for those which have been obtained, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person. When executed and delivered, this Agreement will constitute the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity). (E) Guarantor is not (i) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would materially adversely affect its ability to execute and deliver, or perform under, this Agreement or to pay the Guaranteed Obligations, (ii) in default in the performance, observance or Exhibit D-8 fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to have a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period, could reasonably be expected to have a Material Adverse Effect, or (iii) a party or subject to any agreement, document or instrument with respect to, or obligation to pay any, service or management fee with respect to, the ownership, operation, leasing or performance of any of its business or any facility, nor is there any manager with respect to any such facility other than a Person that is a Borrower or a Guarantor; (F) Guarantor (i) is in compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental Authority applicable to Guarantor and/or Guarantor's business, assets or operations, including, without limitation, ERISA and Healthcare Laws, and (ii) is not in violation of any order of any Governmental Authority or other board or tribunal, except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. There is no event, fact, condition or circumstance known to Guarantor which, with notice or passage of time, or both, would constitute or result in any noncompliance with, or any violation of, any of the foregoing, in each case except where noncompliance or violation could not reasonably be expected to have a Material Adverse Effect. Guarantor has not received any notice that Guarantor is not in compliance in any respect with any of the requirements of any of the foregoing; (G) There is no action, suit, proceeding or investigation pending or, to its knowledge, threatened against Guarantor that (i) questions or could prevent the validity of this Agreement or the right of Guarantor to enter into this Agreement or to consummate the transactions contemplated hereby, (ii) could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect, or (iii) could reasonably be expected to result in any Change of Control or other change in the current ownership, control or management of Guarantor. Guarantor is not aware that there is any basis for the foregoing. Guarantor is not a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. There is no action, suit, proceeding or investigation initiated by Guarantor currently pending that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect. Guarantor has no existing accrued and/or unpaid Indebtedness to any Governmental Authority or any other governmental payor that could reasonably be expected to be or have, either individually or in the aggregate, any Material Adverse Change or Material Adverse Effect.; (H) None of the business or properties of Guarantor, any relationship between Guarantor and any other Person, any circumstance in connection with the Exhibit D-9 execution, delivery and performance of this Agreement, or the consummation of the transactions contemplated hereby, requires a consent, approval or authorization of, or filing, registration or qualification which has not been obtained with, any Governmental Authority or any other Person; (I) Guarantor is not a party to and has not entered into any agreement, document or instrument that conflicts with this Agreement or that otherwise relates to the Guaranteed Obligations; (J) The obligations of Guarantor under this Agreement are not subordinated in any way to any other obligations of Guarantor or to the rights of any other Person; (K) Guarantor is in substantial compliance with and has all Permits and Intellectual Property necessary or required by applicable law or Governmental Authority for the operation of its businesses. All of the foregoing are in full force and effect and not in known conflict in any material respect with the rights of others. Guarantor is not (i) in breach of or default under the provisions of any of the foregoing, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to have a Material Adverse Effect, (ii) a party to or subject to any agreement, instrument or restriction that is so unusual or burdensome that it could reasonably be expected to have a Material Adverse Effect, and (iii) has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to have a Material Adverse Effect; (L) No representation or warranty made by Guarantor in this Agreement contains any untrue statement of material fact or omits to state any fact necessary to make the statements herein or therein not materially misleading. There is no fact known to Guarantor which Guarantor has not disclosed to Agent in writing which could reasonably be expected to have a Material Adverse Effect; (M) During the five years prior to the date hereof, Guarantors has not conducted business under or used any other name (whether corporate, partnership or assumed); (N) The foregoing representations and warranties are made with the knowledge and intention that Agent is relying and will rely thereon. All such representations and warranties shall survive the execution and delivery of this Agreement. 6. Guarantor hereby waives demand, presentment, protest, notice of dishonor or non-payment, as well as all defenses with respect to any and all instruments, notice of acceptance hereof, notice of Loans or Advances made, credit extended, collateral received or delivered, or any other action taken by Agent in reliance hereon, and all other demands and Exhibit D-10 notices of any description, except such as are expressly provided for herein, it being the intention hereof that Guarantor shall remain liable as a principal until the full amount of all Guaranteed Obligations shall have been indefeasibly paid in full in cash and performed and satisfied in full (other than the Unmatured Surviving Obligations) and the Credit Agreement terminated, notwithstanding any act, omission, or anything else which might otherwise operate as a legal or equitable discharge of Guarantor. 7. Guarantor acknowledges and agrees that its obligations as Guarantor shall not be impaired, modified, changed, released or limited in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person or its estate in bankruptcy resulting from the operation of any present or future provision of the bankruptcy laws or other similar statute, or from the decision of any court. 8. Guarantor acknowledges and agrees that Agent shall have the full right and power, in its sole discretion and without any notice to or consent from Guarantor and without affecting or discharging, in whole or in part, the liability of Guarantor hereunder to deal in any manner with the Guaranteed Obligations and any security or guaranties therefor, including, without limitation, to (A) release, extend, renew, compromise or substitute and administer the Guaranteed Obligations and other obligations under the Loan Documents in any manner it sees fit, (B) release any or all collateral for the Guaranteed Obligations, (C) release any guarantor of the Guaranteed Obligations, (D) extend the time for payment of the Guaranteed Obligations or any part thereof, (D) change the interest rate on the Guaranteed Obligations or any Note under the Credit Agreement, (E) reduce or increase the outstanding principal amount of the Guaranteed Obligations or any Note under the Credit Agreement, (F) accelerate the Guaranteed Obligations, (G) make any change, amendment or modification whatsoever to the terms or conditions of the Loan Documents, (H) extend, in whole or in part, on one or any number of occasions, the time for the payment of any principal or interest or any other amount pursuant to any Note or for the performance of any term or condition of the Loan Documents, (I) settle, compromise, release, substitute, impair, enforce or exercise, or fail or refuse to enforce or exercise, any claims, rights, or remedies, of any kind or nature, which Agent may at any time have against Borrowers or any other guarantor of the Guaranteed Obligations or any other Person, or with respect to any security interest of any kind held by Agent at any time, whether under any Loan Document or otherwise, (J) release or substitute any security interest of any kind held by Agent at any time, (K) collect and retain or liquidate any collateral subject to such security interest, (L) make advances for the purpose of performing any term or covenant contained in the Loan Documents with respect to which Borrowers or any other guarantor of the Guaranteed Obligations is in default, (M) foreclose on any of the Collateral, (N) grant waivers or indulgences, (O) take additional collateral, (P) obtain any additional guarantors, (Q) take a deed in lieu of foreclosure and/or (R) take or fail to take any other action whatsoever with respect to the Guaranteed Obligations. Guarantor hereby waives and agrees not to assert against Agent any rights which a guarantor or surety could exercise. Notwithstanding any other provision of this Agreement or any other Loan Document, Guarantor agrees that Agent has no duties of any nature whatsoever to Guarantor, whether express or implied, by virtue of this Agreement, operation of law or otherwise. Exhibit D-11 9. Guarantor agrees that its obligations hereunder are irrevocable and independent of the obligations of Borrowers or any other guarantor of the Guaranteed Obligations or any other Person. Guarantor shall take all necessary and appropriate actions to ensure that this Agreement is and remains enforceable against Guarantor in accordance with its terms and that Guarantor complies with each of its obligations hereunder and thereunder. Guarantor shall not (a) cause or permit to be done, or enter into or make or become a party to any agreement (oral or written), arrangement or commitment to do or cause to be done, any of the things prohibited by this Agreement or that would breach this Agreement or any other instrument, agreement, arrangement, commitment or document to which Guarantor is a party or by which it or any of its properties or assets is or may be bound or subject, or (b) enter into or make or become a party to any agreement, document or instrument or arrangement that conflicts with this Agreement or that would prevent Guarantor from complying with and performing under this Agreement. 10. Guarantor agrees that it shall have no right of subrogation whatever with respect to the Guaranteed Obligations guaranteed hereby or to any collateral securing such Guaranteed Obligations unless and until such Guaranteed Obligations have been irrevocably and indefeasibly paid in full in cash and performed in full (other than the Unmatured Surviving Obligations) and the Credit Agreement and this Agreement have been terminated. 11. Guarantor agrees that this Agreement shall inure to the benefit of, and may be enforced by, Agent and Lenders, all future holders of any Note or any of the Guaranteed Obligations or any of the Collateral and all Transferees (as defined below), and each of their respective successors and permitted assigns, and shall be binding upon and enforceable against Guarantor and Guarantor's assigns and successors. Guarantor agrees that it may not assign, delegate or transfer this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Agent. Nothing contained in this Agreement or any other Loan Document shall be construed as a delegation to Agent of Guarantor's duty of performance, including, without limitation, any duties under any account or contract in which Agent has a security interest or Lien. GUARANTOR ACKNOWLEDGES THAT AGENT AT ANY TIME AND FROM TIME TO TIME MAY SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER, THIS AGREEMENT, ANY NOTE, THE GUARANTEED OBLIGATIONS, THE COLLATERAL AND/OR THE LOAN DOCUMENTS TO ONE OR MORE OTHER PERSONS, INCLUDING, WITHOUT LIMITATION, FINANCIAL INSTITUTIONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A "TRANSFEREE"). In such case, the Transferee shall have all of the rights and benefits with respect to the portion of such Guaranteed Obligations, any Note, this Agreement, the Collateral and the Loan Documents held by it as fully as if such Transferee were the original holder thereof (including without limitation rights of set-off and recoupment), and shall become vested with all of the powers and rights given to Agent hereunder with respect thereto, and shall be deemed to be "Agent" for all purposes hereunder, the predecessor Agent shall thereafter be forever released and fully discharged from any liability or responsibility hereunder with respect to the rights and interests so assigned, and either Agent or any Transferee may be designated as the sole agent to manage the transactions and obligations contemplated herein. Notwithstanding any other provision of this Agreement, Agent may disclose to any Transferee all information, and may furnish to such Exhibit D-12 Transferee copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any Loan Document. 12. Guarantor hereby agrees to take or cause to be taken such further actions, to obtain such consents and approvals and to duly execute, deliver and file or cause to be executed, delivered and filed such further agreements, assignments, instructions, documents and instruments as may be necessary or as may be reasonably requested by Agent in its sole discretion in order to fully effectuate the purposes, terms and conditions of this Agreement and the consummation of the transactions contemplated hereby and performance and payment of the Guaranteed Obligations hereunder, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence of a Default or Event of Default under any Loan Document. 13. Notwithstanding and without limiting or being limited by any other provision of this Agreement or the Loan Documents, Guarantor shall pay all costs and expenses incurred by Agent or any of its Affiliates, including, without limitation, documentation and diligence fees and expenses, all search, audit, appraisal, recording, professional and filing fees and expenses and all other out-of-pocket charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches), and reasonable attorneys' fees and expenses (a) in any effort to enforce this Agreement and/or any related agreement, document or instrument, or to effect collection hereunder or thereunder, (b) in connection with entering into, negotiating, preparing, reviewing and executing this Agreement, (c) arising in any way out of administration of the Guaranteed Obligations or the security interests or Liens created with respect thereto, including without limitation, any wire transfer fees or audit expenses or filing or recordation fees, (d) in connection with instituting, maintaining, preserving and enforcing Agent's rights hereunder or under all related agreements, documents and instruments, (e) in defending or prosecuting any actions, claims or proceedings arising out of or relating to this Agreement and/or any related agreement, document or instrument, (f) in seeking or receiving any advice with respect to its rights and obligations under this Agreement and/or all related agreements, documents and instruments, and/or (g) in connection with any modification, amendment, supplement, waiver or extension of this Agreement and/or any related agreement, document or instrument, and all of the same shall be part of the Guaranteed Obligations. If Agent or any of its Affiliates uses in-house counsel for any of the purposes set forth above or any other purposes under this Agreement for which Guarantor is responsible to pay or indemnify, Guarantor expressly agrees that its Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent or such Affiliate in its sole discretion for the work performed. 14. Any notice or request under this Agreement shall be given to any party to this Agreement at such party's address set forth below, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 14. Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a "RECEIPT"): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or Exhibit D-13 electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable. If to Agent: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Loan Management Officer Telephone: (301) 841-2700 Facsimile: (301) 841-2340 E-mail: aheller@capitalsource.com If to Guarantors: C/O FOUNTAIN VIEW, INC. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: Roland Rapp, Esq., General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-mail: rrapp@fountainviewinc.net 15. No course of action or dealing, renewal, release or extension of any provision of this Agreement, or single or partial exercise of any such provision, or delay, failure or omission on Agent's part in enforcing any such provision shall affect the liability of Guarantor or operate as a waiver of such provision or affect the liability of Guarantor or preclude any other or further exercise of such provision. No waiver by any party to this Agreement of any one or more defaults by any other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. 16. If any term or provision of this Agreement is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity or unenforceability without affecting the validity or enforceability of, the remainder of this Agreement which shall be given effect so far as possible. 17. Agent shall have the right in its sole discretion to determine which rights, powers, Liens, security interests or remedies Agent may at any time pursue, relinquish, subordinate or modify or to take any other action with respect thereto and such determination will not in any way modify or affect any of Agent's rights, powers, Liens, security interests or remedies hereunder or under any of the Loan Documents or under applicable law or at equity. The enumeration of the rights and remedies herein is not intended to be exhaustive. The rights and remedies of Agent described herein are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent or Lenders otherwise may have. The partial or Exhibit D-14 complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy. 18. This Agreement shall be effective on the date hereof and shall continue in full force and effect until full performance (other than Unmatured Surviving Obligations) and indefeasible payment in full in cash of all Guaranteed Obligations and termination of this Agreement and the Credit Agreement, all in accordance with the Credit Agreement, and the rights and powers granted to Agent hereunder shall continue in full force and effect notwithstanding the termination of this Agreement or the fact that Borrower's borrowings under the Credit Agreement may from time to time be temporarily in a zero or credit position until all of the Guaranteed Obligations have been indefeasibly paid in full in cash and performed and satisfied in full. Guarantor waives any rights which it may have under the UCC or otherwise to demand the filing of termination statements with respect to the Collateral, and Agent shall not be required to send such termination statements to Guarantor, or to file them with any filing office, unless and until this Agreement and the Credit Agreement shall have been terminated in accordance with their respective terms and all Guaranteed Obligations shall have been performed in full (other than Unmatured Surviving Obligations) and indefeasibly paid in full in cash. 19. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding with respect to the Obligations, any Loan Document or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a "New York Court," and all such courts collectively, the "New York Courts"), provided nothing in this Agreement shall be deemed or operate to preclude Agent from bringing suit or taking other legal action in any jurisdiction to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations (any such court and any New York Court, individually a "Qualified Court" and collectively, the "Qualified Courts"), and provided, further that Agent, Lenders and Guarantor acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of this Agreement, Guarantor (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 14 hereof and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Agent or any Lender involving, directly or indirectly, the Obligations, any Loan Document or any related agreement shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 20. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. This Agreement may be Exhibit D-15 executed by facsimile transmission, which facsimile signatures shall be considered original executed counterparts for purposes of this Section 21, and Guarantor agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party to this Agreement. 21. Notwithstanding and without limiting any other provision of this Agreement or any Loan Document, Guarantor shall indemnify Agent, each Lender, its and their Affiliates and its and their respective managers, members, officers, employees, Affiliates, agents, representatives, successors, assigns, accountants and attorneys (collectively, the "INDEMNIFIED PERSONS") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits and costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, this Agreement or any agreement, document or transaction contemplated hereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of such Indemnified Person. If any Indemnified Person uses in-house counsel for any purpose for which Guarantor is responsible to pay or indemnify, Guarantor expressly agrees that its indemnification obligations include reasonable charges for such work. Agent agrees to give Guarantor reasonable notice of any event of which Agent becomes aware for which indemnification may be required under this Section 21, and Agent may elect (but is not obligated) to direct the defense thereof, provided that the selection of counsel shall be subject to Guarantor's consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an "INSURED EVENT"), Agent agrees not to exercise its right to select counsel to defend the event if that would cause Guarantor's insurer to deny coverage; provided, however, that Agent reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Agent or any Lender obtains recovery from a third party other than an Indemnified Person of any of the amounts that Guarantor has paid to Agent or any Lender pursuant to the indemnity set forth in this Section 21, then Agent and/or any Lender shall promptly pay to Guarantor the amount of such recovery. Without limiting any of the foregoing, Guarantor indemnifies the Indemnified Parties for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Party has directly contracted in writing) which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, this Agreement or any agreement, document or transaction contemplated thereby. 22. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES Exhibit D-16 WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY. 23. This Agreement constitutes the entire agreement between Guarantor, Agent and Lenders with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Guarantor, Agent and Lenders, as appropriate. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Agent, Requisite Lenders and Guarantor. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 24. This Agreement is not intended to benefit or confer any rights upon Borrowers or upon any third party other than Agent and Lenders, who are intended beneficiaries hereof and for whose benefit this Agreement is explicitly made. 25. Guarantor, Agent and Lenders agree (a) to treat this Agreement and all provisions hereof confidentially and not to transmit any copy hereof or thereof or disclose the contents hereof or thereof, in whole or in part, to any Person (including, without limitation, any financial institution or intermediary) without Agent's prior written consent, other than to Guarantor's advisors and officers on a need-to-know basis, (b) to inform all such Persons who receive information concerning this Agreement of the confidential nature hereof and shall direct them to treat the same confidentially and not to disclose it to any other Person, and (c) to be bound by these provisions. Agent and Lenders shall have the right to review and approve all materials that Guarantor or any Guarantors prepare that contain Agent's name or describe or refer to this Agreement or any of the terms hereof or thereof or any of the transactions contemplated hereby or thereby. Guarantor reserves the right to review and approve all materials that Agent, Lenders or any of their Affiliates prepare that contain Guarantor's name or describe or refer to this Agreement, any of the terms hereof or thereof or any of the transactions contemplated hereby or thereby. Notwithstanding any other provision of this Agreement, Guarantor shall not, and shall not permit any of its Subsidiaries to, use Agent's name (or the name of any of Agent's Affiliates) in connection with any of its business operations. Nothing contained in this Agreement is intended to permit or authorize Guarantor to make any contract on behalf of Agent. Neither Agent nor Lenders shall, and shall not permit any of its respective Affiliates to, use Guarantor's name (or the name of any of either Guarantor's Affiliates) in connection with any of its business operations. Exhibit D-17 26. Upon the exercise by Agent or any of its Affiliates of any power, right, privilege or remedy pursuant to this Agreement or under applicable law or at equity which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, Guarantor will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization. 27. In addition to and notwithstanding any other provision of this Agreement, Agent, in its sole discretion, shall have the right, at any time that Guarantor fails to do so, without prior notice to Guarantor, to (i) obtain insurance covering any of the Collateral as and to the extent required under the Credit Agreement; (ii) pay for the performance of any of the Guarantor's obligations hereunder; (iii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Guarantor is in good faith with due diligence by appropriate proceedings contesting those items; and (iv) pay for the maintenance and preservation of any of the Collateral. Such expenses and advances shall be added to the Guaranteed Obligations until reimbursed to Agent and shall be secured by the Collateral. Any such payments and advances by Agent shall not be construed as a waiver by Agent of an Event of Default or any other rights, remedies or powers of Agent or Lenders hereunder or otherwise. 28. Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent or Lenders with respect to any matter that is subject of this Agreement may be granted or withheld by Agent in its Permitted Discretion. 29. In any litigation, arbitration or other dispute resolution proceeding relating to this Agreement, or to any of the other Loan Documents, Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to any director, officer, employee or agent of Guarantor and/or its and their Affiliates being deemed to be employees or managing agents of Guarantor for purposes of all applicable law or court rules regarding the production of witnesses by notice for testimony (whether in a deposition, at trial or otherwise). Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to Agent's counsel in any such dispute resolution proceeding examining any such individuals as if under cross-examination and using any discovery deposition of any of them in that proceeding as if it were an evidence deposition. Guarantor waives any and all defenses, objections and counterclaims it may have or could interpose with respect to it using all commercially reasonable efforts to produce in any such dispute resolution proceeding, at the time and in the manner requested by Agent, all Persons, documents (whether in tangible, electronic or other form) and/or other things under its control and relating to the dispute in any jurisdiction that recognizes that (or any similar) distinction. IN WITNESS WHEREOF, Guarantor has executed this Guaranty and Security Agreement as of the day and year first above written. ___________________________ Exhibit D-18 By:_________________________________ Its:________________________________ CAPITALSOURCE FINANCE LLC By:_________________________________ Its:________________________________ Exhibit D-19 Schedule 4(H) Location of Collateral SCHEDULE 1 BORROWERS 1. Carehouse Healthcare Center, LLC, a Delaware limited liability company 2. Devonshire Care Center, LLC, a Delaware limited liability company 3. The Earlwood, LLC, a Delaware limited liability company 4. Fountain Care Center, LLC, a Delaware limited liability company 5. Fountain Senior Assisted Living, LLC, a Delaware limited liability company 6. Spring Senior Assisted Living, LLC, a Delaware limited liability company 7. Valley Healthcare Center, LLC, a Delaware limited liability company 8. Villa Maria Healthcare Center, LLC, a Delaware limited liability company 9. Willow Creek Healthcare Center, a Delaware limited liability company 10. Texas Cityview Care Center, LP, a Delaware limited partnership 11. Clairmont Beaumont, LP, a Delaware limited partnership 12. Clairmont Longview, LP, a Delaware limited partnership 13. The Clairmont Tyler, LP, a Delaware limited partnership 14. Colonial New Braunfels Care Center, LP, a Delaware limited partnership 15. Colonial Tyler Care Center, LP, a Delaware limited partnership 16. Coronado Nursing Center, LP, a Delaware limited partnership 17. Hallettsville Rehabilitation and Nursing Center, LP, a Delaware limited partnership 18. Texas Heritage Oaks Nursing and Rehabilitation Center, LP, a Delaware limited partnership 19. Hospitality Nursing and Rehabilitation Center, LP, a Delaware limited partnership 20. Monument Rehabilitation and Nursing Center, LP, a Delaware limited partnership 21. Oak Crest Nursing Center, LP, a Delaware limited partnership 22. Flatonia Oak Manor, LP, a Delaware limited partnership 23. Oakland Manor Nursing Center, LP, a Delaware limited partnership 24. Southwood Care Center, LP, a Delaware limited partnership 25. Town and Country Manor, LP, a Delaware limited partnership 26. West Side Campus of Care, LP, a Delaware limited partnership 27. Comanche Nursing Center, LP, a Delaware limited partnership 28. Guadalupe Valley Nursing Center, LP, a Delaware limited partnership 29. Briarcliff Nursing and Rehabilitation Center, LP, a Delaware limited partnership 30. Live Oak Nursing Center, LP, a Delaware limited partnership Schedule 1 - Page 1 31. Skilled Healthcare II, LLC, a Delaware limited liability company Schedule 1 - Page 2 SCHEDULE 2 Lenders Commitment - ------- ---------- CAPITALSOURCE FINANCE LLC $11,000,000 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Corporate Finance Group Portfolio Manager Telephone: 301-841-2700 Facsimile: 301-841-2360 E-Mail: aheller@capitalsource.com Wire Instructions: Bank: Bank of America, Baltimore, Maryland Account: 003930559738 ABA: 052001633 Account Name: CapitalSource Funding LLC Reference: Fountain View Schedule 1 - Page 3 Schedule 1 BORROWERS 1. Carehouse Healthcare Center, LLC, a Delaware limited liability company 2. Devonshire Care Center, LLC, a Delaware limited liability company 3. The Earlwood, LLC, a Delaware limited liability company 4. Fountain Care Center, LLC, a Delaware limited liability company 5. Fountain Senior Assisted Living, LLC, a Delaware limited liability company 6. Spring Senior Assisted Living, LLC, a Delaware limited liability company 7. Valley Healthcare Center, LLC, a Delaware limited liability company 8. Villa Maria Healthcare Center, LLC, a Delaware limited liability company 9. Willow Creek Healthcare Center, LLC, a Delaware limited liability company 10. Texas Cityview Care Center, LP, a Delaware limited partnership 11. Clairmont Beaumont, LP, a Delaware limited partnership 12. Clairmont Longview, LP, a Delaware limited partnership 13. The Clairmont Tyler, LP, a Delaware limited partnership 14. Colonial New Braunfels Care Center, LP, a Delaware limited partnership 15. Colonial Tyler Care Center, LP, a Delaware limited partnership 16. Coronado Nursing Center, LP, a Delaware limited partnership 17. Hallesttsville Rehabilitation and Nursing Center, LP, a Delaware limited partnership 18. Texas Heritage Oaks Nursing and Rehabilitation Center, LP, a Delaware limited partnership 19. Hospitality Nursing and Rehabilitation Center, LP, a Delaware limited partnership 20. Monument Rehabilitation and Nursing Center, LP, a Delaware limited partnership 21. Oak Crest Nursing Center, LP, a Delaware limited partnership 22. Flatonia Oak Manor, LP, a Delaware limited partnership 23. Oakland Manor Nursing Center, LP, a Delaware limited partnership 24. Southwood Care Center, LP, a Delaware limited partnership 25. Town and Country Manor, LP, a Delaware limited partnership 26. West Side Campus of Care, LP, a Delaware limited partnership 27. Comanche Nursing Center, LP, a Delaware limited partnership 28. Guadalupe Valley Nursing Center, LP, a Delaware limited partnership 29. Briarcliff Nursing and Rehabilitation Center, LP, a Delaware limited partnership 30. Live Oak Nursing Center, LP, a Delaware limited partnership 31. Skilled Healthcare II, LLC, a Delaware limited liability company Schedule 2 COMMITMENTS Lenders Commitment ------- ---------- CAPITALSOURCE FINANCE LLC $11,000,000 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Corporate Finance Group Portfolio Manager Telephone: 301-841-2700 Facsimile: 301-841-2360 E-Mail: aheller@capitalsource.com Wire Instructions: Bank: Bank of America, Baltimore, Maryland Account: 003930559738 ABA: 052001633 Account Name: CapitalSource Funding LLC Reference: Fountain View Schedule 2.4 BORROWER'S DEPOSIT ACCOUNTS
BANK ADDRESS ACCOUNT NUMBER - ------------------------------------------------------------- ~~2030 Main Street Wells Fargo Bank Irvine, CA 92614 - 7255 4010010973 - -------------------------------------------------------------~~
Schedule 5.3 CAPITALIZATION, ORGANIZATION CHART (INCLUDING ALL SUBSIDIARIES, AUTHORIZED/ISSUED CAPITALIZATION) AND JOINT VENTURES None. Schedule 5.4 OWNED PROPERTIES: None. LEASEHOLD PROPERTIES None. Schedule 5.5 DEFAULTS; SERVICE FEES; MANAGERS None. Schedule 5.6 LITIGATION None. Schedule 5.8 TAXES None. Schedule 5.10 LIABILITY EVENT None. Schedule 5.11 INTELLECTUAL PROPERTY None. Schedule 5.15 EXISTING INDEBTEDNESS None. Schedule 5.16 SHAREHOLDER AGREEMENTS None. Schedule 5.17 INSURANCE
DESC. OF INSURANCE POLICY POLICY LIMITS OF COVERAGE CARRIER NUMBER PERIOD INSURANCE - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Professional/ Lexington (AIG) 2004776 4/10/01 - Professional Liability General Liability 04/10/04 $4,000,000 Per Med. Inc. $5,000,000 Agg. Per Loc. General Liability $1,000,000 Each Occ. $5,000,000 Agg. Per Loc. $50,000 Fire Damage $5,000 Med. Expense $5,000,000 Policy Aggregate - ----------------------------------------------------------------------------------------------- California Workers' State Compensation 1672742-02 1/1/03- $1,000,000 Statutory Compensation Insurance Fund 1/1/04 Limits - W/C and Employers Liability - ----------------------------------------------------------------------------------------------- Employment Practices Lexington (AIG) 1052217 3/1/03- $5,000,000 Ea. Event Liability 3/1/04 $5,000,000 Policy Agg. - ----------------------------------------------------------------------------------------------- Texas Excess Lexington (AIG) 650-0147 4/1/03 - $5,000,000 Ea. Event Employers Liability 4/1/04 $5,000,000 Policy Agg. - ----------------------------------------------------------------------------------------------- DESC. OF RETRO SIR/ ANNUAL BROKER/ COVERAGE DATE DEDUCTIBLE PREMIUM CONTACT - --------------------------------------------------------------------------------------------- Professional/ Summit = $250,000 CA per claim $ 360,938 Dennis Heney General Liability 4/10/2001 Chris Mc Tigue FV9 = Aon LA 4/10/2002 $1,000,000 TX per claim No SIR Aggregate - --------------------------------------------------------------------------------------------- California Workers' N/A None $7,200,000 Dennis Heney Compensation Chris Mc Tigue Carol Gibson Aon LA - --------------------------------------------------------------------------------------------- Employment Practices 3/1/2000 $50,000 $ 345,516 Dennis Heney Liability Christopher Mc Tigue Aon LA - --------------------------------------------------------------------------------------------- Texas Excess N/A $1,000,000 $ 426,164 Dennis Heney Employers Liability Christopher Mc Tigue Aon LA - ---------------------------------------------------------------------------------------------
Schedule 5.17
DESC. OF INSURANCE POLICY POLICY LIMITS OF COVERAGE CARRIER NUMBER PERIOD INSURANCE - ------------------------------------------------------------------------------------------------ Property Travelers 4/15/03 - Blanket Limit - $150 million 4/15/04 Replacement Cost Quake/Windstorm/Flood Incl. CA Earthquake $25 million - ------------------------------------------------------------------------------------------------ California Auto American Home (AIG) 64597-78 5/30/03 - $1,000,000 CSL 05/30/04 $1,000,000 UM/UIM $5,000 MEDICAL - ------------------------------------------------------------------------------------------------ Texas Auto American Home (AIG) 64597-79 5/30/03 - $1,000,000 CSL 05/30/04 $1,000,000 UM/UIM $5,000 MEDICAL - ------------------------------------------------------------------------------------------------ Directors & Officers AIG 002410795 5/31/03 - $10,000,000 Aggregate Liability 5/31/04 - ------------------------------------------------------------------------------------------------ Fiduciary Liability AIG 002410704 5/31/03 - $2,000,000 Aggregate 5/31/04 - ----------------------------------------------------------------------------------------------- DESC. OF RETRO SIR/ ANNUAL BROKER/ COVERAGE DATE DEDUCTIBLE PREMIUM CONTACT - --------------------------------------------------------------------------------------------- Property N/A Ded. All Risk $ 537,823 Heritage Program $100,000/Quake 5% Lockton Kansas City Windstorm 5% Tim Fortin Bob Eckhart - --------------------------------------------------------------------------------------------- California Auto N/A $500 Deductible $ 52,761 Dennis Heney Comprehensive Christopher $500 Deductible Mc Tigue Collision Aon LA - --------------------------------------------------------------------------------------------- Texas Auto N/A $500 Deductible $ 58,750 Dennis Heney Comprehensive Christopher $500 Deductible Mc Tigue Collision Aon LA - --------------------------------------------------------------------------------------------- Directors & Officers 1/13/1997 $100,000 SIR $ 154,515 Heritage Program Liability (Incl. $6,615 Lockton NY Broker fee) - --------------------------------------------------------------------------------------------- Fiduciary Liability 5/31/2003 $10,000 SIR $ 6,630 Heritage Program Lockton NY - ---------------------------------------------------------------------------------------------
Schedule 5.17
DESC. OF INSURANCE POLICY POLICY LIMITS OF COVERAGE CARRIER NUMBER PERIOD INSURANCE - ----------------------------------------------------------------------------------------------- Travel Accident The Hartford ETB 104559 4/9/02 - $150,000 Benefit 4/9/05 Per employee Accidental Death or Dismemberment $1,000,000 Aggregate - ----------------------------------------------------------------------------------------------- Crime National Union 8526611 9/22/02- $2,000,000 (AIG) 9/22/03 Employee Dishonesty Forgery or Alteration Theft - inside and outside Robbery and Safe Burglary Computer Fraud Money Orders and Counterfeit - ----------------------------------------------------------------------------------------------- DESC. OF RETRO SIR/ ANNUAL BROKER/ COVERAGE DATE DEDUCTIBLE PREMIUM CONTACT - --------------------------------------------------------------------------------------------- Travel Accident N/A None $ 4,392 Aon LA Karen Frick - --------------------------------------------------------------------------------------------- Crime N/A $75,000 Each Claim $ 20,747 Dennis Heney Christopher Mc Tigue Aon LA - --------------------------------------------------------------------------------------------- TOTAL $9,168,236
Schedule 5.18A CORPORATE NAMES CURRENT NAMES (AS OF EFFECTIVE DATE) 1. Carehouse Healthcare Center, LLC, a Delaware limited liability company 2. Devonshire Care Center, LLC, a Delaware limited liability company 3. The Earlwood, LLC, a Delaware limited liability company 4. Fountain Care Center, LLC, a Delaware limited liability company 5. Fountain Senior Assisted Living, LLC, a Delaware limited liability company 6. Spring Senior Assisted Living, LLC, a Delaware limited liability company 7. Valley Healthcare Center, LLC, a Delaware limited liability company 8. Villa Maria Healthcare Center, LLC, a Delaware limited liability company 9. Willow Creek Healthcare Center, a Delaware limited liability company 10. Texas Cityview Care Center, LP, a Delaware limited partnership 11. Clairmont Beaumont, LP, a Delaware limited partnership 12. Clairmont Longview, LP, a Delaware limited partnership 13. The Clairmont Tyler, LP, a Delaware limited partnership 14. Colonial New Braunfels Care Center, LP, a Delaware limited partnership 15. Colonial Tyler Care Center, LP, a Delaware limited partnership 16. Coronado Nursing Center, LP, a Delaware limited partnership 17. Hallesttsville Rehabilitation and Nursing Center, LP, a Delaware limited partnership 18. Texas Heritage Oaks Nursing and Rehabilitation Center, LP, a Delaware limited partnership 19. Hospitality Nursing and Rehabilitation Center, LP, a Delaware limited partnership 20. Monument Rehabilitation and Nursing Center, LP, a Delaware limited partnership 21. Oak Crest Nursing Center, LP, a Delaware limited partnership 22. Flatonia Oak Manor, LP, a Delaware limited partnership 23. Oakland Manor Nursing Center, LP, a Delaware limited partnership 24. Southwood Care Center, LP, a Delaware limited partnership 25. Town and Country Manor, LP, a Delaware limited partnership 26. West Side Campus of Care, LP, a Delaware limited partnership 27. Comanche Nursing Center, LP, a Delaware limited partnership 28. Guadalupe Valley Nursing Center, LP, a Delaware limited partnership 29. Briarcliff Nursing and Rehabilitation Center, LP, a Delaware limited partnership 30. Live Oak Nursing Center, LP, a Delaware limited partnership 31. Skilled Healthcare, LLC, a Delaware limited liability company Schedule 5.18A PREVIOUS NAMES (PRIOR TO EFFECTIVE DATE) None. Schedule 5.18B PLACES OF BUSINESS CHIEF EXECUTIVE OFFICES: 1. 27442 Portola Parkway, Suite 200, Foothill Ranch, CA 92610 2. 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 PLACES OF BUSINESS: 1. 3201 N. Ware Road, 194 McAllen, TX 78501 2. 1020 S. 23rd Street, 148 Beaumont, TX 77707 3. 5801 Bryant Irvin Road, 210 Fort Worth, TX 76132 4. 3201 N. Fourth Street, 178 Longview, TX 75605 5. 900 S. Baxter, 120 Tyler, TX 75701 6. 821 US Hwy 81 West, New Braunfels, TX 78139 7. 930 S. Baxter, 172 Tyler, TX 75701 8. 3200 Parkway, 119 Big Spring, TX 79720 9. 1751 N. 15th Street, 221 Abilene, TX 79603 10. 1210 Eastwood Drive, 150 Sequin, TX 78155 11. Hwy 90A West, 120 Hallettsville, TX 77964 12. 5301 University Avenue, 159 Lubbock, TX 79413 13. Route 2, Box 116, 100 George West, TX 78022 14. 4710 Slide Road, 117 Lubbock, TX 79414 15. 120 State Loop 92, 110 La Grange, TX 78945 16. 1902 FM 3036, 92 Rockport, TX 78382 17. 624 N. Converse Street, 90 Flatonia, TX 78941 18. 1400 N. Main Street, 120 Gidding, TX 78942 19. 3759 Valley View Road, 120 Austin, TX 78704 20. 625 N. Main Street, 126 Boerne, TX 78006 21. 1950 Las Vegas Trail South, White Settlement, TX 76108 Schedule 6.8 FURTHER ASSURANCES/POST CLOSING 1. Thirty (30) days after the Closing Date, certified copies of all insurance policies required to be delivered pursuant to Section 4.1(g). 2. Forty-five (45) days after the Closing Date, delivery of all control account agreements not delivered as of the Closing Date as required by Section 6.8. Schedule 7.2 PERMITTED INDEBTEDNESS Indebtedness as contemplated or permitted by the Loan Documents and the Plan of Reorganization. Schedule 7.3 LIENS None. Schedule 7.4 INVESTMENTS None. Schedule 7.6 AFFILIATE TRANSACTIONS Intercompany agreements to provide services and supplies at the facilities. Schedule 7.9 CONTINGENT OBLIGATIONS None. EX-10.5 15 a94359exv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 REVOLVING NOTE U.S. $11,000,000.00 Dated as of: August 19, 2003 FOR VALUE RECEIVED, the undersigned companies listed on the signature page hereto (each individually a "BORROWER" and collectively, "BORROWERS"), hereby promise to pay to CAPITALSOURCE FINANCE LLC, as administrative agent and collateral agent (in such capacities, "AGENT"), for the benefit of the Lenders party to the Loan Agreement (as hereinafter defined), the unpaid principal amount of all Advances made by the Lenders to Borrowers under the Revolving Facility, with interest thereon, and all other Obligations under the Revolving Credit and Security Agreement, dated as of the date hereof, among Borrowers, Agent and Lenders (as it may be amended, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"), all at the times and in the manner set forth in the Loan Agreement. Capitalized terms used but not defined herein shall have the meanings given them in the Loan Agreement. 1. INTEREST AND PAYMENTS. (a) Borrowers promise to pay interest on the outstanding principal amount of the Revolving Facility in accordance with the provisions of the Loan Agreement. (b) Payments of interest and other Obligations shall be made, when due, by the application of funds advanced under the Revolving Facility or otherwise in accordance with the provisions of the Loan Agreement. 2. MATURITY. Unless earlier due and payable or accelerated under the Loan Agreement, this Revolving Note shall mature, and the outstanding principal balance hereunder and other Obligations, together with all other outstanding amounts due hereunder and under the Loan Agreement, shall become due and payable in full on the Maturity Date. 3. LOAN AGREEMENT AND SECURITY AGREEMENT. (a) This Revolving Note is referred to in, made pursuant to, and entitled to the benefits of, the Loan Agreement. The Loan Agreement, among other things, (i) provides for the making of the Revolving Facility by Lenders to Borrowers in the Dollar amount first mentioned above, (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified, and (iii) contains provisions defining an Event of Default and the rights and remedies of Agent and Lenders upon the occurrence of an Event of Default. (b) This Revolving Note is a secured note, entitled to the benefits of and security interests granted in, among other things, the Loan Agreement and the other Security Documents. 4. PREPAYMENTS. This Revolving Note may be prepaid in whole or in part upon notice to Agent and shall be prepaid in whole under certain circumstances, in each case as provided or required in the Loan Agreement. 5. LAWFUL LIMITS. This Revolving Note is expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent and each Lender for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under applicable law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or any Lender shall have received interest or any other charges of any kind which might be deemed to be interest under applicable law in excess of the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrowers hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance hereunder, Agent and each Lender shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate. 6. GOVERNING LAW. This Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of laws provisions. BORROWERS BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC THE EARLWOOD, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation Center GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor, GP, LLC, its general partner SKILLED HEALTHCARE II, LLC SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center, GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp -------------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net EX-10.6 16 a94359exv10w6.txt EXHIBIT 10.6 EXHIBIT 10.6 ================================================================================ LOAN AGREEMENT Dated as of August 19, 2003 Between THE ENTITIES LISTED ON SCHEDULE I ANNEXED HERETO, as Borrower and COLUMN FINANCIAL, INC., as Lender FOUNTAIN VIEW PORTFOLIO ================================================================================ TABLE OF CONTENTS
Page ---- I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION Section 1.1. Definitions................................................................. 1 Section 1.2. Principles of Construction.................................................. 27 II. GENERAL TERMS Section 2.1. Loan Commitment; Disbursement to Borrower................................... 27 Section 2.2. Interest Rate............................................................... 28 Section 2.3. Loan Payment................................................................ 34 Section 2.4. Prepayments................................................................. 35 Section 2.5. Release of Property......................................................... 36 Section 2.6. Cash Management............................................................. 37 Section 2.7. Assumption of a Portion of the Loan......................................... 41 III. CONDITIONS PRECEDENT Section 3.1. Conditions Precedent to Closing............................................. 46 IV. REPRESENTATIONS AND WARRANTIES Section 4.1. Borrower Representations.................................................... 50 Section 4.2. Health Care Representations................................................. 58 Section 4.3. Survival of Representations................................................. 60 V. BORROWER COVENANTS Section 5.1. Affirmative Covenants....................................................... 60 Section 5.2. Negative Covenants.......................................................... 72 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS Section 6.1. Insurance................................................................... 79 Section 6.2. Casualty.................................................................... 83 Section 6.3. Condemnation................................................................ 83 Section 6.4. Restoration................................................................. 84 VII. RESERVE FUNDS Section 7.1. Required Repair Funds....................................................... 88 Section 7.2. Tax and Insurance Escrow Fund............................................... 89 Section 7.3. Replacements and Replacement Reserve........................................ 89 Section 7.4. Debt Service Reserve........................................................ 90 Section 7.5. Reserve Funds, Generally.................................................... 90
-i- Section 7.6. Casualty Insurance Deductible Reserve....................................... 91 Section 7.7. Professional Liability Insurance Deductible Reserve........................ 92 VIII. DEFAULTS Section 8.1. Event of Default............................................................ 93 Section 8.2. Remedies.................................................................... 95 IX. SPECIAL PROVISIONS Section 9.1. Sale of Notes and Securitization............................................ 97 Section 9.2. Securitization Indemnification.............................................. 98 Section 9.3. Administration of Bankruptcy Claims......................................... 101 Section 9.4. Exculpation................................................................. 101 Section 9.5. Intentionally Omitted....................................................... 103 Section 9.6. Servicer.................................................................... 103 X. MISCELLANEOUS Section 10.1. Survival.................................................................... 104 Section 10.2. Lender's Discretion......................................................... 104 Section 10.3. Governing Law............................................................... 104 Section 10.4. Modification, Waiver in Writing............................................. 106 Section 10.5. Delay Not a Waiver.......................................................... 106 Section 10.6. Notices..................................................................... 106 Section 10.7. Trial by Jury............................................................... 108 Section 10.8. Headings.................................................................... 108 Section 10.9. Severability................................................................ 108 Section 10.10. Preferences................................................................. 108 Section 10.11. Waiver of Notice............................................................ 108 Section 10.12. Remedies of Borrower........................................................ 108 Section 10.13. Expenses; Indemnity......................................................... 109 Section 10.14. Schedules Incorporated...................................................... 110 Section 10.15. Offsets, Counterclaims and Defenses......................................... 110 Section 10.16. No Joint Venture or Partnership; No Third Party Beneficiaries............... 110 Section 10.17. Publicity................................................................... 111 Section 10.18. Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets..... 111 Section 10.19. Waiver of Counterclaim...................................................... 111 Section 10.20. Conflict; Construction of Documents; Reliance............................... 111 Section 10.21. Brokers and Financial Advisors.............................................. 112 Section 10.22. Prior Agreements............................................................ 112 Section 10.23. Note Register; Ownership of Promissory Note B............................... 112

-ii- SCHEDULES Schedule I - Properties and Borrowers Schedule II - Allocated Loan Amounts Schedule III - Required Repairs - Deadlines for Completion Schedule IV - Organizational Structure Schedule V - Licensed Bed Capacity Schedule VI - Allocation of Debt Service Reserve Schedule VII - Form of Occupancy Report Schedule VIII - Fictitious Business Names Schedule IX - Exception to Health Care Representations Schedule X - Interim Management Agreements and Subleases Schedule XI - Properties with Provisional Licenses -iii- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of August 19, 2003 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), between COLUMN FINANCIAL, INC., having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"), and the entities set forth on Schedule I annexed hereto and made a part hereof, jointly and severally, each having its principal place of business at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"). W I T N E S S E T H: WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION SECTION 1.1. DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "ACCEPTABLE COUNTERPARTY" shall mean any counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement a long-term unsecured debt rating of at least "AAA" by S&P and "Aaa" from Moody's, which rating shall not include a "t" or otherwise reflect a termination risk. "ADDITIONAL INSOLVENCY OPINION" shall have the meaning set forth in Section 4.1.30(c) hereof. "AFFILIATE" shall mean, 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 or is a director or officer of such Person or of an Affiliate of such Person. "AFFILIATED LOANS" shall mean a loan made by Lender to an Affiliate of Borrower or any Guarantor. "AFFILIATED MANAGER" shall mean any manager of any Individual Property in which Borrower, Principal, or any Guarantor has, directly or indirectly, any legal, beneficial or economic interest. "ALLOCATED LOAN AMOUNT" shall mean, for each Individual Property, the amount set forth on Schedule II hereto. "ALTA" shall mean American Land Title Association, or any successor thereto. "ANNUAL BUDGET" shall mean the operating budget, including all planned Capital Expenditures, for the Properties and each Individual Property separately, prepared by Borrower for the applicable Fiscal Year or other period. "APPLICABLE INTEREST RATE" shall mean the rate or rates at which the outstanding principal amount of the Loan bears interest from time to time in accordance with the provisions of Section 2.2.3 hereof. "APPROVED ANNUAL BUDGET" shall have the meaning set forth in Section 5.1.11(l) hereof. "ASSIGNMENT OF LEASES" shall mean, with respect to each Individual Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower's interest in and to the Leases and Rents of such Individual Property as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ASSUMED LOAN" shall have the meaning set forth in Section 2.7.1(g). "ASSUMED LOAN BORROWER" shall have the meaning set forth in Section 2.7.1(e). "ASSUMED LOAN DOCUMENTS" shall have the meaning set forth in Section 2.7.1(h). "ASSUMED PROPERTIES" shall have the meaning set forth in Section 2.7.1. "ASSUMED PROPERTY" shall have the meaning set forth in Section 2.7.1. "ASSUMED PROPERTY DEPOSIT" shall have the meaning set forth in Section 2.7.1(t). "AWARD" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation with respect to all or any part of any Individual Property. "BANKRUPTCY ACTION" shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against such Person; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) such Person consenting to or -2- acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of the Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due. "BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C., Section 101, et seq., and the regulations adopted and promulgated pursuant thereto. "BASIC CARRYING COSTS" shall mean, for any period, with respect to each Individual Property, the sum of the following costs associated with such Individual Property for such period: (a) Taxes and (b) Insurance Premiums. "BORROWER" shall mean, individually and collectively, each of the entities set forth on Schedule I annexed hereto and made a part hereof, together with their successors and assigns. Each reference to Borrower shall refer to such entities collectively and individually to each entity constituting Borrower. "BREAKAGE COSTS" shall have the meaning set forth in Section 2.2.3(h) hereof. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for items capitalized under GAAP (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "CASH EXPENSES" shall mean, for any period, the Operating Expenses for the operation of the Properties as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus any payments into the Tax and Insurance Escrow Fund and the Replacement Reserve Fund. "CASH MANAGEMENT ACCOUNT" shall have the meaning set forth in Section 2.6.4(a) hereof. "CASH MANAGEMENT AGREEMENT" shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among Borrower, Skilled Healthcare LLC, Skilled Healthcare II LLC and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "CASUALTY" shall have the meaning set forth in Section 6.2 hereof. "CASUALTY CONSULTANT" shall have the meaning set forth in Section 6.4(b)(iii) hereof. "CASUALTY INSURANCE DEDUCTIBLE RESERVE ACCOUNT" shall have the meaning set forth in Section 7.6.1 hereof. -3- "CASUALTY INSURANCE DEDUCTIBLE RESERVE FUND" shall have the meaning set forth in Section 7.6.1 hereof. "CASUALTY RETAINAGE" shall have the meaning set forth in Section 6.4(b)(iv) hereof. "CATCH-UP AMOUNT" shall have the meaning set forth in Section 2.3.2 hereof. "CLOSING DATE" shall mean the date of the funding of the Loan. "CLOSING DATE DEBT SERVICE COVERAGE RATIO" shall mean 2.0:1. "CLOSING DATE LOAN-TO VALUE RATIO" shall mean forty-nine percent (49%). "CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "COLLATERAL ASSIGNMENT OF INTEREST RATE CAP AGREEMENT" shall mean that certain Collateral Assignment of Interest Rate Cap Agreement, dated as of the date hereof, executed by Borrower in connection with the Loan for the benefit of the Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof. "CONDEMNATION PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "CONTRACT" shall have the meaning set forth in the Mortgages. "COUNTERPARTY" shall mean, with respect to the Interest Rate Cap Agreement, SMBC Derivative Products Limited, and with respect to any Replacement Interest Rate Cap Agreement, any substitute Acceptable Counterparty. "COVERED DISCLOSURE INFORMATION" shall have the meaning set forth in Section 9.2(b) hereof. "CSFB" shall mean Credit Suisse First Boston LLC and its successors in interest. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan under the Note, this Agreement, the Mortgages and the other Loan Documents. -4- "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled principal and/or interest payments due under this Agreement and the Note. "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the applicable period in which: (a) the numerator is the Net Operating Income (excluding interest on credit accounts) for such period as set forth in the financial statements required hereunder; and (b) the denominator is the applicable Debt Service due and payable on the Note A. "DEBT SERVICE RESERVE ACCOUNT" shall have the meaning set forth in Section 7.4.1 hereof. "DEBT SERVICE RESERVE FUND" shall have the meaning set forth in Section 7.4.1 hereof. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) five percent (5%) above the Applicable Interest Rate. "DETERMINATION DATE" shall mean, with respect to any Interest Period, the date that is two (2) London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences. "DISCLOSURE DOCUMENT" shall mean a prospectus, prospectus supplement, private placement memorandum, offering memorandum, offering circular, term sheet, road show presentation materials or other offering documents or marketing materials, in each case in preliminary or final form, used to offer Securities in connection with a Securitization. DOPNA shall have the meaning set forth in Section 5.1.28 hereof. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. Section. 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. -5- "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least "A-1+" by S&P, "P-1" by Moody's and "F-1+" by Fitch, if rated by such Rating Agency, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch and S&P and "Aa2" by Moody's, if rated by such Rating Agency). Lender acknowledges that each of Bank of America and Wells Fargo Bank, N.A. shall be deemed to be an Eligible Institutions so long as its short term unsecured debt obligations or commercial paper (in the case of accounts in which funds are held for thirty (30) days or less) are rated at least "A-2+" by S&P, "P-2" by Moody's and "F-1" by Fitch, if rated by such Rating Agency, or its long term unsecured debt obligations (in the case of accounts in which funds are held for more than thirty (30) days) are rated at least "A" by Fitch and S&P and "A2" by Moody's, if rated by such Rating Agency. For accounts into which checks are deposited by Borrower from private pay residents of the Facilities, other than the Lockbox Account and the Medicare/Medicaid Account, a depository institution or trust company, that insures deposits held by such a depository institution or trust company through the Federal Deposit Insurance Corporation, so long as the amounts on deposit in all accounts of any Borrower at such institution does not exceed $100,000 at any one time. "EMBARGOED PERSON" shall have the meaning set forth in Section 4.1.35 hereof. "ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower and Guarantor in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a) hereof. "EXCESS CASH FLOW" means for any fiscal year of Borrower, (a) the sum, without duplication, of (i) the net income or loss of Borrower for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by Borrower of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of Borrower during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by Borrower during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of Borrower during such fiscal year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of Borrower during such fiscal year, calculated in accordance with GAAP; (vi) an amount equal to any decrease in the Working Capital during such fiscal year up to $1,500,000 per year and (vii) any capital contributions made by Guarantor or any Affiliate of Guarantor to Borrower; minus (b) the sum, without duplication, of (i) the Maintenance Capital -6- Expenditures for such fiscal year; (ii) the aggregate amount of all interest expense of Borrower paid or payable during such fiscal year, (iii) an amount equal to any increase in the Working Capital during such fiscal year up to $1,500,000 per year; (iv) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such fiscal year with respect to the Loan (including any required posting of cash collateral in connection with property releases or loans), the Revolving Credit Loan and the Mezzanine Loan, (v) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Loan and the Mezzanine Loan; (vi) the aggregate amount of all federal and state income taxes paid or payable by Borrower during such fiscal year; and (vii) the aggregate amount of all non-cash extraordinary gains (together with any related provisions for federal and state income taxes on such extraordinary gains) of Borrower during the such fiscal year, calculated in accordance with GAAP. "EXCHANGE ACT" shall have the meaning set forth in Section 9.2(a) hereof. "EXTRAORDINARY EXPENSE" shall have the meaning set forth in Section 5.1.11(e) hereof. "FACILITY" shall have the meaning set forth in the granting clause of the related Security Instrument with respect to each Individual Property. "FISCAL YEAR" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. "FITCH" shall mean Fitch, Inc. "FOREIGN TAXES" shall have the meaning set forth in Section 2.2.3(e) hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS INCOME FROM OPERATIONS" shall mean, for any period, all income, computed in accordance with GAAP, derived from the ownership and operation of the Properties from whatever source during such period, including, but not limited to, Rents, utility charges, escalations, forfeited security deposits, interest on credit accounts, service fees or charges, license fees, parking fees, rent concessions or credits, and other pass-through or reimbursements paid by tenants under the Leases of any nature but excluding Rents from month-to-month tenants or tenants that are included in any Bankruptcy Action, sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any Governmental Authority, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, Insurance Proceeds and Condemnation Proceeds (other than business interruption or other loss of income insurance), and any disbursements to the Borrower from the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Debt Service Reserve Fund, or any other escrow fund established by the Loan Documents. -7- "GUARANTOR" shall mean Fountain View, Inc., a Delaware corporation. "GUARANTY" shall mean that certain Guaranty, dated as of the date hereof, from Guarantor to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "HEALTH CARE AUTHORITIES" shall mean any federal, state or local governmental or quasi-governmental authority or any agency, intermediary, board, authority or entity concerned with the ownership, operation, use or occupancy of any Individual Property as a skilled nursing facility or assisted living facility. "HERITAGE PARTNERS" shall mean Heritage Partners, Inc., its Affiliates, and its and their successors and assigns. "IMPROVEMENTS" shall have the meaning set forth in the granting clause of the related Mortgage with respect to each Individual Property. "INDEBTEDNESS" of a Person, at a particular date, means the sum (without duplication) at such date of (a) all indebtedness or liability of such Person (including, without limitation, amounts for borrowed money and indebtedness in the form of mezzanine debt and preferred equity); (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations); (d) obligations under letters of credit; (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations secured by any Liens, whether or not the obligations have been assumed. "INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section 10.13(b). "INDEMNIFIED PERSON" shall have the meaning set forth in Section 9.2(b) hereof. "INDEMNIFYING PERSON" shall mean each of Borrower, Principal and Guarantor. "INDEPENDENT DIRECTOR" or "INDEPENDENT MANAGER" shall mean a natural Person who is not at the time of initial appointment, or at any time while serving as a director or manager, as applicable, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director or Independent Manager), officer, employee, partner, member, attorney or counsel of the Principal, the Borrower or any Affiliate of either of them (provided, however, that no person may serve both as an Independent Director of the Borrower and the Mezzanine Borrower); (b) a creditor, customer, supplier or other person who derives any of its purchases or revenues from its activities with the Principal, the Borrower or any Affiliate of either of them; (c) a Person or other entity controlling or under common control with any such stockholder, partner, member, creditor, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, creditor, customer, supplier or other Person. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct -8- or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise. A natural person who satisfies the foregoing definition other than subparagraph (b) shall not be disqualified from serving as an Independent Director or Independent Manager of the Principal or Borrower if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors and that also provides other corporate services in the ordinary course of its business. A natural person who otherwise satisfies the foregoing definition except for being the independent director of a "special purpose entity" affiliated with Borrower that does not own a direct or indirect equity interest in Borrower or any co-borrower shall not be disqualified from serving as an Independent Director or Independent Manager of the Principal or Borrower if such individual is at the time of initial appointment, or at any time while serving as an Independent Director or Independent Manager of the Principal or Borrower, an Independent Director or Independent Manager of a Special Purpose Entity affiliated with Borrower or the Principal (other than any entity that owns a direct or indirect equity interest in Borrower or any co-borrower) if such individual is an independent director or independent manager provided by a nationally-recognized company that provides professional independent directors or independent managers. "INDIVIDUAL PROPERTY" shall mean each parcel of real property, the Improvements thereon and all personal property owned by Borrower and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the Granting Clauses of each Mortgage and referred to therein as the "Property." "INSOLVENCY OPINION" shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Latham & Watkins LLP in connection with the Loan. "INSURANCE PREMIUMS" shall have the meaning set forth in Section 6.1(b) hereof. "INSURANCE PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "INTEREST PERIOD" shall mean, with respect to any Payment Date, the period commencing on the ninth (9th) day of the preceding calendar month and terminating on the eighth (8th) day of the calendar month in which such Payment Date occurs; provided, however, that no Interest Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate), and the initial Interest Period shall begin on the Closing Date and shall end on the immediately following eighth (8th) day of the calendar month. "INTEREST RATE CAP AGREEMENT" shall mean, as applicable, an Interest Rate Cap Agreement (together with the confirmation and schedules relating thereto) in form and substance reasonably satisfactory to Lender between Borrower and an Acceptable Counterparty or a Replacement Interest Rate Cap Agreement. "LEASE" shall mean any lease, rental agreement, occupancy agreement, residency agreement, sublease or subsublease, letting, license, concession or other agreement of whatever form, including, without limitation, service, consulting and administrative agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a -9- possessory interest in, or right to use or occupy all or any portion of any space in any Individual Property, and (a) every modification, amendment, extension, renewal, replacement or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LEGAL REQUIREMENTS" shall mean, with respect to each Individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities or Health Care Authorities affecting such Individual Property or any part thereof, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting such Individual Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Individual Property or any part thereof, or (b) in any way limit the use and enjoyment thereof. "LENDER" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "LETTER OF CREDIT" shall mean an irrevocable, unconditional, transferable, clean sight draft letter of credit acceptable to Lender and the Rating Agencies (either an evergreen letter of credit or one which does not expire until at least thirty (30) Business Days after the Maturity Date) in favor of Lender and entitling Lender to draw thereon in New York, New York, issued by a domestic Eligible Institution or the U.S. agency or branch of a foreign Eligible Institution. If at any time the bank issuing any such Letter of Credit shall cease to be an Eligible Institution, Lender shall have the right immediately to draw down the same in full and hold the proceeds of such draw in accordance with the applicable provisions hereof. "LIABILITIES" shall have the meaning set forth in Section 9.2(b) hereof. "LIBOR" shall mean, with respect to each Interest Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/8 of 1%) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such Determination Date for the amounts of -10- not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender shall request any three major banks in New York City selected by Lender to provide such bank's rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively by Lender or its agent, absent manifest error. Notwithstanding anything to the contrary contained herein in no event shall LIBOR be less than one and seventy-five hundredths percent (1.75%) per annum. "LIBOR LOAN" shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR. "LICENSES" shall have the meaning set forth in Section 4.2(a) hereof. "LIEN" shall mean, with respect to each Individual Property, any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, the related Individual Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LOAN" shall mean the loan in the principal amount of Ninety Five Million and No/100 Dollars ($95,000,000.00) made by Lender to Borrower pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Mortgages, the Assignments of Leases, the Environmental Indemnity, the O&M Agreement, the Guaranty, the Cash Management Agreement, the Collateral Assignment of Interest Rate Cap Agreement, the Subordination of Agreements and all other documents executed and/or delivered in connection with the Loan. "LOAN-TO-VALUE RATIO" shall mean the ratio, as of a particular date, in which the numerator is equal to the outstanding principal balance of Note A and the denominator is equal to (a) on the Closing Date, the appraised value of the Properties as set forth in the Appraisals delivered by Borrower to Lender in accordance with the provisions of Section 3.1.18 thereof, and (b) thereafter, the fair market value of the Properties, as determined by Lender in its reasonable discretion. "LOCKBOX ACCOUNT" shall have the meaning set forth in Section 2.6.2(a) hereof. "LOCKBOX BANK" shall mean Wells Fargo Bank, N.A., or any other Eligible Institution at which accounts comprising the Lockbox Account are maintained or any successor or permitted assigns thereof. "LOCKOUT RELEASE DATE" shall mean the first Payment Date that occurs three (3) years after the Closing Date. -11- "LONDON BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business. "MAINTENANCE CAPITAL EXPENDITURES" means, for any fiscal year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection with an acquisition) incurred or made by Borrower during such fiscal year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any fiscal year (for any fiscal year, the "MAXIMUM AMOUNT") shall not exceed (a) for fiscal year 2003, $4,500,000 and (b) for any fiscal year thereafter, $4,500,000 plus the Maximum Amount for the immediately preceding fiscal year minus the actual amount of Maintenance Capital Expenditures included in this definition pursuant to clause (a) in such immediately preceding fiscal year. "MASTER LEASE" shall mean, individually and collectively, those certain leases dated as of the date hereof between Owner, as lessor and a Master Lessee, as lessee, pursuant to which such Master Lessee is leasing its Individual Properties. "MASTER LESSEE" shall mean, collectively, the Borrowers set forth on Schedule I under the column labeled "Master Lessee," which are leasing their respective Individual Properties pursuant to a Master Lease. "MATURITY DATE" shall mean September 9, 2008, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "MEDICAL PAYORS" shall mean the Center for Medicare and Medicaid Services and any other federal or state governmental authority or any other governmental Person responsible for making payment of any Medicare/Medicaid Account. "MEDICARE/MEDICAID ACCOUNT" shall mean any account payable by any Medical Payor under the Medicare or Medicaid programs, any similar or implementing state statutes and the rules and regulations promulgated pursuant to any thereof. "MEDICARE/MEDICAID RECEIVABLES ACCOUNT" shall have the meaning set forth in the Section 2.6.1(a) hereof. "MEZZANINE BORROWER" shall mean, collectively, SHG Property Resources, LLC, a Delaware limited liability company, and SHG Investments, LLC, a Delaware limited liability company, together with their respective successors and permitted assigns. "MEZZANINE CASH MANAGEMENT AGREEMENT" shall mean that certain Mezzanine Cash Management Agreement dated as of the date hereof among Borrower, Mezzanine Borrower -12- and Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "MEZZANINE LENDER" shall mean CapitalSource Finance LLC, as agent for the mezzanine lenders under the Mezzanine Loan, its successors and assigns. "MEZZANINE LOAN" shall mean the loan from Mezzanine Lender to Mezzanine Borrower in the original principal amount of Twenty Three Million and No/100 Dollars ($23,000,000.00). "MEZZANINE LOAN AGREEMENT" shall mean that certain Mezzanine Loan Agreement dated as of the date hereof between Mezzanine Borrower and Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "MEZZANINE LOAN DOCUMENTS" shall mean the term "LOAN DOCUMENTS" as defined in the Mezzanine Loan Agreement as of the date hereof. "MOODY'S" shall mean Moody's Investors Service, Inc. "MONTHLY MEZZANINE DEBT SERVICE PAYMENT AMOUNT" shall mean, with respect to any Payment Date, the aggregate monthly installments of interest and principal, if any, then due and payable under the Mezzanine Loan. "MONTHLY OPERATING EXPENSE AMOUNT" shall mean, with respect to any calendar month, the monthly Cash Expenses for the Properties set forth in the Approved Annual Budget then in effect. "MONTHLY SPREAD AMOUNT" shall mean, with respect to any prepayment of Promissory Note A, for each Payment Date following the Payment Date on which, or with respect to which, such prepayment is made to the Maturity Date, an amount equal to the product of (i) the principal amount of such prepayment which is due on such Payment Date, (ii) the Spread with respect to Promissory Note A, and (iii) a fraction, the numerator of which shall equal the actual number of days in each related Interest Period and the denominator of which is 360. "MONUMENT HILL PROPERTY" shall have the meaning set forth in Section 5.1.28 hereof. "MORTGAGE" shall mean, with respect to each Individual Property, that certain first priority Deed of Trust and Security Agreement, dated the date hereof, executed and delivered by Borrower as security for the Loan and encumbering such Individual Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NET CASH FLOW" shall mean, for any period, the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. -13- "NET CASH FLOW SCHEDULE" shall have the meaning set forth in Section 5.1.11(b) hereof. "NET OPERATING INCOME" shall mean, for any period, the amount obtained by subtracting Operating Expenses for such period from Gross Income from Operations for such period. "NET PROCEEDS" shall have the meaning set forth in Section 6.4(b) hereof. "NET PROCEEDS DEFICIENCY" shall have the meaning set forth in Section 6.4(b)(vi) hereof. "NEW REVOLVING CREDIT LOAN" shall have the meaning set forth in Section 5.2.11(c) hereof. "NOTE" shall mean, collectively, Promissory Note A and Promissory Note B. "NOTE A ADJUSTED ALLOCATED LOAN AMOUNT" shall mean, for each Individual Property, the product of (a) the quotient obtained by dividing the Note A Allocated Loan Amount for such Individual Property by the sum of the original Note A Allocated Loan Amounts for all Properties then encumbered by the lien of the Mortgage, including the Individual Property to be released, multiplied by (b) the then outstanding principal balance of Promissory Note A. "NOTE A ALLOCATED LOAN AMOUNT" shall mean, for each Individual Property, the amount set forth on Schedule II hereto. "NOTE A MONTHLY PRINCIPAL PAYMENT AMOUNT" shall mean a payment of principal on account of Promissory Note A in the amount of $283,333.33, provided, however, that the Monthly Principal Payment Amount shall be reduced on each Payment Date by an amount equal to $283,333.33 multiplied by a fraction, the numerator of which is the Allocated Loan Amount with respect to (a) any Individual Property previously released from the Lien of the Mortgage pursuant to Section 2.5.1 and (b) any Individual Property which has previously been severed from the Loan pursuant to Section 2.7, and the denominator of which is the original principal balance of the Loan. "NOTE A RELEASE AMOUNT" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the product of Note A Adjusted Allocated Loan Amount "NOTE B ALLOCATED LOAN AMOUNT" shall mean, for each Individual Property, the amount set forth on Schedule II hereto. "NOTE B GUARANTY OF PAYMENT" shall mean that Guaranty of Payment given by Guarantor in favor of Note B Holder. "NOTE B HOLDER" shall mean the holder of Note B from time to time. "NOTE B MONTHLY PRINCIPAL PAYMENT AMOUNT" shall mean a payment of principal on account of Promissory Note B in the amount equal to (a) the outstanding principal -14- balance of Promissory Note B on the thirty-first (31st) Payment Date divided by thirty (30), or (b) if the Mezzanine Loan is paid in full prior to the thirty first (31st) Payment Date, the outstanding principal balance of Promissory Note B on the first Payment Date to occur after the Mezzanine Loan has been paid in full divided by the number of Payment Dates from such Payment Date to and including the Maturity Date. "NOTE B RELEASE AMOUNT" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the product of (a) the quotient obtained by dividing the Note B Allocated Loan Amount for such Individual Property by the sum of the original Note B Allocated Loan Amounts for all Properties then encumbered by the lien of the Mortgage, including the Individual Property to be released, multiplied by (b) the then outstanding principal balance of Promissory Note B. "O&M AGREEMENT" shall mean, with respect to any Individual Property (if at all), that certain Operations and Maintenance Agreement, dated as of the date hereof, between Borrower and Lender given in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "OCCUPANCY REPORT" shall mean a true, correct and complete schedule, in substantially the form attached hereto as Schedule VII (provided in accordance with legal requirements related to privacy) which accurately and completely sets forth, the number and percentage of beds or units at the Facility that are occupied, the average rent and other charges payable with respect to each bed or unit at an Individual Property, the form of payment or reimbursement (e.g. Medicare, Medical, other insurance, private payments) applicable thereto and the aggregate arrearages in payments. "OFFICER'S CERTIFICATE" shall mean a certificate delivered to Lender by Borrower which is signed by an authorized senior officer of the general partner or managing member of Borrower, as applicable. "OPERATING EXPENSES" shall mean, for any period, the total of all expenditures, computed in accordance with GAAP, of whatever kind during such period relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance (which ordinary repairs and maintenance for the purposes of determining the Debt Service Coverage Ratio shall be no less than an assumed monthly expense of one-twelfth (1/12th) of $400 per bed for any Individual Property that is a skilled nursing facility and one-twelfth (1/12th) of $400 per unit for any Individual Property that is an assisted living facility), insurance, license fees, property taxes and assessments, advertising expenses, legal fees, consulting fees, management fees, payroll and related taxes, computer processing charges, tenant improvements and leasing commissions, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures, and contributions to the Replacement Reserve Fund, the Tax and Insurance Escrow Fund, the Debt Service Reserve Fund and any other reserves required under the Loan Documents. -15- "OPERATING LEASE" shall mean, individually and collectively, those certain leases dated as of the date hereof between a Master Lessee, as lessor and an Operator, as lessee, pursuant to which such Operator is leasing its Individual Property. "OPERATOR" shall mean, collectively, the Borrowers set forth on Schedule I under the column labeled "Operator," which are operating their respective Individual Properties pursuant to an Operating Lease. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof. "OWNER" shall mean, collectively, the Borrowers set forth on Schedule I under the column labeled "Fee Owners," each of which is the fee owner of its respective Individual Property. "PAYMENT DATE" shall mean the ninth (9th) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day. "PERMITTED ENCUMBRANCES" shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents, (b) the Liens and security interests created by the Revolving Credit Loan Agreement, (c) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to such Individual Property or any part thereof, (d) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (e) such other title and survey exceptions as Lender has approved or may approve in writing in Lender's sole discretion. "PERMITTED INVESTMENTS" shall have the meaning set forth in the Cash Management Agreement. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clauses of the Mortgage with respect to each Individual Property. "PHYSICAL CONDITIONS REPORT" shall mean, with respect to each Individual Property, a report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its reasonable discretion. "PLAN OF REORGANIZATION" shall mean Debtors' Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678BB through LA 01-39697BB and LA 01-45516BB, LA 01-45520BB and -16- LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time. "POLICIES" shall have the meaning specified in Section 6.1(b) hereof. "PREPAYMENT PREMIUM" shall mean, if the prepayment of Promissory Note A occurs on or prior to March 9, 2008, an amount equal to the greater of (i) one percent (1%) of the principal balance of the Promissory Note A being prepaid and (ii) the Spread Maintenance Premium. "PRIME RATE" shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the "Prime Rate." If more than one "Prime Rate" is published in The Wall Street Journal for a day, the average of such "Prime Rates" shall be used, and such average shall be rounded up to the nearest one-eighth of one percent (0.125%). If The Wall Street Journal ceases to publish the "Prime Rate," the Lender shall select an equivalent publication that publishes such "Prime Rate," and if such "Prime Rates" are no longer generally published or are limited, regulated or administered by a governmental or quasigovernmental body, then Lender shall reasonably select a comparable interest rate index. "PRIME RATE LOAN" shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate. "PRIME RATE SPREAD" shall mean, with respect to Promissory Note A and Promissory Note B, the difference (expressed as the number of basis points) between (a) LIBOR plus the Spread applicable to Promissory Note A and Promissory Note B, as the case may be, on the date LIBOR was last applicable to the Loan and (b) the Prime Rate on the date that LIBOR was last applicable to the Loan; provided, however, in no event shall such difference be a negative number. "PRINCIPAL" shall mean the Special Purpose Entity which is the general partner of the Borrower in the event that the Borrower is a limited partnership. "PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE ACCOUNT" shall have the meaning set forth in Section 7.7.1 hereof. "PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE FUND" shall have the meaning set forth in Section 7.7.1 hereof. "PROMISSORY NOTE A" shall mean that certain Promissory Note A of even date herewith in the principal amount of Eighty Five Million and No/100 Dollars ($85,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "PROMISSORY NOTE B" shall mean, collectively, Promissory Note B-1, Promissory Note B-2 and Promissory Note B-3. -17- "PROMISSORY NOTE B-1" shall mean that certain Promissory Note B-1 of even date herewith in the principal amount of Five Million and No/100 Dollars ($5,000,000.00), made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "PROMISSORY NOTE B-2" shall mean that certain Promissory Note B-2 of even date herewith in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "PROMISSORY NOTE B-3" shall mean that certain Promissory Note B-3 of even date herewith in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) made by Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "PROPERTIES" shall mean, collectively, each and every Individual Property which is subject to the terms of this Agreement. "PROVIDED INFORMATION" shall mean any and all financial and other information provided at any time by, or on behalf of, any Indemnifying Person with respect to the Properties, Borrower, Principal and/or Guarantor. "QUALIFIED MANAGER" shall mean, in the reasonable judgment of Lender, a reputable and experienced management organization (which may be an Affiliate of Borrower) possessing experience in managing properties similar in size, scope, use and value as the Properties, provided, that Borrower shall have obtained prior written confirmation from the applicable Rating Agencies that management of the Properties by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof. "RATING AGENCIES" shall mean each of S&P, Moody's and Fitch, or any other nationally recognized statistical rating agency which has been approved by Lender. "RELEASE AMOUNT" shall mean, for each Individual Property, the aggregate of the Note A Release Amount and the Note B Release Amount for such Individual Property. "REMAINING CROSSED LOAN" shall have the meaning set forth in Section 2.7.1(h). "REMAINING CROSSED PROPERTIES" shall have the meaning set forth in Section 2.7.1(d). "REMAINING CROSSED PROPERTIES DEPOSIT" shall have the meaning set forth in Section 2.7.1(q). "REMIC TRUST" shall mean a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code that holds the Note. -18- "RENTS" shall mean, with respect to each Individual Property, all accounts (including any rights of Borrower in accounts arising from the operations conducted at or by the Facility), deposits (whether for security or otherwise but excluding any resident trust accounts), rents, issues, profits, revenues, royalties, rights, benefits, and income of every nature of and from the Individual Property and the operations conducted or to be conducted thereon, including, without limitation, minimum rents, additional rents, termination payments, forfeited security deposits, any rights to payment earned under Leases for the operation of ongoing retail businesses such as newsstands, concession stands, barbershops, beauty shops, gift shops, cafeterias, dining rooms, restaurants, lounges, vending machines, physicians' offices, pharmacies, laboratories, gymnasiums, swimming pools, tennis courts, golf courses, recreational centers and specialty shops, liquidated damages following default and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability due to destruction or damage to the Individual Property, together with the immediate and continuing right to collect and receive the same, whether now due or hereafter becoming due, and together with all rights and claims of any kind that Borrower may have against any tenant, lessee or licensee under the Leases or against any other occupant of the Individual Property. "REPLACEMENT INTEREST RATE CAP AGREEMENT" means an interest rate cap agreement from an Acceptable Counterparty with terms identical to the Interest Rate Cap Agreement except that the same shall be effective in connection with replacement of the Interest Rate Cap Agreement following a downgrade, withdrawal or qualification of the long-term unsecured debt rating of the Counterparty; provided that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a "Replacement Interest Rate Cap Agreement" shall be such interest rate cap agreement approved in writing by each of the Rating Agencies with respect thereto. "REPLACEMENT MANAGEMENT AGREEMENT" shall mean a management agreement with a Qualified Manager, which management agreement shall be reasonably acceptable to Lender in form and substance; provided, Lender, at its option, may require that Borrower obtain confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of management agreement and subordination of management fees substantially in the form then used by Lender (or of such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrower and such Qualified Manager at Borrower's expense. "REPLACEMENT RESERVE ACCOUNT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE FUND" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENT RESERVE MONTHLY DEPOSIT" shall have the meaning set forth in Section 7.3.1 hereof. "REPLACEMENTS" shall have the meaning set forth in Section 7.3.1 hereof. -19- "REQUIRED REPAIR ACCOUNT" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIR FUND" shall have the meaning set forth in Section 7.1.1 hereof. "REQUIRED REPAIRS" shall have the meaning set forth in Section 7.1.1 hereof. "RESERVE FUNDS" shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Debt Service Reserve Fund, the Required Repair Fund, the Casualty Insurance Deductible Reserve Fund, the Professional Liability Insurance Deductible Reserve Fund, and any other escrow fund established pursuant to the Loan Documents. "RESTORATION" shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as commercially practicable to the condition the Individual Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Lender. "RESTRICTED PARTY" shall mean, collectively, (a) Borrower, Principal and any Guarantor and (b) any shareholder, partner, member, non-member manager, direct or indirect legal or beneficial owner of, Borrower or Principal. "REVOLVING CREDIT LENDER" shall mean (a) CapitalSource Finance LLC, as administrative agent and collateral agent for the lenders specified in the Revolving Credit Loan Agreement, its and their successors and assigns or (b) the lender under any New Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.11 terms of this Agreement. "REVOLVING CREDIT LOAN DOCUMENTS" shall mean the term "Loan Documents" as defined in the Revolving Credit Loan Agreement as of the date hereof. "REVOLVING CREDIT LOAN" shall mean the loan from Revolving Credit Lender to Borrower in the principal amount of up to Eleven Million and No/100 Dollars ($11,000,000.00) and any New Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.11. "REVOLVING CREDIT LOAN AGREEMENT" shall mean that certain Revolving Credit and Security Agreement dated as of the date hereof between Operator and Revolving Credit Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "S&P" shall mean Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies. "SALE OR PLEDGE" shall mean a voluntary or involuntary sale, conveyance, assignment, transfer, encumbrance or pledge of a legal or beneficial interest. "SECURITIES" shall have the meaning set forth in Section 9.1 hereof. -20- "SECURITIES ACT" shall have the meaning set forth in Section 9.2(a) hereof. "SECURITIZATION" shall have the meaning set forth in Section 9.1 hereof. "SERVICER" shall have the meaning set forth in Section 9.6 hereof. "SERVICING AGREEMENT" shall have the meaning set forth in Section 9.6 hereof. "SEVERANCE" shall have the meaning set forth in Section 2.7.1. "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(c) hereof. "SPECIAL PURPOSE ENTITY" shall mean a corporation, limited partnership or limited liability company which at all times on and after the date hereof: (a) is organized solely for the purpose of (i) acquiring, developing, owning, holding, maintaining, improving, mortgaging, encumbering, selling, leasing, transferring, exchanging, managing and/or operating the Properties, or acting as a general partner of the limited partnership that owns, operates or leases the Properties, (ii) entering into and performing its obligations under the Loan Documents and the Revolving Credit Loan Documents, in each case to which it is a party, (iii) refinancing the Properties in connection with a permitted repayment of the Loan, and (iv) transacting lawful business that is incident, reasonably necessary and appropriate to accomplish the foregoing; (b) is not engaged and will not engage, directly or indirectly, in any business unrelated to those activities required or permitted to be performed under the Loan Documents, including this definition of "Special Purpose Entity" and subsection (a) above, as applicable; (c) does not have and will not have any assets other than (i) those related to the Properties or its partnership interest in the limited partnership, for those acting as general partners of the limited partnership that owns, operates or leases the Properties, and (ii) incidental personal property necessary for the ownership or operation of the Properties, as applicable; (d) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a member in a limited liability company) or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable) with respect to the matters set forth in this definition, except as expressly permitted pursuant to any provision of the Loan Documents; (e) if such entity is a limited partnership, has, as its only general partners, Special Purpose Entities that are corporations, limited partnerships or limited liability companies; (f) if such entity is a corporation, has at least two (2) Independent Directors, and has not caused or allowed and will not cause or allow the board of directors of such entity to -21- take any action requiring the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors unless two Independent Directors shall have participated in such vote; (g) if such entity is a limited liability company with more than one member, has at least one member that is a Special Purpose Entity that is a corporation that has at least two Independent Directors and that owns at least one percent (1.0%) of the equity of the limited liability company; (h) if such entity is a limited liability company with only one member, is a limited liability company organized in the State of Delaware that (i) is managed by a board of managers, (ii) has at least two Independent Managers and has not caused or allowed and will not cause or allow the board of managers of such entity to take any action requiring the unanimous affirmative vote of one hundred percent (100%) of the managers unless two Independent Managers shall have participated in such vote and (iii) at least two springing members, one of which will become a non-managing member of such entity upon the dissolution of the existing member; (i) if such entity is (i) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (ii) a limited partnership, has a limited partnership agreement, or (iii) a corporation, has a certificate of incorporation or articles that, in each case, provide that such entity will not, without the written consent of any applicable Governmental Authority, if required: (A) dissolve, merge, liquidate, consolidate; (B) sell all or substantially all of its assets or the assets of the Borrower (as applicable) without the consent of Lender; (C) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the written consent of the Lender; or (D) without the affirmative vote of two Independent Directors and of all other directors of the limited liability company (that is such entity or the general partner of such entity), take a Bankruptcy Action with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest; (j) is and will remain solvent and pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due, and is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (k) has not failed and will not fail to correct any known misunderstanding regarding its separate identity; (l) has maintained and will maintain its bank accounts, books and records separate from any other Person and will file its own tax returns (except to the extent that it is disregarded for federal income tax purposes), and pay any taxes required to be paid under applicable law; (m) has maintained and will maintain its own records, books, resolutions and agreements; -22- (n) other than as provided in the Cash Management Agreement, (i) has not commingled and will not commingle its funds or assets with those of any other Person and (ii) has not participated and will not participate in any cash management system with any other Person, except that if Borrower and its Affiliates use a centralized disbursement system, administered by an Affiliate pursuant to written paying agency agreement acceptable to Lender to pay expenses, Borrower may, on any day when Borrower shall pay such expenses, transfer the amount of such payment to the disbursement account used for such centralized system and cause such disbursement to be made on the same day, provided that such disbursement shall indicate that such disbursement is made on behalf of Borrower and Borrowers shall keep, and shall cause such Affiliates accurate record reflecting all deposits made by Borrower and all disbursements made on Borrower's behalf; (o) has held and will hold its assets in its own name; (p) has conducted and will conduct its business in its name, in the fictitious business name under which it operates its Individual Property set forth on Schedule VIII, or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in Subsection (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of the Borrower; (q) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person and has not permitted and will not permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other entity except as required by GAAP; provided, however, that any such consolidated financial statement shall contain a note indicating that its separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity; (r) has paid and will pay its own liabilities and expenses, including the salaries of its own employees, out of its own funds and assets, and has maintained and will maintain a sufficient number of employees in light of its contemplated business operations and in accordance with all Legal Requirements; (s) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable; (t) has and will have no Indebtedness other than (i) the Loan, (ii) with respect to the Operators only, the Revolving Credit Loan (iii) liabilities incurred in the ordinary course of business relating to the ownership and operation of the Properties and the routine administration of Borrower, in amounts not to exceed $4,000,000 (increasing by five percent (5%) during each year of the Loan) in the aggregate for all the Properties and excluding administrative fees paid by Borrower under the respective Employee Services Agreements between each of the Operators and Summit Care Corporation and under the respective Administrative Services Agreements between each Operator and Skilled Healthcare, LLC, Taxes, Insurance Premiums, wages and benefits, which liabilities are not more than sixty (60) -23- days past the date incurred, are not evidenced by a note and are paid when due, and which amounts are normal and reasonable under the circumstances, and (iv) such other liabilities that are permitted pursuant to this Agreement; (u) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; provided, however, that this provision shall not be deemed to prohibit indemnification and contribution agreements in favor of the Lender, the Revolving Credit Lender, or among the Borrowers entered into under or in connection with the Loan Documents or the Revolving Credit Loan Documents; (v) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate; (w) has allocated and will allocate fairly, reasonably and in accordance with all Legal Requirements any overhead expenses or other common expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate; (x) maintains and uses and will maintain and use separate stationery, invoices and checks bearing its name. The stationery, invoices, and checks utilized by the Special Purpose Entity or utilized to collect its funds or pay its expenses shall bear its own name and shall not bear the name of any other entity unless such entity is clearly designated as being the Special Purpose Entity's agent; (y) has not pledged and will not pledge its assets for the benefit of any other Person, except as otherwise permitted by the Loan Documents or the Revolving Credit Loan Documents; (z) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name, in the fictitious business name under which it operates its Individual Property set forth on Schedule VIII or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or part of any other Person, except (i) for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in Subsection (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of the Borrower; or (ii) to the extent a single member limited liability company is treated as a division of its member for federal income tax purposes; (aa) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (bb) except as contemplated under the Cash Management Agreement, has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other Person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity); -24- (cc) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person, except to the extent a single-member limited liability company is treated as a division of its member for tax purposes; (dd) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except (A) in the ordinary course of its business and on terms which are intrinsically fair, commercially reasonable and are in compliance with all Legal Requirements and no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party and (B) in connection with the Loan Documents; (ee) has not and will not have any obligation to, and will not, indemnify its partners, officers, directors or members, as the case may be, unless such an obligation is fully subordinated to the Debt and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation; (ff) if such entity is a single-member limited liability company, it shall consider the interests of its creditors in connection with all corporate actions; (gg) does not and will not have any of its obligations guaranteed by any Affiliate, except as otherwise provided for in the Loan Documents or the Revolving Credit Loan Documents; (hh) if such entity is a Delaware limited liability company, it shall have its own board of directors or board of managers, and shall cause such board to meet at least annually or act pursuant to written consent and keep minutes of such meetings and actions and observe all other corporate formalities; (ii) has not and will not form, acquire, or hold any subsidiary or own any equity interest in any other entity except that a Special Purpose Entity that is acting as a Principal may own an equity interest in the Special Purpose Entity of which it is a general partner; (jj) has not and will not permit any other Person independent access to its bank accounts except an administrator or agent pursuant to a written agreement; (kk) has caused and will cause all representatives of the Borrower to act at all times with respect to the Borrower consistently and in furtherance of the foregoing and in the best interests of the Borrower; and (ll) has complied and will comply with all of the terms and provisions contained in its organizational documents. The statement of facts contained in its organizational documents are true and correct and will remain true and correct. "SPREAD" shall mean four and one-half percent (4.50%) with respect to Promissory Note A and eighteen and eight hundred seventy-five thousandths percent (18.875%) with respect to Promissory Note B. -25- "SPREAD MAINTENANCE PREMIUM" shall be an amount equal to the present value of all Monthly Spread Amounts through and including the Maturity Date, discounted at a rate per annum equal to LIBOR (as in effect for the Interest Period in which such prepayment shall occur). In the event that any such prepayment is made on any date other than a Payment Date, such Spread Maintenance Premium shall also include an amount equal to (a) the product of the principal amount of such prepayment multiplied by the Spread with respect to Promissory Note A, multiplied by (b) a fraction, the numerator of which shall equal the actual number of days remaining in the related Interest Period and the denominator of which is 360. "STATE" shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located. "STRIKE PRICE" shall mean four and one half percent (4.50%) with respect to Promissory Note A. "SUBORDINATION OF AGREEMENTS" means that certain Subordination of Administrative Services Agreements and Subordination of Employee Services Agreements, dated as of the date hereof, among Borrower, Lender, Summit Care Corporation, Summit Care Texas L.P. and Skilled Healthcare LLC, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "SURVEY" shall mean a survey of the Individual Property in question prepared pursuant to the requirements contained in Section 3.1.3(c) hereof. "TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in Section 7.2 hereof. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or part thereof. "THRESHOLD AMOUNT" shall have the meaning set forth in Section 5.1.21 hereof. "TITLE INSURANCE POLICIES" shall mean, with respect to each Individual Property, an ALTA mortgagee title insurance policy in a form acceptable to Lender (or, if an Individual Property is in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with respect to such Individual Property and insuring the lien of the Mortgage encumbering such Individual Property. "TRANSFER" shall have the meaning set forth in Section 5.2.10(b) hereof. "TRANSITION YEAR MAXIMUM AMOUNT" shall have the meaning set forth in Section 2.3.2 hereof. "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the applicable State in which an Individual Property is located. -26- "U.S. OBLIGATIONS" shall mean non-redeemable securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged. "WORKING CAPITAL" means, as of any date, (a) the sum, without duplication, of (i) current assets (other than cash and cash equivalents) and (ii) cash and cash equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long term debt) and (ii) long term liabilities related to accrued insurance, in each case calculated on such date for Borrower. "ZONING REPORTS" shall have the meaning set forth in Section 3.1.3(f). SECTION 1.2. PRINCIPLES OF CONSTRUCTION. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, 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. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. II. GENERAL TERMS SECTION 2.1. LOAN COMMITMENT; DISBURSEMENT TO BORROWER. 2.1.1 AGREEMENT TO LEND AND BORROW. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. 2.1.2 SINGLE DISBURSEMENT TO BORROWER. Borrower may request and receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 THE NOTE, MORTGAGES AND LOAN DOCUMENTS. The Loan shall be evidenced by the Note and secured by the Mortgages, the Assignments of Leases and the other Loan Documents. 2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to (a) acquire the Properties and/or repay and discharge any existing loans relating to the Properties, (b) pay all past-due Basic Carrying Costs, if any, with respect to the Properties, (c) make deposits into the Reserve Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender, (e) fund any working capital requirements of the Properties and (f) distribute the balance, if any, to Borrower to be used for other general corporate needs of Borrower or its Affiliates. -27- SECTION 2.2. INTEREST RATE. 2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of Promissory Note A and Promissory Note B shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate with respect to Promissory Note A and Promissory Note B, respectively. Borrower shall pay to Lender on each Payment Date the interest accrued on Promissory Note A and Promissory Note B for the immediately preceding Interest Period. 2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance of Promissory Note A and Promissory Note B shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the outstanding principal balance of Promissory Note A and Promissory Note B, as applicable. 2.2.3 DETERMINATION OF INTEREST RATE. (a) The Applicable Interest Rate with respect to Promissory Note A and Promissory Note B shall be: (i) LIBOR plus the applicable Spread with respect to the applicable Interest Period for a LIBOR Loan or (ii) the Prime Rate plus the applicable Prime Rate Spread for a Prime Rate Loan if the Loan is converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3(c) or (f). (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a LIBOR Loan and Borrower shall pay interest on the outstanding principal amount of the Loan at LIBOR plus the Spread for the applicable Interest Period. Any change in the rate of interest hereunder due to a change in the Applicable Interest Rate shall become effective as of the opening of business on the first day on which such change in the Applicable Interest Rate shall become effective. Each determination by Lender of the Applicable Interest Rate shall be conclusive and binding for all purposes, absent manifest error. (c) In the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be converted, on the last day of the then current Interest Period, to a Prime Rate Loan. (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to a Prime Rate Loan and Lender shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding Prime Rate Loan shall be converted to a LIBOR Loan on the last day of the then current Interest Period. -28- (e) With respect to a LIBOR Loan, all payments made by Borrower hereunder shall be made free and clear of, and without reduction for or on account of, income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, reserves or withholdings imposed, levied, collected, withheld or assessed by any Governmental Authority, which are imposed, enacted or become effective after the date hereof (such non-excluded taxes being referred to collectively as "FOREIGN TAXES"), excluding income and franchise taxes of the United States of America or any political subdivision or taxing authority thereof or therein (including Puerto Rico). If any Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder; provided, however, that if: (i) Lender is a "foreign corporation, partnership or trust" within the meaning of the Internal Revenue Code, Lender agrees with and in favor of Borrower, to deliver to Borrower: (A) if Lender claims an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN and W-8ECI before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (B) if Lender claims that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of Lender and in each succeeding taxable year of Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (C) such other form or forms as may be required under the Internal Revenue Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. Lender agrees to promptly notify Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (ii) Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form FW-8BEN and Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Debt owing to Lender, Lender agrees to notify Borrower of the percentage amount in which it is no longer the beneficial owner of Debt of Borrower to Lender. To the extent of such percentage amount, Borrower will treat Lender's IRS Form W-8BEN as no longer valid. -29- (iii) Lender is claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Debt owing to Lender, Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Section 1441 and 1442 of the Code. (iv) Lender is entitled to a reduction in the applicable withholding tax, Borrower may withhold from any interest payment to Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Borrower, then Borrower may withhold from any interest payment to Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. Whenever any Foreign Tax is payable pursuant to applicable law by Borrower, as promptly as possible thereafter, Borrower shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Foreign Tax. Borrower hereby indemnifies Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrower to pay any such Foreign Tax when due to the appropriate taxing authority or any failure by Borrower to remit to Lender the required receipts or other required documentary evidence. (f) If any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder (i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier period as required by law. Borrower hereby agrees promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any Breakage Costs. Lender's notice of such costs, as certified to Borrower, shall be conclusive absent manifest error. (g) In the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive (whether or not having the force of law) hereafter issued from any central bank or other Governmental Authority: (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder; (ii) shall hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount reasonably deemed by Lender to be material; or -30- (iii) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder; then, in any such case, Borrower shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material as reasonably determined by Lender. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(g), Lender shall provide Borrower with not less than ninety (90) days notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive in the absence of manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under this Agreement and the Loan Documents. (h) Borrower agrees to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs as a consequence of (i) any default by Borrower in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether voluntary or mandatory) of the LIBOR Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrower did not give the prior notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder and (iii) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any portion of the outstanding principal amount of the Loan then bearing interest at LIBOR plus the Spread on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (i), (ii) and (iii) are herein referred to collectively as the "BREAKAGE COSTS"); provided, however, Borrower shall not indemnify Lender from any loss or expense arising from Lender's willful misconduct or gross negligence. This provision shall survive payment of the Note in full and the satisfaction of all other obligations of Borrower under this Agreement and the other Loan Documents. (i) Lender shall not be entitled to claim compensation pursuant to this Section 2.2.3 for any Foreign Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than ninety (90) days before the date Lender notified Borrower of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrower a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.2.3, which statement shall be conclusive and binding upon all parties hereto absent manifest error. -31- 2.2.4 ADDITIONAL COSTS. Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any increased or additional costs payable by Borrower under Section 2.2.3, including, if requested by Borrower, a transfer or assignment of the Loan to a branch, office or Affiliate of Lender in another jurisdiction, or a redesignation of its lending office with respect to the Loan, in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or redesignation (a) would not result in any additional costs, expenses or risk to Lender that are not reimbursed by Borrower and (b) would not be disadvantageous in any other respect to Lender as determined by Lender in its sole discretion. 2.2.5 DEFAULT RATE. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal balance of the Loan and, to the extent permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. 2.2.6 USURY SAVINGS. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 2.2.7 INTEREST RATE CAP AGREEMENT. (a) Prior to or contemporaneously with the Closing Date, Borrower shall enter into an Interest Rate Cap Agreement with respect to Promissory Note A with a LIBOR strike price equal to the Strike Price. The Interest Rate Cap Agreement (i) shall be in a form and substance reasonably acceptable to Lender, (ii) shall be with an Acceptable Counterparty, (iii) shall direct such Acceptable Counterparty to deposit directly into the Lockbox Account any amounts due Borrower under such Interest Rate Cap Agreement so long as any portion of the Debt evidenced by Promissory Note A exists, provided that the Debt evidenced by Promissory Note A shall be deemed to exist if the Properties transferred by judicial or non-judicial foreclosure or deed-in-lieu thereof, (iv) shall be for a period equal to the term of the Loan and (v) shall have an initial notional amount equal to the principal balance of the Promissory Note A. Borrower shall collaterally assign to Lender, pursuant to the Collateral Assignment of Interest Rate Cap Agreement, all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement, and shall deliver to Lender an executed -32- counterpart of such Interest Rate Cap Agreement (which shall, by its terms, authorize the assignment to Lender and require that payments be deposited directly into the Lockbox Account). (b) Borrower shall comply in all material respects with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement to Borrower or Lender shall be deposited immediately into the Lockbox Account or if the Lockbox Account is not then required to be in effect, into such account as specified by Lender. Borrower shall take all actions reasonably requested by Lender to enforce Lender's rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder. (c) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty by S&P or Moody's, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement not later than ten (10) Business Days following receipt of notice from Lender of such downgrade, withdrawal or qualification. (d) In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or fails to maintain the Interest Rate Cap Agreement in accordance with the terms and provisions of this Agreement, Lender may purchase the Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is reimbursed by Borrower to Lender. (e) In connection with the Interest Rate Cap Agreement, Borrower shall obtain and deliver to Lender an opinion from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that: (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (ii) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and -33- no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (iv) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). SECTION 2.3. LOAN PAYMENT. 2.3.1 PAYMENTS GENERALLY. Borrower shall pay to Lender on the date hereof interest on the Loan from the Closing Date through September 8, 2003. Borrower shall pay to Lender on the Payment Date occurring in October 2003 and on each Payment Date thereafter (a) interest accrued on Promissory Note A for the preceding Interest Period, (b) the Note A Monthly Principal Payment Amount, (c) interest accrued on Promissory Note B for the preceding Interest Period and (d) commencing on the earlier of the first Payment Date after the Mezzanine Loan is paid in full and the thirty-first (31st) Payment Date, the Note B Monthly Principal Payment Amount. For purposes of making payments hereunder, but not for purposes of calculating interest accrual periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day and with respect to payments of principal due on the Maturity Date, interest shall be payable at the Applicable Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever. 2.3.2 Commencing in the calendar year after the calendar year in which the Mezzanine Loan has been paid in full, and during each calendar year thereafter during the term of the Loan until Promissory Note B shall have been paid in full, upon the earlier to occur of (i) April 30th of such year and (ii) not later than ten (10) days following delivery of the annual financial statements to Lender referred to in and required by Section 5.1.11(b) with respect to the prior calendar year, Borrower shall make a principal payment on account of Promissory Note B to the Note B Holder in an amount equal to the lesser of (i) 100% of the Excess Cash Flow of Borrower for the immediately preceding calendar year and (ii) the positive excess of (x) Ten Million Dollars ($10,000,000) (or for the calendar year in which the Mezzanine Loan is paid in full, the Transition Year Maximum Amount (as defined below)) plus any Catch-Up Amounts (defined below) with respect to years prior to the immediately preceding calendar year, if applicable, over (y) monthly amortization payments made by Borrower to Lender on account of Promissory Note B during such preceding calendar, if any, pursuant to Section 2.3.1 or any voluntary prepayment on account of Promissory Note B (it being understood and agreed that any prepayment made under Section 2.5 or Section 2.7 shall not be deemed a voluntary prepayment). To the extent that, with respect to any calendar year, the aggregate amount of principal payments under this Section 2.3.2 and Section 2.3.1 is less than $10,000,000, the positive excess of $10,000,000 over such payments shall be defined as a "CATCH-UP AMOUNT". For purposes of -34- the foregoing calculation for the calendar year in which the Mezzanine Loan is paid in full, an amount equal to (I) $10,000,000 less (II) the amount of principal paid under the Mezzanine Loan in such year (the "TRANSITION YEAR MAXIMUM AMOUNT") shall be substituted for "$10,000,000" in such calculation. 2.3.3 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgages and the other Loan Documents. 2.3.4 LATE PAYMENT CHARGE. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower by the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgages and the other Loan Documents to the extent permitted by applicable law. 2.3.5 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 1:00 p.m., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender's office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. SECTION 2.4. PREPAYMENTS. 2.4.1 VOLUNTARY PREPAYMENTS. Provided that no Event of Default shall have occurred and be continuing, Borrower shall have the right to prepay Promissory Note B, in whole or in part, at any time without premium or penalty. Prior to the Lockout Release Date, the outstanding principal amount of Promissory Note A may not be prepaid in whole or in part. On any Payment Date occurring on, or after, the Lockout Release Date, Borrower may, at its option and upon thirty (30) days prior notice to Lender, prepay Promissory Note A in whole, but not in part, except in connection with the release of an Individual Property pursuant to Section 2.5.2; provided that such prepayment is accompanied by the Prepayment Premium, if any. Provided no Event of Default has occurred and is continuing, any partial prepayment, other than a prepayment in connection with the release of an Individual Property pursuant to Section 2.5.2, 2.4.2 or 2.4.3, shall be applied (a) first, to the payment of the outstanding principal balance of Promissory Note B until Promissory Note B shall have been paid in full and (b) second, to the payment of the outstanding principal balance of Promissory Note A. Lender shall not be obligated to accept any prepayment unless it is accompanied by the Prepayment Premium due in connection therewith. Any partial prepayment shall be applied to the last payments of principal due under the Loan. 2.4.2 MANDATORY PREPAYMENTS. On the next occurring Payment Date following the date on which Lender actually receives any Net Proceeds, if Lender is not obligated to make such Net Proceeds available to Borrower for the Restoration of any Individual -35- Property, Borrower shall prepay, or authorize Lender to apply Net Proceeds as a prepayment of, the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Proceeds. Provided no Event of Default has occurred and is continuing, any partial prepayment under this Section shall be applied first to the payment of the outstanding principal balance of Promissory Note A until Promissory Note A shall have been paid in full and the balance, if any, to the payment of the outstanding principal balance of Promissory Note B. Other than following an Event of Default, no Prepayment Premium shall be due in connection with any prepayment made pursuant to this Section 2.4.2. The Release Amount with respect to such Individual Property shall be reduced in an amount equal to such prepayment and Borrower shall have the right to simultaneously obtain a release of such Individual Property in accordance with the provisions of Section 2.5.2, upon payment of the balance of the Release Amount with respect to such Individual Property, and no Prepayment Premium shall be due in connection with such prepayment. Any partial prepayment under this Section 2.4.2 shall be applied to the last payments of principal due under the Loan. 2.4.3 PREPAYMENTS AFTER DEFAULT. If, following an Event of Default, payment of all or any part of the Debt is tendered by Borrower or otherwise recovered by Lender (including through application of any Reserve Funds), such tender or recovery shall be (a) made on the next occurring Payment Date together with the monthly payment of Debt Service and (b) deemed a voluntary prepayment by Borrower in violation of the prohibition against prepayment set forth in Section 2.4.1 and Borrower shall pay, in addition to the Debt, an amount equal to the greater of (i) five percent (5%) of the outstanding principal balance of the Loan to be prepaid or satisfied, and (ii) the Prepayment Premium. Any amounts so received may be applied by Lender to the payment of the Debt in such order and priority, including, without limitation, alternating applications thereof between interest and principal and allocating payments to Promissory Note A and Promissory Note B, as Lender shall determine in its sole discretion. SECTION 2.5. RELEASE OF PROPERTY. Except as set forth in Section 2.4.2 and this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of any Lien of any Mortgage on any Individual Property. 2.5.1 RELEASE OF INDIVIDUAL PROPERTY. On and after the Lockout Release Date, Borrower may obtain the release of an Individual Property from the Lien of the Mortgage thereon (and related Loan Documents) and the release of Borrower's obligations under the Loan Documents with respect to such Individual Property (other than those expressly stated to survive), upon the satisfaction of each of the following conditions: (a) No Event of Default shall have occurred and be continuing; (b) Borrower shall submit to Lender, not less than thirty (30) days prior to the date of such release, a release of Lien (and related Loan Documents) for such Individual Property for execution by Lender. Such release shall be in a form appropriate in each jurisdiction in which the Individual Property is located and that contains standard provisions, if any, protecting the rights of the releasing lender. In addition, Borrower shall provide all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all -36- Legal Requirements, (ii) will effect such release in accordance with the terms of this Agreement, and (iii) will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Properties subject to the Loan Documents not being released); (c) After giving effect to such release, the Debt Service Coverage Ratio for the Properties then remaining subject to the Liens of the Mortgages shall be equal to or greater than the greater of (i) Closing Date Debt Service Coverage Ratio, and (ii) the Debt Service Coverage Ratio for all of the then remaining Properties (including the Individual Property to be released) for the twelve (12) full calendar months immediately preceding the release of the Individual Property, provided, however, that in no event shall the Debt Service Coverage Ratio required under this Section 2.5.1(c) be greater than 3.0/1.0; (d) The Individual Property to be released shall be conveyed to a Person other than a Borrower or any of its Affiliates; (e) Borrower shall pay to Lender the Note A Release Amount for the applicable Individual Property and the Prepayment Premium, if any, due in connection therewith and shall pay to the Note B Holder the Note B Release Amount for the applicable Individual Property; and (f) After giving effect to such release, the Loan-to-Value Ratio for the Properties then remaining subject to the Liens of the Mortgages shall be equal to or less than the lesser of (i) Closing Date Loan-to-Value Ratio and (ii) the Loan-to-Value Ratio for all of the remaining Properties (including the Individual Property to be released immediately preceding the release of the Individual Property, provided, however, that in no event shall the Loan-to-Value Ratio required under this Section 2.5.1(f), be less than 45%. (g) Borrower shall have delivered to Lender a release of the Accounts of the Individual Property to be released from the lien of the Revolving Credit Lender under the Revolving Credit Loan Agreement. 2.5.2 RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, release the Lien of the Mortgage on each Individual Property not theretofore released. SECTION 2.6. CASH MANAGEMENT. 2.6.1 MEDICARE/MEDICAID RECEIVABLES ACCOUNT. (a) Borrower shall establish and maintain a separate segregated Eligible Account for each Individual Property for the purpose of depositing all payments made on account of Medicare/Medicaid Accounts relating to the Individual Properties (each a "MEDICARE/MEDICAID RECEIVABLES ACCOUNT") with Lockbox Bank in the name of the Operator of the applicable Individual Property. Borrower hereby grants to Lender a first priority security interest in the Medicare/Medicaid Receivables Accounts and all deposits at any time contained therein and the proceeds thereof and will take all actions necessary to maintain in favor of Lender a perfected first priority security interest in the -37- Medicare/Medicaid Receivables Accounts, including, without limitation, executing and filing UCC-1 Financing Statements and continuations thereof. Notwithstanding anything herein to the contrary, the Medicare/Medicaid Receivables Accounts shall be under the sole dominion and control of the Borrower that is the Operator of the respective Facility. All costs and expenses for establishing and maintaining the Medicare/Medicaid Receivables Accounts shall be paid by Borrower. (b) Borrower shall deliver written instructions to all Medical Payors to deliver all payments made on account of Medicare/Medicaid Accounts directly to the applicable Medicare/Medicaid Receivables Account and shall execute and deliver to each Medical Payor such other documentation as such Medical Payor shall require to make payments with respect to Medicare/Medicaid Accounts directly to the applicable Medicare/Medicaid Receivables Account. Notwithstanding the foregoing, if Borrower receives any checks for such payments, Borrower shall deposit any funds received by Borrower on account of a Medicare/Medicaid Account maintained by Borrower into the Cash Management Account within one (1) Business Day after receipt. (c) Borrower shall obtain from Lockbox Bank its agreement to transfer to the Cash Management Account in immediately available funds by federal wire transfer all amounts on deposit in the Medicare/Medicaid Receivables Accounts once every Business Day throughout the term of the Loan. 2.6.2 LOCKBOX ACCOUNT. (a) Borrower shall establish and maintain a segregated Eligible Account (the "LOCKBOX ACCOUNT") with Lockbox Bank in trust for the benefit of Lender, which Lockbox Account shall be under the sole dominion and control of Lender. The Lockbox Account shall be entitled "Column Financial, Inc., as Lender, pursuant to Loan Agreement dated as of August 19, 2003 - Lockbox Account." Borrower hereby grants to Lender a first priority security interest in the Lockbox Account and all deposits at any time contained therein and the proceeds thereof and will take all actions necessary to maintain in favor of Lender a perfected first priority security interest in the Lockbox Account, including executing and filing UCC-1 Financing Statements and continuations thereof. Lender and Servicer shall have the sole right to make withdrawals from the Lockbox Account and all costs and expenses for establishing and maintaining the Lockbox Account shall be paid by Borrower. (b) Borrower shall deposit all Rents received by private pay tenants or residents within one (1) Business Day after receipt into either (i) the Lockbox Account or (ii) an Eligible Account of Borrower provided that Borrower has given the depository institution holding such account instructions to wire transfer all amounts held in such account on a daily basis to the Lockbox Account. Borrower shall deposit all amounts received by Borrower constituting Rents from insurance carriers or other third-party payors, other than payments on account of Medicare/Medicaid Accounts, into the Lockbox Account within one (1) Business Day after receipt. (c) Borrower shall obtain from Lockbox Bank its agreement to transfer to the Cash Management Account in immediately available funds by federal wire transfer all amounts on deposit in the Lockbox Account once every Business Day throughout the term of the Loan. -38- 2.6.3 REVOLVING CREDIT CASH MANAGEMENT. Notwithstanding the foregoing provisions of Section 2.6.1 and 2.6.2, provided that (a) the Revolving Credit Loan is outstanding, (b) amounts on account of Medicare/Medicaid Receivables and Rents from the Properties are being deposited with the Revolving Credit Lender pursuant to the Revolving Credit Loan Agreement, and (c) the Revolving Credit Lender is disbursing the proceeds of the Revolving Credit Loan and any funds deposited with Revolving Credit Lender pursuant to the Revolving Credit Loan Agreement in the excess of amounts payable under the Revolving Credit Loan into the Cash Management Account, Borrower shall not be required to make deposits of Medicare/Medicaid Receivables and Rents into the Medicare/Medicaid Receivables Account and Lockbox Accounts, respectively, in accordance with the provisions of Section 2.6.1 and 2.6.2 hereof. Borrower hereby authorizes Lender to request and obtain advances under the Revolving Credit Loan Agreement on each Payment Date to pay any shortfall between the amount on deposit in the Cash Management Account on such Payment Date and the amounts payable by Borrower on such Payment Date. 2.6.4 CASH MANAGEMENT ACCOUNT. (a) Borrower shall establish and maintain a segregated Eligible Account (the "CASH MANAGEMENT ACCOUNT") to be held by Servicer in trust for the benefit of Lender, which Cash Management Account shall be under the sole dominion and control of Lender. The Cash Management Account shall be entitled "Column Financial, Inc., as Lender, pursuant to Loan Agreement dated as of August 19, 2003 - Cash Management Account." Borrower hereby grants to Lender a first priority security interest in the Cash Management Account and all deposits at any time contained therein and the proceeds thereof and will take all actions necessary to maintain in favor of Lender a perfected first priority security interest in the Cash Management Account, including executing and filing UCC-1 Financing Statements and continuations thereof. Borrower will not in any way alter or modify the Cash Management Account and will notify Lender of the account number thereof. Lender and Servicer shall have the sole right to make withdrawals from the Cash Management Account and all costs and expenses for establishing and maintaining the Cash Management Account shall be paid by Borrower. (b) Provided no Event of Default shall have occurred and be continuing, on each Business Day all funds on deposit in the Cash Management Account shall be applied by Lender to the payment of the following items in the order indicated: (i) First, payments to the Tax and Insurance Escrow Fund in accordance with the terms and conditions of Section 7.2 hereof; (ii) Second, payment of the monthly Debt Service payable on the next Payment Date with respect to Note A, applied first to the payment of interest computed at the Applicable Interest Rate with respect to the outstanding principal amounts of Promissory Note A with the remainder applied to the Note A Monthly Principal Payment Amount; (iii) Third, payments to the Replacement Reserve Fund in accordance with the terms and conditions hereof; -39- (iv) Fourth, payment to Lender of any other amounts then due and payable under the Loan Documents, other than monthly Debt Service payable with respect to Note B; (v) Fifth, payment of the monthly Debt Service payable on the next Payment Date with respect to Note B, applied first to the payment of interest computed at the Applicable Interest Rate with respect to the outstanding principal amounts of Promissory Note B, and, with the remainder, commencing on the earlier of the thirty-first(31st) Payment Date or the Payment Date first occurring after the Mezzanine Loan is paid in full, applied to the Note B Monthly Principal Payment Amount; (vi) Sixth, funds necessary to pay the Monthly Operating Expense Amount for the next calendar month, shall be transferred to Borrower; (vii) Seventh, payments to Borrower in the amount of any Extraordinary Expense approved by Lender; (viii) Eighth, payments to the Debt Service Reserve Fund in accordance with the provisions of Section 5.1.27 hereof; (ix) Ninth, provided no Event of Default then exists, any excess amounts deposited into the Cash Management Account with respect to any month and remaining after all applications pursuant to the preceding clauses (i) through (vii) have been made shall be transferred to the Mezzanine Deposit Account under the Mezzanine Cash Management Agreement and applied in accordance with the Mezzanine Loan Agreement and the Mezzanine Cash Management Agreement, which amounts shall be deemed to be distributed by Borrower to Mezzanine Borrower pursuant to Borrower's operating agreement; and (x) Lastly, provided (a) no Event of Default then exists and (b) the Mezzanine Loan has been paid in full, all such excess amounts shall be transferred to Borrower. (c) The insufficiency of funds on deposit in the Cash Management Account shall not relieve Borrower from the obligation to make any payments, as and when due pursuant to this Agreement and the other Loan Documents, and such obligations shall be separate and independent, and not conditioned on any event or circumstance whatsoever. (d) All funds on deposit in the Cash Management Account following the occurrence of an Event of Default may be applied by Lender in such order and priority as Lender shall determine. 2.6.5 PAYMENTS RECEIVED UNDER THE CASH MANAGEMENT AGREEMENT. Notwithstanding anything to the contrary contained in this Agreement and the other Loan Documents, and provided no Event of Default has occurred and is continuing, Borrower's obligations with respect to the monthly payment of Debt Service and amounts due for the Tax and Insurance Escrow Fund, Required Repair Fund, Replacement Reserve Fund, Debt Service Reserve Fund and any other payment reserves established pursuant to this Agreement or any other Loan Document shall be deemed satisfied to the extent sufficient amounts are deposited in -40- the Cash Management Account established pursuant to the Cash Management Agreement to satisfy such obligations on the dates each such payment is required, regardless of whether any of such amounts are so applied by Lender. 2.6.6 PAYMENTS INTO CASH MANAGEMENT ACCOUNT. Borrower shall have the right at any time to make deposits into the Cash Management Account and Lender agrees that so long as there are sufficient funds on deposit in the Cash Management Account to pay the items described in subsections (i) through (v) of Section 2.6.4 that are payable on the next Payment Date, all amounts in excess thereof shall be transferred on each Business Day to the Mezzanine Deposit Account under the Mezzanine Cash Management Agreement, or, if the Mezzanine Loan shall have been paid in full, to Borrower. SECTION 2.7. ASSUMPTION OF A PORTION OF THE LOAN. Subject to the terms and conditions set forth in this Section 2.7, prior to the Lockout Release Date, Lender shall consent to Transfers of one or more Individual Properties (individually, an "Assumed Property" and collectively, the "Assumed Properties") subject to the Lien of the Mortgage and to the severance of the Loan with respect thereto (a "Severance"), provided that the following conditions precedent are satisfied:(a) No Event of Default shall have occurred and be continuing and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each Loan Document on Borrower's part to be observed or performed. Lender shall have received a certificate from Borrower confirming the foregoing, stating that the representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of the Severance with respect to Borrower, the Remaining Crossed Properties and the Assumed Property and containing any other representations and warranties with respect to Borrower, the Remaining Crossed Properties, the Assumed Property or the Loan as Lender or the Rating Agencies may require, such certificate to be in form and substance reasonably satisfactory to Lender and satisfactory to the Rating Agencies. (b) Borrower shall be permitted to Transfer no more than five Properties pursuant to this Section 2.7 and the aggregate Allocated Loan Amounts of all Assumed Properties Transferred pursuant to this Section 2.7 shall not exceed $17,000,000. (c) Borrower shall submit to Lender, not less than thirty (30) days prior to the date of the proposed Severance, a request in writing for consent to the proposed Transfer and Severance which shall identify the Assumed Property. (d) Lender shall have received (i) an appraisal of the Assumed Property, dated no more than sixty (60) days prior to the date of the Severance, by an appraiser reasonably acceptable to the Lender, and, (ii) for the Properties to remain as collateral for the Loan ( the "Remaining Crossed Properties"), if the latest appraisal obtained by or delivered to Lender is more than twelve (12) months old, an updated or summary appraisal by an appraiser reasonably acceptable to the Lender and current Occupancy Reports for each Individual Property. (e) The Assumed Property shall be conveyed to a Person other than a Borrower or any of its Affiliates (the "ASSUMED LOAN BORROWER"). -41- (f) Borrower shall have complied with the conditions set forth in Section 5.2.10(e)(i), (ii), (iii), (v), (vi), (vii), (ix), (xi) and (xii) with respect to the Transfer. (g) The Loan shall be severed into two or more separate loans, one such loan (the "REMAINING CROSSED LOAN") to be in the amount of the outstanding principal balance of the Loan immediately prior to the Severance less the Note A Adjusted Allocated Loan Amount for the Assumed Properties, to be secured by the Remaining Crossed Properties, and the other such loans (the "ASSUMED LOAN") in the principal amount equal to aggregate of the Note A Adjusted Allocated Loan Amounts(s) for the Assumed Properties, to be secured by the Assumed Properties. (h) In connection with the Severance, (A) the Owner, the Master Lessee and the Operator of the Assumed Property shall have executed and delivered to Lender a severed promissory note on the principal amount of the Assumed Loan, a severed loan agreement, a cash management agreement, an environmental indemnity agreement, modifications of the Mortgage and the Assignment of Lease and Rents encumbering the Assumed Property providing the such instruments shall secure only the Assumed Loan and such other documents as may be reasonably request by Lender to evidence and secure the Assumed Loan (such documents, together with the Mortgage and the Assignment of Leases and Rents applicable to the Assumed Property being referred to herein as the "ASSUMED LOAN DOCUMENTS"), (B) Borrower shall have executed and delivered to Lender such modifications to the Loan Documents as Lender shall reasonably request in order to effectuate the Severance, and (C) Assumed Loan Borrower shall have executed and delivered to Lender, an Assumption Agreement in form and substance satisfactory to Lender, UCC-1 Financing Statements and such other documents as Lender may reasonably request, pursuant to which Assumed Loan Borrower shall have assumed all of the obligations of Borrower under the Assumed Loan Documents and shall have delivered to Lender a guaranty, in substantially the form of the Guaranty, from a principal of Assumed Loan Borrower satisfactory to Lender. The Assumed Loan Documents shall be the same in form and substance as the counterparts of such documents executed and delivered with respect to the Loan subject to modifications reflecting only the Assumed Property as the Individual Property that is the subject of such documents and such modifications reflecting the laws of the state in which the Assumed Property is located as shall be recommended for similar transactions by the counsel admitted to practice in such state and delivering the opinion as to the enforceability of such documents required pursuant to Section 2.7.1(i) below, provided, that the Monthly Principal Payment Amount for the Assumed Loan shall the an amount equal to $283,333, multiplied by a fraction, the numerator of this is the Allocated Loan Amount for the Assumed Property and the denominator of which is the original principal amount of the Loan. (i) Lender shall have received the following opinions in form and substance satisfactory to a prudent lender acting reasonably, and, if the Loan is part of a Securitization, the Rating Agencies from counsel reasonably acceptable to Lender: (A) an opinion or opinions of counsel admitted to practice under the laws of the state in which the Assumed Property is located stating that the Assumed Loan Documents are valid and enforceable in accordance with their terms, subject to the laws applicable to creditors' rights and equitable principles, and that Assumed Loan Borrower is qualified to do business and in good standing under the laws of the jurisdiction where the Assumed Property is located or that Assumed Loan Borrower is not required by applicable law to qualify to do business in such jurisdiction, (B) an opinion of -42- counsel stating that the Assumed Loan Documents were duly authorized, executed and delivered by Borrower and Assumed Loan Borrower, as applicable, that the execution and delivery of such Loan Documents and the performance by Borrower or Assumed Loan Borrower of their respective obligations thereunder will not cause a breach of, or a default under, any agreement, document or instrument to which Borrower or Assumed Loan Borrower is a party or to which they or their respective properties are bound, (C) an Additional Insolvency Opinion with respect to the Assumed Loan and the Assumed Loan Borrower; and (D) if the Loan is part of a Securitization, an opinion of counsel that the severance does not constitute a "significant modification" of the Loan under Section 1001 of the Code or otherwise cause a tax to be imposed on a "prohibited transaction" by any REMIC Trust. (j) Lender shall have received (A) an endorsement to the Title Insurance Policy insuring the Lien of the Mortgage with respect to the Assumed Property, insuring, as of the date of the Severance, that the Lien of the Mortgage, as modified in connection with the Severance and assumed by the Assumed Loan Borrower, with respect to the Assumed Property continues to be a valid first lien on the Assumed Property encumbered thereby, free and clear of all exceptions from coverage other than Permitted Encumbrances, and (B) an endorsement to the Title Insurance Policies insuring the Lien of the Mortgage with respect to the Remaining Crossed Properties insuring, as of the date of the Severance, that the Lien of the Mortgage with respect to the Remaining Pool Properties, as modified in connection with the Severance, continues to be a valid first lien on the Remaining Cross Properties encumbered thereby, free and clear of all exceptions from coverage other than Permitted Encumbrances. (k) Lender shall have received valid certificates of insurance indicating that the requirements for the policies of insurance required for an Individual Property hereunder have been satisfied with respect to the Assumed Property and evidence of the payment of all premiums payable for the existing policy period. (l) Borrower shall have delivered or caused to be delivered to Lender (A) all organizational documentation with respect to the formation, structure, existence, good standing and/or qualification to do business, including good standing certificates and certificates of qualification to do business with respect to the Borrower making the Transfer, the Assumed Loan Borrower and such other entity as may be reasonably requested by Lender; and (B) resolutions of Borrower and Assumed Loan Borrower authorizing the Transfer of the Assumed Property and the Severance and any actions taken in connection with the Transfer and the Severance. (m) If the Loan is part of a Securitization, Lender shall have received confirmation in writing from the Rating Agencies to the effect that such Transfer and Severance will not result in a withdrawal, qualification or downgrade of the respective ratings in effect immediately prior to such Transfer and Severance for the Securities issued in connection with the Securitization that are then outstanding; if the Loan is not part of a Securitization, Lender shall have consented in writing to such Transfer and Severance; (n) Lender shall have received evidence reasonably satisfactory to Lender that such Transfer and Severance will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents with respect to the Remaining -43- Crossed Properties and the Assumed Properties (or as to the parties to the Loan Documents, the Borrower or the Assumed Loan Borrower); (o) After giving effect to the Severance, the Debt Service Coverage Ratio for the Remaining Crossed Properties shall be equal to or greater than the greater of (i) the Closing Date Debt Service Coverage Ratio, and (ii) the Debt Service Coverage Ratio for all of the then remaining Properties (including the Individual Property to be Severed) for the twelve (12) full calendar months immediately preceding the Severance, provided, however, that in no event shall the Debt Service Coverage Ratio required under this Section 2.7(o) be greater than 3.0/1.0; (p) After giving effect to the Severance, the Loan-to-Value Ratio for Remaining Crossed Properties shall be equal to or less than the lesser of (i) the Closing Date Loan-to-Value Ratio and (ii) the Loan-to-Value Ratio for all of the Remaining Crossed Properties (including the Assumed Property) immediately preceding the Severance, provided, however, that in no event shall the Loan-to-Value Ratio required under this Section 2.7(p) be less than 45%. (q) In the event Borrower fails to satisfy the Debt Service Coverage Ratio in Section 2.7.1(p), or fails to satisfy the Loan-to-Value Ratio in Section 2.7.1(o), Borrower shall have the right to satisfy such requirements by providing Lender with a cash deposit (the "Remaining Crossed Properties Deposit") to be held by Lender as additional collateral for the Loan and the Remaining Crossed Properties, subject to a pledge and security agreement provided by Lender, and in an interest bearing account, or at the election of Borrower, in U.S. Obligations, provided that Borrower, or after an Event of Default, Lender shall select the actual U.S. Obligations. The Remaining Crossed Properties Deposit shall be equal to the greater of (x) an amount such that, when the interest that will be earned on the Remaining Crossed Properties Deposit (as determined by Lender in its reasonable discretion) is added to Net Operating Income, the Debt Service Coverage Ratio in Section 2.7.1(o) hereof will be satisfied and (y) an amount, such that, when included in determining "value" in calculating the Loan-to-Value Ratio in Section 2.7.1(p), such Loan-to-Value Ratio will be satisfied; (r) After giving effect to the Severance, the Debt Service Coverage Ratio for the Assumed Property (calculated based upon the Note A Adjusted Allocated Loan Amount of the Assumed Property) shall be equal to or greater than the greater of (i) the Closing Date Debt Service Coverage Ratio, and (ii) the Debt Service Coverage Ratio for all of the then remaining Properties (including the Assumed Property) for the twelve (12) full calendar months immediately preceding the Severance, provided, however, that in no event shall the Debt Service Coverage Ratio required under this Section 2.7(p) be greater than 3.0/1.0; (s) After giving effect to the Severance, the Loan-to-Value Ratio for the Assumed Property (calculated based upon the Allocated Loan Amount of the Assumed Property) shall be equal to or less than the lesser of (i) the Note A Adjusted Closing Date Loan-to-Value Ratio and (ii) the Loan-to-Value Ratio for all of the Remaining Crossed Properties (including the Assumed Property) immediately preceding the Severance, provided, however, that in no event shall the Loan-to-Value Ratio required under this Section 2.7(s) be less than 45%; -44- (t) In the event the Assumed Property Borrower fails to satisfy the Debt Service Coverage Ratio in Section 2.7.1(r), or fails to satisfy the Loan-to-Value Ratio in Section 2.7.1(s), Assumed Loan Borrower shall have the right to satisfy such requirements by providing Lender with a cash deposit (the "Assumed Property Deposit") to be held by Lender as additional collateral for the Loan and the Assumed Property, subject to a pledge and security agreement provided by Lender, and in an interest bearing account, or at the election of Assumed Loan Borrower, in U.S. Obligations, provided that Assumed Loan Borrower, or after an Event of Default, Lender shall select the actual U.S. Obligations. The Assumed Property Deposit shall be equal to the greater of (x) an amount such that, when the interest that will be earned on the Assumed Property Deposit (as determined by Lender in its reasonable discretion) is added to Net Operating Income, the Debt Service Coverage Ratio in Section 2.7.1(r) hereof will be satisfied and (y) an amount, such that, when included in determining "value" in calculating the Loan to Value Ratio in Section 2.7.1(s),, such Loan to Value Ratio will be satisfied. (u) As of the date of the Severance, (a) the outstanding principal amount of the Remaining Crossed Loan does not exceed one hundred percent (100%) of the fair market value of the Remaining Crossed Property and (b) the outstanding principal amount of the Assumed Loan does not exceed one hundred percent (100%) of the fair market value of the Assumed Properties. For the purposes of this clause, the term "fair market value" shall not include (i) the amount of any indebtedness secured by a lien affecting the Remaining Crossed Properties or the Assumed Properties that is prior to, or on a parity with, the lien of the Mortgage, and (ii) the value of any property that is not "real property" within the meaning of Treas. Reg. Sections. 1.860G-2 and 1.856-3(d); (v) Borrower shall have paid or reimbursed Lender for all reasonable costs and expenses incurred by Lender (including, without limitation, reasonable attorneys fees and disbursements) in connection with the Severance and Borrower shall have paid all recording charges, filing fees, taxes or other expenses (including, without limitation, mortgage and intangibles taxes and documentary stamp taxes) payable in connection with the Severance. Borrower shall have paid all costs and expenses of the Rating Agencies incurred in connection with the Severance; and (w) Borrower shall have paid to Note B Holder the Note B Release Amount applicable to the Assumed Property and Mezzanine Borrower shall have paid to Mezzanine Lender the Mezzanine Loan Release Amount (as defined in the Mezzanine Loan Agreement) applicable to the Assumed Property and Borrower shall have obtained a release of the Accounts of the Assumed Property from the lien of the Revolving Credit Lender under the Revolving Credit Loan Agreement. In lieu of making the deposits with Lender required under Sections 2.7(q) and (t), Borrower or the Assumed Loan Borrower, as applicable may deliver to Lender a Letter of Credit in the amounts required under Sections 2.7(q) and (t) in accordance with the provisions of this Section 2.7. Borrower or the Assumed Loan Borrower, as applicable shall not be entitled to draw from any such Letter of Credit. Upon thirty (30) days notice to Lender, Borrower or the Assumed Loan Borrower, as applicable may replace a Letter of Credit with a cash deposit. Each Letter of Credit delivered under this Agreement shall be additional security for the payment of the Debt or the Assumed Loan as applicable. Upon the occurrence of an Event of Default under -45- the Remaining Crossed Loan or the Assumed Loan, as applicable, Lender shall have the right, at its option, to draw on the respective Letter of Credit and to apply all or any part thereof to payment of the Debt in such order, proportion or priority as Lender may determine. Any such application to the Debt shall be subject to the Prepayment Premium. On the Maturity Date, any such Letter of Credit may be applied to reduce the Debt. In addition to any other right Lender may have to draw upon a Letter of Credit pursuant to the terms and conditions of this Agreement or the Loan Agreement with respect to the Assumed Loan, Lender shall have the additional rights to draw in full any Letter of Credit: (a) with respect to any evergreen Letter of Credit, if Lender has received a notice from the issuing bank that the Letter of Credit will not be renewed and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (b) with respect to any Letter of Credit with a stated expiration date, if Lender has not received a notice from the issuing bank that it has renewed the Letter of Credit at least thirty (30) days prior to the date on which such Letter of Credit is scheduled to expire and a substitute Letter of Credit is not provided at least thirty (30) days prior to the date on which the outstanding Letter of Credit is scheduled to expire; (c) upon receipt of notice from the issuing bank that the Letter of Credit will be terminated (except if a substitute Letter of Credit is provided at least thirty (30) days prior to the effective date of such termination); or (d) if Lender has received notice that the bank issuing the Letter of Credit shall cease to be an Eligible Institution. Notwithstanding anything to the contrary contained in the above, Lender is not obligated to draw any Letter of Credit upon the happening of an event specified in (a), (b), (c) or (d) above and shall not be liable for any losses sustained by Borrower or the Assumed Loan Borrower due to the insolvency of the bank issuing the Letter of Credit if Lender has not drawn the Letter of Credit. Upon the completion of the Severance in accordance with the provisions of this Section 2.7, Lender shall release Borrower and Guarantor from their obligations with respect to the Assumed Property arising from and after the date of the Severance. III. CONDITIONS PRECEDENT SECTION 3.1. CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: 3.1.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or an Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. 3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. -46- 3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; LEASES. (a) MORTGAGES, ASSIGNMENTS OF LEASES. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Mortgages and the Assignments of Leases and evidence that counterparts of the Mortgages and Assignments of Leases have been delivered to the title company for recording, in the reasonable judgment of Lender, so as to effectively create upon such recording valid and enforceable Liens upon each Individual Property, of the requisite priority, in favor of Lender (or such other trustee as may be required or desired under local law), subject only to the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. Lender shall have also received from Borrower fully executed counterparts of the other Loan Documents. (b) TITLE INSURANCE. Lender shall have received Title Insurance Policies issued by a title company acceptable to Lender and dated as of the Closing Date. Such Title Insurance Policies shall (i) provide coverage in an amount equal to the Allocated Loan Amount for each Individual Property with tie-in endorsements for all such Title Insurance Properties, (ii) insure Lender that the relevant Mortgage creates a valid lien on the Individual Property encumbered thereby of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender as the insured. The Title Insurance Policies shall be assignable. Lender also shall have received evidence that all premiums in respect of such Title Insurance Policies have been paid. (c) SURVEY. Lender shall have received a current Survey for each Individual Property, certified to the title company and Lender and their successors and assigns, in form and content satisfactory to Lender and prepared by a professional and properly licensed land surveyor satisfactory to Lender in accordance with the Accuracy Standards for ALTA/ACSM Land Title Surveys as adopted by ALTA, American Congress on Surveying & Mapping and National Society of Professional Surveyors in 1999. Each such Survey shall reflect the same legal description contained in the Title Insurance Policies relating to such Individual Property and shall include, among other things, a metes and bounds description of the real property comprising part of such Individual Property reasonably satisfactory to Lender. The surveyor's seal shall be affixed to each Survey and the surveyor shall provide a certification for each Survey in form and substance acceptable to Lender. (d) INSURANCE. Lender shall have received valid certificates of insurance for the Policies required hereunder, satisfactory to Lender in its sole discretion, and evidence of the payment of all Insurance Premiums payable for the existing policy period. (e) ENVIRONMENTAL REPORTS. Lender shall have received a Phase I environmental report (and, if recommended by the Phase I environmental report, a Phase II environmental report) in respect of each Individual Property, in each case satisfactory in form and substance to Lender. (f) ZONING. With respect to each Individual Property, Lender shall have received, at Lender's option, either (i) (A) letters or other evidence with respect to each -47- Individual Property from the appropriate municipal authorities (or other Persons) concerning applicable zoning and building laws, and (B) an ALTA 3.1 zoning endorsement for the applicable Title Insurance Policy or (ii) a zoning report, in each case in substance reasonably satisfactory to Lender ("Zoning Reports"). (g) ENCUMBRANCES. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date with respect to each Mortgage on the applicable Individual Property, subject only to applicable Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof. 3.1.4 RELATED DOCUMENTS. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall be in form and substance reasonably satisfactory to Lender, and shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. 3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. Borrower shall deliver or cause to be delivered to Lender copies certified by Borrower of all organizational documentation related to Borrower and/or the formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its reasonable discretion, including good standing certificates dated not more than thirty (30) days prior to the Closing Date, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates. 3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received opinions from Borrower's counsel with respect to non-consolidation and the due execution, authority, enforceability of the Loan Documents and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender's counsel in their reasonable discretion. 3.1.7 BUDGETS. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the current Fiscal Year. 3.1.8 BASIC CARRYING COSTS. Borrower shall have paid (or will pay with proceeds from the Loan) all Basic Carrying Costs relating to the Properties which are in arrears, including without limitation, (a) accrued but unpaid Insurance Premiums, (b) currently due Taxes (including any in arrears) and (c) currently due Other Charges, which amounts shall be funded with proceeds of the Loan. 3.1.9 COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all such counterpart originals or certified copies of such documents as Lender may reasonably request. -48- 3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or established by Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date shall have been paid. 3.1.11 ORIGINATION FEE; TRANSACTION COSTS. Borrower shall have paid to Lender an origination fee of $850,000.00 and shall have paid or reimbursed Lender for all title insurance premiums, recording and filing fees, costs of environmental reports, Physical Conditions Reports, appraisals and other reports, the fees and costs of Lender's counsel and all other third party out-of-pocket expenses incurred in connection with the origination of the Loan. 3.1.12 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition or business condition of Borrower or the Properties since the date of the most recent financial statements delivered to Lender. The income and expenses of the Properties, the occupancy thereof, and all other features of the transaction shall be as represented to Lender without material adverse change. Neither Borrower nor any of its Affiliates shall be the subject of any bankruptcy, reorganization, or insolvency proceeding. 3.1.13 LEASES. Lender shall have received copies of all material Leases other than residential Leases or occupancy agreements. Lender shall have received a current certified Occupancy Report for the Properties, reasonably satisfactory in form and substance to Lender. 3.1.14 TAX LOT. Lender shall have received evidence that each Individual Property constitutes one (1) or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to Lender. 3.1.15 PHYSICAL CONDITIONS REPORTS. Lender shall have received Physical Conditions Reports with respect to each Individual Property, which reports shall be reasonably satisfactory in form and substance to Lender. 3.1.16 OPERATING LEASES/MASTER LEASES. Lender shall have received a copy of the Operating Leases and the Master Leases, which shall be satisfactory in form and substance to Lender, and copies of all necessary approvals in accordance with all Legal Requirements. 3.1.17 O&M AGREEMENT. Lender shall have received a copy of any required O&M Agreement, which shall be satisfactory in form and substance to Lender, and copies of all necessary approvals in accordance with Legal Requirements. 3.1.18 APPRAISAL. Lender shall have received an appraisal of each Individual Property, which shall be satisfactory in form and substance to Lender. 3.1.19 FINANCIAL STATEMENTS. Lender shall have received a balance sheet with respect to each Individual Property for the two most recent Fiscal Years and statements of income and statements of cash flows with respect to each Individual Property for the three most recent Fiscal Years, each in form and substance satisfactory to Lender. 3.1.20 MEDICARE/MEDICAID AGREEMENTS. Lender shall have received, in form and substance reasonably acceptable to Lender, copies of Borrower's current and valid Medicare and Medicaid provider numbers and agreements, copies of the most recent state surveys, copies -49- of all participation agreements relating to health plans, and information pertaining to the patient census for each Individual Property. 3.1.21 APPROVAL OF REORGANIZATION PLAN. Lender shall have received evidence of the approval of the Plan of Reorganization by the Bankruptcy Court having jurisdiction thereof; and a certificate of Borrower stating that all of the conditions to the occurrence of the "Effective Date" under the Plan of Reorganization have been satisfied or waived. 3.1.22 FURTHER DOCUMENTS. Lender or its counsel shall have received such other and further approvals, opinions, documents and information as Lender or its counsel may have reasonably requested including the Loan Documents in form and substance satisfactory to Lender and its counsel. IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1. BORROWER REPRESENTATIONS. Borrower represents and warrants as of the date hereof and as of the Closing Date that: 4.1.1 ORGANIZATION. Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own its properties and to transact the businesses in which it is now engaged. Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of Borrower is the ownership, leasing, management and operation of the Properties. The ownership interests of Borrower are as set forth on the organizational chart attached hereto as Schedule IV. 4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over Borrower or any of Borrower's properties or assets, and any consent, approval, authorization, order, registration or -50- qualification of or with any such Governmental Authority required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. 4.1.4 LITIGATION. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or, to Borrower's knowledge, threatened against or affecting Borrower, Principal, Guarantor or any Individual Property, which actions, suits or proceedings, if determined against Borrower, Principal, Guarantor or any Individual Property, might reasonably be expected to have a material adverse effect on the condition (financial or otherwise) or business of Borrower, Principal, Guarantor or the condition or ownership of any Individual Property. 4.1.5 AGREEMENTS. Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower or any Individual Property, or Borrower's business, properties or assets, operations or condition, financial or otherwise. Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower or any of the Properties are bound. Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Properties is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Properties as permitted pursuant to clause (t) of the definition of "Special Purpose Entity" set forth in Section 1.1 hereof, (b) obligations under the Loan Documents, and (c) obligations under the Revolving Credit Loan Documents. 4.1.6 TITLE. Owner has good and insurable fee simple title to the real property comprising part of each Individual Property, Master Lessee has good and insurable leasehold title to the real property comprising part of each Individual Property and other leasehold estate created in the Master Lease, Operator has good and insurable leasehold title to the real property comprising part of each Individual Property and other leasehold estate created in the Operating Lease and Borrower has good title to the balance of such Individual Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to or created by the Loan Documents or the Revolving Credit by the Loan Documents. The Permitted Encumbrances in the aggregate do not materially and adversely affect the value, operation or use of the applicable Individual Property (as currently used) or Borrower's ability to repay the Loan. Each Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (a) a valid, perfected first priority lien on the applicable Individual Property, subject only to Permitted Encumbrances and the Liens created by the Loan Documents and (b) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents and the Liens created by the Loan Documents. There are no claims for payment for work, labor or materials affecting the Properties which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. -51- 4.1.7 SOLVENCY. Borrower has (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for its obligations under such Loan Documents. The fair saleable value of Borrower's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of Borrower's assets is and will, immediately following the making of the Loan, be greater than Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured. Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of obligations of Borrower). Except the petition that commenced the reorganization proceedings titled In re Fountain View, Inc, et al (jointly administered under Case No. LA 01-39678BB) in the United States Bankruptcy Court for the Central District of California, no petition in bankruptcy has been filed against Borrower or any Affiliate, and neither Borrower nor any Affiliate has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor any of its Affiliates are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower's assets or properties, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 FULL AND ACCURATE DISCLOSURE. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might reasonably be anticipated to have a material adverse effect on any Individual Property or the business, operations or condition (financial or otherwise) of Borrower. 4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not subject to any state statute regulating investments of, or fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement. 4.1.10 COMPLIANCE. Except as set forth in the Zoning Reports, Borrower and the Properties (including the use thereof) comply in all material respects with all applicable Legal Requirements, including building and zoning ordinances and codes. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, -52- except where any default or violation could not reasonably be expected to have a material adverse effect. There has not been committed by Borrower or any other Person in occupancy of or involved with the operation or use of the Properties any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. 4.1.11 FINANCIAL INFORMATION. All financial data, including cost reports and the statements of cash flow and income and operating expense, that have been delivered to Lender in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Properties as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein. Except for Permitted Encumbrances, Borrower does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on any Individual Property or the operation of each Individual Property as a skilled nursing facility or assisted living facility, in each case as indicated on Schedule I attached hereto, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no material adverse change in the financial condition, operation or business of Borrower from that set forth in said financial statements. 4.1.12 CONDEMNATION. No Condemnation or other proceeding has been commenced or, to Borrower's best knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. 4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 4.1.14 UTILITIES AND PUBLIC ACCESS. Each Individual Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Individual Property are located either in the public right-of-way abutting such Individual Property (which are connected so as to serve such Individual Property without passing over other property) or in recorded easements serving such Individual Property and such easements are set forth in and insured by the Title Insurance Policies. All roads necessary for the use of each Individual Property for their current respective purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. 4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. -53- 4.1.16 SEPARATE LOTS. Each Individual Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Individual Property. 4.1.17 ASSESSMENTS. There are no pending or, to Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor are there any contemplated improvements to any Individual Property that may result in such special or other assessments. 4.1.18 ENFORCEABILITY. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, Principal or Guarantor, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors' rights and the enforcement of debtors' obligations), and Borrower, Principal and Guarantor have not asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 4.1.19 NO PRIOR ASSIGNMENT. There are no prior assignments of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. 4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender certified copies of all Policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any such Policies, and no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such Policies. 4.1.21 USE OF PROPERTY. Each Individual Property is used exclusively as a skilled nursing facility or assisted living facility, in each case as indicated on Schedule I attached hereto, and other appurtenant and related uses. 4.1.22 CERTIFICATE OF OCCUPANCY. The use being made of each Individual Property is in conformity with the certificate of occupancy issued for such Individual Property (or the equivalent thereto). 4.1.23 FLOOD ZONE. Except as set forth in the Surveys, none of the Improvements on any Individual Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards or, if so located, the flood insurance required pursuant to Section 6.1(a)(i) is in full force and effect with respect to each such Individual Property. 4.1.24 PHYSICAL CONDITION. Except as set forth in the Physical Conditions Report, each Individual Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; to Borrower's knowledge, there exists no structural or other material defects or damages in any Individual Property, whether latent or otherwise, and -54- Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any Individual Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. 4.1.25 BOUNDARIES. To Borrower's knowledge, all of the improvements which were included in determining the appraised value of each Individual Property lie wholly within the boundaries and building restriction lines of such Individual Property, and other than as disclosed to Lender on the Survey for such Individual Property, (a) no improvements on adjoining properties encroach upon such Individual Property, and (b) no easements or other encumbrances upon the applicable Individual Property encroach upon any of the improvements, so as to affect the value or marketability of the applicable Individual Property except those which are insured against by the Title Insurance Policy. 4.1.26 OCCUPANCY REPORT. Borrower has delivered to Lender a true, correct and complete Occupancy Report for each Individual Property as of the date hereof. All Leases comply with applicable law, regulation and/or policy issued by any Health Care Authority that has direct or indirect authority or oversight over Borrower, the applicable Individual Property or the operations conducted on such Individual Property. No tenant/resident under any Lease has, as of the date hereof, paid rent more than thirty (30) days in advance, and the rents or charges under such Leases have not been waived, released, or otherwise discharged or compromised. 4.1.27 SURVEY. The Survey for each Individual Property delivered to Lender in connection with this Agreement has been prepared in accordance with the provisions of Section 3.1.3(c) hereof, and, to Borrower's knowledge, does not fail to reflect any material matter affecting such Individual Property or the title thereto. 4.1.28 PRINCIPAL PLACE OF BUSINESS; STATE OF ORGANIZATION. Borrower's principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Each Borrower is organized under the laws of the State of Delaware. 4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties to Borrower have been paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Mortgages, have been paid, and, under current Legal Requirements, each of the Mortgages is enforceable in accordance with their respective terms by Lender (or any subsequent holder thereof), subject to principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors' rights and the enforcement of debtors' obligations. 4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants that (i) each Borrower is, shall be -55- and shall continue to be a Special Purpose Entity, and (ii) each Principal is, shall be and shall continue to be a Special Purpose Entity. (c) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document. (b) All of the assumptions made in the Insolvency Opinion, including, but not limited to, any exhibits attached thereto, are true and correct in all respects and any assumptions made in any subsequent non-consolidation opinion required to be delivered in connection with the Loan Documents (an "ADDITIONAL INSOLVENCY OPINION"), including, but not limited to, any exhibits attached thereto, will have been and shall be true and correct in all respects. Borrower has complied and will comply with, and Principal has complied and Borrower will cause Principal to comply with, all of the assumptions made with respect to Borrower and Principal in the Insolvency Opinion. Borrower will have complied and will comply with all of the assumptions made with respect to Borrower and Principal in any Additional Insolvency Opinion. Each entity other than Borrower and Principal with respect to which an assumption shall be made in any Additional Insolvency Opinion will have complied and will comply with all of the assumptions made with respect to it in any Additional Insolvency Opinion. 4.1.31 O&M AGREEMENT. Any O&M Agreements required by Lender are in full force and effect and there is no default under any such agreement by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default under any such agreement. 4.1.32 ILLEGAL ACTIVITY. No portion of any Individual Property has been or will be purchased with proceeds of any illegal activity. 4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All information submitted by Borrower to Lender and in all financial statements, Occupancy Reports, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower in this Agreement or in any other Loan Document, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or might materially and adversely affect the use, operation or value of the Properties or the business operations or the financial condition of Borrower. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any Provided Information or representation or warranty made herein to be materially misleading. 4.1.34 INVESTMENT COMPANY ACT. Borrower is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or -56- (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 4.1.35 EMBARGOED PERSON. At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of Borrower, Principal and Guarantor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan made by the Lender is in violation of law ("EMBARGOED PERSON"); (b) no Embargoed Person has any interest of any nature whatsoever in Borrower, Principal or Guarantor, as applicable, with the result that the investment in Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law; and (c) none of the funds of Borrower, Principal or Guarantor, as applicable, have been derived from any unlawful activity with the result that the investment in Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law. 4.1.36 CASH MANAGEMENT ACCOUNT. (a) This Agreement, together with the other Loan Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of Delaware) in the Lockbox Account, the Medicare/Medicaid Receivables Accounts and the Cash Management Account in favor of Lender, which security interest is prior to all other Liens, other than Permitted Encumbrances, and is enforceable as such against creditors of and purchasers from Borrower. Other than in connection with the Loan Documents and except for Permitted Encumbrances, Borrower has not sold or otherwise conveyed the Lockbox Account, the Medicare/Medicaid Receivables Accounts, and the Cash Management Account; (b) Each of the Lockbox Account, the Medicare/Medicaid Receivables Accounts and the Cash Management Account constitute "deposit accounts" within the meaning of the Uniform Commercial Code of the state of where such account is located; (c) Pursuant and subject to the terms hereof, the Lockbox Bank has agreed to comply with all instructions originated by Lender, without further consent by Borrower, directing disposition of the Lockbox Account and all sums at any time held, deposited or invested therein, together with any interest or other earnings thereon, and all proceeds thereof (including proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities; and (d) The Lockbox Account, the Medicare/Medicaid Receivables Accounts and the Cash Management Account are not in the name of any Person other than the applicable Borrower, as pledgor, or Lender, as pledgee. 4.1.37 Operating Leases. All Operating Leases are in full force and effect and there is no default under any such Operating Lease by any party thereto and no event has -57- occurred that, with the passage and/or the giving of notice would constitute a default under any such Operating Lease. 4.1.38 Business Experience. Borrower represents that by reason of the business and financial experience of Borrower and Guarantor, or that of their professional advisors, Borrower has the capacity to protect its own interests in connection with the Loan. SECTION 4.2 HEALTH CARE REPRESENTATIONS. Borrower, for itself and its successors and assigns, does hereby represent and warrant to Lender, its successors and assigns, as of the date hereof, that: (a) All certificates, certifications, permits, licenses and approvals, including certificates of operation, completion and occupancy, required for the legal use, occupancy and operation of each Facility (collectively, the "LICENSES") have been obtained and are in full force and effect except for Licenses which, if not maintained, would not have a material adverse effect on the use or operating of the Facility. Borrower owns and/or possesses, and holds free from restrictions or conflicts with the rights of others, all such Licenses provided that with respect to the Facilities listed on Schedule X, all such Licenses are held by Summit Care Corporation directly or as successor by merger to Summit Care California, Inc., which has entered into an interim sublease and management agreement with the applicable Operator to operate such Facilities, which management agreement is effective to permit the operation of such Facilities in accordance with all Legal Requirements.; (b) Each Facility is duly licensed as a skilled nursing facility or assisted living facility (as set forth on Schedule I attached hereto) as required under the applicable laws of the State in which such Facility is located. The licensed bed capacity of each Facility is as set forth on Schedule V attached hereto. Borrower has not applied to reduce the number of licensed or certified beds of any Facility or to move the right to any and all of the licensed or certified beds of any Facility to any other location and there are no proceedings or actions pending or contemplated to reduce the number of licensed or certified beds of any Facility; (c) Except as otherwise provided in paragraph (d), Borrower (and the operation of each Facility) is in material compliance with the applicable provisions of the laws, ordinances, statutes, regulations, orders, standards, policies, restrictions or rules of any Health Care Authority having jurisdiction over the operation of any Facility, including, (i) staffing requirements, (ii) health and fire safety codes, (iii) federal, state or local laws, rules, regulations or published interpretations or policies relating to the prevention of fraud and abuse, (iv) insurance, reimbursement and cost reporting requirements, and (v) any other applicable laws, regulations or agreements for reimbursement for the type of care or services provided by Operator with respect to each Facility. As used in this Section 4.2(c), "material compliance" means a level of compliance that would keep the Borrower (and the operation of the Facility) free from any proceedings or sanctions by any Governmental Authority having jurisdiction over the operation of the Facility and that would not be reasonably expected to have a material adverse effect on Borrower's operations, including, but not limited to, its right to receive reimbursement or insurance payments with no opportunity to contest or correct; -58- (d) Borrower is in substantial compliance with the requirements for participation in the Medicare and Medicaid Programs with respect to each Facility that currently participates in such programs and has a current provider agreement under Title XVIII and/or XIX of the Social Security Act. Borrower has not had any deficiencies on its most recent survey (standard or complaint) that would result in a denial of payment for new admissions with no opportunity to correct prior to termination other than as disclosed in Schedule IX hereto. Other than as set forth on Schedule IX hereto, Borrower did not have any deficiencies at level G or above on its most recent survey (standard or complaint), nor has Borrower been cited with any substandard quality of care deficiencies (as that term is defined in Part 488 of 42 C.F.R) for the past two consecutive surveys. (e) Borrower is not a participant in, subject to, or, to Borrower's knowledge, a target of, any action, proceeding, suit, audit, investigation or sanction by any Health Care Authority or any other administrative or investigative body or entity or any other third party or any patient or resident (including, without limitation, whistleblower suits, or suits brought pursuant to federal or state False Claims Acts, and Medicaid/Medicare/State fraud/abuse laws) which could reasonably be expected to result in the imposition of a fine, penalty, alternative, interim or final sanction, a lower rate certification, recoupment, recovery, suspension or discontinuance of all or part of reimbursement from any Health Care Authority, third-party payor, insurance carrier or private payor, a lower reimbursement rate for services rendered to eligible patients, or any other civil or criminal remedy, or which could reasonably be expected to have a material adverse effect on Borrower or the operation of the Facility, or which could reasonably be expected to result in the appointment of a receiver or manager, or in the revocation, transfer, surrender, suspension or other impairment of a License, nor has any such action, proceeding, suit, investigation proceeding or audit been threatened; (f) There are no agreements with residents of any Facility, or with any other persons or organizations, which deviate in any material adverse respect from, or which conflict with, any statutory or regulatory requirements. All resident records at each Facility, including patient and/or resident accounts records, are true, complete, and correct in all material respects; (g) Neither the execution and delivery of the Note, this Agreement, the Security Instruments or the other Loan Documents, Borrower's performance thereunder, the recordation of the Security Instruments will (i) adversely affect Borrower's right to receive Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or to receive private payor payments or reimbursements, (ii) materially reduce the Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or materially reduce private payor payments or reimbursements which Borrower is receiving as of the date hereof, or (iii) adversely affect the Licenses; (h) Other than the Medicare and Medicaid programs and as set forth on Schedule 4.2(h) attached hereto, Borrower is not a participant in any federal, state or local program whereby any federal, state or local government or quasi-governmental body, or any intermediary, agency, board or other authority or entity may have the right to recover funds with respect to any Individual Property by reason of the advance of federal, state or local funds, including, without limitation, those authorized under the Hill-Burton Act (42 U.S.C. 291, et -59- seq.). Borrower has received no notice, and is not aware of any violation of applicable antitrust laws; (i) Borrower's private payor, Medicaid, Medicare, and/or managed care company, insurance company or other third-party insurance accounts receivable with respect to each Individual Property are free of any liens; (j) Except as set forth on Schedule 4.2(j) attached hereto, Borrower is not a party to any collective bargaining agreement or other labor contract applicable to persons employed by it at any Facility and, to Borrower's knowledge, there are no threatened or pending labor disputes at any Facility; (k) Borrower has instituted, and each Facility is operated in substantial compliance with, a compliance plan which follows applicable guidelines established by Health Care Authorities; and (l) Borrower is in material compliance with the Healthcare Insurance Portability and Accountability Act of 1996, and the regulations promulgated thereunder. SECTION 4.3 SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement, as qualified by the Schedules hereto, or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. BORROWER COVENANTS SECTION 5.1 AFFIRMATIVE COVENANTS. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Liens of all Mortgages encumbering the Properties (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and all material licenses, permits and franchises and comply in all material respects with all Legal Requirements of all Governmental Authorities and Health Care Authorities applicable to Borrower and the Properties, including, without limitation, Medicare, Medicaid, or other Health Care Authority laws, orders, decrees, rules or regulations relating to the operations conducted at the Facility, laws, orders, decrees, rules or regulations concerning employment and compensation of persons engaged in operation and maintenance of each Individual Property and any environmental or ecological requirements. Borrower shall keep and maintain in full force and effect all Licenses necessary for the operation of the Facility on each Individual Property other than Licenses which, if not maintained, would not have a material adverse effect on the use or operation of such Individual Property. Borrower will cause the -60- Facility located on the applicable Individual Property to remain in operation without interruption in accordance with all Legal Requirement. Borrower shall not commit nor permit any other Person in occupancy of or involved with the operation or use of the Properties to commit any act or omission affording the federal government or any state or local government the right of forfeiture against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times maintain, preserve and protect all material franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep the Properties in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgages. Borrower shall keep the Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall operate any Individual Property that is the subject of the O&M Agreement in accordance with the terms and provisions thereof in all material respects. After prior notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or any Individual Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the applicable Mortgage; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iv) no Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (v) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower and any Individual Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or any Individual Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 TAXES AND OTHER CHARGES. Borrower shall pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof as the same become due and payable; provided, however, Borrower's obligation to directly pay Taxes shall be suspended for so long as Borrower complies with the terms and provisions of Section 7.2 hereof. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid. Borrower shall furnish to Lender receipts for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent -61- provided, however, Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Lender pursuant to Section 7.2 hereof. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien or charge whatsoever which may be or become a Lien or charge against the Properties, and shall promptly pay for all utility services provided to the Properties. After prior notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes, Other Charges or other Liens against the Properties, provided that (a) no Event of Default has occurred and remains uncured; (b) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the applicable Mortgage; (c) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (d) no Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (e) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes, Other Charges or other Liens, together with all costs, interest and penalties which may be payable in connection therewith; (f) such proceeding shall suspend the collection of such contested Taxes, Other Charges or other Liens from the applicable Individual Property; and (g) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes, Other Charges or other Liens, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established or any Individual Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any danger of the Lien of any Mortgage being primed by any related Lien. 5.1.3 LITIGATION. Borrower shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower, Principal and Guarantor which might reasonably be expected to have a material adverse effect on Borrower's, Principal's or Guarantor's condition (financial or otherwise) or business or any Individual Property. 5.1.4 ACCESS TO PROPERTIES. Borrower shall permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any material adverse change in Borrower's, Principal's or Guarantor's condition, financial or otherwise, or of the occurrence of any Event of Default of which Borrower has knowledge. 5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings. -62- 5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, Borrower. 5.1.8 AWARD AND INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection with any Individual Property, and Lender shall be reimbursed for any expenses incurred in connection therewith (including reasonable attorneys' fees and disbursements, and the payment by Borrower of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Individual Property or any part thereof) out of such Insurance Proceeds. 5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements relating to any Individual Property, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or which are reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.10 SUPPLEMENTAL MORTGAGE AFFIDAVITS. Borrower represents that it has paid all state, county and municipal recording and all other taxes imposed upon the execution and recordation of the Mortgages. If at any time Lender determines, based on applicable law, that Lender is not being afforded the maximum amount of security available from any one or more of the Properties as a direct or indirect result of applicable taxes not having been paid with respect to any Individual Property, Borrower agrees that Borrower will execute, acknowledge and deliver to Lender, immediately upon Lender's request, supplemental affidavits increasing the amount of the Debt attributable to any such Individual Property (as set forth as the Allocated Loan Amount on Schedule II annexed hereto) for which all applicable taxes have been paid to an amount determined by Lender to be equal to the lesser of (a) the greater of the fair market value of the applicable Individual Property (i) as of the date hereof and (ii) as of the date such supplemental affidavits are to be delivered to Lender, and (b) the amount of the Debt attributable to any such Individual Property (as set forth as the Allocated Loan Amount on Schedule II annexed hereto), and Borrower shall, on demand, pay any additional taxes. -63- 5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Lender), books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual basis of the Properties, which such books, records and accounts shall be proper and accurate in all material respects. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower's accounting records with respect to the Properties, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. (b) Borrower will furnish to Lender annually, within ninety (90) days following the end of each Fiscal Year of Borrower, a complete copy of the annual consolidated financial statements of Fountain View, Inc. audited by a "Big Four" accounting firm or other independent certified public accountant acceptable to Lender in accordance with GAAP (or such other accounting basis acceptable to Lender) covering Borrower and its Affiliates (with a supplemental unaudited combining balance sheet by property for each Individual Property and for the Properties on a combined basis), containing statements of profit and loss for Borrower, each Individual Property and the Properties in the aggregate, including the operations of the Facility and a balance sheet for Borrower. Borrower's unaudited financial statements for each Property shall include a balance sheet, statement of profit and loss, census and occupancy schedule and Net Cash Flow statement. In addition, Borrower will provide unaudited financial statements for all Properties, which such financial statements shall include a combining balance sheet, profit and loss statement, census and occupancy schedule and Net Cash Flow statement. Borrower's annual consolidated financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (iii) a schedule audited by such independent certified public accountant reconciling Net Operating Income to Net Cash Flow (the "NET CASH FLOW SCHEDULE"), which shall itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow deemed material by such independent certified public accountant and (iv) an Officer's Certificate certifying that each annual financial statement presents fairly the financial condition and the results of operations of Borrower and the Properties being reported upon and that such financial statements have been prepared in accordance with GAAP and as of the date thereof whether there exists to Borrower's knowledge of an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same. (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, accompanied by an Officer's Certificate stating that such items are true, correct, accurate, and complete in all material respects and fairly present the financial condition and results of the operations of Borrower and the Properties on a combined basis as well as each Individual Property including the operations of the Facility (subject to normal year-end adjustments) as applicable: (i) an -64- Occupancy Report for the subject quarter; (ii) quarterly and year-to-date operating statements for each Individual Property and for the Properties combined, prepared for each calendar quarter, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund), and, upon Lender's request, other information reasonably necessary and sufficient to fairly represent the financial position and results of operation of the Properties during such quarter, and containing a comparison of budgeted income and expenses and the actual income and expenses together with a detailed explanation of any variances of ten percent (10%) or more with respect to the line item entitled "Total Controllable Expenses" on the Occupancy Report and five percent (5%) or more in the aggregate between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iii) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such quarter; and (iv) a consolidated Net Cash Flow Schedule (including Capital Expenditures) for the Properties. In addition, such Officer's Certificate shall also state that the representations and warranties of Borrower set forth in Section 4.1.30 are true and correct in all material respects as of the date of such certificate and that there are no trade payables outstanding for more than sixty (60) days. (d) Prior to a Securitization of the Loan, Borrower shall furnish or cause to be furnished to Lender, on or before the thirty (30) days after the end of each calendar month the financial statement and other items described in Section 5.1.10(c) above on a monthly basis. (e) Intentionally Omitted; (f) Borrower shall furnish Lender, within ten (10) Business Days of the receipt by Borrower, all material notices (regardless of form) from any Health Care Authority and/or any insurance company, managed care company, or other third-party payor that Borrower's license, Medicare or Medicaid certification, or accreditation or ranking by any Health Care Authority, insurance company, managed care company, or other third-party payor is being downgraded, revoked, or suspended, that action is pending, being considered or being taken to downgrade, revoke, or suspend the Borrower's license or certification or to fine, penalize or impose remedies upon the Borrower, or that action is pending, being considered, or being, or could be, taken, to discontinue, suspend, deny, decrease or recoup any payments due, made or coming due to Borrower or related to the operation of any Individual Property. (g) Borrower shall file all required Medicare or Medicaid cost reports on or prior to the date such reports are due and shall furnish Lender, within thirty (30) days of the date of filing, a complete and accurate copy of the annual Medicare or Medicaid cost report for Borrower, which will be prepared by Borrower, and promptly furnish Lender any material amendments filed with respect to such reports and all material notices, responses, audit reports or inquiries with respect to such reports. (h) Borrower shall furnish Lender, within thirty (30) days of the receipt by Borrower, the annual Medicaid and Medicare provider agreement(s) and the annual Medicaid and Medicare reimbursement rate sheets and any new, revised or amended rate sheet which may be issued subsequent to the annual reimbursement rate sheets. -65- (i) Borrower shall furnish Lender, within ten (10) Business Days of receipt but at least five (5) days prior to the earliest date on which Borrower is required to take any action with respect thereto or would suffer any adverse consequence, a copy of any material Medicare, Medicaid or other licensing or accreditation or ranking agency or entity survey, report, warning letter, or notice, and any statement of deficiencies, and within the time period required by the particular agency for furnishing a plan of correction also furnish or cause to be furnished to Lender a copy of the plan of correction generated from such survey, report, warning letter, or notice for Borrower and by subsequent correspondence related thereto, and correct or cause to be corrected any deficiency, the curing of which is a condition of continued licensure or of full participation in Medicare or Medicaid or a care program offered by an insurance company, managed care company, or other third-party payor by the date required for cure by such agency or entity (plus extensions granted by such agency or entity). (j) Borrower shall furnish Lender, within ten (10) Business Days of receipt by Borrower, any other notices or charges issued relating to the non-compliance by Borrower with any Health Care Authority, insurance company, managed care company, or other third-party payor laws, regulations, requirements, licenses, permits, certificates, authorizations or approvals. (k) Intentionally Omitted (l) For each Fiscal Year commencing after the date hereof, Borrower shall submit to Lender a proposed Annual Budget not later than fifteen (15) days prior to the commencement of such period or Fiscal Year in form reasonably satisfactory to Lender and a final Annual Budget not later than thirty (30) days after the commencement of such Fiscal Year. To and until the Mezzanine Loan has been paid in full, the Annual Budget shall be subject to Lender's approval, which approval shall not be unreasonably withheld (each such Annual Budget, an "APPROVED ANNUAL BUDGET"). In the event that Lender objects to a proposed Annual Budget submitted by Borrower which requires the approval of Lender hereunder, Lender shall advise Borrower of such objections within fifteen (15) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise the same in accordance with the process described in this subsection until Lender approves the Annual Budget. Until such time that Lender approves a proposed Annual Budget which requires the approval of Lender hereunder, the most recently Approved Annual Budget shall apply; provided, that such Approved Annual Budget shall be adjusted to reflect actual increases in Taxes, Insurance Premiums and utilities expenses. (m) In the event that Borrower must incur an extraordinary Operating Expense or Capital Expenditure not set forth in the Annual Budget (each, an "EXTRAORDINARY EXPENSE"), then Borrower shall promptly deliver to Lender a reasonably detailed explanation of such proposed Extraordinary Expense for Lender's approval which approval shall not be unreasonably withheld. (n) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and (iii) if requested -66- by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). Borrower agrees that Lender may disclose information regarding the Properties and Borrower that is provided to Lender pursuant to this Section in connection with the Securitization to such parties requesting such information in connection with such Securitization. 5.1.12 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Properties. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Properties. 5.1.13 TITLE TO THE PROPERTIES. Borrower will warrant and defend (a) the title to each Individual Property and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) and (b) the validity and priority of the Liens of the Mortgages and the Assignments of Leases, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse Lender for any losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Lender if an interest in any Individual Property, other than as permitted hereunder, is claimed by another Person. 5.1.14 COSTS OF ENFORCEMENT. In the event (a) that any Mortgage encumbering any Individual Property is foreclosed in whole or in part or that any such Mortgage is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage prior to or subsequent to any Mortgage encumbering any Individual Property in which proceeding Lender is made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.15 ESTOPPEL STATEMENT. After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the unpaid principal amount of the Loan, (iii) the Applicable Interest Rate of the Loan, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Mortgages and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. 5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4. -67- 5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior consent of Lender. 5.1.18 CONFIRMATION OF REPRESENTATIONS. Borrower shall deliver, in connection with any Securitization, (a) one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of such Securitization, and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of Borrower and Principal as of the date of the Securitization. 5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the joint assessment of any Individual Property (a) with any other real property constituting a tax lot separate from such Individual Property, and (b) which constitutes real property with any portion of such Individual Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Individual Property. 5.1.20 LEASES AND CONTRACTS. All residential Leases shall be written on the standard form (without any material changes) which Lender has approved and shall be on arm's-length terms consistent with the terms for similar residential Leases in the market area of each Individual Property, shall provide for free rent only if the same is consistent with prevailing market conditions and Legal Requirements and shall provide for charges and market rents then prevailing in the market area of such Individual Property or as may be required by law. Such residential Leases shall also provide for Security Deposits in reasonable amounts if the same is consistent with prevailing market conditions in the area where the applicable Individual Property is located. Borrower shall also submit to Lender for Lender's approval, which approval shall not be unreasonably withheld, prior to the execution thereof, any proposed Lease or license of more than five percent (5%) of the rentable square footage of the Improvements on any Individual Property other than residential leases. Borrower shall not execute any Lease or license agreement for all or a substantial portion of any Individual Property, except for an actual occupancy by the tenant, lessee or licensee thereunder and with Lender's prior written consent. Borrower shall at all times promptly and faithfully perform, or cause to be performed, in all material respects, all of the covenants, conditions and agreements contained in all Leases or licenses with respect to each Individual Property, now or hereafter existing, on the part of the landlord, lessor or licensor thereunder to be kept and performed. Upon the request of Lender, Borrower shall deliver to Lender a copy of any non-residential Lease or Contract that is not terminable upon 60 days notice or that requires annual payments of $100,000 or more. Borrower shall not do or suffer to be done any act that might reasonably be expected to result in a default by the landlord, lessor or licensor or other party under any such Lease or Contract or allow the tenant, resident, licensee or other contracting party thereunder to withhold payment or rent and, shall not further assign any Lease or Contract or any Rents or other payments. Borrower, at no cost or expense to Lender, shall enforce, short of termination, the performance and observance of each and every material condition and covenant of each of the parties under the Leases and -68- Contracts. Borrower shall not, without the prior written consent of Lender, modify any of the Leases or Contracts in any material respect, terminate or accept the surrender of any Leases or Contracts, or waive or release any other party from the performance or observance of any obligation or condition under such Leases or Contracts, except in the normal course of business in a manner which is consistent with past practices and with sound and customary leasing and management practices for similar properties in the community in which the applicable Individual Property is located. Borrower shall not permit the prepayment of any rents under any of the Leases for more than one (1) month prior to the due date thereof. 5.1.21 ALTERATIONS. Borrower shall obtain Lender's prior consent to any alterations to any Improvements, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Lender's consent shall not be required in connection with any alterations that will not have a material adverse effect on Borrower's financial condition, the value of the applicable Individual Property or the Net Operating Income, provided that such alterations (a) do not adversely affect any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements and the aggregate cost thereof does not exceed Five Hundred Thousand and 00/100 Dollars ($500,000) or (b) are performed in connection with the Restoration of an Individual Property after the occurrence of a Casualty in accordance with the terms and provisions of this Agreement. If the total unpaid amounts due and payable with respect to alterations to the Improvements at any Individual Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time exceed Five Hundred Thousand and 00/100 Dollars ($500,000) (the "THRESHOLD AMOUNT"), Borrower shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrower's obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned to any Securities or any class thereof in connection with any Securitization, or (D) a completion and performance bond or an irrevocable Letter of Credit (payable on sight draft only) issued by a financial institution having a rating by S&P of not less than "A-1+" if the term of such bond or Letter of Credit is no longer than three (3) months or, if such term is in excess of three (3) months, issued by a financial institution having a rating that is acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned to any Securities or any class thereof in connection with any Securitization. Such security shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the applicable Individual Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Threshold Amount and Lender may apply such security from time to time at the option of Lender to pay for such alterations. 5.1.22 ACCOUNTS. In the event that the Lockbox Account and/or the Medicare/Medicaid Receiveables Account or any corresponding accounts established pursuant to the Revolving Credit Loan Agreement are held in the name of an entity as agent for the Borrowers such entity shall at all times be a Special Purpose Entity whose sole purpose shall be to hold such accounts. -69- 5.1.23 CERTAIN FURTHER COVENANTS. Borrower further covenants and agrees with Lender as follows: (a) Borrower shall cause the operations conducted or to be conducted at the Facility to be conducted at all times, at a minimum, in a manner consistent with or better than (x) Legal Requirements, (y) the level of operation of the Facility as of the Closing Date, and (z) with the level of operation of other such facilities in the industry, and, in connection therewith, Borrower shall: (i) maintain or cause to be maintained the standard of care for the residents of the Facility at all times at a level necessary to insure a level of quality care for the residents of the Facility in compliance with Legal Requirements and comparable to or better than that existing on the Closing Date; (ii) maintain or cause to be maintained a standard of care in the storage, use, transportation and disposal of all medical equipment, medical supplies, medical products or gases, and medical waste, of any kind and in any form, that is in accordance with, at least, that of the commercially reasonable industry standard and in conformity with all applicable Legal Requirements; (iii) operate the Facility in a commercially reasonable manner in substantial and material compliance with applicable laws and regulations relating thereto and cause all material Licenses, reimbursement or care contracts, and any other agreements necessary for the certification, licensure, accreditation or operation of the Facility as may be necessary for participation in the Medicare or Medicaid reimbursement programs, managed care company, insurance company, or other third-party payor reimbursement programs to remain in effect without reduction in the number of licensed beds or beds authorized for use in Medicare or Medicaid reimbursement programs, managed care company, insurance company, or other third-party payor reimbursement programs; (iv) take no action which has a reasonable likelihood of resulting in a suspension, denial, elimination or material reduction of reimbursement for services from Medicare or Medicaid (without opportunity to correct), or any managed care company, insurance company, or other commercial third-party payor; provided, however that Borrower may cancel or terminate any managed care company, insurance company or other third-party commercial payor contract (i) if such managed care company, insurance company or third-party commercial payor has materially breached such contract, or (ii) such cancellation or termination does not have a material adverse effect on Net Operating Income; and (v) maintain or cause to be maintained all deposits, including, without limitation, deposits relating to residents or residency agreements. If such deposits are in cash, such deposits are to be deposited and held by Borrower, or any manager of the Facility, as the case may be, in accordance with any Legal Requirements, at such commercial or savings bank or banks as may be reasonably satisfactory to Lender. If such deposits are in any other form, such deposits are to be maintained as Lender may expressly permit. Any bond or other instrument which Borrower, or any manager of the -70- Facility, as the case may be, is permitted to hold in lieu of cash deposits under any applicable legal requirements shall be maintained in full force and effect unless replaced by cash deposits as hereinabove described, shall be issued by an institution reasonably satisfactory to Lender, shall, if permitted pursuant to any Legal Requirements, name Lender as payee or Lender thereunder (or at Lender's option, be fully assignable to Lender) and shall, in all respects, comply with any applicable legal requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon request, provide Lender with evidence reasonably satisfactory to Lender of Borrower's compliance with the foregoing. (b) Borrower shall not assign or transfer any of its interest in any Licenses or reimbursement or care contracts (including rights to payment thereunder), including any Medicare, Medicaid, managed care company, insurance company, or other third-party payor agreements, pertaining to Borrower or the Facility, or assign, transfer, or remove or permit any other person to assign, transfer, or remove any records pertaining to the Facility, including, without limitation, resident records, medical and clinical records (except for removal of such patient resident records as directed by the patients or residents owning such records), without Lender's prior written consent, which consent may be granted or refused in Lender's sole discretion. (c) Borrower shall not enter into any transaction with any person or entity affiliated with Borrower other than in the ordinary course of its business and on fair and reasonable terms in compliance with Legal Requirements and, no less favorable to Borrower than those it would obtain in a comparable arms-length transaction with a person or entity not an affiliate. (d) Borrower shall, upon request, deliver evidence of compliance with any applicable post-transfer license requirements of Health Care Authorities. 5.1.24 OPERATING LEASES/MASTER LEASES. Borrower shall not modify, amend, supplement, terminate or cancel any Master Lease or any Operating Lease without the prior written consent of Lender. In the event of any inconsistency or conflict between any provisions of any Operating Lease or any Master Lease and the provisions of this Agreement or any of the other Loan Documents, this Agreement or such other Loan Documents shall control. 5.1.25 OWNERSHIP APPLICATIONS. Borrower shall file an application or filing as appropriate to initiate the process to have each Operator become the licensed operator of its respective Individual Property with the applicable Health Care Authorities within thirty (30) days from the date hereof and shall diligently prosecute such ownership application to completion. Upon completion of all required approvals for the ownership application with respect to any Individual Property, Borrower shall take all actions necessary to transfer the operations of the applicable Individual Property (including the related Facility) to the applicable Operator and to terminate any license or management agreement with the current operator of such Individual Property. Borrower agrees to complete the transfers of the operations of Individual Properties with Allocated Loan Amounts at least equal, in the aggregate, to seventy five percent (75%) of the original principal balance of the Loan on or before March 1, 2004 and to complete all such transfers of operations on or before July 1, 2004 and to deliver an opinion of counsel confirming -71- that the Operators are properly licensed and that operations of the Facility have been transferred to the applicable Operator. 5.1.26 COMPLIANCE WITH REORGANIZATION PLAN. Borrower shall comply with the Plan of Reorganization approved by the Bankruptcy Court having jurisdiction thereof and with the order of such Bankruptcy Court confirming the Plan of Reorganization. 5.1.27 PROVISIONAL LICENSES. Borrower acknowledges that it has obtained provisional Licenses for the Individual Properties listed on Schedule XI. Borrower agrees to obtain annual Licenses for such Facilities on or before ninety (90) days from the date hereof and to deliver copies of such annual Licenses to Lender. In the event that Borrower fails to obtain and deliver the annual Licenses to Lender within such ninety (90) day period, Borrower shall deposit with Lender on the next succeeding Payment Date an amount equal to three months Debt Service allocable to each Individual Property for which an annual License has not been obtained, to be held by Lender in the Debt Service Reserve Fund in accordance with the provisions of Section 7.4.1 hereof. Upon delivery to Lender of an annual License for any Individual Property, the amount deposited in the Debt Service Reserve Fund pursuant to this Section 5.1.27 allocated to such Individual Property shall be released to Borrower. 5.1.28 Borrower shall deposit with Lender on the date hereof, the sum of $63,181, to be held by Lender in the Debt Service Reserve Fund in accordance with the provisions of Section 7.4.1 hereof. In the event that a Denial of Payment for New Admissions ("DOPNA") is issued with respect to the Individual Property know as Monument Hill Nursing Center (the "MONUMENT HILL PROPERTY"), Borrower shall have ninety days from the date the DOPNA is issued to submit evidence satisfactory to Lender that the DOPNA has been rescinded. Upon delivery to Lender of evidence satisfactory to Lender that the DOPNA for the Monument Hill Property has been rescinded, the amount deposited in the Debt Service Reserve Fund pursuant to this Section 5.1.28 shall be released to Borrower. It shall be an event of default hereunder if (1) the DOPNA is not rescinded within ninety (90) days of the date, if any, that the DOPNA is issued and (2) the Monument Hill Property is not released pursuant to the following sentence. Notwithstanding anything to the contrary contained herein, Borrower shall, have the right for a period of ninety (90) days from the Closing Date, to pay to Lender the amount of $3,532,323 (which shall be the Release Amount for the Monument Hill Property for the purposes of this Section and shall be applied proportionately to the principal amounts of Note A and Note B) and obtain the release of the Monument Hill Property from the Lien of the Mortgage otherwise in accordance with the provisions of Section 2.5.1, except that no Prepayment Premium shall be payable with respect to such prepayment. If the Monument Hill Property is released pursuant to the foregoing sentence, then the amount deposited in the Debt Service Reserve Fund pursuant to this Section 5.1.28 shall be released to Borrower. SECTION 5.2. NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Liens of all Mortgages in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 INTENTIONALLY OMITTED. -72- 5.2.2 LIENS. Except for any Lien being contested in accordance with the provisions of Section 5.1.2, Borrower shall not create, incur, assume or suffer to exist any Lien on any portion of any Individual Property or permit any such action to be taken, except: (i) Permitted Encumbrances; (ii) Liens created by or permitted pursuant to the Loan Documents or the Revolving Credit Loan Documents; and (iii) Liens for Taxes or Other Charges not yet due. 5.2.3 DISSOLUTION. Borrower shall not (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) engage in any business activity not related to the ownership, leasing and operation of the Properties, (c) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower except to the extent permitted by the Loan Documents, (d) modify or amend in any manner affecting its status as a Special Purpose Entity, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (e) cause the Principal to (i) dissolve, wind up or liquidate or take any action, or omit to take an action, as a result of which the Principal would be dissolved, wound up or liquidated in whole or in part, or (ii) amend or modify in any manner effecting its status as a Special Purpose Entity, waive or terminate the certificate of incorporation or bylaws of the Principal, in each case, without obtaining the prior consent of Lender. 5.2.4 CHANGE IN BUSINESS. Borrower shall not enter into any line of business other than the ownership, leasing and operation of the Properties, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. 5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.6 ZONING. Borrower shall not initiate or consent to any zoning reclassification of any portion of any Individual Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Individual Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender. 5.2.7 INTENTIONALLY OMITTED. 5.2.8 PRINCIPAL PLACE OF BUSINESS AND ORGANIZATION. Borrower shall not change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior notice. Borrower shall not change the place of its organization as set forth in Section 4.1.28 without the consent of Lender, which consent shall not be unreasonably withheld. Upon Lender's request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments which may be -73- necessary to effectively evidence or perfect Lender's security interest in the Property as a result of such change of principal place of business or place of organization. 5.2.9 ERISA. (a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to any state statute regulating investments of, or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true: (A) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower is held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). 5.2.10 TRANSFERS. (a) Borrower acknowledges that Lender has examined and relied on the experience of Borrower and its general partners, members, principals and (if Borrower is a trust) beneficial owners in owning and operating properties such as the Properties in agreeing to make the Loan, and will continue to rely on Borrower's ownership of the Properties as a means of maintaining the value of the Properties as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Properties so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender can recover the Debt by a sale of the Properties. (b) Without the prior consent of Lender and except to the extent otherwise set forth in this Section 5.2.10, Borrower shall not, and shall not permit any Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) any Individual Property or any part thereof or any legal or beneficial interest therein or (ii) permit a Sale or Pledge of an interest in any Restricted Party (collectively, a "TRANSFER"), other than pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.20. -74- (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein Borrower agrees to sell an Individual Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of an Individual Property for other than actual occupancy by a resident or space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (iii) if a Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation's stock or the creation or issuance of new stock; (iv) if a Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation or addition of a general partner or the Sale or Pledge of the partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interest or the creation or issuance of new limited partnership interests; (v) if a Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests or the creation or issuance of new non-managing membership interests; (vi) if a Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Restricted Party or the creation or issuance of new legal or beneficial interests; or (vii) the removal or the resignation of the managing agent (including, without limitation, an Affiliated Manager) other than in accordance with Section 5.1.22 hereof. (d) Notwithstanding the provisions of this Section 5.2.10, the following transfers shall not be deemed to be a Transfer: (i) the sale or transfer, in one or a series of transactions, of not more than forty-nine percent (49%) of the stock in a Restricted Party; provided, however, no such sales or transfers shall result in the change of voting control in the Restricted Party, and as a condition to each such sale or transfer, Lender shall receive not less than thirty (30) days prior notice of such proposed sale or transfer, (ii) the sale or transfer, in one or a series of transactions, of not more than forty-nine percent (49%) of the limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party; provided, however, no such sales or transfers shall result in the change of voting control in the Restricted Party, and as a condition to each such sale or transfer, Lender shall receive not less than thirty (30) days prior notice of such proposed sale or transfer, (iii) a sale or transfer of all or substantially all of the stock of Guarantor, a merger or consolidation of Guarantor or a sale or transfer of all or substantially all of the assets of Guarantor, provided that (A) Lender shall receive not less than thirty (30) days prior notice of such proposed merger, consolidation or acquisition, (B) the successor entity in connection with any such merger or consolidation and the acquiring entity in connection with any such acquisition shall have a net worth that is equal to or greater than the greater of the net worth of Guarantor on the date hereof or the net worth of Guarantor immediately prior to such merger, consolidation or acquisition, (C) Lender shall have received confirmation in writing from the Rating Agencies to the effect that such merger, consolidation or acquisition shall not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization and (D) Borrower shall have delivered to Lender an Additional Insolvency Opinion reflecting the proposed merger, consolidation or acquisition satisfactory in form and substance to Lender and -75- the Rating Agencies; (iv) the issuance, sale or transfer of stock of Guarantor in connection with an initial public offering of the stock of Guarantor, provided that (A) Lender shall receive not less than thirty (30) days prior notice of such proposed initial public offering, (B) such stock will be listed on the New York Stock Exchange or such other nationally recognized stock exchange immediately following such offering and such initial public offering is widely marketed to institutional investors, and (C) Lender shall have received confirmation in writing from the Rating Agencies to the effect that such initial public offering shall not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, (v) the subsequent sale, transfer or issuance of stock in Guarantor, provided such stock is listed on the New York Stock Exchange or such other nationally recognized stock exchange, and (vi) the transfer of interests in Borrower to an Affiliate of Guarantor, provided, that as a condition to each such transfer, (A) Lender shall receive not less than thirty (30) days prior notice of such proposed sale or transfer, and (B) Borrower shall have delivered to Lender an Additional Insolvency Opinion reflecting the transfer satisfactory in form and substance to Lender and the Rating Agencies. In addition, at all times, Heritage Partners must continue to own, directly or indirectly, at least a thirty three and one-third percent (33.33%) interest in Borrower and Guarantor, provided, however, that in connection with an initial public offering permitted pursuant to subsection (iv) above, Heritage Partners must continue to own, directly or indirectly, at least a twenty five percent (25%) interest in Borrower and Guarantor. (e) No consent to any assumption of the Loan shall occur on or before the first anniversary of the first Payment Date, except as otherwise specifically provided in Section 2.7 hereof. After the first anniversary of the first Payment Date, Lender shall consent to a one-time Transfer of the Property or to a transfer all of the ownership interests in the Borrower, provided that each of the following conditions are satisfied: (i) no Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default shall have occurred and remain uncured after the expiration of all applicable grace periods; (ii) the proposed transferee ("TRANSFEREE") shall be a reputable entity or person of good character, creditworthy, with sufficient financial worth considering the obligations assumed and undertaken, as evidenced by financial statements and other information reasonably requested by Lender with an organizational structure and documentation reasonably acceptable to Lender; (iii) the Transferee and its property manager shall have sufficient experience in the ownership and management of properties similar to the Property, and Lender shall be provided with reasonable evidence thereof (and Lender reserves the right to approve the Transferee without approving the substitution of the property manager) and the property manager shall be a Qualified Manager; (iv) the Transferee shall have executed and delivered to Lender an assumption agreement in form and substance acceptable to Lender, evidencing such Transferee's agreement to abide and be bound by the terms of the Note, this Agreement and the other -76- Loan Documents, together with such legal opinions and title insurance endorsements as may be reasonably requested by Lender; and (v) Borrower shall have delivered to Lender an Additional Insolvency Opinion reflecting the proposed transfer satisfactory in form and substance to Lender (vi) and the Rating Agencies; (vii) Transferee's shall comply with the representations and covenants set forth in Section 4.1.30 and Section 5.2.9 hereof; (viii) Borrower shall deliver to Lender evidence reasonably satisfactory to Lender and satisfactory to the Rating Agencies that the single purpose nature and bankruptcy remoteness of Transferee, its shareholders, partners or members, as the case may be, are in accordance with the then current standards of Lender and the Rating Agencies; (ix) Lender shall have received confirmation in writing from the Rating Agencies to the effect that such transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization; (x) Lender shall have received (a) an assumption fee equal to one half of one percent (0.5%) of the Debt on the date of such assumption (b) the payment of a non-refundable $5,000 application fee and (c) the payment of, or reimbursement for, all costs and expenses incurred by Lender in connection with such assumption (including without limitation, the cost of any third party reports, reasonable legal fees and expenses, Rating Agency fees and expenses or required legal opinions); (xi) prior to any release of the Guarantor, a substitute guarantor reasonably acceptable to Lender shall have executed a replacement guaranty and environmental indemnity substantially in the form of the Guaranty and the Environmental Indemnity; and (xii) Borrower shall have delivered to Lender evidence reasonably satisfactory to Lender of the approval or consent of any Health Care Authorities that have direct or indirect authority or oversight over Borrower, the Property, or the operations conducted on the Property to the change in the owner and operator of the Property and the Facility operated thereon; and (xiii) Borrower shall have obtained the consent of the Mezzanine Lender and the Revolving Credit Lender, to the extent required under the Mezzanine Loan Agreement and the Revolving Credit Loan Agreement. (f) Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Transfer without Lender's consent. This provision shall apply to every -77- Transfer regardless of whether voluntary or not, or whether or not Lender has consented to any previous Transfer. (g) Lender hereby consents to the pledge of interests in Borrower to the Mezzanine Lender as security for the Mezzanine Loan. (h) Borrower may sell or otherwise dispose of Equipment and Personal Property (as each such term is defined in the Mortgage) that is no longer useful in the operation of an Individual Property or which has become obsolete or worn out without Lender's prior written consent, provided such equipment is replaced by equipment of similar quality and usefulness if the same is still useful in the operation of the Individual Property and, upon Borrower's request, Lender agrees to release the lien of the Mortgage from such Equipment or Personal Property. 5.2.11 REFINANCING OF REVOLVING CREDIT LOAN. Borrower shall not refinance or replace the Revolving Credit Loan unless it obtains the prior consent of Lender, provided that Lender shall consent to a refinancing or replacement in full of the Revolving Credit Loan if, after considering the following factors, Lender determines in its reasonable discretion that such factors have been satisfied: (a) Lender shall have received at least thirty (30) days prior written notice of such refinancing; (b) no Default or Event of Default under this Agreement shall have occurred and be continuing; (c) the new revolving credit loan ("NEW REVOLVING CREDIT LOAN") shall have (A) an interest rate that is no higher than the current interest rate provided for under the Revolving Credit Loan (or in the event the Revolving Credit Loan is a floating rate loan, an interest rate that is benchmarked off the same index and with a spread over such index which is no greater than the then current spread applicable to the Revolving Loan), as determined by Lender absent manifest error, (B) a maximum principal amount that is no more than the maximum principal amount of the Revolving Credit Loan; (C) a maturity date that is no earlier than that provided for under the Revolving Credit Loan at the time of the closing hereof; (E) no provisions providing for the payment of any additional interest, fees, participating interest or other similar equity feature; (F) no provision in which collateral not granted for the benefit of Revolving Credit Lender or otherwise encumbered with respect to the Revolving Credit Loan as of the date hereof is granted for the benefit of or with respect to the New Revolving Credit Loan; (G) no provision whereby the New Revolving Credit Loan is cross-defaulted with any other Indebtedness; (H) a cash management and lockbox arrangement substantially similar to that maintained under the Revolving Credit Loan; and (I) no provisions that prohibit the prepayment of the New Revolving Credit Loan without the payment of a prepayment premium or penalty; (d) the terms of the New Revolving Credit Loan shall provide the same express rights to the Lender as the Revolving Credit Loan and shall not conflict with the terms of the Loan and the lender under the New Revolving Credit Loan shall enter into an intercreditor -78- agreement with Lender no less favorable to Lender than the intercreditor agreement between Lender and Revolving Credit Lender dated as of the date hereof; (e) Lender shall have received confirmation in writing from the Rating Agencies to the effect that New Revolving Credit Loan will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization; (f) Borrower shall pay all costs and expenses of Lender incurred in connection with the New Revolving Credit Loan, including, without limitation, reasonable fees and expenses of Lender's counsel; (g) Borrower shall execute and deliver such amendments to this Agreement and the other Loan Documents as Lender may request in connection with such New Revolving Credit Loan; and (h) Lender shall have received such settlement statements, pay-off letters, opinions and other documentation as it shall reasonably request in connection with the New Revolving Credit Loan. Upon the satisfaction of the foregoing, Borrower may consummate a replacement or a refinancing of the Revolving Credit Loan, whereupon such New Revolving Credit Loan shall be deemed to be the Revolving Credit Loan as defined herein. VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS SECTION 6.1. INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Properties (except for the coverage described in items (ii) and (xi)) providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to one hundred percent (100%) of the "Full Replacement Cost," which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation, but the amount shall in no event be less than the outstanding principal balance of the Loan; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing for no deductible in excess of One Hundred Thousand and No/100 Dollars ($100,000) for all such insurance coverage; and (D) containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Individual Property shall at any time constitute legal non-conforming structures or uses. In addition, Borrower shall obtain: (x) if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (1) the Allocated Loan Amount for such Individual Property or (2) the maximum amount of such insurance available under the National Flood -79- Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall require; (y) earthquake insurance in amounts and in form and substance reasonably satisfactory to Lender in the event the Individual Property is located in an area with a high degree of seismic activity and (z) coastal windstorm insurance in amounts and in form and substance satisfactory to Lender in the event the Individual Property is located in any coastal region, provided that the insurance pursuant to clauses (x), (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this Subsection (i); (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Individual Property, such insurance (A) to be on the so-called "claims made" form with a combined limit of not less than Five Million and No/100 Dollars ($5,000,000) in the aggregate and Four Million and No/100 Dollars ($4,000,000) per occurrence; (B) to continue at not less than the aforesaid limit until required to be reasonably changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all legal contracts; and (5) contractual liability covering the indemnities contained in Article 8 of the Mortgages to the extent the same is available; provided, however that Borrower shall carry such insurance on a so-called "per occurrence" form in the event that such coverage becomes available at commercially reasonable rates, and provided further that if Borrower changes its insurance from "claims made" to "per occurrence" insurance, then Borrower shall maintain so-called "tail" coverage for a period of six years on the previous "claims made" coverage; (iii) business income insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in Subsection (i) above; (C) containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of eighteen (18) months from the date that the applicable Individual Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an amount equal to one hundred percent (100%) of the projected gross income from each Individual Property for a period of eighteen (18) months from the date of such Casualty (assuming such Casualty had not occurred) and notwithstanding that the policy may expire at the end of such period. The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from each Individual Property for the succeeding eighteen (18) month period. Notwithstanding anything to the contrary in Section 2.6 hereof, all proceeds payable to Lender pursuant to this subsection shall be held by Lender and shall be applied in Lender's sole discretion to (I) the obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note or (II) Operating Expenses approved by Lender in its reasonable discretion; provided, however, that nothing herein -80- contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured by the Loan Documents on the respective dates of payment provided for in the Note and the other Loan Documents except to the extent such amounts are actually paid out of the proceeds of such business income insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if the Individual Property coverage form does not otherwise apply, (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy the Individual Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) worker's compensation insurance with respect to any employees of Borrower, as required by any Governmental Authority or Legal Requirement; (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender on terms consistent with the commercial property insurance policy required under Subsection (i) above; (vii) Intentionally Omitted; (viii) motor vehicle liability coverage for all owned and non-owned vehicles, including rented and leased vehicles containing minimum limits per occurrence, including umbrella coverage, of One Million and No/100 Dollars ($1,000,000); (ix) if an Individual Property is or becomes a legal "non-conforming" use, ordinance or law coverage and insurance coverage to compensate for the cost of demolition or rebuilding of the undamaged portion of the Individual Property along with any reduced value and the increased cost of construction in amounts as requested by Lender; (x) the commercial property and business income insurance required under Sections 6.1(a)(i) and (iii) above shall cover perils of terrorism and acts of terrorism and Borrower shall maintain commercial property and business income insurance for loss resulting from perils and acts of terrorism on terms (including amounts) consistent with those required under Sections 6.1(a)(i) and (iii) above at all times during the term of the Loan; (xi) professional liability and malpractice insurance with limits of at least $2,000,000.00 per occurrence (claim)/$5,000,000.00 in the aggregate with an annual deductible of not more than $250,000 in California and $1,000,000 in Texas. Borrower shall also require each physician or nurse practitioner with clinical privileges at the Facility, if any, to carry professional liability and malpractice insurance with limits of not less than $1,000,000.00 per occurrence (claim)/$3,000,000.00 in the aggregate; and -81- (xii) upon sixty (60) days' notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Individual Property located in or around the region in which the Individual Property is located. (b) All insurance provided for in Section 6.1(a) shall be obtained under valid and enforceable policies (collectively, the "POLICIES" or, in the singular, the "POLICY"), and shall be subject to the reasonable approval of Lender as to insurance companies, amounts, deductibles, loss payees and insureds. The Policies shall be issued by financially sound and responsible insurance companies authorized to do business in the State and having a claims paying ability rating of "AA" or better (and the equivalent thereof) by at least two (2) of the Rating Agencies rating the Securities (one of which shall be S&P if they are rating the Securities and one of which will be Moody's if they are rating the Securities), or if only one Rating Agency is rating the Securities, then only by such Rating Agency. The Policies described in Section 6.1(a) (other than those strictly limited to liability protection) shall designate Lender as loss payee. Not less than ten (10) days prior to the expiration dates of the Policies theretofore furnished to Lender, certificates of insurance evidencing the Policies accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"), shall be delivered by Borrower to Lender. (c) Any blanket insurance Policy shall specifically allocate to the Individual Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Properties in compliance with the provisions of Section 6.1(a). (d) All Policies provided for or contemplated by Section 6.1(a), except for the Policy referenced in Section 6.1(a)(v), shall name Borrower as the insured and Lender as the additional insured, as its interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies provided for in Section 6.1 shall contain clauses or endorsements to the effect that: (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policies shall not be materially changed (other than to increase the coverage provided thereby) or canceled without at least thirty (30) days' notice to Lender and any other party named therein as an additional insured; -82- (iii) the issuers thereof shall give notice to Lender if the Policies have not been renewed fifteen (15) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If at any time Lender is not in receipt of written evidence that all Policies are in full force and effect, Lender shall have the right, without notice to Borrower, to take such action as Lender deems necessary to protect its interest in the Properties, including, without limitation, the obtaining of such insurance coverage as Lender in its reasonable discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and, until paid, shall be secured by the Mortgages and shall bear interest at the Default Rate. SECTION 6.2. CASUALTY. If the Individual Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), Borrower shall give prompt notice of such damage to Lender and shall promptly commence and diligently prosecute the completion of the Restoration of the Individual Property as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Lender and otherwise in accordance with Section 6.4. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower. In addition, Lender may participate in any settlement discussions with any insurance companies with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than Five Hundred Thousand and No/100 Dollars ($500,000) and Borrower shall deliver to Lender all instruments required by Lender to permit such participation. SECTION 6.3. CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of any Individual Property and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments reasonably requested by it to permit such participation; provided, however, that (a) if the Net Proceeds shall be less than the Threshold Amount, Borrowers shall have the authority to settle any such proceeding, so long as no Event of Default has occurred and is continuing hereunder, and (b) while an Event of Default has occurred and is continuing hereunder, Lender shall have the right to settle any such proceeding without the consent of Borrower. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates -83- provided herein or in the Note. If any Individual Property or any portion thereof is taken by a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of the applicable Individual Property and otherwise comply with the provisions of Section 6.4. If any Individual Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt. SECTION 6.4. RESTORATION. The following provisions shall apply in connection with the Restoration of any Individual Property: (a) If the Net Proceeds shall be less than Five Hundred Thousand and No/100 Dollars ($500,000) and the costs of completing the Restoration shall be less than Five Hundred Thousand and No/100 Dollars ($500,000), the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in Section 6.4(b)(i) are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement. (b) If the Net Proceeds are equal to or greater than Five Hundred Thousand and No/100 Dollars ($500,000) or the costs of completing the Restoration is equal to or greater than Five Hundred Thousand and No/100 Dollars ($500,000), the Net Proceeds will be held by Lender and Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Section 6.4. The term "NET PROCEEDS" for purposes of this Section 6.4 shall mean: (i) the net amount of all insurance proceeds received by Lender pursuant to Sections 6.1(a)(i), (iv), (vi), (ix) and (x) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("INSURANCE PROCEEDS"), or (ii) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("CONDEMNATION PROCEEDS"), whichever the case may be. (i) The Net Proceeds shall be made available to Borrower for Restoration upon the approval of Lender in its sole discretion that the following conditions are met: (A) no Event of Default shall have occurred and be continuing; (B) (1) in the event the Net Proceeds are Insurance Proceeds, less than thirty-five percent (35%) of the total floor area of the Improvements on the Individual Property has been damaged, destroyed or rendered unusable as a result of such Casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than fifteen percent (15%) of the land constituting the Individual Property is taken, and such land is located along the perimeter or periphery of the Individual Property, and no portion of the Improvements is located on such land; -84- (C) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than sixty (60) days after such Casualty or Condemnation, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (D) Lender shall be reasonably satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the Individual Property as a result of the occurrence of any such Casualty or Condemnation, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 6.1(a)(iii), if applicable, or (3) by other funds of Borrower; (E) Lender shall be reasonably satisfied that the Restoration will be completed on or before the earliest to occur of (1) three (3) months prior to the Maturity Date, (2) such time as may be required under applicable Legal Requirements or (3) the expiration of the insurance coverage referred to in Section 6.1(a)(iii); (F) the Individual Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable Legal Requirements; (G) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable Legal Requirements and all necessary or required approvals or consent from all Governmental Authorities and Health Care Authorities can, in Lender's reasonable judgment, be obtained to allow the rebuilding, reoccupancy and continued use of the Individual Property as a Facility containing the current number of beds; (H) such Casualty or Condemnation, as applicable, does not result in the loss of access to the Individual Property or the related Improvements; (I) the Debt Service Coverage Ratio (using the Allocated Loan Amount) for the affected Individual Property, after giving effect to the Restoration, shall be equal to or greater than 1.4 to 1.0; (J) the Loan-to-Value Ratio (using the Allocated Loan Amount) for the effected Individual Property, after giving effect to the Restoration, shall be equal to or less than seventy five percent 75%); (K) Borrower shall deliver, or cause to be delivered, to Lender a signed detailed budget approved in writing by Borrower's architect or engineer stating the entire cost of completing the Restoration, which budget shall be reasonably acceptable to Lender; and -85- (L) the Net Proceeds together with any cash or cash equivalent deposited by Borrower with Lender are sufficient in Lender's reasonable discretion to cover the cost of the Restoration. (ii) The Net Proceeds shall be held by Lender in an interest-bearing account and, until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute additional security for the Debt and other obligations under the Loan Documents. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Individual Property which have not either been fully bonded to the satisfaction of Lender and discharged of record. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "CASUALTY CONSULTANT"). Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant. All costs and expenses incurred by Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, minus the Casualty Retainage. The term "CASUALTY RETAINAGE" shall mean an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 6.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b) and that all approvals necessary for the re-occupancy and use of the Individual Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; provided, however, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty -86- Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, and the contractor, subcontractor or materialman delivers conditional lien waivers, conditional solely on final payment, and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company issuing the Title Insurance Policy, and Lender receives an endorsement to the Title Insurance Policy insuring the continued priority of the lien of the related Mortgage and evidence of payment of any premium payable for such endorsement. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender in consultation with the Casualty Consultant, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "NET PROCEEDS DEFICIENCY") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 6.4(b) shall constitute additional security for the Debt and other obligations under the Loan Documents. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Section 6.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 6.4(b)(vii) may be retained and applied by Lender in accordance with Section 2.4.2 hereof toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its sole discretion shall deem proper, or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall approve, in its discretion. (d) In the event of foreclosure of the Mortgage with respect to the Individual Property, or other transfer of title to the Individual Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning the Individual Property and all proceeds payable thereunder -87- shall thereupon vest in the purchaser at such foreclosure or Lender or other transferee in the event of such other transfer of title. VII. RESERVE FUNDS SECTION 7.1. REQUIRED REPAIR FUNDS. 7.1.1 DEPOSITS. Borrower shall perform the repairs at the Properties, as more particularly set forth in each of the Physical Condition Reports, on Appendix A therein (such repairs hereinafter collectively referred to as "REQUIRED REPAIRS"). Borrower shall complete the Required Repairs on or before the date six months after the Closing Date. It shall be an Event of Default under this Agreement if (a) Borrower does not complete the Required Repairs at each Individual Property by the required deadline for each such repair, or (b) Borrower does not satisfy each condition contained in Section 7.1.2 hereof in all material respects. Upon the occurrence of such an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Required Repairs at one or more of the Properties or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. On the Closing Date, Borrower shall deposit with Lender the amount for each Individual Property set forth on such Schedule III hereto to perform the Required Repairs for such Individual Property multiplied by one hundred twenty-five percent (125%). Amounts so deposited with Lender shall be held by Lender in accordance with Section 7.5 hereof. Amounts so deposited shall hereinafter be referred to as Borrower's "REQUIRED REPAIR FUND" and the account in which such amounts are held shall hereinafter be referred to as Borrower's "REQUIRED REPAIR ACCOUNT." 7.1.2 RELEASE OF REQUIRED REPAIR FUNDS. Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time, but not more frequently than once in any thirty (30) day period, upon satisfaction by Borrower of each of the following conditions: (a) Borrower shall submit a written request for payment to Lender at least ten (10) days prior to the date on which Borrower requests such payment be made and specifies the Required Repairs to be paid, (b) on the date such request is received by Lender and on the date such payment is to be made, no Default or Event of Default shall exist and remain uncured, (c) Lender shall have received an Officer's Certificate (i) stating that all Required Repairs at the applicable Individual Property to be funded by the requested disbursement have been completed in good and workmanlike manner and in accordance with all applicable federal, state and local laws, rules and regulations, such Officer's Certificate to be accompanied by a copy of any license, permit or other approval by any Governmental Authority required to commence and/or complete the Required Repairs, (ii) identifying each Person that supplied materials or labor in connection with the Required Repairs performed at such Individual Property to be funded by the requested disbursement, and (iii) stating that each such Person has been paid in full or will be paid in full upon such disbursement, such Officer's Certificate to be accompanied by lien waivers or other evidence of payment reasonably satisfactory to Lender, (d) at Lender's option, a title search for such Individual Property indicating that such Individual Property is free from all liens, claims and other encumbrances not previously approved by Lender, and (e) Lender shall have received such other evidence as Lender shall reasonably request that the Required Repairs -88- at such Individual Property to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower. Lender shall not be required to make disbursements from the Required Repair Account with respect to any Individual Property unless such requested disbursement is in an amount greater than $5,000 (or a lesser amount if the total amount in the Required Repair Account is less than $5,000, in which case only one disbursement of the amount remaining in the account shall be made) and such disbursement shall be made only upon satisfaction of each condition contained in this Section 7.1.2. SECTION 7.2. TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates, and (b) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies; provided, however, that the amount of the deposit each month with respect to Insurance Premiums for California Worker's Compensation insurance will be the amount of the payment due at the end of the month to the offshore captive insurance company from the Borrower (said amounts in (a) and (b) above hereinafter called the "TAX AND INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payment of the monthly Debt Service, shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Subject to the terms hereof, Lender shall apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.1.2 hereof and under the Mortgages. In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections 5.1.2 and 6.1 hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been paid in full shall be returned to Borrower. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Properties. If at any time Lender reasonably determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to the due date of the Taxes and/or thirty (30) days prior to expiration of the Policies, as the case may be. SECTION 7.3. REPLACEMENTS AND REPLACEMENT RESERVE. 7.3.1 REPLACEMENT RESERVE FUND. Borrower shall pay to Lender on each Payment Date one-twelfth (1/12) of $400 per bed for any Individual Property that is a skilled nursing facility and $400 per unit for any Individual Property that is an assisted living facility, which is the amount (the "REPLACEMENT RESERVE MONTHLY DEPOSIT") reasonably estimated by -89- Lender in its sole discretion to be due for replacements and repairs required to be made to the Properties during the calendar year (collectively, the "REPLACEMENTS"). Amounts so deposited shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE FUND" and the account in which such amounts are held shall hereinafter be referred to as Borrower's "REPLACEMENT RESERVE ACCOUNT." Any amount held in the Replacement Reserve Account and allocated for an Individual Property shall be retained by Lender and credited toward the future Replacement Reserves Monthly Deposits required by Lender hereunder in the event such Individual Property is released from the Lien of its related Mortgage in accordance with Section 2.5 hereof. 7.3.2 DISBURSEMENTS FROM REPLACEMENT RESERVE ACCOUNT. Lender shall make disbursements from the Replacement Reserve Fund as requested by Borrower, and approved by Lender in its reasonable discretion, no more frequently than once in any thirty (30) day period of no less than $5,000.00 upon delivery by Borrower of Lender's standard form of draw request accompanied by copies of paid invoices for the amounts requested and, if required by Lender for requests in excess of $10,000.00 for a single item, conditional lien waivers (conditioned only upon final payment) and releases from all parties furnishing materials and/or services in connection with the requested payment. Lender may require an inspection of the Property at Borrower's expense prior to making a monthly disbursement in order to verify completion of replacements and repairs of items in excess of $30,000.00 for which reimbursement is sought. 7.3.3 BALANCE IN THE REPLACEMENT RESERVE ACCOUNT. The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. SECTION 7.4. DEBT SERVICE RESERVE. 7.4.1 DEBT SERVICE RESERVE. On the date hereof, Borrower shall deposit with Lender the sum of $139,935, (said amount, and any additional deposit to be made pursuant to Sections 5.1.27 and 5.1.28, hereinafter, the "DEBT SERVICE RESERVE FUND" and the account in which such amount is held, hereinafter, the "DEBT SERVICE RESERVE ACCOUNT"), which amount shall be held by Lender as additional security for the Loan. The amount of the Debt Service Reserve Fund allocable to each Individual Property is set forth on Schedule VI. In addition, Borrower shall make additional deposits to the Debt Service Reserve Fund in accordance with Sections 5.1.27 and 5.1.28. Upon the occurrence of an Event of Default, Lender may apply the Debt Service Reserve Fund to the payment of the Debt in such order and priority, including, without limitation, alternating applications thereof between interest and principal, as Lender shall determine in its sole discretion. Upon the approval of the ownership application and the transfer of the Licenses for any Individual Property to the applicable Operator in accordance with the provisions of Section 5.1.25, the amount of the Debt Service Reserve Fund allocated to such Individual Property shall be released to Borrower. SECTION 7.5. RESERVE FUNDS, GENERALLY. (a) Borrower grants to Lender a first-priority perfected security interest in each of the Reserve Funds and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt. Upon the occurrence of an Event of Default, Lender may, in addition to -90- any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the payment of the Debt in any order in its sole discretion. The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender. (b) Borrower shall not, without obtaining the prior consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. (c) The Reserve Funds shall be held in an Eligible Account and shall bear interest at a money market rate selected by Lender. All interest or other earnings on a Reserve Fund (other than the Tax and Insurance Escrow Fund, which shall be paid to Lender) shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund. Borrower shall have the right to direct Lender to invest sums on deposit in the Eligible Account in Permitted Investments provided (a) such investments are then regularly offered by Lender for accounts of this size, category and type, (b) such investments are permitted by applicable federal, state and local rules, regulations and laws, (c) the maturity date of the Permitted Investment is not later than the date on which the applicable Reserve Funds are required for payment of an obligation for which such Reserve Fund was created, and (d) no Event of Default shall have occurred and be continuing. Borrower shall be responsible for payment of any federal, state or local income or other tax applicable to the interest or income earned on the Reserve Funds. No other investments of the sums on deposit in the Reserve Funds shall be permitted except as set forth in this Section 7.5. Borrower shall bear all reasonable costs associated with the investment of the sums in the account in Permitted Investments. Such costs shall be deducted from the income or earnings on such investment, if any, and to the extent such income or earnings shall not be sufficient to pay such costs, such costs shall be paid by Borrower promptly on demand by Lender. Lender shall have no liability for the rate of return earned or losses incurred on the investment of the sums in Permitted Investments. (d) Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the Reserve Funds or the performance of the obligations for which the Reserve Funds were established, except to the extent caused by Lender's gross negligence or willful misconduct. Borrower shall assign to Lender all rights and claims Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. SECTION 7.6. CASUALTY INSURANCE DEDUCTIBLE RESERVE. 7.6.1 CASUALTY INSURANCE DEDUCTIBLE RESERVE. On the date hereof, Borrower shall deposit with Lender the sum of $75,000 (said amount, the "CASUALTY INSURANCE DEDUCTIBLE RESERVE FUND" and the account in which such amount is held, hereinafter, the -91- "CASUALTY INSURANCE DEDUCTIBLE RESERVE ACCOUNT"), which amount shall be held by Lender as additional security for the Loan. In the event of an insured Casualty, provided no Event of Default shall have occurred and be continuing, Lender shall, at Borrower's request, disburse Casualty Insurance Deductible Reserve Funds to Borrower in an amount equal to the amount by which the deductible under the Policy maintained pursuant to the provisions of Section 6.1(a)(i) exceeds $25,000, for Restoration of the applicable Individual Property in accordance with the provisions of Section 6.4 hereof; provided that Borrower shall deposit with Lender to be held in the Casualty Insurance Deductible Reserve Fund an amount equal to the amount so disbursed to Borrower within thirty (30) days of such disbursement. Upon the occurrence of an Event of Default, Lender may apply the Casualty Insurance Deductible Reserve Fund to the payment of the Debt in such order and priority, including, without limitation, alternating applications thereof between interest and principal, as Lender shall determine in its sole discretion. SECTION 7.7. PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE. 7.7.1 PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE. On the date hereof, Borrower shall deposit with Lender the sum of $1,250,000 (said amount, the "PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE FUND" and the account in which such amount is held, hereinafter, the "PROFESSIONAL LIABILITY INSURANCE DEDUCTIBLE RESERVE ACCOUNT"), which amount shall be held by Lender as additional security for the Loan. In the event that the amount of the annual deductible under the professional liability Policy maintained by Borrower is reduced to below $250,000 in California and $1,000,000 in Texas, provided no Event of Default shall have occurred and be continuing, Lender shall, at Borrower's request, disburse to Borrower Professional Liability Insurance Deductible Reserve Funds in an amount equal to the difference between such amounts and the amount of the deductible under the professional liability Policy maintained by Borrower; provided that in the event that the deductibles are subsequently increased Borrower shall deposit with Lender such amounts as shall be required so that at all time the amount on deposit in the Professional Liability Insurance Deductible Reserve Funds shall equal the amount of the annual deductibles under the professional liability Policies maintained by Borrower. In the event of a final unappealable judgment against Borrower in any action covered by a professional liability Policy, Lender shall have the right, but not the obligation, to apply the Professional Liability Insurance Deductible Reserve Funds to the payment of such judgment up to the amount of the deductible under the professional liability Policy insuring such claim, provided that Borrower shall deposit with Lender to be held in the Professional Liability Insurance Deductible Reserve Fund an amount equal to the amount so disbursed within thirty (30) days of such disbursement. Upon the occurrence of an Event of Default, Lender may apply the Professional Liability Insurance Deductible Reserve Fund to the payment of the Debt in such order and priority, including, without limitation, alternating applications thereof between interest and principal, as Lender shall determine in its sole discretion. -92- VIII. DEFAULTS SECTION 8.1. EVENT OF DEFAULT. (a) Each of the following events shall constitute an event of default hereunder (an "EVENT OF DEFAULT"): (i) if any portion of the Debt Service, including, without limitation, any amounts due and payable on maturity, whether on the scheduled Maturity Date or by acceleration or otherwise, is not paid when due, or if any other amounts payable hereunder are not paid within five (5) days after the date on which such amounts are due and payable; (ii) if any of the Taxes or Other Charges are not paid when the same are due and payable and prior to delinquency; (iii) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Lender upon request; (iv) if Borrower Transfers or otherwise encumbers any portion of the Properties without Lender's prior consent in violation of the provisions of this Agreement or Article 6 of the Mortgage; (v) if any representation or warranty made by Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if Borrower, Principal or any Guarantor shall make an assignment for the benefit of creditors; (vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Principal or Guarantor, or if Borrower, Principal or Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower, Principal or Guarantor, or if any proceeding for the dissolution or liquidation of Borrower, Principal or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Principal or Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days; (viii) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) if Borrower breaches any of its respective negative covenants contained in Section 5.2 or any covenant contained in Section 4.1.30 or Section 5.1.11 hereof; -93- (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xi) if any of the assumptions contained in the Insolvency Opinion delivered to Lender in connection with the Loan, or in the Additional Insolvency Opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect; (xii) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in Subsections (i) to (xii) above, for ten (10) days after notice to Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided, further, that Borrower shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; (xiii) if there shall be default under any of the other Loan Documents beyond any applicable cure periods contained in such documents, whether as to Borrower or any Individual Property, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; (xiv) Borrower ceases to continuously operate any Individual Property or any material portion thereof as a Facility for any reason whatsoever (other than temporary cessation as a result of a total Casualty or in connection with any Restoration thereof undertaken with the consent of Lender); (xv) Borrower, any manager of any Facility, or any Facility violates any applicable law or regulation and shall fail to correct, within the time deadlines set by any Health Care Authority, managed care company, insurance company or other third-party payor any deficiency, and the violation or deficiency would reasonably be expected to result in any of the following actions by such entities with respect to the Facility; (a) a termination of Borrower's or the Facility's Medicare contract or Medicaid contract, or the Facility Licenses; (b) a ban on payment for new admissions generally or on payment for residents otherwise qualifying for Medicaid or Medicare coverage with no opportunity to correct or to contest (provided such contest shall stay enforcement actions or exercise of remedies by Health Care Authorities) prior to termination; or -94- (c) a suspension, discontinuance, elimination or material reduction or recoupment of reimbursement for services (without opportunity to correct or to contest (provided such contest shall stay enforcement actions or exercise of remedies by Health Care Authorities)); or (xvii) Borrower shall revoke or modify the "Lockbox Agreements" (as such term is defined in the Revolving Credit Loan Agreement) or any other agreement governing the direction of payments of Medicare/Medicaid Accounts into the Medicare/Medicaid Receiveables Account or the transfer of funds from the Medicare/Medicaid Receiveables Account to the Cash Management Account without the prior written consent of Lender. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clause (vi), (vii) or (viii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to all or any Individual Property, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and any or all of the Properties, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clause (vi), (vii) or (viii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. SECTION 8.2. REMEDIES. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any Individual Property. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) to the fullest extent permitted by applicable law, Lender shall not be subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Properties and each Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. -95- (b) With respect to Borrower and the Properties, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to any Individual Property for the satisfaction of any of the Debt in preference or priority to any other Individual Property, and Lender may seek satisfaction out of all of the Properties or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the Mortgages in any manner and for any amounts secured by the Mortgages then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments Debt Service, Lender may foreclose one or more of the Mortgages to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose one or more of the Mortgages to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by one or more of the Mortgages as Lender may elect. Notwithstanding one or more partial foreclosures, the Properties shall remain subject to the Mortgages to secure payment of sums secured by the Mortgages and not previously recovered. (c) Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as Lender shall determine in its reasonable discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall reasonably request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until five (5) days after notice has been given to Borrower by Lender of Lender's intent to exercise its rights under such power. Borrower shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (d) Remedies Cumulative; Waivers. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent -96- Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. IX. SPECIAL PROVISIONS SECTION 9.1. SALE OF NOTES AND SECURITIZATION. Borrower acknowledges and agrees that the Lender may sell all or any portion of the Loan and the Loan Documents, or issue one or more participations therein, or consummate one or more private or public securitizations of rated single- or multi-class securities (the "SECURITIES") secured by or evidencing ownership interests in all or any portion of the Loan and the Loan Documents or a pool of assets that include the Loan and the Loan Documents (such sales, participations and/or securitizations, collectively, a "SECURITIZATION"). At the request of Lender, and to the extent not already required to be provided by Borrower under this Agreement, Borrower shall use reasonable efforts to provide information not in the possession of Lender or which may be reasonably required by Lender in order to satisfy the market standards to which Lender customarily adheres or which may be reasonably required by prospective investors and/or the Rating Agencies in connection with any such Securitization including, without limitation, to: (a) provide additional and/or updated Provided Information, together with appropriate verification and/or consents related to the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to Lender and the Rating Agencies; (b) assist in preparing descriptive materials for presentations to any or all of the Rating Agencies, and work with, and if requested, supervise, third-party service providers engaged by Borrower, the Principal and their respective affiliates to obtain, collect, and deliver information requested or required by Lender or the Rating Agencies; (c) deliver (i) updated opinions of counsel as to non-consolidation, due execution and enforceability with respect to the Property, Borrower, the Principal and their respective Affiliates and the Loan Documents, including, without limitation, a so-called "10b-5" opinion and (ii) revised organizational documents for Borrower, which counsel opinions and organizational documents shall be reasonably satisfactory to Lender and the Rating Agencies; (d) if required by any Rating Agency, use commercially reasonable efforts to deliver such additional tenant estoppel letters, subordination agreements from commercial occupants of the Properties or other agreements from parties to agreements that affect the Property, which estoppel letters, subordination agreements or other agreements shall be reasonably satisfactory to Lender and the Rating Agencies; (e) make such representations and warranties as of the closing date of the Securitization with respect to the Property, Borrower, the Principal and the Loan Documents as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents; (f) execute such amendments to the Loan Documents as may be requested by Lender or the Rating Agencies to effect the Securitization and/or deliver one or more new -97- component notes to replace the original note or modify the original note to reflect multiple components of the Loan (and such new notes or modified note shall have the same initial weighted average coupon of the original note, but such new notes or modified note may change the interest rate and amortization of the Loan provided that the aggregate Debt Service payable each month under the new or modified notes shall not exceed the monthly Debt Service under the original note, absent an Event of Default), and modify the Cash Management Agreement with respect to the newly created components such that the pricing and marketability of the Securities and the size of each class of Securities and the rating assigned to each such class by the Rating Agencies shall provide the most favorable rating levels and achieve the optimum rating levels for the Loan; (g) if requested by Lender, review any information regarding the Property, Borrower, Principal and the Loan which is contained in a preliminary or final private placement memorandum, prospectus, prospectus supplement (including any amendment or supplement to either thereof), or other disclosure document to be used by Lender or any affiliate thereof; and (h) supply to Lender such documentation, financial statements and reports in form and substance reasonably required in order to comply with any applicable securities laws. All reasonable third party costs and expenses incurred by Borrower or Lender in connection with Borrower's complying with requests made under this Section 9.1 (including, without limitation, the fees and expenses of the Rating Agencies) shall be paid by Lender. SECTION 9.2. SECURITIZATION INDEMNIFICATION. (a) Borrower understands that certain of the Provided Information may be included in Disclosure Documents in connection with the Securitization and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. (b) The Indemnifying Persons agree to provide, in connection with the Securitization, an indemnification agreement (i) certifying that (A) the Indemnifying Persons have carefully examined the Disclosure Documents, including, without limitation, the sections entitled "Risk Factors," "Special Considerations," "Description of the Mortgages," "Description of the Mortgage Loans and Mortgaged Property," "The Manager," "The Borrower" and "Certain Legal Aspects of the Mortgage Loan," and (B) such sections and such other information in the Disclosure Documents (to the extent such information relates to or includes any Provided Information or any information regarding the Properties, Borrower and/or the Loan) (collectively with the Provided Information, the "COVERED DISCLOSURE INFORMATION") do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, (ii) jointly and severally indemnifying Lender, CSFB (whether or not it is the Lender), any Affiliate of CSFB that has filed any registration statement relating to the Securitization or has -98- acted as the sponsor or depositor in connection with the Securitization, any Affiliate of CSFB that acts as an underwriter, placement agent or initial purchaser of Securities issued in the Securitization, any other co-underwriters, co-placement agents or co-initial purchasers of Securities issued in the Securitization, and each of their respective officers, directors, partners, employees, representatives, agents and Affiliates and each Person or entity who controls any such Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the "INDEMNIFIED PERSONS"), for any losses, claims, damages, liabilities, costs or expenses (including, without limitation, legal fees and expenses for enforcement of these obligations (collectively, the "LIABILITIES")) to which any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Covered Disclosure Information or arise out of or are based upon the omission or alleged omission to state in the Covered Disclosure Information a material fact required to be stated therein or necessary in order to make the statements in the Covered Disclosure Information, in light of the circumstances under which they were made, not misleading and (iii) agreeing to reimburse each Indemnified Person for any reasonable legal or other expenses incurred by such Indemnified Person, as they are incurred, in connection with investigating or defending the Liabilities. This indemnity agreement will be in addition to any liability which Borrower may otherwise have. Moreover, the indemnification provided for in clauses (ii) and (iii) above shall be effective whether or not an indemnification agreement described in clause (i) above is provided, provided that Borrower has been given the opportunity to review the Covered Disclosure Information. (c) In connection with filings under the Exchange Act, the Indemnifying Persons jointly and severally agree to indemnify (i) the Indemnified Persons for Liabilities to which any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact in the Covered Disclosure Information, or the omission or alleged omission to state in the Covered Disclosure Information a material fact required to be stated therein or necessary in order to make the statements in the Covered Disclosure Information, in light of the circumstances under which they were made, not misleading and (ii) reimburse each Indemnified Person for any legal or other expenses incurred by such Indemnified Persons, as they are incurred, in connection with defending or investigating the Liabilities provided that Borrower has been given the opportunity to review the Covered Disclosure Information. (d) Promptly after receipt by an Indemnified Person of notice of any claim or the commencement of any action, the Indemnified Person shall, if a claim in respect thereof is to be made against any Indemnifying Person, notify such Indemnifying Person in writing of the claim or the commencement of that action; provided, however, that the failure to notify such Indemnifying Person shall not relieve it from any liability which it may have under the indemnification provisions of this Section 9.2 except to the extent that it has been materially prejudiced by such failure and, provided, further, that the failure to notify such Indemnifying Person shall not relieve it from any liability which it may have to an Indemnified Person otherwise than under the provisions of this Section 9.2. If any such claim or action shall be brought against an Indemnified Person, and it shall notify any Indemnifying Person thereof, such Indemnifying Person shall be entitled to participate therein and, to the extent that it wishes, assume the defense thereof with counsel reasonably satisfactory to the Indemnified Person. After notice from any Indemnifying Person to the Indemnified Person of its election to assume -99- the defense of such claim or action, such Indemnifying Person shall not be liable to the Indemnified Person for any legal or other expenses subsequently incurred by the Indemnified Person in connection with the defense thereof except as provided in the following sentence; provided, however, if the defendants in any such action include both an Indemnifying Person, on the one hand, and one or more Indemnified Persons on the other hand, and an Indemnified Person shall have reasonably concluded that there are any legal defenses available to it and/or other Indemnified Persons that are different or in addition to those available to the Indemnifying Person, the Indemnified Person or Persons shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Person or Persons. The Indemnified Person shall instruct its counsel to maintain reasonably detailed billing records for fees and disbursements for which such Indemnified Person is seeking reimbursement hereunder and shall submit copies of such detailed billing records to substantiate that such counsel's fees and disbursements are solely related to the defense of a claim for which the Indemnifying Person is required hereunder to indemnify such Indemnified Person. No Indemnifying Person shall be liable for the expenses of more than one (1) such separate counsel unless such Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another Indemnified Person. (e) Without the prior consent of CSFB (which consent shall not be unreasonably withheld), no Indemnifying Person shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding) unless the Indemnifying Person shall have given CSFB reasonable prior notice thereof and shall have obtained an unconditional release of each Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceedings. As long as an Indemnifying Person has substantially complied with its obligations to defend and indemnify hereunder, such Indemnifying Person shall not be liable for any settlement made by any Indemnified Person without the consent of such Indemnifying Person (which consent shall not be unreasonably withheld). (f) The Indemnifying Persons agree that if any indemnification or reimbursement sought pursuant to this Section 9.2 is finally judicially determined to be unavailable for any reason or is insufficient to hold any Indemnified Person harmless (with respect only to the Liabilities that are the subject of this Section 9.2), then the Indemnifying Persons, on the one hand, and such Indemnified Person, on the other hand, shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable or is insufficient: (x) in such proportion as is appropriate to reflect the relative benefits to the Indemnifying Persons, on the one hand, and such Indemnified Person, on the other hand, from the transactions to which such indemnification or reimbursement relates; or (y) if the allocation provided by clause (x) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (x) but also the relative faults of the Indemnifying Persons, on the one hand, and all Indemnified Persons, on the other hand, as well as any other equitable considerations. Notwithstanding the provisions of this Section 9.2, (A) no party found liable for a fraudulent misrepresentation shall be entitled to contribution from any other party who is not also found liable for such fraudulent misrepresentation, and (B) the Indemnifying Persons agree that in no event shall the amount to be contributed by the -100- Indemnified Persons collectively pursuant to this paragraph exceed the amount of the fees (by underwriting discount or otherwise) actually received by the Indemnified Persons in connection with the closing of the Loan or the Securitization. (g) The Indemnifying Persons agree that the indemnification, contribution and reimbursement obligations set forth in this Section 9.2 shall apply whether or not any Indemnified Person is a formal party to any lawsuits, claims or other proceedings. The Indemnifying Persons further agree that the Indemnified Persons are intended third party beneficiaries under this Section 9.2. (h) The liabilities and obligations of the Indemnified Persons and the Indemnifying Persons under this Section 9.2 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt. (i) Notwithstanding anything to the contrary contained herein, Borrower shall have no obligation to act as depositor with respect to the Loan or an issuer or registrant with respect to the Securities issued in any Securitization. SECTION 9.3. ADMINISTRATION OF BANKRUPTCY CLAIMS. Borrower and Lender agree that, with respect to the applicable Lease between each of the respective Owners and the applicable Operator for each Individual Property, each Owner hereby transfers to Lender, in the event of any proceeding involving such Operator under the Bankruptcy Code or any similar proceeding, all of such Owner's rights to (a) file any proof of such claims, (b) cast any votes relating to any claims of such Owner against such Operator in such proceedings, (c) collect and receive any dividends payable with respect to such claims, (d) take any action or commence any proceeding to collect such claims, (e) file any motion for relief from the stay imposed under Section 362(a) of the Bankruptcy Code or any similar statute, (f) file any motion to compel such Operator to assume or reject such Lease under the Bankruptcy Code or any similar statute, or (g) take any other actions to collect or protect such claims. Borrower agrees that Lender shall be the sole party permitted to participate in the administration of the estate of any Operator under any proceeding under the Bankruptcy Code or any similar statute with respect any such claims. SECTION 9.4. EXCULPATION. (a) Subject to the qualifications below, Note A Holder shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note, this Agreement, the Mortgages or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Mortgages and the other Loan Documents, or in the Properties, the Rents, or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided in this Section 9.4, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Properties, in the Rents and in any other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgages and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Mortgages or the other Loan Documents. The provisions of this Section shall not, however, -101- (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under any of the Mortgages; (c) affect the validity or enforceability of or any Guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any of the Assignments of Leases; (f) constitute a prohibition against Lender to seek a deficiency judgment against Borrower to the extent reasonably necessary to fully realize the security granted by each of the Mortgages or to commence any other appropriate action or proceeding in order for Lender to exercise its remedies against all of the Properties; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or any Guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower in the operation of the Properties; (iii) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity Agreement or in the Mortgages concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (iv) the removal or disposal of any material portion of the Properties after an Event of Default; (v) the misappropriation or conversion by Borrower of (A) any Insurance Proceeds paid by reason of any Casualty, (B) any Awards received in connection with a Condemnation, (C) any Rents following an Event of Default, or (D) any Rents paid more than one (1) month in advance; (vi) failure to pay charges for labor or materials or other charges that can create Liens on any portion of the Properties which are superior to the Lien of the Mortgage to the extent that Rents received by Borrower are not applied to Debt Service or Operating Expenses or to pay any other amount to the Borrower has the obligation to pay under the Loan Documents or otherwise paid to Lender; (vii) any security deposits, advance deposits or any other deposits collected with respect to the Properties which are not delivered to Lender upon a foreclosure of the Properties or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof; (viii) losses, damages, costs and expenses relating to any audits, surveys, investigations, actions, suits or proceedings including without limitation, audits, surveys, -102- investigations, actions, suits or proceedings related to Medicare/Medicaid, false claim, neglect or mistreatment, fraud or abuse brought by any federal, state or local government or quasi-governmental body, or by any intermediary, agency, board, authority, entity or any other administrative or investigative body or entity or any other third party, including any resident; and (ix) except as otherwise specifically permitted herein, any amounts (a) received by Borrower or any Affiliated Manager that are not deposited into the Lockbox Account or the Medicare/Medicaid Receivables Accounts to the extent required to be so deposited hereunder or under the Cash Management Agreement or (b) disbursed from the Lockbox Account or the Medicare/Medicaid Receivables Accounts other than as provided herein or in the Cash Management Agreement. (b) Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgages or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B) the Debt shall be fully recourse to Borrower (i) in the event of: (a) Borrower filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against Borrower from any Person; (c) Borrower filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) Borrower consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for Borrower or any portion of the Property; (e) Borrower making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; (ii) if the first full payment of Debt Service is not paid when due; (iii) if Borrower fails to permit on-site inspections of the Properties, fails to provide financial information, fails to maintain its status as a Single Purpose Entity or fails to appoint a new property manager upon the request of Lender, each as required by, and in accordance with, the terms and provisions of the Loan Agreement or the Mortgage; (iv) if Borrower fails to obtain Lender's prior consent to any Indebtedness or voluntary Lien encumbering the Properties as required by the Loan Agreement or the Mortgages; or (v) if Borrower fails to obtain Lender's prior consent to any Transfer as required by the Loan Agreement or the Mortgages. (c) Notwithstanding anything to the contrary contained herein, Note B is fully recourse to Borrower and Guarantor. SECTION 9.5. INTENTIONALLY OMITTED. SECTION 9.6. SERVICER. At the option of Lender, the Loan may be serviced by a servicer/trustee (the "SERVICER") selected by Lender and Lender may delegate all or any -103- portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "SERVICING AGREEMENT") between Lender and Servicer. Lender shall be responsible for all fees and costs relating to or arising under the Servicing Agreement. X. MISCELLANEOUS SECTION 10.1. SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender. SECTION 10.2. LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Whenever this Agreement expressly provides that Lender may not withhold its consent or its approval of an arrangement or term, such provisions shall also be deemed to prohibit Lender from delaying or conditioning such consent or approval. SECTION 10.3. GOVERNING LAW. (A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE -104- INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. (B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT: Latham & Watkins LLP 885 Third Avenue, Suite 1000 New York, New York 10022-4802 David C. Meckler, Esq. and David Gordon, Esq. AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO -105- HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. SECTION 10.4. MODIFICATION, WAIVER IN WRITING. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Notwithstanding the foregoing, if, at any time, city, state, or federal statutes or regulations or any Governmental Authority, including CMS, require or mandate modification of the terms and/or conditions of Section 2.6 above, such Section 2.6 shall be deemed amended by the parties to confirm to the requirements of such statues, regulations or Government Authority. SECTION 10.5. DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. SECTION 10.6. NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a notice to the other parties hereto in the manner provided for in this Section 10.6): If to Lender: Column Financial, Inc. 11 Madison Avenue New York, New York 10010 Attention: Mark Silverstein Facsimile No.: (212) 743-5540 -106- with a copy to: Column Financial, Inc. One Madison Avenue New York, New York 10019 Legal and Compliance Department Attention: Pamela McCormack, Esq. Facsimile No.: (917) 326-7805 with a copy to: Cadwalader, Wickersham & Taft LLP 100 Maiden Lane New York, New York 10038 Attention: Robert F. McDonough, Esq. Facsimile No.: (212) 504-6666 If to Borrower: 27442 Portola Parkway Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Facsimile No.: (949) 282-5820 With a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, CA 92626-1525 Attention: David C. Meckler, Esq. Facsimile No.: (714) 755-8290 A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender's receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy notice is forthcoming. -107- SECTION 10.7. TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND BORROWER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER. SECTION 10.8. HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 10.9. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 10.10. PREFERENCES. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. SECTION 10.11. WAIVER OF NOTICE. Borrower hereby expressly waives, and shall not be entitled to, any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. SECTION 10.12. REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine -108- whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. SECTION 10.13. EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect to the Properties); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental, healthcare and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date (except as otherwise expressly provided for herein); (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters reasonably requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Properties, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Properties, including the Operators, or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and expenses due and payable to Lender may be paid from any amounts in the Lockbox Account. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrower shall not -109- have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. (c) Borrower covenants and agrees to pay for or, if Borrower fails to pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection with any Rating Agency review of the Loan, the Loan Documents or any transaction contemplated thereby or any consent, approval, waiver or confirmation obtained from such Rating Agency pursuant to the terms and conditions of this Agreement or any other Loan Document and the Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the obtaining of any such consent, approval, waiver or confirmation. SECTION 10.14. SCHEDULES INCORPORATED. The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. SECTION 10.15. OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. SECTION 10.16. NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES. (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Properties other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. -110- SECTION 10.17. PUBLICITY. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public, which refers to the Loan Documents, the financing evidenced by the Loan Documents, Lender, CSFB, or any of their Affiliates, shall be subject to the prior approval of Lender. SECTION 10.18. CROSS-DEFAULT; CROSS-COLLATERALIZATION; WAIVER OF MARSHALLING OF ASSETS. (a) Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Properties and in reliance upon the aggregate of the Properties taken together being of greater value as collateral security than the sum of each Individual Property taken separately. Borrower agrees that the Mortgages are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Mortgages shall constitute an Event of Default under each of the other Mortgages which secure the Note; (ii) an Event of Default under the Note or this Loan Agreement shall constitute an Event of Default under each Mortgage; (iii) each Mortgage shall constitute security for the Note as if a single blanket lien were placed on all of the Properties as security for the Note; and (iv) such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance. (b) To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's partners and others with interests in Borrower, and of the Properties, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Mortgages, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Properties for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Mortgages, any equitable right otherwise available to Borrower which would require the separate sale of the Properties or require Lender to exhaust its remedies against any Individual Property or any combination of the Properties before proceeding against any other Individual Property or combination of Properties; and further in the event of such foreclosure Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Properties. SECTION 10.19. WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents. SECTION 10.20. CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE. In the event of any conflict between the provisions of this Loan Agreement and any of the other Loan Documents, the provisions of this Loan Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own -111- judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. SECTION 10.21. BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. SECTION 10.22. PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, including, without limitation, the Conditional Commitment Letter dated March 7, 2003 (as amended) between Borrower and Lender are superseded by the terms of this Agreement and the other Loan Documents. SECTION 10.23. NOTE REGISTER; OWNERSHIP OF PROMISSORY NOTE B. The ownership of an interest in Promissory Note B shall be registered on a record of ownership maintained by Borrower or its agent. Notwithstanding anything else in the Loan Agreement or Promissory Note B to the contrary, the right to the principal of, and stated interest on, Promissory Note B may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled to treat the registered holder of Promissory Note B (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Promissory Note B on the part of any other person or entity. -112- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CALIFORNIA SECURED RESOURCES, LLC CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER,LP By: Hallettsville Rehabilitation GP, LLC, its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor GP, LLC, its general partner SHG SECURED RESOURCES, LP By: Secured Resource Management GP, LLC, its general partner SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TEXAS SECURED RESOURCES, LLC THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner THE EARLWOOD, LLC TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------------------ Name: Roland G. Rapp Title: Secretary COLUMN FINANCIAL, INC. By: \s\ Edmund F. Taylor ------------------------------------------------ Name: Edmund F. Taylor Title: Vice President SCHEDULE I (PROPERTIES AND BORROWERS)
BORROWERS TYPE OF -------------------------------------------------------- INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - --------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC 8. Villa Maria Care Center SNF Santa Barbara CA Villa Maria SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC
SCH. I-1
BORROWERS TYPE OF ----------------------------------------------------- INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ------------------------------------------------------------------------------------------------------------------------ 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC
SCH. I-2 SCHEDULE II (PROPERTIES - ALLOCATED LOAN AMOUNTS)
INDIVIDUAL PROPERTY ALLOCATED LOAN AMOUNT NOTE A ALLOCATED LOAN AMOUNT NOTE B ALLOCATED LOAN AMOUNT - ------------------------------------------------------------------------------------------------------------------------ 1. City View Care Center $ 3,032,668.99 $ 2,713,440.82 $ 319,228.17 2. Clairmont Beaumont $ 5,487,423.24 $ 4,909,800.00 $ 577,623.24 3. Clairmont of Longview $ 5,104,070.32 $ 4,566,800.00 $ 537,270.32 4. Colonial Manor Tyler $ 3,750,766.88 $ 3,355,949.49 $ 394,817.39 5. Clairmont of Tyler $ 4,545,470.35 $ 4,067,000.00 $ 478,470.35 6. Coronado Nursing Center $ 3,247,546.89 $ 2,905,700.00 $ 341,846.89 7. Colonial Manor Care Center $ 2,787,689.10 $ 2,494,248.27 $ 293,440.83 8. Lubbock Hospitality House $ 1,627,294.03 $ 1,456,000.00 $ 171,294.03 9. Halletsville Rehab and Nursing Center $ 302,603.52 $ 270,750.54 $ 31,852.99 10. Heritage Oaks Nursing and Rehab $ 4,514,176.23 $ 4,039,000.00 $ 475,176.23 11. Monument Hill Nursing $ 2,825,858.67 $ 2,528,400.00 $ 297,458.67 12. Oak Crest Center $ 730,100.00 $ 730,100.00 $ 85,899.07 13. Oak Manor Nursing Center $ 991,241.12 $ 886,900.00 $ 104,341.12 14. Oakland Manor Nursing Center $ 381,810.80 $ 341,620.20 $ 40,190.59 15. Southwood Care Center $ 1,593,652.86 $ 1,425,900.00 $ 167,752.86 16. Town and Country Manor $ 1,572,529.33 $ 1,407,000.00 $ 165,529.33 17. West Side Campus of Care $ 2,562,988.10 $ 2,293,200.00 $ 269,788.10 18. Briarcliff Nursing and Rehab Center $ 8,429,293.67 $ 7,542,000.00 $ 887,293.67
SCH. II-1 19. Comanche Trail Nursing Center $ 1,110,941.12 $ 994,000.00 $ 116,941.12 20. Guadalupe Valley Nursing Center $ 3,789,717.45 $ 3,390,800.00 $ 398,917.45 21. Live Oak Nursing Center $ 2,891,576.32 $ 2,587,200.00 $ 304,376.32 22. Fountain Assisted Living Center $ 1,374,259.05 $ 1,229,600.27 $ 144,658.78 23. Spring Retirement Center $ 1,706,712.70 $ 1,527,058.81 $ 179,653.89 24. Carehouse Care Center $ 4,448,016.26 $ 3,979,804.23 $ 468,212.03 25. Devonshire Care Center $ 3,303,705.56 $ 2,955,947.23 $ 347,758.32 26. Earlwood Care Center $ 3,302,872.78 $ 2,955,202.11 $ 347,670.66 27. Fountain Care Center $ 3,648,104.60 $ 3,264,093.76 $ 384,010.84 28. Valley Health Care Center $ 5,981,699.53 $ 5,352,047.23 $ 629,652.30 29. Villa Maria Care Center $ 2,952,448.08 $ 2,641,664.21 $ 310,783.87 30. Willow Creek Care Center $ 6,916,863.39 $ 6,188,772.83 $ 728,090.56

SCH. II-2 SCHEDULE III (REQUIRED REPAIR FUND) $552,456.00, which is the aggregate amount of the estimated cost for the Required Repairs for each Individual Property multiplied by one hundred twenty five percent (125%). SCH. III-1 SCHEDULE IV (ORGANIZATIONAL STRUCTURE) (attached hereto) SCH. IV-1 SCHEDULE V (LICENSED BED CAPACITY)
LICENSED BED/UNIT INDIVIDUAL PROPERTIES CAPACITY - ------------------------------------------------------------------------ 1. Carehouse Care Center 174 beds 2. Devonshire Care Center 99 beds 3. Fountain Care Center 179 beds 4. Fountain Senior Assisted Living 153 units 5. Spring Assisted Living and Retirement 51 units 6. Earlwood Care Center 87 beds 7. Valley Health Care Center 99 beds 8. Villa Maria Care Center 88 beds 9. Willow Creek Health Care Center 159 beds 10. Briarcliff Nursing and Rehabilitation Center 194 beds 11. Clairmont Nursing Home (Beaumont) 148 beds 12. Clairmont Nursing Home (Longview) 178 beds 13. Colonial Manor Care Center 172 beds 14. Colonial Manor (Tyler) 172 beds 15. Comanche Trail Nursing Center 119 beds 16. Coronado Nursing Center 221 beds 17. Oak Manor Nursing Center 90 beds 18. Guadalupe Valley Nursing Center 150 beds 19. Hallettsville Nursing Center 120 beds 20. Lubbock Hospitality House 117 beds 21. Live Oak Nursing Center 100 beds 22. Monument Hill Nursing Center 110 beds
SCH. V-1
LICENSED BED/UNIT INDIVIDUAL PROPERTIES CAPACITY - ------------------------------------------------------------------------ 23. Oak Crest Nursing Center 92 beds 24. Oakland Manor Nursing Center 120 beds 25. Southwood Care Center 120 beds 26. Cityview Care Center 210 beds 27. Heritage Oaks Nursing and Rehabilitation Center 159 beds 28. Clairmont Nursing Home (Tyler) 120 beds 29. Town & Country Manor 126 beds 30. West Side Campus of Care 240 beds
SCH. V-2 SCHEDULE VI (ALLOCATION OF DEBT SERVICE RESERVE)
~~Fountain Senior Assisted Living $62,221.00 Spring Assisted Living and Retirement $77,714.00~~
SCH. VI-1 SCHEDULE VII (FORM OF OCCUPANCY REPORT) (attached hereto) SCH. VII-1 SCHEDULE VIII (FICTITIOUS BUSINESS NAMES)
ENTITY DBA - -------------------------------------------------------------------------------------- Colonial New Braunfels Care Center, LP Colonial Manor Care Center Comanche Nursing Center, LP Comanche Trail Nursing Center Flatonia Oak Manor, LP Oak Manor Nursing Center Hospitality Nursing and Rehabilitation Lubbock Hospitality House Nursing and Center, LP Rehabilitation Center Texas Cityview Care Center, LP Cityview Care Center Texas Heritage Oaks Nursing and Heritage Oaks Nursing and Rehabilitation Rehabilitation Center, LP Center Villa Maria Healthcare Center, LLC Villa Maria Care Center
SCH. VIII-1 SCHEDULE IX (EXCEPTIONS TO HEALTH CARE REPRESENTATIONS)
SUBSTANDARD QUALITY DENIAL OF FACILITY SURVEY DATE TAG OF CARE DEFICIENCY PAYMENT DEFICIENCY - ---------------------------------------------------------------------------------------------------------------- Clairmont Nursing Home (Tyler) 4/16/03 F224G None None Colonial Manor (Tyler) 6/13/03 F314G None None Comanche Trail Nursing Center 6/19/03 F279G, F324G None None Monument Hill Nursing Center 7/15/03 F224G None None Guadalupe Valley Nursing Center 3/28/03 F327G None None
SCH.IX-1 SCHEDULE X (INTERIM MANAGEMENT AGREEMENTS AND SUBLEASES) Fountain Senior Assisted Living Spring Assisted Living and Retirement SCH. X-1 SCHEDULE XI (PROPERTIES WITH PROVISIONAL LICENSES) 1. Carehouse Care Center 2. Devonshire Care Center 3. Fountain Care Center 4. Fountain Senior Assisted Living 5. Spring Assisted Living and Retirement 6. Earlwood Care Center 7. Valley Health Care Center 8. Villa Maria Care Center 9. Willow Creek Health Care Center 10. Briarcliff Nursing and Rehabilitation Center 11. Clairmont Nursing Home (Beaumont) 12. Clairmont Nursing Home (Longview) 13. Colonial Manor Care Center 14. Colonial Manor (Tyler) 15. Comanche Trail Nursing Center 16. Coronado Nursing Center 17. Oak Manor Nursing Center 18. Guadalupe Valley Nursing Center 19. Hallettsville Nursing Center 20. Lubbock Hospitality House 21. Live Oak Nursing Center 22. Monument Hill Nursing Center 23. Oak Crest Nursing Center 24. Oakland Manor Nursing Center 25. Southwood Care Center 26. Cityview Care Center

SCH. XI-1 ~~27. Heritage Oaks Nursing and Rehabilitation Center 28. Clairmont Nursing Home (Tyler) 29. Town & Country Manor 30. West Side Campus of Care~~

SCH. XI-2 SCHEDULE 4.2(h) (MEDICARE AND MEDICAID PROGRAMS)
MEDICARE PROVIDER INDIVIDUAL PROPERTIES # MEDICAID PROVIDER # - ------------------------------------------------------------------------------------------------ 1. Carehouse Care Center 05-6332 LTC55765F 2. Devonshire Care Center 05-6095 ZZT06095F 3. Fountain Care Center 55-5259 LTC55259F 4. Earlwood Care Center 05-5032 ZZT05032G 5. Valley Health Care Center 05-6225 ZZR06225F 6. Villa Maria Care Center 05-5830 ZZT05830H 7. Willow Creek Health Care Center 55-5652 LTC55652F 8. Briarcliff Nursing and Rehabilitation Center 67-5162 H06751629 9. Clairmont Nursing Home (Beaumont) 45-5757 H04557577 10. Clairmont Nursing Home (Longview) 45-5684 H04556843 11. Colonial Manor Care Center 45-5020 H04550201 12. Colonial Manor (Tyler) 45-5429 H04554293 13. Comanche Trail Nursing Center 67-5462 H06754623 14. Coronado Nursing Center 67-5746 H04556817 15. Oak Manor Nursing Center 67-5445 H06754457 16. Guadalupe Valley Nursing Center 45-5869 H04558697 17. Hallettsville Nursing Center 67-5095 H06750955 18. Lubbock Hospitality House 45-5940 H04559403 19. Live Oak Nursing Center 67-5104 H06751045 20. Monument Hill Nursing Center 45-5715 H04557157 21. Oak Crest Nursing Center 45-5974 H04559745 22. Oakland Manor Nursing Center 67-5101 H06751011
SCH. 4.2(h)-1
MEDICARE PROVIDER INDIVIDUAL PROPERTIES # MEDICAID PROVIDER # - ------------------------------------------------------------------------------------------------ 23. Southwood Care Center 45-5887 H04558871 24. Cityview Care Center 67-5622 001004921 25. Heritage Oaks Nursing and Rehabilitation 67-5346 H06753467 Center 26. Clairmont Nursing Home (Tyler) 45-5485 H04554855 27. Town & Country Manor 45-5796 H04557965 28. West Side Campus of Care 45-5592 H04555927
SCH. 4.2(h)-2 SCHEDULE 4.2(j) (COLLECTIVE BARGAINING AGREEMENTS) None. SCH. 4.2(j)-1 EX-10.7 17 a94359exv10w7.txt EXHIBIT 10.7 EXHIBIT 10.7 PROMISSORY NOTE A $85,000,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, each of the entities set forth on Schedule A annexed hereto, jointly and severally, as maker, having its principal place of business at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promises to pay to the order of COLUMN FINANCIAL, INC., a Delaware corporation, as lender, having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of EIGHTY-FIVE MILLION and No/100 DOLLARS ($85,000,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Promissory Note A at the Applicable Interest Rate, and to be paid in accordance with the terms of this Promissory Note A and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1: PAYMENT TERMS Borrower agrees to pay the principal sum of this Promissory Note A and interest on the unpaid principal sum of this Promissory Note A from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Promissory Note A and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Promissory Note A is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3: LOAN DOCUMENTS This Promissory Note A is secured by the Mortgages and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgages and the other Loan Documents are hereby made part of this Promissory Note A to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Promissory Note A and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE 5: NO ORAL CHANGE This Promissory Note A may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Promissory Note A or any installment hereof, and no alteration, amendment or waiver of any provision of this Promissory Note A, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Promissory Note A, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Promissory Note A, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement or any other Loan Document. -2- ARTICLE 7: TRANSFER Upon the transfer of this Promissory Note A, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8: EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Promissory Note A to the same extent and with the same force as if fully set forth herein. ARTICLE 9: GOVERNING LAW This Promissory Note A shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note A as of the day and year first above written. BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CALIFORNIA SECURED RESOURCES, LLC CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC -4- FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC, its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor GP, LLC, its general partner SHG SECURED RESOURCES, LP By: Secured Resource Management GP, LLC, its general partner SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP -5- By: Texas Cityview Care Center GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TEXAS SECURED RESOURCES, LLC THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner THE EARLWOOD, LLC TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp --------------------------------------- Name: Roland G. Rapp Title: Secretary -6- SCHEDULE I PROPERTIES AND BORROWERS
BORROWERS - ----------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ----------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - ----------------------------------------------------------------------------------------------------------------------------- 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - ----------------------------------------------------------------------------------------------------------------------------- 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - ----------------------------------------------------------------------------------------------------------------------------- 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 8. Villa Maria Care Center SNF Santa Barbara CA Villa Maria SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - ----------------------------------------------------------------------------------------------------------------------------- 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - ----------------------------------------------------------------------------------------------------------------------------- 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - -----------------------------------------------------------------------------------------------------------------------------
-7-
BORROWERS - -------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - -------------------------------------------------------------------------------------------------------------------------- 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - -------------------------------------------------------------------------------------------------------------------------- 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - -------------------------------------------------------------------------------------------------------------------------- 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - -------------------------------------------------------------------------------------------------------------------------- 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - -------------------------------------------------------------------------------------------------------------------------- 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------- 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------
-8- EX-10.8 18 a94359exv10w8.txt EXHIBIT 10.8 EXHIBIT 10.8 PROMISSORY NOTE B-1 $5,000,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, each of the entities set forth on Schedule A annexed hereto, jointly and severally, as maker, having its principal place of business at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promises to pay to the order of COLUMN FINANCIAL, INC., a Delaware corporation, as lender, having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of FIVE MILLION and No/100 DOLLARS ($5,000,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Promissory Note B-1 at the Applicable Interest Rate, and to be paid in accordance with the terms of this Promissory Note B-1 and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1: PAYMENT TERMS Borrower agrees to pay the principal sum of this Promissory Note B-1 and interest on the unpaid principal sum of this Promissory Note B-1 from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Promissory Note B-1 and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Promissory Note B-1 is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3: LOAN DOCUMENTS This Promissory Note B-1 is secured by the Mortgages and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgages and the other Loan Documents are hereby made part of this Promissory Note B-1 to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Promissory Note B-1 and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE 5: NO ORAL CHANGE This Promissory Note B-1 may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Promissory Note B-1 or any installment hereof, and no alteration, amendment or waiver of any provision of this Promissory Note B-1, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Promissory Note B-1, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Promissory Note B-1, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement or any other Loan Document. -2- ARTICLE 7: TRANSFER Upon the transfer of this Promissory Note B-1, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8: EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Promissory Note B-1 to the same extent and with the same force as if fully set forth herein. ARTICLE 9: GOVERNING LAW This Promissory Note B-1 shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note B-1 as of the day and year first above written. BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CALIFORNIA SECURED RESOURCES, LLC CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC, its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor GP, LLC, its general partner SHG SECURED RESOURCES, LP By: Secured Resource Management GP, LLC, its general partner SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TEXAS SECURED RESOURCES, LLC THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner THE EARLWOOD, LLC TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp --------------------------------------- Name: Roland G. Rapp Title: Secretary SCHEDULE A PROPERTIES AND BORROWERS
BORROWERS - --------------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - --------------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 8. Villa Maria Care Center SNF Santa Barbara CA Villa Maria SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ---------------------------------------------------------------------------------------------------------------------------------

BORROWERS - ----------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ----------------------------------------------------------------------------------------------------------------------------- 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC - -----------------------------------------------------------------------------------------------------------------------------
EX-10.9 19 a94359exv10w9.txt EXHIBIT 10.9 EXHIBIT 10.9 PROMISSORY NOTE B-2 $2,500,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, each of the entities set forth on Schedule A annexed hereto, jointly and severally, as maker, having its principal place of business at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promises to pay to the order of COLUMN FINANCIAL, INC., a Delaware corporation, as lender, having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND and No/100 DOLLARS ($2,500,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Promissory Note B-2 at the Applicable Interest Rate, and to be paid in accordance with the terms of this Promissory Note B-2 and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1: PAYMENT TERMS Borrower agrees to pay the principal sum of this Promissory Note B-2 and interest on the unpaid principal sum of this Promissory Note B-2 from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Promissory Note B-2 and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Promissory Note B-2 is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3: LOAN DOCUMENTS This Promissory Note B-2 is secured by the Mortgages and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgages and the other Loan Documents are hereby made part of this Promissory Note B-2 to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Promissory Note B-2 and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE 5: NO ORAL CHANGE This Promissory Note B-2 may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Promissory Note B-2 or any installment hereof, and no alteration, amendment or waiver of any provision of this Promissory Note B-2, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Promissory Note B-2, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Promissory Note B-2, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the -2- foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement or any other Loan Document. ARTICLE 7: TRANSFER Upon the transfer of this Promissory Note B-2, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8: EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Promissory Note B-2 to the same extent and with the same force as if fully set forth herein. ARTICLE 9: GOVERNING LAW This Promissory Note B-2 shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note B-2 as of the day and year first above written. BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CALIFORNIA SECURED RESOURCES, LLC CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC, its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor GP, LLC, its general partner SHG SECURED RESOURCES, LP By: Secured Resource Management GP, LLC, its general partner SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TEXAS SECURED RESOURCES, LLC THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner THE EARLWOOD, LLC TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp --------------------------------------- Name: Roland G. Rapp Title: Secretary SCHEDULE A PROPERTIES AND BORROWERS
BORROWERS - -------------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - -------------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - -------------------------------------------------------------------------------------------------------------------------------- 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - -------------------------------------------------------------------------------------------------------------------------------- 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - -------------------------------------------------------------------------------------------------------------------------------- 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 8. Villa Maria Care Center SNF Santa Barbara CA Villa Maria SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - -------------------------------------------------------------------------------------------------------------------------------- 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - -------------------------------------------------------------------------------------------------------------------------------- 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - -------------------------------------------------------------------------------------------------------------------------------- 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - -------------------------------------------------------------------------------------------------------------------------------- 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - -------------------------------------------------------------------------------------------------------------------------------- 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------

BORROWERS - ----------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ----------------------------------------------------------------------------------------------------------------------------- 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC - -----------------------------------------------------------------------------------------------------------------------------
EX-10.10 20 a94359exv10w10.txt EXHIBIT 10.10 EXHIBIT 10.10 PROMISSORY NOTE B-3 $2,500,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, each of the entities set forth on Schedule A annexed hereto, jointly and severally, as maker, having its principal place of business at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promises to pay to the order of COLUMN FINANCIAL, INC., a Delaware corporation, as lender, having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND and No/100 DOLLARS ($2,500,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Promissory Note B-3 at the Applicable Interest Rate, and to be paid in accordance with the terms of this Promissory Note B-3 and that certain Loan Agreement, dated the date hereof, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE 1: PAYMENT TERMS Borrower agrees to pay the principal sum of this Promissory Note B-3 and interest on the unpaid principal sum of this Promissory Note B-3 from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Promissory Note B-3 and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE 2: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Promissory Note B-3 is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE 3: LOAN DOCUMENTS This Promissory Note B-3 is secured by the Mortgages and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Mortgages and the other Loan Documents are hereby made part of this Promissory Note B-3 to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Promissory Note B-3 and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE 4: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE 5: NO ORAL CHANGE This Promissory Note B-3 may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE 6: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Promissory Note B-3 or any installment hereof, and no alteration, amendment or waiver of any provision of this Promissory Note B-3, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Promissory Note B-3, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Promissory Note B-3, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the -2- foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement or any other Loan Document. ARTICLE 7: TRANSFER Upon the transfer of this Promissory Note B-3, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE 8: EXCULPATION The provisions of Section 9.4 of the Loan Agreement are hereby incorporated by reference into this Promissory Note B-3 to the same extent and with the same force as if fully set forth herein. ARTICLE 9: GOVERNING LAW This Promissory Note B-3 shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE 10: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. [NO FURTHER TEXT ON THIS PAGE] -3- IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note B-3 as of the day and year first above written. BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CALIFORNIA SECURED RESOURCES, LLC CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC, its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor GP, LLC, its general partner SHG SECURED RESOURCES, LP By: Secured Resource Management GP, LLC, its general partner SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TEXAS SECURED RESOURCES, LLC THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner THE EARLWOOD, LLC TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------ Name: Roland G. Rapp Title: Secretary SCHEDULE A PROPERTIES AND BORROWERS
BORROWERS - --------------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - --------------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 8. Villa Maria Care Center SNF Santa Barbara CA Villa Maria SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ---------------------------------------------------------------------------------------------------------------------------------

BORROWERS - ----------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ----------------------------------------------------------------------------------------------------------------------------- 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ----------------------------------------------------------------------------------------------------------------------------- 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ----------------------------------------------------------------------------------------------------------------------------- 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC - -----------------------------------------------------------------------------------------------------------------------------
EX-10.11 21 a94359exv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (the "GUARANTY") is executed as of August 19th, 2003, by FOUNTAIN VIEW, INC., a Delaware corporation, having an address at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (whether one or more collectively referred to as "GUARANTOR"), for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 ("LENDER"). W I T N E S S E T H: WHEREAS, pursuant to that certain Promissory Note A of even date herewith, executed by the entities listed on Schedule I annexed hereto, (collectively, "BORROWER"), and payable to the order of Lender in the principal amount of Eighty Five Million and No/100 Dollars ($85,000,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE A"), that certain Promissory Note B-1 of even date herewith given by Borrower in favor of Lender in the principal amount of Five Million and No/100 Dollars ($5,000,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-1"), that certain Promissory Note B-2 of even date herewith given by Borrower in favor of Lender in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-2") and that certain Promissory Note B of even date herewith given by Borrower in favor of Lender in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-3", and collectively with Note A, Note B-1 and Note B-2, the "NOTE"), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan ("LOAN"), made pursuant to that certain Loan Agreement, of even date herewith, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan is secured by the liens and security interests of certain mortgages, deeds of trust and/or deeds to secure debt, each of even date herewith (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the "MORTGAGES"), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and Mortgages, the "LOAN DOCUMENTS"); and WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower, and Guarantor will directly benefit from Lender's making the Loan to Borrower. NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: ARTICLE I NATURE AND SCOPE OF GUARANTY 1.1 GUARANTY OF OBLIGATION. Guarantor hereby irrevocably and unconditionally guarantees to Lender as the Holder of Note A and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor. 1.2 DEFINITION OF GUARANTEED OBLIGATIONS. As used herein, the term "GUARANTEED OBLIGATIONS" means (a) the obligations and liabilities of Borrower to Lender as the holder of Note A for any loss, damage, cost, expense, liability, claim and any other obligation incurred by Lender as the holder of Note A (including reasonable attorneys' fees and costs) arising out of or in connection with the following: (i) fraud or intentional misrepresentation by Borrower or Guarantor in connection with the Loan; (ii) the gross negligence or willful misconduct of Borrower in the operation of the Properties; (iii) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity or in the Mortgages concerning environmental laws, hazardous substances and asbestos and any indemnification of Lender with respect thereto in either document; (iv) the removal or disposal of any material portion of the Properties after an Event of Default; (v) the misappropriation or conversion by Borrower of (A) any Insurance Proceeds paid by reason of any Casualty, (B) any Awards received in connection with a Condemnation, (C) any Rents following an Event of Default, or (D) any Rents paid more than one (1) month in advance; (vi) failure to pay charges for labor or materials or other charges that can create Liens on any portion of the Properties which are superior to the Lien of the Mortgage to the extent that rents received by Borrower are not applied to Debt Service or Operating Expenses or to pay any other amount to the Borrower has the obligation to pay under the Loan Documents or otherwise paid to Lender; (vii) any security deposits, advance deposits or any other deposits collected with respect to the Properties which are not delivered to Lender upon a foreclosure of the Properties or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof; -2- (viii) losses, damages, costs and expenses relating to any audits, surveys, investigations, actions, suits or proceedings including without limitation, audits, surveys, investigations, actions, suits or proceedings related to Medicare/Medicaid, false claim, neglect or mistreatment, fraud or abuse brought by any federal, state or local government or quasi-governmental body, or by any intermediary, agency, board, authority, entity or any other administrative or investigative body or entity or any other third party, including any resident; and (ix) except as otherwise specifically permitted in the Loan Agreement, any amounts (a) received by Borrower or Manager that are not deposited into the Lockbox Account or the Medicare/Medicaid Receivables Accounts to the extent required to be so deposited hereunder or under the Cash Management Agreement or (b) disbursed from the Lockbox Account or the Medicare/Medicaid Receivables Accounts other than as provided herein or in the Cash Management Agreement; and (x) Borrower's failure to permit on-site inspections of the Properties or to provide financial information, each as required by, and in accordance with, the terms and provisions of the Loan Agreement or the Mortgage. (b) the entire amount of the Debt (i) in the event that: (A) Borrower files a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; or (B) an involuntary bankruptcy or insolvency proceeding is commenced against Borrower under the Bankruptcy Code or any similar federal or state law by any Affiliate of Borrower or Guarantor or with respect to which Borrower or Guarantor or any of their Affiliates, directly or indirectly, solicits or facilitates the commencement of such action or proceeding or is determined to be in collusion relative to creditors that commence such action or proceeding; (iii) if Borrower fails to maintain its status as a Single Purpose Entity, other than as a result of Borrower's failure to comply with the provisions of subparagraphs (j) of the definition of Single Purpose Entity set forth in the Loan Agreement, as required by, and in accordance with, the terms and provisions of the Loan Agreement; (iv) if Borrower fails to obtain Lender's prior consent to any Indebtedness or voluntary Lien encumbering the Properties as required by the Loan Agreement or the Mortgages; or (v) if Borrower fails to obtain Lender's prior consent to any Transfer as required by the Loan Agreement or the Mortgages. (c) This Guaranty guaranties only the obligations of Borrower with respect to Note A and does not guaranty any obligations of Borrower with respect to Note B. 1.3 NATURE OF GUARANTY. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor's death (in which event this Guaranty shall be binding upon Guarantor's estate and Guarantor's legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. -3- 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 1.5 PAYMENT BY GUARANTOR. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender's address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender's rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender's rights against any other guarantors of the Guaranteed Obligations, (d) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations. 1.7 WAIVERS. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (a) any loans or advances made by Lender to Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Properties, (e) the occurrence of any breach by Borrower or an Event of Default, (f) Lender's transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by Borrower and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations. 1.8 PAYMENT OF EXPENSES. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys' -4- fees) incurred by Lender in the enforcement hereof or the preservation of Lender's rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations. 1.9 EFFECT OF BANKRUPTCY. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's performance of such obligations and then only to the extent of such performance. 1.10 WAIVER OF SUBROGATION, REIMBURSEMENT AND CONTRIBUTION. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. 1.11 BORROWER. The term "BORROWER" as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower. ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: 2.1 MODIFICATIONS. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Loan Agreement, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action. 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor. -5- 2.3 CONDITION OF BORROWER OR GUARANTOR. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor. 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (a) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Loan Agreement or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 RELEASE OF OBLIGORS. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other Persons will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other Persons to pay or perform the Guaranteed Obligations. 2.6 OTHER COLLATERAL. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations. 2.7 RELEASE OF COLLATERAL. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations. -6- 2.8 CARE AND DILIGENCE. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. 2.9 UNENFORCEABILITY. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations. 2.10 OFFSET. Any existing or future right of offset, claim or defense of Borrower against Lender, or any other Person, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 2.11 MERGER. The reorganization, merger or consolidation of Borrower into or with any other corporation or entity. 2.12 PREFERENCE. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else. 2.13 OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows: -7- 3.1 BENEFIT. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations. 3.2 FAMILIARITY AND RELIANCE. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty. 3.3 NO REPRESENTATION BY LENDER. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty. 3.4 GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. 3.5 LEGALITY. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 3.6 SURVIVAL. All representations and warranties made by Guarantor herein shall survive the execution hereof. ARTICLE IV SUBORDINATION OF CERTAIN INDEBTEDNESS 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the Guaranteed -8- Obligations. Upon the occurrence of an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims. 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims. 4.3 PAYMENTS HELD IN TRUST. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender. 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (a) exercise or enforce any creditor's right it may have against Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor. ARTICLE V MISCELLANEOUS 5.1 WAIVER. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No -9- modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 5.2 NOTICES. Any notice, demand, statement, request or consent made hereunder shall be in writing and shall be deemed to be received by the addressee on the third day following the day such notice is deposited with the United States Postal Service first class certified mail, return receipt requested, addressed to the address, as set forth below, of the party to whom such notice is to be given, or to such other address as either party shall in like manner designate in writing. The addresses of the parties hereto are as follows: Guarantor: Fountain View, Inc. 2600 West Magnolia Boulevard Burbank, California 91505 Attention: Bill Scott Facsimile No.: 818-841-5847 with a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, CA 92626-1525 Attention: David Meckler, Esq. Facsimile No.: (714) 725-8920 Lender: Column Financial, Inc. 11 Madison Avenue New York, New York 10010 Attention: Mark Silverstein Facsimile No.: (212) 743-5540 with a copy to: Column Financial, Inc. 11 Madison Avenue New York, New York 10010 Legal and Compliance Department Attention: Pamela McCormack Facsimile No.: (917) 326-7805 with a copy to: Cadwalader, Wickersham & Taft LLP 100 Maiden Lane New York, New York 10038 Attention: Robert F. McDonough, Esq. Facsimile No.: (212) 504-6666 -10- 5.3 GOVERNING LAW. This Guaranty shall be governed in accordance with the State of New York and the applicable law of the United States of America. 5.4 INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. 5.5 AMENDMENTS. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. 5.6 PARTIES BOUND; ASSIGNMENT; JOINT AND SEVERAL. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 5.7 HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. 5.8 RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. 5.9 COUNTERPARTS. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. 5.10 RIGHTS AND REMEDIES. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. -11- 5.11 OTHER DEFINED TERMS. Any capitalized term utilized herein shall have the meaning as specified in the Loan Agreement, unless such term is otherwise specifically defined herein. 5.12 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER. 5.13 WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND GUARANTOR ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR AND LENDER. 5.14 REINSTATEMENT IN CERTAIN CIRCUMSTANCES. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time. -12- ARTICLE VI STATE-SPECIFIC PROVISIONS - CALIFORNIA To the extent this document is enforceable in the State of California, the laws of the State of California are held to govern this Agreement and the following provisions shall apply: 6.1 PRINCIPLES OF CONSTRUCTION. In the event of any inconsistencies between the terms and conditions of this Article 6 and the terms and conditions of this Security Instrument, the terms and conditions of this Article 6 shall control and be binding. 6.2 GUARANTOR. Guarantor acknowledges that it is guaranteeing the obligations of Borrower to Lender. Accordingly, Guarantor agrees as follows: (a) Modifications to Loan and Loan Documents. Guarantor agrees that Lender may do any of the following without affecting the enforceability of this Agreement: (i) take or release additional security for any obligation in connection with the Loan Documents; (ii) discharge or release (by judicial or nonjudicial foreclosure, acceptance of a deed in lieu of foreclosure or otherwise) any party or parties liable under the Loan Documents; (iii) accept or make compositions or other arrangements or file or refrain from filing a claim in any bankruptcy proceeding of Borrower, any guarantor of Borrower's obligations under the Loan Documents or any pledgor of collateral for any person's obligations to Lender; and (iv) credit payments in such manner and order of priority to principal, interest or other obligations as Lender may determine. (b) Waivers. (i) Guarantor agrees that Lender's right to enforce this Agreement is absolute and is not contingent upon the genuineness, validity or enforceability of any of the Loan Documents. Guarantor waives all benefits and defenses it may have under California Civil Code Section 2810 and agrees that Lender's rights under this Agreement shall be enforceable even if Borrower had no liability at the time of execution of the Loan Documents or later ceases to be liable. (ii) Guarantor waives all benefits and defenses it may have under California Civil Code Section 2809 and agrees that Lender's rights under this Agreement will remain enforceable even if the amount secured by this Agreement is larger in amount and more burdensome than that for which Borrower is responsible. The enforceability of this Agreement against Guarantor shall continue until all sums due under the Loan Documents have been paid in full and shall not be limited or affected in any way by any -13- impairment or any diminution or loss of value of any security or collateral for Borrower's obligations under the Loan Documents, from whatever cause, the failure of any security interest in any such security or collateral or any disability or other defense of Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan. (iii) Guarantor waives all benefits and defenses it may have under California Civil Code Sections 2845, 2849 and 2850, including, without limitation, the right to require Lender to (A) proceed against Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, (B) proceed against or exhaust any other security or collateral Lender may hold, or (C) pursue any other right or remedy for Guarantor's benefit, and agrees that Lender may exercise its rights under this Agreement or may foreclose against the Mortgaged Property without taking any action against Borrower, Guarantor, guarantor of Borrower's obligations under the Loan Document, any pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, and without proceeding against or exhausting any security or collateral Lender holds. (iv) Guarantor waives any rights or benefits it may have by reason of California Code of Civil Procedure Section 580a which could limit the amount which Lender could recover in a foreclosure of the Mortgaged Property to the difference between the amount owing under the Loan Documents and the fair value of the property or interests sold at a nonjudicial foreclosure sale or sales of any other real property held by Lender as security for the obligations under the Loan Documents. (v) Guarantor waives diligence and all demands, protests, presentments and notices of protest, dishonor, nonpayment and acceptance of this Agreement. (c) Guarantor Informed of Borrower's Condition. Guarantor acknowledges that it has had an opportunity to review the Loan Documents, the value of the security for Borrower's obligations under the Loan Documents and Borrower's financial condition and ability to satisfy its obligations to Lender. Guarantor agrees to keep itself fully informed of all aspects of Borrower's financial condition and the performance of Borrower's obligations to Lender and agrees that Lender has no duty to disclose to Guarantor any information pertaining to Borrower or any security for Borrower's obligations under the Loan Documents. (d) Waiver of Estoppel Defense. Upon Borrower's default under the Loan Documents, Lender may elect to foreclose nonjudicially on real property given by Borrower or others as security under the Loan Documents and also to exercise its rights under this Agreement. Guarantor acknowledges that its right to seek reimbursement from Borrower for any amounts paid by Guarantor to Lender under this Agreement will be eliminated if Lender elects to so foreclose on Borrower's property. Nevertheless, Guarantor waives any such right to reimbursement and agrees that a nonjudicial foreclosure by Lender against any real property security owned by Borrower or others will not affect the enforceability of this Agreement on -14- Guarantor's interest in the Mortgaged Property. In order to further effectuate such waiver Guarantor hereby agrees as follows: Guarantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to the Mortgaged Property, has destroyed Guarantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. (e) Subrogation. Guarantor agrees that its rights of subrogation and reimbursement against Borrower, its right of subrogation against the Mortgaged Property or any other collateral or security for Lender's loan to Borrower or the pledgor of such collateral or security and its right of contribution from any guarantor or surety of Borrower's obligation sunder the Loan Documents shall be subordinate to Lender's rights against Borrower, in such collateral or security, against any such pledgor and against any such guarantor or surety. Guarantor shall have no such rights of subrogation, reimbursement or contribution until all amounts due under the Note, the Mortgage and the other Loan Documents have been paid in full and Lender has released, transferred or disposed of all of its rights in any collateral or security. Guarantor waives its rights under California Civil Code Sections 2847, 2848 and 2849 to the extent inconsistent with the foregoing. (f) Confirmation of Waivers. In accordance with California Civil Code Section 2856(c), Guarantor hereby makes the following waivers: (i) The guarantor waives all rights and defenses that the guarantor may have because the debtor's debt is secured by real property. This means, among other things: (A) The creditor may collect from the guarantor without first foreclosing on any other real or personal property collateral pledged by the debtor or any other person. (B) If the creditor forecloses on any real property collateral pledged by the debtor: (1) The amount of the debt may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (2) The creditor may collect from the guarantor even if the creditor, by foreclosing on the real property collateral, has destroyed any right the guarantor may have to collect from the debtor. (ii) This is an unconditional and irrevocable waiver of any rights and defenses the guarantor may have because the debtor's debt is secured by real property. -15- These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedures. -16- EXECUTED as of the day and year first above written. GUARANTOR: FOUNTAIN VIEW, INC., a Delaware corporation By: \s\ Roland G. Rapp ----------------------------------------- Name: Roland G. Rapp Title: Secretary SCHEDULE I PROPERTIES AND BORROWERS
BORROWERS - --------------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - --------------------------------------------------------------------------------------------------------------------------------- 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 7. Valley Health Care SNF Fresno CA Valley Healthcare SHG Secured California Secured Center Center, LLC Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 8. Villa Maria Care Center SNF Santa CA Villa Maria SHG Secured California Secured Barbara Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - --------------------------------------------------------------------------------------------------------------------------------- 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------------- 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - --------------------------------------------------------------------------------------------------------------------------------- 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC
SCH. I-1
BORROWERS - --------------------------------------------------------------------------------------------------------------------------- TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - --------------------------------------------------------------------------------------------------------------------------- 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - --------------------------------------------------------------------------------------------------------------------------- 20. Lubbock Hospitality SNF Lubbock TX Hospitality SHG Secured Texas Secured House Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - --------------------------------------------------------------------------------------------------------------------------- 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - --------------------------------------------------------------------------------------------------------------------------- 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Oaks Nursing and Resources, LP Resources, LLC Center Rehabilitation Center, LP - --------------------------------------------------------------------------------------------------------------------------- 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - --------------------------------------------------------------------------------------------------------------------------- 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC
SCH. I-2 EX-10.12 22 a94359exv10w12.txt EXHIBIT 10.12 EXHIBIT 10.12 ================================================================================ MEZZANINE LOAN AGREEMENT Dated as of August 19, 2003 Between SHG PROPERTY RESOURCES, LLC and SHG INVESTMENTS, LLC collectively, as Borrower and CAPITALSOURCE FINANCE LLC, FORTRESS CREDIT OPPORTUNITIES I, L.P. and HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P. , collectively, as Lender CAPITALSOURCE FINANCE LLC, as administrative agent and collateral agent for Lender ================================================================================ TABLE OF CONTENTS
Page ---- I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION........................................................ 2 SECTION 1.1. DEFINITIONS.................................................................. 2 SECTION 1.2. PRINCIPLES OF CONSTRUCTION................................................... 32 II. GENERAL TERMS.................................................................................. 32 SECTION 2.1. LOAN COMMITMENT; DISBURSEMENT TO BORROWER.................................... 32 SECTION 2.2. INTEREST RATE................................................................ 33 SECTION 2.3. LOAN PAYMENT................................................................. 38 SECTION 2.4. PREPAYMENTS.................................................................. 39 SECTION 2.5. RELEASE...................................................................... 40 SECTION 2.6. CASH MANAGEMENT.............................................................. 41 SECTION 2.7. ASSUMPTION OF PORTION OF LOAN................................................ 42 III. CONDITIONS PRECEDENT........................................................................... 43 SECTION 3.1. CONDITIONS PRECEDENT TO CLOSING.............................................. 43 IV. REPRESENTATIONS AND WARRANTIES................................................................. 47 SECTION 4.1. BORROWER REPRESENTATIONS..................................................... 47 SECTION 4.2. HEALTH CARE REPRESENTATIONS.................................................. 55 SECTION 4.3. SURVIVAL OF REPRESENTATIONS.................................................. 57 V. BORROWER COVENANTS............................................................................. 58 SECTION 5.1. AFFIRMATIVE COVENANTS........................................................ 58 SECTION 5.2. BORROWER NEGATIVE COVENANTS.................................................. 70 SECTION 5.3. GUARANTOR COVENANTS.......................................................... 79 VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS............................................ 86 SECTION 6.1. INSURANCE.................................................................... 86 SECTION 6.2. CASUALTY AND CONDEMNATION.................................................... 87 VII. RESERVE FUNDS.................................................................................. 87 SECTION 7.1. RESERVE FUNDS GENERALLY...................................................... 87
VIII. DEFAULTS 88 SECTION 8.1. EVENT OF DEFAULT............................................................. 88 SECTION 8.2. REMEDIES..................................................................... 91 IX. SPECIAL PROVISIONS............................................................................. 94 SECTION 9.1. INTENTIONALLY DELETED........................................................ 94 SECTION 9.2. INTENTIONALLY DELETED........................................................ 94 SECTION 9.3. INTENTIONALLY DELETED........................................................ 94 SECTION 9.4. INTENTIONALLY DELETED........................................................ 94 SECTION 9.5. SERVICER..................................................................... 94 X. MISCELLANEOUS.................................................................................. 94 SECTION 10.1. SURVIVAL..................................................................... 94 SECTION 10.2. LENDER'S DISCRETION.......................................................... 94 SECTION 10.3. GOVERNING LAW................................................................ 94 SECTION 10.4. MODIFICATION, WAIVER IN WRITING.............................................. 96 SECTION 10.5. DELAY NOT A WAIVER........................................................... 96 SECTION 10.6. NOTICES...................................................................... 96 SECTION 10.7. TRIAL BY JURY................................................................ 98 SECTION 10.8. HEADINGS..................................................................... 98 SECTION 10.9. SEVERABILITY................................................................. 98 SECTION 10.10. PREFERENCES.................................................................. 98 SECTION 10.11. WAIVER OF NOTICE............................................................. 99 SECTION 10.12. REMEDIES OF BORROWER......................................................... 99 SECTION 10.13. EXPENSES; INDEMNITY.......................................................... 99 SECTION 10.14. SCHEDULES INCORPORATED...................................................... 100 SECTION 10.15. OFFSETS, COUNTERCLAIMS AND DEFENSES......................................... 101 SECTION 10.16. NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES............... 101 SECTION 10.17. PUBLICITY................................................................... 101 SECTION 10.18. WAIVER OF MARSHALLING OF ASSETS............................................. 101

-ii- SECTION 10.19. WAIVER OF OFFSETS/COUNTERCLAIMS............................................. 102 SECTION 10.20. CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE............................... 102 SECTION 10.21. BROKERS AND FINANCIAL ADVISORS.............................................. 102 SECTION 10.22. PRIOR AGREEMENTS............................................................ 102 SECTION 10.23. CERTAIN ADDITIONAL RIGHTS OF LENDER (VCOC).................................. 103 SECTION 10.24. SUCCESSORS AND ASSIGNS...................................................... 103 SECTION 10.25. COUNTERPARTS; LOST NOTES.................................................... 103 SECTION 10.26. REINSTATEMENT............................................................... 103 SECTION 10.27. JOINT AND SEVERAL........................................................... 103 XI. AGENCY PROVISIONS; ASSIGNMENTS AND PARTICIPATIONS............................................. 104 SECTION 11.1. AGENT....................................................................... 104 SECTION 11.2. ACTIONS BY LENDER........................................................... 108 SECTION 11.3. SET OFF AND SHARING OF PAYMENTS............................................. 109 SECTION 11.4. PAYMENTS.................................................................... 110 SECTION 11.5. DISSEMINATION OF INFORMATION................................................ 110 SECTION 11.6. ASSIGNMENTS AND PARTICIPATIONS.............................................. 110 SECTION 11.7. NOTE REGISTER............................................................... 110

-iii- SCHEDULES Schedule I -- Properties and Mortgage Borrowers Schedule II -- Licenses Schedule III -- Form of Occupancy Report Schedule IV -- Organizational Structure Schedule V -- Licensed Bed Capacity Schedule VI -- Intentionally Deleted Schedule VII -- Mezzanine Allocated Loan Amounts Schedule VIII -- Borrower Pledged Entity Interests Schedule IX -- Exceptions to Health Care Representations Schedule 5.3.2 -- Permitted Indebtedness Schedule 5.3.3 -- Permitted Liens Schedule 5.3.4 -- Investments; New Facilities or Collateral; Subsidiaries Schedule 5.3.6 -- Transactions with Affiliates Schedule 5.3.9 -- Contingent Obligations Schedule 5.3.11 -- Leasehold Properties Exhibit A -- Intentionally Deleted Annex I -- Financial Covenants -iv- Index of Defined Terms 2003 MAXIMUM AMOUNT............................... 32,38 AFFILIATE......................................... 2 AFFILIATED LOANS.................................. 2 AFFILIATED MANAGER................................ 2 AGENT............................................. 1 AGREEMENT......................................... 1 ALTA.............................................. 2 ANNUAL BUDGET..................................... 3 APPLICABLE INTEREST RATE.......................... 3 APPROVED ANNUAL BUDGET............................ 3,64 APPROVED BANK..................................... 5 ASSIGNMENT OF LEASES.............................. 3 AWARD............................................. 3 BANK MIDWEST AMENDED AND RESTATED NOTE............ 3 BANKRUPTCY ACTION................................. 3 BANKRUPTCY CODE................................... 3 BASIC CARRYING COSTS.............................. 4 BERGEN NOTE....................................... 4 BORROWER.......................................... 1,4 BORROWER PLEDGED ENTITY INTERESTS................. 2,4 BREAKAGE COSTS.................................... 4,37 BUSINESS DAY...................................... 4 BUSINESS GROUP.................................... 4 CA MASTER TENANT.................................. 1 CAPITAL EXPENDITURES.............................. 4 CAPITAL LEASE..................................... 4 CAPITALIZED LEASE OBLIGATIONS..................... 4 CAPITALSOURCE LOAN DOCUMENTS...................... 4 CARE CENTERS...................................... 9 CASH EQUIVALENTS.................................. 4 CASH EXPENSES..................................... 5 CASH MANAGEMENT ACCOUNT........................... 5 CASH MANAGEMENT AGREEMENT......................... 5 CASUALTY.......................................... 5,87 CLASS 10 DEFERRED OBLIGATIONS..................... 5 CLOSING DATE...................................... 5 CODE.............................................. 5 COLLATERAL........................................ 5 CONDEMNATION...................................... 6

-v- CONDEMNATION PROCEEDS............................. 6 CONFIRMATION ORDER................................ 6 CONSOLIDATED BASIS................................ 6 CONTINGENT OBLIGATIONS............................ 6 CONTINUING CREDITOR DEFERRED OBLIGATION........... 6 CONTRACTUAL OBLIGATION............................ 6 CSFB.............................................. 6 DE 23 PLEDGED ENTITY INTERESTS.................... 2 DEBT.............................................. 6 DEBT SERVICE...................................... 7 Debt Service Coverage Ratio....................... 7 DEFAULT........................................... 7 DEFAULT RATE...................................... 7 Deposit Bank...................................... 7 DETERMINATION DATE................................ 7 DISTRIBUTION...................................... 7 ELIGIBLE ACCOUNT.................................. 7 ELIGIBLE INSTITUTION.............................. 8 EMBARGOED PERSON.................................. 8,54 ENVIRONMENTAL INDEMNITY........................... 8 ERISA............................................. 8 EUREKA PREMISE.................................... 9 EUREKA TRANSACTION................................ 8 EVENT OF DEFAULT.................................. 9,88 EXCESS CASH FLOW.................................. 9 EXCESS CASH FLOW PRINCIPAL PAYMENT................ 9,38 EXCLUDED SUBSIDIARY............................... 10 EXTRAORDINARY EXPENSE............................. 10,64 FACILITY.......................................... 10 FEE OWNERS........................................ 22 FISCAL YEAR....................................... 10 FITCH............................................. 10 FOREIGN TAXES..................................... 10,34 GAAP.............................................. 10 GOVERNMENTAL AUTHORITY............................ 10 GROSS INCOME FROM OPERATIONS...................... 10 GUARANTOR......................................... 1,10 GUARANTOR REVOLVING CREDIT BORROWER............... 10 GUARANTOR REVOLVING CREDIT LENDER................. 11 GUARANTOR REVOLVING CREDIT LOAN................... 11 GUARANTOR REVOLVING CREDIT LOAN AGREEMENT......... 11

-ii- GUARANTOR REVOLVING CREDIT LOAN DOCUMENTS......... 11 GUARANTY.......................................... 11 GUARANTY AND SECURITY AGREEMENT................... 11 HEALTH CARE AUTHORITIES........................... 11 HEALTHCARE LAWS................................... 11 HERITAGE PARTNERS................................. 11 IMPROVEMENTS...................................... 11 INDEBTEDNESS...................................... 12 INDEBTEDNESS FOR BORROWED MONEY................... 12 INDEMNIFIED LIABILITIES........................... 12,100 INDEMNIFYING PERSON............................... 12 INDENTURE......................................... 12 INDENTURE INTERCREDITOR AGREEMENT................. 85 INDENTURE NOTES................................... 12 INDENTURE TRUSTEE................................. 12 INDEPENDENT DIRECTOR.............................. 12 INDEPENDENT MANAGER............................... 12 INDIVIDUAL PROPERTY............................... 13 INSURANCE PREMIUMS................................ 13 INSURANCE PROCEEDS................................ 13 INSURANCE SUBSIDIARY.............................. 13 INTERCREDITOR AGREEMENT........................... 14 INTEREST PERIOD................................... 13 INVENTORY......................................... 14 INVESTMENT........................................ 81 JOINDER AGREEMENT................................. 14 LANDLORD WAIVER................................... 14 LEASE............................................. 14 LEASEHOLD MORTGAGE................................ 14 LEASEHOLD PROPERTY................................ 14 LEGAL REQUIREMENTS................................ 15 LENDER............................................ 1,15 LETTER OF CREDIT.................................. 15 LIBOR............................................. 15 LIBOR LOAN........................................ 16 LICENSES.......................................... 16,55 LIEN.............................................. 16 LIQUIDATION EVENT................................. 16,40 LOAN.............................................. 16 LOAN DOCUMENTS.................................... 16 LOAN-TO-VALUE RATIO............................... 16

-iii- LOCKBOX ACCOUNT................................... 16 LOCKBOX BANK...................................... 16 LONDON BUSINESS DAY............................... 17 MAINTENANCE CAPITAL EXPENDITURES.................. 17 MANAGER........................................... 17 MASTER LEASE...................................... 17 MASTER LESSEE..................................... 17 MATERIAL ADVERSE CHANGE........................... 17 MATERIAL ADVERSE EFFECT........................... 17 MATURITY DATE..................................... 17 MAXIMUM LEGAL RATE................................ 17 MEDICAL PAYORS.................................... 18 MEDICARE/MEDICAID ACCOUNT......................... 18 MEDICARE/MEDICAID RECEIVABLES ACCOUNT............. 18 MEZZANINE CASH MANAGEMENT AGREEMENT............... 18 MEZZANINE DEPOSIT ACCOUNT......................... 18,42 MEZZANINE LOAN ALLOCATED LOAN AMOUNT.............. 18 MEZZANINE LOAN RELEASE AMOUNT..................... 18 MEZZANINE SECURITIES ACCOUNT...................... 18,42 MONTHLY AMORTIZATION AMOUNT....................... 18,38 MONTHLY OPERATING EXPENSE AMOUNT.................. 19 MOODY'S........................................... 19 MORTGAGE.......................................... 1,19 MORTGAGE BORROWER................................. 1,19 MORTGAGE INTERCREDITOR AGREEMENT.................. 19 MORTGAGE LENDER................................... 1,19 MORTGAGE LOAN..................................... 1 MORTGAGE LOAN AGREEMENT........................... 1,19 MORTGAGE LOAN DEFAULT............................. 19 MORTGAGE LOAN DOCUMENTS........................... 19 MORTGAGE LOAN EVENT OF DEFAULT.................... 19 MORTGAGE LOAN RESERVE FUNDS....................... 19 MORTGAGE NOTE..................................... 1,19 MORTGAGES......................................... 1 NET CASH FLOW..................................... 19 NET CASH FLOW SCHEDULE............................ 20,61 NET LIQUIDATION PROCEEDS AFTER DEBT SERVICE....... 20 NET OPERATING INCOME.............................. 20 NEW GUARANTOR REVOLVING CREDIT LOAN............... 20,75 NEW MORTGAGE LOAN................................. 20,78 NEW REVOLVING CREDIT LOAN......................... 20,76

-iv- NOTE.............................................. 20 O&M AGREEMENT..................................... 21 OCCUPANCY REPORT.................................. 21 OFFICE BUILDING................................... 9 OFFICER'S CERTIFICATE............................. 21 OPERATING EXPENSES................................ 21 OPERATING LEASE................................... 21 OPERATOR.......................................... 21 ORGANIZATIONAL CHART.............................. 21,47 OTHER CHARGES..................................... 21 OWNER............................................. 22 PAYMENT DATE...................................... 22 PERMITTED ENCUMBRANCES............................ 22 PERMITTED INDEBTEDNESS............................ 79 PERMITTED LIENS................................... 80 PERMITTED REFINANCED INDEBTEDNESS................. 80 PERSON............................................ 22 PERSONAL PROPERTY................................. 22 PHYSICAL CONDITIONS REPORT........................ 22 PLAN OF REORGANIZATION............................ 22 PLEDGE AGREEMENT.................................. 2,22 PLEDGED ENTITY INTERESTS.......................... 23 PLEDGOR........................................... 23 PLEDGOR GUARANTY.................................. 23 POLICIES.......................................... 23 PRIMARY OBLIGATIONS............................... 6 PRIMARY OBLIGOR................................... 6 PRIME RATE........................................ 23 PRIME RATE LOAN................................... 23 PRIORITY CLAIMS................................... 23 PRIORITY LIENS.................................... 23 PROMISSORY NOTE B................................. 23 PROPERTIES........................................ 23 QUALIFIED MANAGER................................. 24 RATING AGENCIES................................... 24 REH LLC PLEDGED ENTITY INTERESTS.................. 1 RENTS............................................. 24 REPLACEMENT MANAGEMENT AGREEMENT.................. 24 RESERVE FUNDS..................................... 24 RESTORATION....................................... 25 RESTRICTED PARTY.................................. 25

-v- REVOLVING CREDIT LENDER........................... 25 REVOLVING CREDIT LOAN............................. 25 REVOLVING CREDIT LOAN AGREEMENT................... 25 REVOLVING CREDIT LOAN DOCUMENTS................... 25 RPGP.............................................. 1 S&P............................................... 25 SALE OR PLEDGE.................................... 25 SECURITY AGREEMENT................................ 25 SERVICER.......................................... 94 SERVICES.......................................... 25 SERVICING AGREEMENT............................... 94 SEVERED LOAN DOCUMENTS............................ 26,92 SIGNIFICANT PARTY................................. 26 SPECIAL PURPOSE ENTITY............................ 26 SPREAD............................................ 30 STATE............................................. 30 SUBORDINATED DEBT................................. 30 SUBORDINATION AGREEMENT........................... 30 SUBSIDIARY........................................ 30 SUBSIDIARY BORROWER............................... 30 SUBSIDIARY BORROWERS.............................. 30 SUMMIT NOTE....................................... 31 SURVEY............................................ 31 TAX AND INSURANCE ESCROW FUND..................... 31 TAXES............................................. 31 TITLE INSURANCE POLICIES.......................... 31 TRANSFER.......................................... 31,73 TX MASTER TENANT.................................. 1 U.S. OBLIGATIONS.................................. 31 UCC............................................... 31 UCC TITLE INSURANCE POLICY........................ 31,44 UNIFORM COMMERCIAL CODE........................... 31 UNION BANK NOTE................................... 31 VENDORS' LIEN..................................... 31 WOODLANDS PLACE NOTE.............................. 31 WORKING CAPITAL................................... 32 ZONING REPORTS.................................... 32

-vi- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of August 19, 2003 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), by and among FORTRESS CREDIT OPPORTUNITIES I, L.P., a Delaware limited partnership, HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P., a Delaware limited partnership and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, collectively, as lender (in such capacity, "LENDER") CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for Lender (in such capacity, "AGENT"), and SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company ("REH LLC") and SHG INVESTMENTS, LLC a Delaware limited liability company ("DE 23"), jointly and severally (REH LLC and DE 23, collectively, "BORROWER") and FOUNTAIN VIEW, INC., a Delaware corporation ("GUARANTOR"), solely for the purposes set forth in the last sentence of Section 2.6.3, Section 4.1.39 and Section 5.3 of this Agreement. W I T N E S S E T H: WHEREAS, Column Financial, Inc., a Delaware corporation ("MORTGAGE LENDER"), is making a loan in the principal amount of $95,000,000.00 (the "MORTGAGE LOAN") to those entities set forth on SCHEDULE I annexed hereto and made a part hereof (collectively, "MORTGAGE BORROWER") pursuant to that certain Loan Agreement, dated as of the date hereof (as the same may be amended, supplemented, replaced or otherwise modified from time to time, the "MORTGAGE LOAN AGREEMENT"), which Mortgage Loan is evidenced by that certain Promissory Note, dated as of the date hereof (as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time, the "MORTGAGE NOTE"), made by Mortgage Borrower to Mortgage Lender and secured by, among other things, certain first priority Deeds of Trust and Security Agreements dated as of the date hereof (as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time, individually, each a "MORTGAGE", and, as the context requires, collectively, the "MORTGAGES") given by Mortgage Borrower in favor of Mortgage Lender pursuant to which Mortgage Borrower has granted Mortgage Lender a first priority mortgage on, among other things, the Property and other collateral as more fully described in the Mortgage; WHEREAS, REH LLC is the legal and beneficial owner of (A) one hundred percent (100%) of the membership interests in (i) those entities listed as DE 24-32 on SCHEDULE VIII annexed hereto, (ii) Texas Secured Resources, LLC, a Delaware limited liability company ("TX MASTER TENANT"), (iii) California Secured Resources, LLC, a Delaware limited liability company ("CA MASTER TENANT") and (iv) Secured Resource Management GP, LLC, a Delaware limited liability company ("RPGP") and (B) all of the limited partnership interests in SHG Secured Resources, LP, consisting of a 99% limited partnership interest therein (collectively, the "REH LLC PLEDGED ENTITY INTERESTS"); WHEREAS, DE 23 is the legal and beneficial owner of (i) one hundred percent (100%) of the membership interests in those entities listed as DE 1-21 on SCHEDULE VIII annexed hereto and (ii) all of the limited partner interests in those entities listed as NTLP 1-21 on SCHEDULE VIII annexed hereto, consisting of ninety-nine percent (99%) of the limited partnership interests therein (collectively, the "DE 23 PLEDGED ENTITY INTERESTS, together with the REH LLC Pledged Entity Interests, collectively, the "BORROWER PLEDGED ENTITY INTERESTS"); WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; WHEREAS, as a condition precedent to the obligation of Lender to make the Loan to Borrower, (A) Borrower and certain other entities have each entered into that certain Pledge Agreement and Security Agreement, dated as of the date hereof in favor of Agent (as amended, restated, supplemented, replaced or otherwise modified from time to time, the "PLEDGE AGREEMENT"), pursuant to which Agent has been granted a first priority security interest in the Collateral (as defined in the Pledge Agreement) as collateral security for the Debt (as hereinafter defined) and (B) Borrower and the other parties thereto have entered into the Loan Documents; and WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined). NOW THEREFORE, in consideration of the making of the Loan by Lender, the covenants, agreements, representations and warranties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent: "AFFILIATE" shall mean, 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 or is a director or officer of such Person or of an Affiliate of such Person. "AFFILIATED LOANS" shall mean a loan made by Lender to an Affiliate of Borrower or Guarantor. "AFFILIATED MANAGER" shall mean any manager of any Individual Property in which Borrower, Mortgage Borrower or Guarantor has, directly or indirectly, any legal, beneficial or economic interest. "ALTA" shall mean American Land Title Association, or any successor thereto. 2 "ANNUAL BUDGET" shall mean the operating budget, including all planned Capital Expenditures for the Properties and each Individual Property separately, prepared by Mortgage Borrower for the applicable Fiscal Year or other period. "APPLICABLE INTEREST RATE" shall mean the rate or rates at which the outstanding principal amount of the Loan bears interest from time to time in accordance with the provisions of Section 2.2.3 hereof. "APPROVED ANNUAL BUDGET" shall have the meaning set forth in Section 5.1.11(l) hereof. "ASSIGNMENT OF LEASES" shall mean, with respect to each Individual Property, that certain first priority Assignment of Leases and Rents, dated as of the date hereof, from Mortgage Borrower, as assignor, to Mortgage Lender, as assignee, assigning to Mortgage Lender all of Mortgage Borrower's interest in and to the Leases and Rents of such Individual Property as security for the Mortgage Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "AWARD" shall mean any compensation paid by any Governmental Authority in connection with a Condemnation with respect to all or any part of any Individual Property. "BANK MIDWEST AMENDED AND RESTATED NOTE" shall mean the amended and restated promissory note in a maximum principal amount not to exceed $5,633,333 to be issued by [Woodlands Resource Management, L.P., and The Woodlands Healthcare Center, L.P.] to Bank Midwest, N.A. pursuant to the Plan, the repayment of which is secured by that certain deed of trust and security agreement dated December 1, 1993 and assigned to Bank Midwest by instrument dated July 17, 2001. "BANKRUPTCY ACTION" shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against such Person; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of the Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due. "BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C., Section 101, et seq., and the regulations adopted and promulgated pursuant thereto. 3 "BASIC CARRYING COSTS" shall mean, for any period, with respect to each Individual Property, the sum of the following costs associated with such Individual Property for such period: (a) Taxes and (b) Insurance Premiums. "BERGEN NOTE" shall have the meaning set forth in the Plan of Reorganization. "BORROWER" shall have the meaning set forth in the introductory paragraph hereto. "BORROWER PLEDGED ENTITY INTERESTS" shall have the meaning set forth in the Recitals. "BREAKAGE COSTS" shall have the meaning set forth in Section 2.2.3(h) hereof. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. "BUSINESS GROUP" shall mean (a) the Subsidiaries of Guarantor that are borrowers under this Agreement, the Revolving Credit Loan Agreement, the Mortgage Loan Agreement or Subsidiaries of such borrowers; (b) the long term care business (other than such business as is covered by clause (a)); (c) the pharmacy business; (d) the locomotion business, and (e) corporate headquarters and overhead. "CAPITAL EXPENDITURES" shall mean, for any period, the amount expended for items capitalized under GAAP (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements). "CAPITAL LEASE" shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a "capital lease" in accordance with GAAP. "CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations of any Person under Capital Leases, in each case, taken at the amount thereof accounted for as a liability in accordance with GAAP. "CAPITALSOURCE LOAN DOCUMENTS" shall mean, collectively all of the Loan Documents defined as Loan Documents in the Revolving Credit Loan Agreement and the Guarantor Revolving Credit Loan Agreement. "CASH EQUIVALENTS" shall mean (a) securities issued, or directly and fully guaranteed or insured, by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of (i) any Guarantor Revolving Credit Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, or (ii) any 4 bank (or the parent company of such bank) whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof in each case with maturities of not more than six months from the date of acquisition (any bank meeting the qualifications specified in clauses (b)(i), (ii) or (iii), an "APPROVED BANK"), (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a), above, entered into with any Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or the equivalent thereof, from S&P or A2 or the equivalent thereof from Moody's and in each case maturing within six months after the date of acquisition and (e) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (a) through (d) above. "CASH EXPENSES" shall mean, for any period, the Operating Expenses for the operation of the Properties as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus any payments into the Tax and Insurance Escrow Fund and the Replacement Reserve Fund (each as defined in the Mortgage Loan Agreement). "CASH MANAGEMENT ACCOUNT" shall have the meaning set forth in the Mortgage Loan Agreement. "CASH MANAGEMENT AGREEMENT" shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among Mortgage Borrower, Manager and Mortgage Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "CASUALTY" shall have the meaning set forth in Section 6.2 hereof. "CLASS 10 DEFERRED OBLIGATIONS" shall have the meaning set forth in the Plan of Reorganization. "CLOSING DATE" shall mean the date of the funding of the Loan. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "COLLATERAL" shall have the meaning set forth in the Pledge Agreement. "COMMITMENT" shall mean, with respect to each Lender, the amounts set forth opposite the name of such Lender on the signature pages hereof, such amount representing the portion of the Loan advanced by such Lender on the date hereof. 5 "CONDEMNATION" shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Individual Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Individual Property or any part thereof. "CONDEMNATION PROCEEDS" shall have the meaning set forth in the Mortgage Loan Agreement. "CONFIRMATION ORDER" shall have the meaning set forth in Section 3.1.21 hereof. "CONSOLIDATED BASIS" shall mean, with respect to Borrower, the consolidation in accordance with GAAP of the accounts or other items of Guarantor and its Subsidiaries. "CONTINGENT OBLIGATIONS" shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guaranty any Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) 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 (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided, however, that the term "Contingent Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "CONTINUING CREDITOR DEFERRED OBLIGATION" shall have the meaning set forth in the Plan of Reorganization. "CONTRACTUAL OBLIGATION" shall mean as to any Person, any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound, or any provision of the foregoing. "CSFB" shall mean Credit Suisse First Boston LLC and its successors in interest. "DEBT" shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums due to Lender and Agent in respect of the Loan under the Note, this Agreement, the Pledge Agreement and the other Loan Documents. 6 "DEBT SERVICE" shall mean, with respect to any particular period of time, scheduled principal and/or interest payments due under this Agreement and the Note (excluding Excess Cash Flow Principal Payments). "DEBT SERVICE COVERAGE RATIO" shall mean a ratio for the immediately preceding twelve (12) month period for which financial statements of Borrower are delivered in accordance with this Agreement: (a) the numerator is the Net Operating Income (excluding interest on credit accounts) for such period as set forth in the financial statements required hereunder; and (b) the denominator is the aggregate amount of the Debt Service due and payable on the Loan and the Mortgage Loan for such period. If the Debt Service Coverage Ratio is required to be calculated during a period in which the Loan has been outstanding for less than twelve (12) months or financial statements are available for less than twelve (12) months during the Loan term, Net Operating Income shall still be calculated for the preceding twelve (12) months and Debt Service shall be calculated for the number of full Interest Periods in which the Loan is outstanding multiplied by a fraction the numerator of which is 12 and the denominator is the number of such Interest Periods in which the Loan is outstanding. "DEFAULT" shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" shall mean a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) five percent (5%) above the Applicable Interest Rate. "DEPOSIT BANK" shall mean the bank or banks selected by the Agent to maintain the Mezzanine Deposit Account. "DETERMINATION DATE" shall mean, with respect to any Interest Period, the date that is two (2) London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences. "DISTRIBUTION" shall mean any fee, payment, bonus or other remuneration or distribution of any kind, and any repayment of or debt service on loans or other indebtedness. "ELIGIBLE ACCOUNT" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. 7 Section 9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "ELIGIBLE INSTITUTION" shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least "A- 1+" by S&P, "P-i" by Moody's or "F-1+" by Fitch, if rated by such Rating Agency, in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch or S&P and "Aa2" by Moody's, if rated by such Rating Agency). Lender and Agent acknowledge that each of Bank of America and Wells Fargo Bank, N.A. shall be deemed to be an Eligible Institutions so long as its short term unsecured debt obligations or commercial paper (in the case of accounts in which funds are held for thirty (30) days or less) are rated at least "A-2+" by S&P, "P-2" by Moody's and "F-1" by Fitch, if rated by such Rating Agency, or its long term unsecured debt obligations (in the case of accounts in which funds are held for more than thirty (30) days) are rated at least "A" by Fitch and S&P and "A2" by Moody's, if rated by such Rating Agency. For accounts into which checks are deposited by Borrower from private pay residents of the Facilities, other than the Lockbox Account and the Medicare/Medicaid Account, a depository institution or trust company that insures deposits held by such a depository institution or trust company through the Federal Deposit Insurance Corporation shall constitute an "Eligible Institution" so long as the amount on deposit in all accounts of any Borrower at such institution does not exceed $100,000 at any one time. "EMBARGOED PERSON" shall have the meaning set forth in Section 4.1.35 hereof. "ENVIRONMENTAL INDEMNITY" shall mean that certain Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EUREKA TRANSACTION" shall mean the transactions contemplated by that certain Option Agreement dated as of May 30, 2003 (as amended, modified or supplemented from time to time with the consent of the Guarantor Revolving Credit Lender (such consent not to be unreasonably withheld) (the "Option Agreement") by and among Thomas E. Sutton and Sandra A. Sutton, Trustees of the Sutton Family Living Trust, Landlord and Guarantor, including, without limitation, (i) the entering into of that certain Commercial Lease to be entered into pursuant to the Option Agreement by and between Matmel Enterprises, Inc. as "Landlord", and Guarantor or a Subsidiary of Guarantor, as "Tenant" with respect to the lease by such tenant of the premises commonly known as Sunset Care Center, 2353 23rd Street, Eureka, California 95501, the Granada Care Center, 2885 Harris Street, Eureka, California 95501, the Pacific Care 8 Center, 2211 Harrison Avenue, Eureka, California 95501, the Seaview Care Center, 8400 Purdue Drive, Eureka, California 95503 (collectively, the "CARE CENTERS") and the Redwood Care Center Office Building, 2353 23rd Street, Eureka, California 95501 (the "OFFICE BUILDING" and collectively with the Care Centers, the "EUREKA PREMISES") and (ii) the purchase by Guarantor or a Subsidiary of Guarantor or the Eureka Premises or all of the equity interest in the entity that owns the Eureka Premises, in each case pursuant to the Option Agreement. "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1(a) hereof. "EXCESS CASH FLOW" means for any fiscal year of Guarantor, (a) the sum, without duplication, of (i) the net income or loss of Guarantor and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by Guarantor or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; and (vi) an amount equal to any decrease in the Working Capital during such fiscal year up to $2,000,000 per year; minus (b) the sum, without duplication, of (i) the Maintenance Capital Expenditures for such fiscal year; (ii) the aggregate amount of all interest expense of Guarantor and its Subsidiaries paid or payable during such fiscal year, (iii) an amount equal to any increase in the Working Capital during such fiscal year up to $2,000,000 per year; (iv) the aggregate amount of all federal and state income taxes of Guarantor and its Subsidiaries paid or payable during such fiscal year; (v) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such fiscal year with respect to the Mortgage Loan (including any required posting of cash collateral in connection with property releases or loans), the Bank Midwest Amended and Restated Note, the Woodlands Place Note, the Union Bank Note, the Mezzanine Loan, (vi) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Loan and the Mortgage Loan and (vii) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP. "EXCESS CASH FLOW PRINCIPAL PAYMENT" shall have the meaning set forth in Section 2.3.2(b) hereof. 9 "EXCLUDED SUBSIDIARY" shall mean any Subsidiary that is (i) a Borrower, (ii) a borrower under the Mortgage Loan Documents, (iii) a Borrower (as defined in the Revolving Credit Loan Agreement), (iv) a partner in an entity described in clause (i), (ii) or (iii), and (iv) a Person designated by Borrowing Agent (as defined in the Guarantor Revolving Credit Agreement) as an excluded Subsidiary. "EXTRAORDINARY EXPENSE" shall have the meaning set forth in Section 5.1.11(l) hereof. "FACILITY" shall mean, individually, any facility providing Services and operated by a Mortgage Borrower. "FISCAL YEAR" shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan. "FITCH" shall mean Fitch, Inc. "FOREIGN TAXES" shall have the meaning set forth in Section 2.2.3(e) hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "GOVERNMENTAL AUTHORITY" shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GROSS INCOME FROM OPERATIONS" shall mean, for any period, all income, computed in accordance with GAAP, derived from the ownership and operation of the Properties from whatever source during such period, including, but not limited to, Rents, utility charges, escalations, forfeited security deposits, interest on credit accounts, service fees or charges, license fees, parking fees, rent concessions or credits, and other pass-through or reimbursements paid by tenants under the Leases of any nature but excluding Rents from month-to-month tenants or tenants that are included in any Bankruptcy Action, sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any Governmental Authority, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, Insurance Proceeds and Condemnation Proceeds (other than business interruption or other loss of income insurance), and any disbursements to Mortgage Borrower from the Reserve Funds, or any other escrow fund established by the Mortgage Loan Documents. "GUARANTOR" shall mean Fountain View, Inc., a Delaware corporation. "GUARANTOR REVOLVING CREDIT BORROWER" shall mean, individually, the "Borrower" or collectively, as the context requires, the "Borrowers" under the Guarantor Revolving Credit Loan Agreement. 10 "GUARANTOR REVOLVING CREDIT LENDER" shall mean (i) CapitalSource Finance LLC, as agent and sole lender under the Guarantor Revolving Credit Loan, its successors and assigns or (ii) the lender under any New Guarantor Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.13. "GUARANTOR REVOLVING CREDIT LOAN AGREEMENT" shall mean that certain Revolving Credit and Security Agreement dated as of the date hereof between Guarantor and certain other entities a party thereto and Revolving Credit Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "GUARANTOR REVOLVING CREDIT LOAN" shall mean the loan from Revolving Credit Lender to Guarantor and certain other entities a party thereto in the principal amount of up to Twenty One Million and No/100 Dollars ($21,000,000.00) and any New Guarantor Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.13. "GUARANTOR REVOLVING CREDIT LOAN DOCUMENTS" shall mean the Guarantor Revolving Credit Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "GUARANTY" shall mean that certain Mezzanine Guaranty of Payment, dated as of the date hereof, from Guarantor in favor of Agent for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "GUARANTY AND SECURITY AGREEMENT" shall have the meaning set forth in the Guarantor Revolving Credit Agreement. "HEALTH CARE AUTHORITIES" shall mean any federal, state or local governmental or quasi-governmental authority or any agency, intermediary, board, authority or entity concerned with the ownership, operation, use or occupancy of any Individual Property as a skilled nursing facility or assisted living facility. "HEALTHCARE LAWS" shall mean all applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority with respect to regulatory matters primarily relating to patient healthcare, healthcare providers and healthcare services (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"). "HERITAGE PARTNERS" shall mean Heritage Partners, Inc., its Affiliates, and its and their successors and assigns. "IMPROVEMENTS" shall have the meaning set forth in the granting clause of the related Mortgage with respect to each Individual Property. 11 "INDEBTEDNESS" of any Person shall mean, without duplication, (a) all items (other than trade payables and current accrued liabilities) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute a capital lease, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. "INDEBTEDNESS FOR BORROWED MONEY" of any Person shall mean, without duplication, (a) all Indebtedness of such Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all Capitalized Lease Obligations of such Person, (c) all Indebtedness of such Person secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (d) all Indebtedness for the deferred purchase price of property and (e) all direct or indirect guaranties of any or all of the foregoing. "INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section 10.13(b) hereof. "INDEMNIFYING PERSON" shall mean each of Borrower and Guarantor. "INDENTURE" shall mean the Indenture dated August 19, 2003 by Guarantor, as Issuer, the subsidiaries of the Guarantor party thereto as guarantors and the Indenture Trustee, pursuant to which the Indenture Notes were issued as the same may be amended, supplemented or modified from time to time. "INDENTURE NOTES" shall mean the $106,761,608 of Senior Subordinated Increasing Rate Secured Notes due 2008 issued pursuant to the Indenture. "INDENTURE TRUSTEE" shall mean US Bank, National Association, as Trustee and Collateral Agent under the Indenture, and any successor thereto. "INDEPENDENT DIRECTOR" or "INDEPENDENT MANAGER" shall mean a natural Person who is not at the time of initial appointment, or at any time while serving as a director or manager, as applicable, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director or Independent Manager), officer, employee, partner, member, 12 attorney or counsel of Borrower or any Affiliate of either of them (provided, however, that no person may serve both as an Independent Director of Mortgage Borrower and Borrower); (b) a creditor, customer, supplier or other person who derives any of its purchases or revenues from its activities with Borrower or any Affiliate of either of them; (c) a Person or other entity controlling or under common control with any such stockholder, partner, member, creditor, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, creditor, customer, supplier or other Person. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise. A natural person who satisfies the foregoing definition other than subparagraph (b) shall not be disqualified from serving as an Independent Director or Independent Manager of Borrower if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors and that also provides other corporate services in the ordinary course of its business. A natural person who otherwise satisfies the foregoing definition except for being the independent director of a "special purpose entity" affiliated with Borrower that does not own a direct or indirect equity interest in Borrower or any co-borrower shall not be disqualified from serving as an Independent Director or Independent Manager of the Borrower if such individual is at the time of initial appointment, or at any time while serving as a Independent Director or Independent Manager of the Borrower, an Independent Director or Independent Manager of a Special Purpose Entity affiliated with Borrower (other than Mortgage Borrower or any entity that owns a direct or indirect equity interest in Borrower or any co-borrower) if such individual is an independent director or independent manager provided by a nationally-recognized company that provides professional independent directors or independent managers. "INDIVIDUAL PROPERTY" shall mean each parcel of real property, the Improvements thereon and all personal property owned by Mortgage Borrower and encumbered by a Mortgage, together with all rights pertaining to such property and Improvements, as more particularly described in the Granting Clauses of each Mortgage and referred to therein as the "Property." "INSURANCE PREMIUMS" shall have the meaning set forth in the Mortgage Loan Agreement. "INSURANCE PROCEEDS" shall have the meaning set forth in the Mortgage Loan Agreement. "INSURANCE SUBSIDIARY" shall mean the offshore insurance subsidiary to be formed by the Guarantor. "INTEREST PERIOD" shall mean, with respect to any Payment Date, the period commencing on the ninth (9th) day of the preceding calendar month and 13 terminating on and including the eighth (8th) day of the calendar month in which such Payment Date occurs; provided, however, that no Interest Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate), and the initial Interest Period shall begin on and include the Closing Date and shall end on and include the immediately following eighth (8th) day of the calendar month. "INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement entered into between Lender, Agent and Mortgage Lender with respect to the Loan and the Mortgage Loan. "INVENTORY" shall mean all "inventory" (as defined in the UCC) of Guarantor (or, if referring to another Person, of such other Person), now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "JOINDER AGREEMENT" shall have the meaning set forth in the Guarantor Revolving Credit Agreement. "LANDLORD WAIVER" shall mean a waiver/consent in form and substance reasonably satisfactory to Agent from the owner/lessor of any premises not owned by Guarantor or Borrower at which any of the collateral granted under the Security Agreement is now or hereafter located for the purpose of providing Agent access to such collateral, in each case as such may be modified, amended or supplemented from time to time. "LEASE" shall mean any lease, rental agreement, occupancy agreement, residency agreement, sublease or subsublease, letting, license, concession or other agreement of whatever form, including, without limitation, service, consulting and administrative agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Individual Property, and (a) every modification, amendment, extension, renewal, replacement or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LEASEHOLD MORTGAGE" shall mean, with respect to each Leasehold Property, that certain first priority Deed of Trust and Security Agreement, dated the date hereof, executed and delivered as security for the Loan and encumbering such Leasehold Property, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "LEASEHOLD PROPERTY" shall mean those properties identified on SCHEDULE 5.3.11 and/or any other leasehold property of Borrower or Guarantor upon which the Indenture Trustee shall assert a Lien. 14 "LEGAL REQUIREMENTS" shall mean, with respect to each Individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities or Health Care Authorities affecting each Individual Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force (including, without limitation, all Health Care Laws and the Americans with Disabilities Act of 1990), and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting any Individual Property or any part thereof, including, without limitation, any which may (a) require repairs, modifications or alterations in or to any Individual Property or any part thereof or (b) in any way limit the use and enjoyment thereof. "LENDER" shall have the meaning set forth in the introductory paragraph hereto, together with its successors and assigns. "LETTER OF CREDIT" shall mean an irrevocable, unconditional, transferable, clean sight draft letter of credit acceptable to Agent and the Rating Agencies (either an evergreen letter of credit or one which does not expire until at least thirty (30) Business Days after the Maturity Date) in favor of Agent and entitling Lender to draw thereon in New York, New York, issued by a domestic Eligible Institution or the U.S. agency or branch of a foreign Eligible Institution. If at any time the bank issuing any such Letter of Credit shall cease to be an Eligible Institution, Agent shall have the right immediately to draw down the same in full and hold the proceeds of such draw in accordance with the applicable provisions hereof. "LIBOR" shall mean, with respect to each Interest Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/8 of 1%) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, Agent shall request the principal London office of any four major reference banks in the London interbank market selected by Agent to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such Determination Date for the amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Agent shall request any three major banks in New York City selected by Agent to provide such bank's rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European 15 banks for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively by Agent or its agent, absent manifest error. Notwithstanding anything to the contrary contained herein in no event shall LIBOR be less than one and seventy -five hundredths percent (1.75%) per annum. "LIBOR LOAN" shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR. "LICENSES" shall have the meaning set forth in Section 4.2(a) hereof. "LIEN" shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, Mortgage Borrower, the Collateral, the related Individual Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LIQUIDATION EVENT" shall have the meaning set forth in Section 2.4.4 hereof, provided, however, that any assets which have been sold and for which a release amount has been paid shall be deemed excluded from the provisions of this Section. "LOAN" shall mean the loan in the principal amount of Twenty Three Million Dollars ($23,000,000.00) made by Lender to Borrower pursuant to this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Guaranty, the Pledgor Guaranty, the Mezzanine Cash Management Agreement, the Intercreditor Agreement, the Mezzanine Subordination Agreements, and all other documents executed and/or delivered in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "LOAN-TO-VALUE RATIO" shall mean the ratio, as of a particular date, in which the numerator is equal to the outstanding principal balance of Note A and the denominator is equal to (a) on the Closing Date, the value of the Properties as set forth in the Appraisals delivered by Mortgage Borrower to Mortgage Lender in accordance with the provisions of Section 3.1.18 of the Mortgage Loan Agreement, and (b) thereafter, the fair market value of the Properties as determined by Mortgage Lender in its reasonable discretion. "LOCKBOX ACCOUNT" shall have the meaning set forth in the Mortgage Loan Agreement. "LOCKBOX BANK" shall have the meaning set forth in the Mortgage Loan Agreement. 16 "LONDON BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business. "MANAGER" shall mean a Qualified Manager who is managing the Properties in accordance with the terms and provisions of this Agreement. "MAINTENANCE CAPITAL EXPENDITURES" means, for any fiscal year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection with an acquisition) incurred or made by Guarantor and its Subsidiaries during such fiscal year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any fiscal year (for any fiscal year, the "Maximum Amount") shall not exceed (a) for fiscal year 2003, $7,000,000 and (b) for any fiscal year thereafter, $7,000,000 plus the Maximum Amount for the immediately preceding fiscal year minus the actual amount of Maintenance Capital Expenditures included in this definition pursuant to clause (a) in such immediately preceding fiscal year. "MASTER LEASE" shall mean, individually and collectively, those certain leases dated as of the date hereof between Owner, as lessor, and the Master Lessees, as lessee, pursuant to which such Master Lessee is leasing the Individual Properties. "MASTER LESSEE" shall mean, collectively, the Mortgage Borrowers set forth on SCHEDULE I under the column labeled "Master Lessee," which are leasing their respective Individual Properties pursuant to a Master Lease. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean any event, condition or circumstance or set of events, conditions or circumstances or any change(s) which (i) has, had or could reasonably be expected to have any material adverse effect upon or change in the validity or enforceability of any Loan Document, (ii) has been or could reasonably be expected to be material and adverse to the value of the Collateral or to the business, operations, prospects, properties, assets, liabilities or condition of Borrower and Guarantor taken as a whole, or (iii) has materially impaired or could reasonably be expected to materially impair the ability of Borrower or Guarantor to perform the obligations of each such Person or to consummate the transactions under the Loan Documents executed by such Person. "MATURITY DATE" shall mean September 9, 2008, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise. "MAXIMUM LEGAL RATE" shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. 17 "MEDICAL PAYORS" shall mean the Center for Medicare and Medicaid Services and any other federal or state governmental authority or any other governmental Person responsible for making payment of any Medicare/Medicaid Account. "MEDICARE/MEDICAID ACCOUNT" shall mean any account payable by any Medical Payor under the Medicare or Medicaid programs, any similar or implementing state statutes and the rules and regulations promulgated pursuant to any thereof. "MEDICARE/MEDICAID RECEIVABLES ACCOUNT" shall have the meaning set forth in the Mortgage Loan Agreement. "MEZZANINE CASH MANAGEMENT AGREEMENT" shall mean that certain Mezzanine Cash Management Agreement dated as of the date hereof among Borrower and Agent, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "MEZZANINE DEPOSIT ACCOUNT AND SECURITIES ACCOUNT CONTROL AGREEMENT" shall mean that certain Mezzanine Deposit Account and Securities Account Control Agreement dated as of the date hereof among Borrower, Agent and Wells Fargo Bank, N.A., as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "MEZZANINE DEPOSIT ACCOUNT" shall have the meaning set forth in Section 2.6.5 (a) hereof. "MEZZANINE SECURITIES ACCOUNT" shall have the meaning set forth in Section 2.6.5 (b) hereof. "MEZZANINE LOAN ALLOCATED LOAN AMOUNT" shall mean, for each Individual Property, the amount set forth on SCHEDULE VII hereto, provided that such amounts shall be ratably reduced in connection with any principal payments made hereununder, including those made under Sections 2.3.2(a) and (b) hereof. "MEZZANINE LOAN RELEASE AMOUNT" shall mean, for each Individual Property, one hundred twenty-five percent (125%) of the Mezzanine Loan Allocated Loan Amount for such Individual Property, as the same may be reduced from time to time pursuant to the terms of this Agreement. "MEZZANINE SUBORDINATION AGREEMENTS" shall mean, collectively, the Subordination of Interim Management Agreements and Interim Subleases, the Subordination of Master Leases and Operating Leases, the Subordination of Administrative Services and Employee Services Agreements, each dated as of the date hereof. "MONTHLY AMORTIZATION AMOUNT" shall have the meaning set forth in Section 2.3.2(a) hereof. 18 "MONTHLY OPERATING EXPENSE AMOUNT" shall mean, with respect to any calendar month, the monthly Cash Expenses for the Properties set forth in the Approved Annual Budget then in effect. "MOODY'S" shall mean Moody's Investors Service, Inc. "MORTGAGE" shall have the meaning set forth in the Recitals to this Agreement. "MORTGAGE BORROWER" shall have the meaning set forth in the Recitals to this Agreement, together with its successors and permitted assigns. "MORTGAGE INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement, dated as of August 19, 2003, by and between Mortgage Lender and Lender, as the same may be amended from time to time. "MORTGAGE LENDER" shall have the meaning set forth in the Recitals to this Agreement, together with its successors and assigns. "MORTGAGE LOAN AGREEMENT" shall have the meaning set forth in the Recitals to this Agreement. "MORTGAGE LOAN DEFAULT" shall mean a "Default" under and as defined in the Mortgage Loan Agreement. "MORTGAGE LOAN DOCUMENTS" shall mean, collectively, the Mortgage Note, the Mortgage Loan Agreement, each Mortgage, each Assignment of Leases and Rents, the Cash Management Agreement, the Assignment of Interest Rate Cap Agreement, the Subordination of Administrative Services and Employee Services Agreements, the Assignment and Subordindation of Interim Subleases and Interim Management Agreements and any and all other documents defined as "Loan Documents" in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time. "MORTGAGE LOAN EVENT OF DEFAULT" shall mean an "Event of Default" under and as defined in the Mortgage Loan Agreement. "MORTGAGE LOAN RESERVE FUNDS" shall mean the "Reserve Funds" as defined in the Mortgage Loan Agreement. "MORTGAGE NOTE" shall have the meaning set forth in the Recitals to this Agreement. "NET CASH FLOW" shall mean, for any period, the amount obtained by subtracting Operating Expenses and Capital Expenditures for such period from Gross Income from Operations for such period. 19 "NET CASH FLOW SCHEDULE" shall have the meaning set forth in Section 5.1.11(b) hereof. "NET LIQUIDATION PROCEEDS AFTER DEBT SERVICE" shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Mortgage Borrower in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (a) Lender's, Agent's and/or Mortgage Lender's reasonable costs incurred in connection with the recovery thereon (b) the costs incurred by Mortgage Borrower in connection with a Restoration of all or any portion of the Property made in accordance with the Mortgage Loan Documents, (c) amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender, (d) in the case of a foreclosure sale, disposition or Transfer of the Property in connection with realization thereon following an Event of Default under the Mortgage Loan, such reasonable and customary costs and expenses of sale or other disposition (including attorneys' fees and brokerage commissions), (e) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents, (f) in the case of a refinancing of the Mortgage Loan, such costs and expenses (including attorneys' fees) of such refinancing as shall be reasonably approved by Agent, and (g) the amount of any prepayments required pursuant to the Mortgage Loan Documents, and/or the Loan Documents, in connection with any such Liquidation Event. "NET OPERATING INCOME" shall mean, for any period, the amount obtained by subtracting Operating Expenses for such period from Gross Income from Operations for such period. "NEW GUARANTOR REVOLVING CREDIT LOAN" shall have the meaning set forth in Section 5.2.13(c) hereof. "NEW MORTGAGE LOAN" shall have the meaning set forth in Section 5.2.15(c) hereof. "NEW REVOLVING CREDIT LOAN" shall have the meaning set forth in Section 5.2.14(c) hereof. "NOTE" shall mean, collectively (i) that certain Promissory Note, dated as of the date hereof, in the principal amount of Eleven Million Five Hundred Thousand Dollars ($11,500,000.00) made by Borrower in favor of CapitalSource Finance LLC, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, (ii) that certain Promissory Note, dated as of the date hereof, in the principal amount of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000.00) made by Borrower in favor of Highbridge/Zwirn Special Opportunities Fund, L.P., as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time and (iii) that certain Promissory Note, dated as of the date hereof, in the principal amount of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000.00) made by 20 Borrower in favor of Fortress Credit Opportunities I, LP, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "O&M AGREEMENT" shall have the meaning set forth in the Mortgage Loan Agreement. "OCCUPANCY REPORT" shall mean a true, correct and complete schedule, in substantially the form attached hereto as SCHEDULE III (provided in accordance with legal requirements related to privacy) which accurately and completely sets forth, the number and percentage of beds or units at the Facility that are occupied, the average rent and other charges payable with respect to each bed or unit at an Individual Property, the form of payment or reimbursement (e.g. Medicare, Medical, other insurance, private payments) applicable thereto and the aggregate arrearages in payments. "OFFICER'S CERTIFICATE" shall mean a certificate delivered to Lender or Agent, as applicable, by Borrower which is signed by an authorized senior officer of the general partner or managing member of Borrower, as applicable. "OPERATING EXPENSES" shall mean, for any period, the total of all expenditures, computed in accordance with GAAP, of whatever kind during such period relating to the operation, maintenance and management of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs and maintenance (which ordinary repairs and maintenance for the purposes of determining the Debt Service Coverage Ratio shall be no less than an assumed monthly expense of one-twelfth (1/12th) of $400 per bed for any Individual Property that is a skilled nursing facility and one-twelfth (1/12th) of $400 per unit for any Individual Property that is an assisted living facility), insurance, license fees, property taxes and assessments, advertising expenses, legal fees, consulting fees, management fees, payroll and related taxes, computer processing charges, tenant improvements and leasing commissions, operational equipment or other lease payments as approved by Mortgage Lender, and other similar costs, but excluding depreciation, Debt Service, Capital Expenditures, and contributions to the Reserve Funds and any other reserves required under the Mortgage Loan Documents. "OPERATING LEASE" shall mean, individually and collectively, those certain leases dated as of the date hereof between a Master Lessee, as lessor and an Operator, as lessee, pursuant to which such Operator is leasing its Individual Property. "OPERATOR" shall mean, collectively, the Mortgage Borrowers set forth on SCHEDULE I under the column labeled "OPERATOR," which are operating their respective Individual Properties pursuant to Operating Leases. "ORGANIZATIONAL CHART" shall have the meaning set forth in Section 4.1.1 hereof. "OTHER CHARGES" shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any 21 Individual Property, now or hereafter levied or assessed or imposed against such Individual Property or any part thereof. "OWNER" shall mean, collectively, the Mortgage Borrowers set forth on Schedule I under the column labeled "FEE OWNERS," each of which is the fee owner of its respective Individual Property. "PAYMENT DATE" shall mean the ninth (9th) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day. "PERMITTED ENCUMBRANCES" shall mean, with respect to an Individual Property, collectively, (a) the Liens and security interests created by the Loan Documents and Mortgage Loan Documents, (b) the Liens and security interests created by the Revolving Credit Loan Agreement, (c) all Liens, encumbrances and other matters disclosed in the Title Insurance Policies relating to such Individual Property or any part thereof, (d) Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and (e) (i) with respect to the Title Insurance Policies, such other title exceptions as Mortgage Lender has approved or may approve in writing in Mortgage Lender's sole discretion and such survey exceptions as Mortgage Lender has approved or may approve in writing in Mortgage Lender's sole discretion and (ii) with respect to the UCC Title Insurance Policy, such other title exceptions as Agent has approved or may approve in writing in Agent's sole discretion. "PERSON" shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PERSONAL PROPERTY" shall have the meaning set forth in the granting clauses of the Mortgage with respect to each Individual Property. "PHYSICAL CONDITIONS REPORT" shall mean, with respect to each Individual Property, a report prepared by a company satisfactory to Lender regarding the physical condition of such Individual Property, satisfactory in form and substance to Lender in its reasonable discretion. "PLAN OF REORGANIZATION" shall mean Debtors' Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678BB through LA 01-39697BB and LA 01-45520BB and LA 01-45516BB, LA 01-45520BB and LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time. "PLEDGE AGREEMENT" shall have the meaning set forth in the Recitals to this Agreement. 22 "PLEDGED ENTITY INTERESTS" shall have the meaning set forth in the Pledge Agreement. "PLEDGOR" shall mean each "PLEDGOR" individually, or as the context requires, collectively, as set forth in each of the Pledge Agreement. "PLEDGOR GUARANTY" shall mean that certain Guaranty of Payment (Pledgor), dated as of the date hereof, from Pledgors (other than Borrower and Guarantor) to Agent, for the benefit of the Lenders, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "POLICIES" shall have the meaning set forth in the Mortgage Loan Agreement. "PRIME RATE" shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the "Prime Rate." If more than one "Prime Rate" is published in The Wall Street Journal for a day, the average of such "Prime Rates" shall be used, and such average shall be rounded up to the nearest one-eighth of one percent (0.125%). If The Wall Street Journal ceases to publish the "Prime Rate," the Agent shall select an equivalent publication that publishes such "Prime Rate," and if such "Prime Rates" are no longer generally published or are limited, regulated or administered by a governmental or quasigovernmental body, then Agent shall reasonably select a comparable interest rate index. Notwithstanding the foregoing to the contrary, so long as the Mortgage Loan remains outstanding, the "Prime Rate" shall have the meaning set forth in the Mortgage Loan Agreement. "PRIME RATE LOAN" shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate. "PRIME RATE SPREAD" shall mean the difference (expressed as the number of basis points) between (a) LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b) the Prime Rate on the date that LIBOR was last applicable to the Loan; provided, however, in no event shall such difference be a negative number. "PROPERTIES" shall mean, collectively, each and every Individual Property which is subject to the terms of the Mortgage Loan Agreement and the Mortgages. "PRIORITY CLAIMS" shall mean Class 1, Class 2, Class 3, Class 4 and Class 7 claims under the Plan of Reorganization and any other liens given priority under the Plan of Reorganization and outstanding on the Closing Date. "PRIORITY LIENS" shall mean Liens permitted pursuant to Section 5.3.3(ii), (iii), (iv), (v), (vi), (viii), (x), (xi) and Liens set forth on SCHEDULE 5.3.3. "PROMISSORY NOTE B" shall have the meaning set forth in the Mortgage Loan Agreement. 23 "PRO RATA SHARE" means, with respect to each Lender at any time, the percentage obtained by dividing (i) the principal balance of the Loan held by such Lender by (ii) the aggregate principal balance of the Loan. "QUALIFIED MANAGER" shall mean, in the reasonable judgment of Agent, a reputable and experienced management organization (which may be an Affiliate of Borrower) possessing experience in managing properties similar in size, scope, use and value as the Properties. "RATING AGENCIES" shall mean each of S&P, Moody's and Fitch, or any other nationally recognized statistical rating agency which has been approved by Agent. "RENTS" shall mean, with respect to each Individual Property, all accounts (including any rights of Mortgage Borrower in accounts arising from the operations conducted at or by the Facility), deposits (whether for security or otherwise but excluding any resident trust accounts), rents, issues, profits, revenues, royalties, rights, benefits, and income of every nature of and from the Individual Property and the operations conducted or to be conducted thereon, including, without limitation, minimum rents, additional rents, termination payments, forfeited security deposits, any rights to payment earned under Leases for the operation of ongoing retail businesses such as newsstands, concession stands, barbershops, beauty shops, gift shops, cafeterias, dining rooms, restaurants, lounges, vending machines, physicians' offices, pharmacies, laboratories, gymnasiums, swimming pools, tennis courts, golf courses, recreational centers and specialty shops, liquidated damages following default and all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability due to destruction or damage to the Individual Property, together with the immediate and continuing right to collect and receive the same, whether now due or hereafter becoming due, and together with all rights and claims of any kind that Mortgage Borrower may have against any tenant, lessee or licensee under the Leases or against any other occupant of the Individual Property. "REPLACEMENT MANAGEMENT AGREEMENT" shall mean (a) a management agreement with a Qualified Manager, which management agreement shall be reasonably acceptable to Agent in form and substance and (b) an assignment of management agreement and subordination of management fees substantially in the form then used by Agent (or of such other form and substance reasonably acceptable to Agent), executed and delivered to Lender by Borrower and such Qualified Manager at Borrower's expense. "REQUIRED LENDERS" means at any time the Lenders whose Pro Rata Shares, in the aggregate, are greater than or equal to sixty-six and two-thirds percent (66.67%). "RESERVE FUNDS" shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund and the Debt Service Reserve Fund, the Required Repair Fund and any other escrow fund established pursuant to and as defined in the Mortgage Loan Documents. 24 "RESTORATION" shall mean the repair and restoration of an Individual Property after a Casualty or Condemnation as nearly as commercially practicable to the condition the Individual Property was in immediately prior to such Casualty or Condemnation. "RESTRICTED PARTY" shall mean, collectively, (a) Borrower, Mortgage Borrower, Guarantor and any Affiliated Manager and (b) any shareholder, partner, member, non-member manager, direct or indirect legal or beneficial owner of, Borrower, Mortgage Borrower or any Affiliated Manager. "REVOLVING CREDIT LENDER" shall mean (i) CapitalSource Finance LLC, as administrative agent and collateral agent for the lenders specified in the Revolving Credit Loan, their successors and assigns or (ii) the lender under any New Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.14. "REVOLVING CREDIT LOAN" shall mean the loan from Revolving Credit Lender to Operators in the principal amount of up to Eleven Million and No/100 Dollars ($11,000,000.00) and any New Revolving Credit Loan entered into in accordance with the provisions of Section 5.2.14. "REVOLVING CREDIT LOAN AGREEMENT" shall mean that certain Revolving Credit and Security Agreement dated as of the date hereof between the Borrowers listed on SCHEDULE 1 to the Revolving Credit Loan Agreement and Revolving Credit Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "REVOLVING CREDIT LOAN DOCUMENTS" shall mean, the Revolving Credit Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "S&P" shall mean Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies. "SALE OR PLEDGE" shall mean a voluntary or involuntary sale, conveyance, assignment, transfer, encumbrance or pledge of a legal or beneficial interest. "SECURITY AGREEMENT" shall mean that certain Security Agreement dated as of the date hereof between the grantors listed on SCHEDULE 1 to the Security Agreement, Guarantor and Agent, for the benefit of the Lenders, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "SERVICES" shall mean medical and health care services provided to a Person, including, but not limited to, medical and health care services which are covered by a policy of insurance, physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, pharmacy services, residential and out-patient behavioral healthcare services. 25 "SEVERED LOAN DOCUMENTS" shall have the meaning set forth in Section 8.2(d) hereof. "SIGNIFICANT PARTY" shall mean Borrower, Mortgage Borrower, Guarantor and Operators. "SPECIAL PURPOSE ENTITY" shall mean (i) with respect to a Mortgage Borrower, a "Special Purpose Entity" as defined in the Mortgage Loan Agreement and (ii) with respect to any other corporation, limited partnership or limited liability company which at all times on and after the Closing Date hereof (except as otherwise provided in the Revolving Loan Agreement or Guarantor Revolving Loan Agreement): (a) is organized solely for the purpose of (i) owning, holding, encumbering, selling, transferring, exchanging, managing and operating the Collateral, entering into this Agreement with the Lender, refinancing the Collateral in connection with a permitted repayment of the Loan, and transacting lawful business that is incident, reasonably necessary and appropriate to accomplish the foregoing; or (ii) acting as a general partner of the limited partnership that owns the Collateral or managing member of the limited liability company that owns the Collateral; (b) is not engaged and will not engage in any business unrelated to (i) the ownership of the Collateral, (ii) acting as general partner of the limited partnership that owns the Collateral or (iii) acting as a managing member of the limited liability company that owns the Collateral, as applicable; (c) does not have and will not have any assets other than those related to the Collateral or its partnership interest in the limited partnership or the member interest in the limited liability company that owns the Collateral or acts as the general partner or managing member thereof as applicable; (d) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, sale of all or substantially all of its assets, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a member in a limited liability company) or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable) with respect to the matters set forth in this definition; (e) if such entity is a limited partnership, has, as its only general partners, Special Purpose Entities that are corporations, limited partnerships or limited liability companies and each general partner owns at least one half of one percent (0.5%) of the equity of the limited partnership; (f) if such entity is a corporation, has at least two (2) Independent Directors, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action requiring the unanimous affirmative vote of one hundred percent (100%) of the members of its board of directors unless two (2) Independent Directors shall have participated in such vote; 26 (g) if such entity is a limited liability company with more than one (1) member, has at least one (1) member that is a Special Purpose Entity that is a corporation that has at least two (2) Independent Directors and that owns at least one half of one percent (0.5%) of the equity of the limited liability company; (h) if such entity is a limited liability company with only one (1) member, is a limited liability company organized in the State of Delaware that (i) is managed by a board of managers, (ii) has at least two (2) Independent Managers and has not caused or allowed and will not cause or allow the board of managers of such entity to take any action requiring the unanimous affirmative vote of one hundred percent (100%) of the managers unless two (2) Independent Managers shall have participated in such vote and (iii) at least one (1) springing member that will become a non-managing member of such entity upon the dissolution of the existing member; (i) if such entity is (i) a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, (ii) a limited partnership, has a limited partnership agreement, or (iii) a corporation, has a certificate of incorporation or articles that, in each case, provide that such entity will not, without the written consent of any applicable Governmental Authority, if required: (A) dissolve, merge, liquidate, consolidate; (B) sell all or substantially all of its assets or the assets of Borrower (as applicable) without the consent of Agent; (C) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition without the consent of Agent; or (D) without the affirmative vote of two (2) Independent Managers or two (2) Independent Directors and of all other directors of the corporation or board of managers (that is such entity or the general partner or managing or co-managing member of such entity), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest; (j) is and will remain solvent and pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due, and is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (k) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity; (l) has maintained and will maintain its accounts, books and records separate from any other Person and will file its own tax returns, except to the extent that it is required to file consolidated tax returns by law; (m) has maintained and will maintain its own records, books, resolutions and agreements; 27 (n) other than as provided in the Mezzanine Cash Management Agreement, (i) has not commingled and will not commingle its funds or assets with those of any other Person and (ii) has not participated and will not participate in any cash management system with any other Person, except that if Borrower and its Affiliates use a centralized disbursement system, administered by an Affiliate pursuant to written paying agency agreement acceptable to Agent to pay expenses, Borrower may, on any day when Borrower shall pay such expenses, transfer the amount of such payment to the disbursement account used for such centralized system and cause such disbursement to be made on the same day, provided that such disbursement shall indicate that such disbursement is made on behalf of Borrower and Borrowers shall keep, and shall cause such Affiliates to keep accurate records reflecting all deposits made by Borrower and all disbursements made on Borrower's behalf; (o) has held and will hold its assets in its own name; (p) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in Subsection (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of Borrower; (q) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person and has not permitted and will not permit its assets or liabilities to be listed as assets or liabilities on the financial statement of any other entity except as required by GAAP; provided, however, that any such consolidated financial statement shall contain a note indicating that its separate assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity; (r) has paid and will pay its own liabilities and expenses, including the salaries of its own employees, out of its own funds and assets, and has maintained and will maintain a sufficient number of employees in light of its contemplated business operations and in accordance with all Legal Requirements; (s) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable; (t) has and will have no Indebtedness other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business and the routine administration of Borrower, which liabilities are not more than sixty (60) days past the date incurred, are not evidenced by a note and are paid when due, and which amounts are normal and reasonable under the circumstances, and (iii) such other liabilities that are permitted pursuant to this Agreement; (u) has not and will not assume or guarantee or become obligated for the debts of any other Person (other than pursuant to the Summit Note) or hold out its 28 credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; provided, however, that this provision shall not be deemed to prohibit indemnification and contribution agreements entered into under the Loan Documents; (v) has not and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate; (w) has allocated and will allocate fairly, reasonably and in accordance with all Legal Requirements any overhead expenses or other common expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate; (x) maintains and uses and will maintain and use separate stationery, invoices and checks bearing its name. The stationery, invoices, and checks utilized by the Special Purpose Entity or utilized to collect its funds or pay its expenses shall bear its own name and shall not bear the name of any other entity unless such entity is clearly designated as being the Special Purpose Entity's agent; (y) has not pledged and will not pledge its assets for the benefit of any other Person, except as otherwise permitted or by the Loan Documents; (z) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of Borrower and not as a division or part of any other Person, except (i) for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in Subsection (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of Borrower; or (ii) to the extent a single member limited liability company is treated as a division of its member for federal tax purposes; (aa) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (bb) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other Person or entity (other than cash and investment-grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity); (cc) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person, except to the extent a single member limited liability company is treated as a division of its member for federal tax purposes; 29 (dd) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except (i) in the ordinary course of its business and on terms which are intrinsically fair, commercially reasonable and are in compliance with all Legal Requirements and no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party, and (ii) in connection with this Agreement; (ee) has not and will not have any obligation to, and will not, indemnify its partners, officers, directors or members, as the case may be, unless such an obligation is fully subordinated to the Debt; (ff) if such entity is a corporation, it shall consider the interests of its creditors in connection with all corporate actions; (gg) does not and will not have any of its obligations guaranteed by any Affiliate, except as otherwise provided for in the Loan Documents or the Revolving Credit Loan Documents or the Guarantor Revolving Credit Loan Documents; and (hh) has complied and will comply with all of the terms and provisions contained in its organizational documents. The statement of facts contained in its organizational documents are true and correct and will remain true and correct. "SPREAD" shall mean 18.875%. "STATE" shall mean, with respect to an Individual Property, the State or Commonwealth in which such Individual Property or any part thereof is located. "SUBORDINATED DEBT" shall mean Indebtedness under the Indenture, the Bergen Note, the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation and the Vendor's Lien and any other Indebtedness which is expressly subordinated to the obligations of Borrower and Guarantor hereunder and under the Guaranty and under the Guarantor Revolving Credit Loan Documents pursuant to a Subordination Agreement or otherwise in a manner satisfactory to Guarantor Revolving Credit Loan Lender. "SUBORDINATION AGREEMENT" shall mean, collectively and each individually, any subordination agreements to which Lender or Agent on behalf of Lender and other service providers or creditors of Guarantor are a party and any other agreement in form and substance reasonably satisfactory to Agent pursuant to which a Person agrees to subordinate its Indebtedness and/or Liens to the Debt. "SUBSIDIARY" shall mean, as to any other Person, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person's Subsidiaries. "SUBSIDIARY BORROWERS" and "SUBSIDIARY BORROWER" shall mean the entities listed on SCHEDULE VIII to this Agreement. 30 "SUMMIT NOTE" shall mean that certain Note, dated as of the date hereof, in the original principal amount of $32,392,800, given by SHG INVESTMENTS, LLC, in favor of SUMMIT CARE TEXAS, LP, a Texas limited partnership, which note has been pledged to Lender as additional security for the Loan. "SURVEY" shall mean a survey of the Individual Property in question prepared pursuant to the requirements contained in Section 3.1.3(c) hereof. "TAX AND INSURANCE ESCROW FUND" shall have the meaning set forth in the Mortgage Loan Agreement. "TAXES" shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Individual Property or part thereof. "TITLE INSURANCE POLICIES" shall mean, with respect to each Individual Property, an ALTA mortgagee title insurance policy in a form acceptable to Lender (or, if an Individual Property is in a State which does not permit the issuance of such ALTA policy, such form as shall be permitted in such State and acceptable to Mortgage Lender) issued with respect to such Individual Property and insuring the lien of the Mortgage encumbering such Individual Property. "TRANSFER" shall have the meaning set forth in Section 5.2.10(b) hereof. "UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in effect in the applicable State in which an Individual Property is located. "UCC TITLE INSURANCE POLICY" shall have the meaning set forth in Section 3.1.3(b) hereof. "UNION BANK NOTE" shall mean that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 issued by Summit Care Corporation to Union Bank of California, N.A. with an outstanding principal balance of $823,333.04 on the date of this Agreement and secured by certain real and personal property located in Burbank, California, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001. "U.S. OBLIGATIONS" shall mean non-redeemable securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged. "VENDORS' LIEN" shall have the meaning set forth in the Plan of Reorganization. "WOODLANDS PLACE NOTE" shall mean that certain promissory note in the original principal amount of $1,887,866.62 made by Woodlands Resource Management, 31 L.P., and The Woodlands Healthcare Center, L.P., in favor of Woodlands Place Nursing Center, LP, and all other agreements, documents, instruments and certificates executed and delivered in connection therewith, as each may be amended, modified and supplemented from time to time. "WORKING CAPITAL" means, as of any date, (a) the sum, without duplication, of (i) current assets (other than cash and cash equivalents) and (ii) cash and cash equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long term debt) and (ii) long term liabilities related to accrued insurance, in each case calculated on such date for Guarantor and its Subsidiaries. "ZONING REPORTS" shall have the meaning set forth in Section 3.1.3(f) hereof. "2003 MAXIMUM AMOUNT" shall have the mean set forth in Section 2.3.2(b) hereof. SECTION 1.2. PRINCIPLES OF CONSTRUCTION. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All uses of the word "including" shall mean "including, without limitation" unless the context shall indicate otherwise. Unless otherwise specified, 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. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. II. GENERAL TERMS SECTION 2.1. LOAN COMMITMENT; DISBURSEMENT TO BORROWER. 2.1.1 AGREEMENT TO LEND AND BORROW. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date. The portion of the Loan being advanced by each Lender is an amount equal to such Lender's Commitment. 2.1.2 SINGLE DISBURSEMENT TO BORROWER. Borrower shall receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed. 2.1.3 THE NOTE, PLEDGE AGREEMENT AND LOAN DOCUMENTS. The Loan shall be evidenced by the Note and secured by the Pledge Agreement and the other Loan Documents. 2.1.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan solely to (a) make an equity contribution to Mortgage Borrower in order to cause Mortgage Borrower to use such amounts for any use permitted pursuant to Section 2.1.4 32 of the Mortgage Loan Agreement, (b) pay costs and expenses incurred in connection with the closing of the Loan, as approved by Lender, (c) fund any working capital requirements of the Properties and (d) distribute the balance, if any, to Borrower to be used for other general corporate needs of Borrower or its Affiliates. SECTION 2.2. INTEREST RATE. 2.2.1 INTEREST GENERALLY. Interest on the outstanding principal balance of the Loan shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate. Borrower shall pay to Lender on each Payment Date the interest accrued on the Loan for the immediately preceding Interest Period. 2.2.2 INTEREST CALCULATION. Interest on the outstanding principal balance of the Loan shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the outstanding principal balance. 2.2.3 DETERMINATION OF INTEREST RATE. (a) The Applicable Interest Rate with respect to the Loan shall be: (i) LIBOR plus the Spread with respect to the applicable Interest Period for a LIBOR Loan or (ii) the Prime Rate plus the Prime Rate Spread for a Prime Rate Loan if the Loan is converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3 (c) or (f). (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a LIBOR Loan and Borrower shall pay interest on the outstanding principal amount of the Loan at LIBOR plus the Spread for the applicable Interest Period. Any change in the rate of interest hereunder due to a change in the Applicable Interest Rate shall become effective as of the opening of business on the first day on which such change in the Applicable Interest Rate shall become effective. Each determination by Agent of the Applicable Interest Rate shall be conclusive and binding for all purposes, absent manifest error. (c) In the event that Agent shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Agent shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be converted, on the last day of the then current Interest Period, to a Prime Rate Loan. (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to a Prime Rate Loan and Agent shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Agent shall give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) Business Day prior to the last day of the related 33 Interest Period. If such notice is given, the related outstanding Prime Rate Loan shall be converted to a LIBOR Loan on the last day of the then current Interest Period. (e) With respect to a LIBOR Loan, all payments made by Borrower hereunder shall be made free and clear of, and without reduction for or on account of, income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, reserves or withholdings imposed, levied, collected, withheld or assessed by any Governmental Authority, which are imposed, enacted or become effective after the date hereof (such non-excluded taxes being referred to collectively as "FOREIGN TAXES"), excluding income and franchise taxes of the United States of America or any political subdivision or taxing authority thereof or therein (including Puerto Rico). If any Foreign Taxes are required to be withheld from any amounts payable to Lender hereunder, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder, provided, however, that if: (i) Lender is a "foreign corporation, partnership or trust" within the meaning of the Internal Revenue Code, Lender agrees with and in favor of Borrower, to deliver to Borrower: (A) if Lender claims an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN and W-8ECI before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (B) if Lender claims that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of Lender and in each succeeding taxable year of Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (C) such other form or forms as may be required under the Internal Revenue Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. Lender agrees to promptly notify Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. 34 (ii) Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form FW-8BEN and Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Debt owing to Lender, Lender agrees to notify Borrower of the percentage amount in which it is no longer the beneficial owner of Debt of Borrower to Lender. To the extent of such percentage amount, Borrower will treat Lender's IRS Form W-8BEN as no longer valid. (iii) Lender is claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Debt owing to Lender, Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Section 1441 and 1442 of the Code. (iv) Lender is entitled to a reduction in the applicable withholding tax, Borrower may withhold from any interest payment to Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Borrower, then Borrower may withhold from any interest payment to Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. Whenever any Foreign Tax is payable pursuant to applicable law by Borrower, as promptly as possible thereafter, Borrower shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Foreign Tax. Borrower hereby indemnifies Lender for any incremental taxes, interest or penalties that may become payable by Lender which may result from any failure by Borrower to pay any such Foreign Tax when due to the appropriate taxing authority or any failure by Borrower to remit to Lender the required receipts or other required documentary evidence. (f) If any requirement of law or any change therein or in the interpretation or application thereon shall hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder (i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier period as required by law. Borrower hereby agrees promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any Breakage Costs. Lender's notice of such costs, as certified to Borrower, shall be conclusive absent manifest error. (g) In the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive (whether or not having the force of law) hereafter issued from any central bank or other Governmental Authority: 35 (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder; (ii) shall hereafter have the effect of reducing the rate of return on Lender's capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by any amount reasonably deemed by Lender to be material; or (iii) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder; then, in any such case, Borrower shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material as reasonably determined by Lender. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(g), Lender shall provide Borrower with not less than ninety (90) days notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive in the absence of manifest error. This provision shall survive payment of the Note and the satisfaction of all other obligations of Borrower under this Agreement and the Loan Documents. (h) Borrower agrees to indemnify Lender and to hold Lender harmless from any loss or expense which Lender sustains or incurs as a consequence of (i) any default by Borrower in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether voluntary or mandatory) of the LIBOR Loan on a day that (a) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (b) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrower did not give the prior notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder and (iii) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any portion of the outstanding principal amount of the Loan then bearing interest at LIBOR plus the Spread on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, 36 such loss or expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (i), (ii) and (iii) are herein referred to collectively as the "BREAKAGE COSTS"); provided, however, Borrower shall not indemnify Lender from any loss or expense arising from Lender's willful misconduct or gross negligence. This provision shall survive payment of the Note in full and the satisfaction of all other obligations of Borrower under this Agreement and the other Loan Documents. (i) Lender shall not be entitled to claim compensation pursuant to this Section 2.2.3 for any Foreign Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than ninety (90) days before the date Lender notified Borrower of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrower a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.2.3, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.2.4 ADDITIONAL COSTS. Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any increased or additional costs payable by Borrower under Section 2.2.3 including, if requested by Borrower, a transfer or assignment of the Loan to a branch, office or Affiliate of Lender in another jurisdiction, or a redesignation of its lending office with respect to the Loan, in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or redesignation (a) would not result in any additional costs, expenses or risk to Lender that are not reimbursed by Borrower and (b) would not be disadvantageous in any other respect to Lender as determined by Lender in its sole discretion. 2.2.5 DEFAULT RATE. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal balance of the Loan and, to the extent permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein. 2.2.6 USURY SAVINGS. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the 37 extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. 2.2.7 INTENTIONALLY DELETED. SECTION 2.3. LOAN PAYMENT. 2.3.1 PAYMENTS GENERALLY. Borrower shall pay to Lender an amount equal to the interest accrued on the outstanding principal balance of the Loan for (a) the initial Interest Period to be paid on the Closing Date and (b) each Interest Period thereafter to be paid on the applicable Payment Date. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever. 2.3.2 PRINCIPAL PAYMENTS. (a) Commencing on the first Payment Date occurring on [October 9], 2003, 2003 and continuing on each Payment Date thereafter through and including the Payment Date which occurs on the second (2nd) anniversary of the initial Payment Date (October 9, 2005), together with each monthly payment of interest, Borrower shall make a payment to Lender of principal in the amount of Two Hundred Eight Thousand and 33/100 Dollars ($208,333.33) (the "MONTHLY AMORTIZATION AMOUNT"). (b) Commencing in 2004 and during each calendar year thereafter during the term of the Loan, upon the earlier to occur of (i) April 30th of such year and (ii) not later than ten (10) days following delivery of the annual financial statements to Lender referred to in and required by Section 5.11(b) with respect to the prior calendar year, Borrower shall make a principal payment to Lender (each such payment, an "EXCESS CASH FLOW PRINCIPAL PAYMENT") in an amount equal to the lesser of (i) 100% of Excess Cash Flow for the immediately preceding calendar year and (ii) the positive excess of (x) Ten Million Dollars ($10,000,000) (or for calendar year 2003, the 2003 Maximum Amount (as defined below)) plus any Catch-Up Amounts (defined below) with respect to years prior to the immediately preceding calendar year, if applicable, over (y) monthly amortization payments made by Borrower to Lender during such immediately preceding calendar year pursuant to Section 2.3.2(a) or any other voluntary prepayments (it being understood and agreed that any prepayment made under Section 2.5 or Section 2.7 shall not be deemed to be a "voluntary" prepayment). To the extent that, with respect to any calendar year, the aggregate amount of principal payments under this Section 2.3.2(b) and Section 2.3.2(a) is less than $10,000,000, the positive excess of $10,000,000 over such payments shall be defined as a "Catch-Up Amount". For purposes of the foregoing calculation for calendar year 2003, an amount equal to the product of (I) $10,000,000 multiplied by (II) a fraction, the numerator of which is the number of months during 2003 that this Loan is outstanding and the denominator of which is 12 (the "2003 MAXIMUM AMOUNT") shall be substituted for "$10,000,000" in such calculation. 38 2.3.3 PAYMENT ON MATURITY DATE. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest and all other amounts due hereunder and under the Note and the other Loan Documents. 2.3.4 LATE PAYMENT CHARGE. If any principal, interest or any other sums due under the Loan Documents is not paid by Borrower by the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law. 2.3.5 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 1:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender's office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof be deemed to have been paid on the next succeeding Business Day. Whenever any payment to be made hereunder or under any other Loan Document is stated to be due on a day which is not a Business Day, the due date thereof shall be the Business Day immediately preceding such day. Notwithstanding anything to the contrary contained herein, if Lender shall constitute more than one Person, all payments hereunder shall be made to each constituent Lender on a ratable basis, based upon the principal balance then outstanding under such Lender's Note SECTION 2.4. PREPAYMENTS. 2.4.1 VOLUNTARY PREPAYMENTS. Borrower at any time may, at its option and upon ten (10) days prior notice to Agent, prepay the Debt in whole or in part; provided that such prepayment is accompanied by (a) all interest at the Applicable Interest Rate which would have accrued on the amount of the Loan to be paid through the date of such prepayment; and (b) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender's costs and expenses (including reasonable attorney's fees and disbursements) incurred by Lender in connection with such prepayment. Any partial prepayment shall be applied to the last payments of principal due under the Loan. Notwithstanding the foregoing to the contrary, any prepayment made following the occurrence of an Event of Default shall be accompanied by interest at the Default Rate which would have accrued on the amount of the Loan to be paid through the date of such prepayment. 2.4.2 INTENTIONALLY DELETED 2.4.3 INTENTIONALLY DELETED 39 2.4.4 LIQUIDATION EVENTS (a) In the event of (i) any Casualty to all or any all or any portion of the Properties, (ii) any Condemnation of all or any portion of the Properties, (iii) a Transfer of all or any portion of the Properties in connection with realization thereon following a Mortgage Loan Event of Default, including without limitation a foreclosure sale, or (iv) any refinancing of all or any portion of the Properties or the Mortgage Loan (each, a "LIQUIDATION EVENT"), Borrower shall cause the related Net Liquidation Proceeds After Debt Service to be deposited directly into the Mezzanine Deposit Account. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, Borrower shall prepay the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service, together with interest through the date of such prepayment. Any amounts of Net Liquidation Proceeds After Debt Service in excess of the Debt shall be paid to Borrower. Any prepayment received by Lender pursuant to this Section 2.4.4(a) on a date other than a Payment Date shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrower, and shall be applied by Lender on the next Payment Date. No prepayment premium or fee shall be due in connection with any prepayment made pursuant to this Section 2.4.4(a). Any partial prepayment shall be applied to the last payment of principal due under the Loan. (b) Borrower shall immediately notify Agent of any Liquidation Event once Borrower has knowledge of such event. Borrower shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of all or any portion of the Properties on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of all or any portion of the Properties (other than as expressly permitted pursuant to this Agreement, it being understood and agreed that any Property which has been released pursuant to the terms of this Agreement shall be deemed excluded from the provisions of this Section), on the date on which a commitment for such refinancing has been entered into. The provisions of this Section 2.4.4(b) shall not be construed to contravene in any manner the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of the Properties set forth in this Agreement, the other Loan Documents and the Mortgage Loan Documents. SECTION 2.5. RELEASE. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release or assignment of any Lien of the Pledge Agreement on the Collateral. 2.5.1 RELEASE OF COLLATERAL ON PAYMENT IN FULL. Upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note, this Agreement and the other Loan Documents, the Lien of the Pledge Agreement on the Collateral shall be released upon written request by Borrower, and at Borrower's sole cost 40 and expense, Lender shall execute such reasonable documents as Borrower shall reasonably request to evidence such release. 2.5.2 RELEASE OF INDIVIDUAL PROPERTY. Borrower shall have the right to cause Mortgage Borrower to engage in the transactions contemplated by Section 2.5 of the Mortgage Loan Agreement and obtain the release of an Individual Property from the Lien of the Mortgage thereon (and related Mortgage Loan Documents), only if all of the following conditions precedent are satisfied: (a) Borrower shall have complied with all other conditions set forth in Section 2.5.1 of the Mortgage Loan Agreement with respect to such transaction without regard to any waiver by Mortgage Loan Lender of any such conditions (other than a waiver of any non-material term or condition); (b) Borrower shall submit to Agent, not less than thirty (30) days prior to the date of such release, a letter setting forth the Individual Property that is the subject of the transaction, along with its calculation of the ratios referenced in Section 2.5 of the Mortgage Loan Agreement; and (c) Borrower shall have paid to Lender an amount equal to the Mezzanine Loan Release Amount applicable to the released Property and Mortgage Borrower shall have paid to the holder of Note B the Note B Release Amount (each as defined in the Mortgage Loan Agreement) applicable to such Individual Property to be released. SECTION 2.6. CASH MANAGEMENT. 2.6.1 MEDICARE/MEDICAID RECEIVABLES ACCOUNT. Borrower shall cause Mortgage Borrower to establish and maintain a Medicare/Medicaid Receivables Account in accordance with the terms of the Mortgage Loan Agreement. 2.6.2 LOCKBOX ACCOUNTS. Borrower shall cause Mortgage Borrower to establish and maintain one or more Lockbox Accounts in accordance with the terms of the Mortgage Loan Agreement. To the extent that the Mortgage Loan Agreement is no longer in place, Borrower shall cause Mortgage Borrower to maintain substantially similar accounts required in accordance with the terms of the Mortgage Loan Agreement or if the Mortgage Loan is refinanced or paid off in full (without a prepayment of the Loan) and accounts that are required hereunder are not required under the new mortgage loan, if any, then Borrower shall maintain hereunder substantially similar accounts, satisfactory to Agent in accordance with the terms of the Mortgage Loan Agreement. 2.6.3 REVOLVING CREDIT CASH MANAGEMENT. Notwithstanding the foregoing provisions of Sections 2.6.1 and 2.6.2, provided that (a) the Revolving Credit Loan is outstanding, (b) amounts on account of Medicare/Medicaid Receivables and Rents from the Properties are being deposited with the Revolving Credit Lender pursuant to the Revolving Credit Loan Agreement, and (c) the Revolving Credit Lender is disbursing the proceeds of the Revolving Credit Loan and any funds deposited with Revolving Credit Lender pursuant to the Revolving Credit Loan Agreement in the excess 41 of amounts payable under the Revolving Credit Loan into the Cash Management Account, Borrower shall not be required to cause Medical Payors to make deposits of Medicare/Medicaid Receivables and Rents into the Medicare/Medicaid Receivables Account and Lockbox Bank to transfer such amounts into the Lockbox Accounts, respectively, in accordance with the provisions of Sections 2.6.1 and 2.6.2 hereof. Guarantor hereby authorizes Agent, on behalf of Lender to request and obtain advances under the Guarantor Revolving Credit Loan Agreement on each Payment Date to pay any shortfall between the amount on deposit in the Mezzanine Deposit Account on such Payment Date and the amounts payable by Borrower on such Payment Date. 2.6.4 CASH MANAGEMENT ACCOUNT. Borrower shall cause Mortgage Borrower to establish and maintain a Cash Management Account in accordance with the terms of the Mortgage Loan Agreement. 2.6.5 MEZZANINE ACCOUNTS. (a) During the term of the Loan, Borrower shall establish and maintain an Eligible Account into which all cash flow after funding all amounts required under Section 2.6.4 of the Mortgage Loan Agreement shall be transferred into an account (the "MEZZANINE DEPOSIT ACCOUNT"), which Mezzanine Deposit Account shall be entitled and shall have the account number as set forth in the Mezzanine Deposit Account and Securities Account Control Agreement. Funds on deposit in the Mezzanine Deposit account shall be transferred to the Mezzanine Securities Account on the next business day; provided, however, after such time as the total amount on deposit in the Mezzanine Securities Account is equal to or exceeds the "Pegged Amount" (as such term is defined in the Mezzanine Cash Management Agreement), and provided that no Event of Default has occurred and is continuing, all monies in excess of the Pegged Amount shall be transferred to the Borrower in accordance with the terms of the Mezzanine Cash Management Agreement. (a) During the term of the Loan, Borrower shall establish and maintain an Eligible Account into which, on a daily basis, funds on deposit in the Mezzanine Deposit Account up to the Pegged Amount shall be transferred into (the "MEZZANINE SECURITIES ACCOUNT"), which Mezzanine Securities Account shall be entitled and shall have the account number as set forth in the Mezzanine Deposit Account and Securities Account Control Agreement. Funds on deposit in the Mezzanine Securities Account shall be allocated and disbursed in accordance with the terms of the Mezzanine Cash Management Agreement. 2.6.6 INTENTIONALLY DELETED. SECTION 2.7. ASSUMPTION OF PORTION OF LOAN. Borrower shall have the right to cause Mortgage Borrower to engage in the transactions contemplated by Section 2.7 of the Mortgage Loan Agreement, only if all of the following conditions precedent are satisfied: (a) Borrower shall have complied with all other conditions set forth in Section 2.7 of the Mortgage Loan Agreement with respect to such transaction in effect on 42 the date hereof without regard to any waiver by Mortgage Loan Lender of any such conditions (other than a waiver of any non-material term or condition; (b) Borrower shall submit to Agent, not less than thirty (30) days prior to the date of the proposed transaction a notice identifying the Assumed Property and the other information required hereunder, including a calculation of the financial ratios described in Section 2.7 of the Mortgage Loan; (c) Borrower shall have paid or reimbursed Agent for all reasonable costs and expenses incurred by Agent (including, without limitation, reasonable attorneys fees and disbursements) in connection with the transaction contemplated pursuant to Section 2.7 of the Mortgage Loan Agreement; and (d) Borrower shall have paid to Lender an amount equal to the Mezzanine Loan Release Amount applicable to the Assumed Property and Mortgage Borrower shall have paid to the holder of Note B the Note B Release Amount (as defined in the Mortgage Loan Agreement) applicable to such Assumed Property. III. CONDITIONS PRECEDENT SECTION 3.1. CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the Loan hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions precedent no later than the Closing Date: 3.1.1 REPRESENTATIONS AND WARRANTIES: COMPLIANCE WITH CONDITIONS. The representations and warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or an Event of Default shall have occurred and be continuing; and Borrower shall be in compliance in all material respects with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed. 3.1.2 LOAN AGREEMENT AND NOTE. Lender shall have received a copy of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrower. 3.1.3 DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE; REPORTS; INSURANCE. (a) PLEDGE AGREEMENT. Lender shall have received from Borrower fully executed and acknowledged counterparts of the Pledge Agreement and such other documents required pursuant to the Pledge Agreement, and delivery of certificates evidencing the Pledged Entity Interests, together with applicable stock, membership or limited partnership interest powers in blank, the UCC Financing Statements and such other documents required in the reasonable judgment of Lender so as to effectively create valid and enforceable Liens upon the Collateral, of the requisite priority, in favor of Lender, subject only to the Permitted Encumbrances and such other Liens as are 43 permitted pursuant to the Loan Documents. Lender shall have also received from Borrower fully executed counterparts of the other Loan Documents. (b) TITLE INSURANCE. Lender shall have received a UCC "Eagle 9" or equivalent Title Insurance Policy (the "UCC TITLE INSURANCE POLICY") issued by a title company acceptable to Lender and dated as of the Closing Date. Such UCC Title Insurance Policy shall (i) provide coverage in the amount of $23,000,000.00, (ii) insure Agent that the Pledge Agreement and the documents executed and delivered in connection therewith create a valid Lien on the Collateral of the requisite priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain such endorsements and affirmative coverages as Agent may reasonably request, and (iv) name Agent on behalf of Lender as the insured. The UCC Title Insurance Policy shall be assignable. Lender also shall have received evidence that all premiums in respect of such UCC Title Insurance Policy. (c) SURVEY. Lender shall have received copies of the Survey for each Individual Property delivered to Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement. (d) INSURANCE. Lender shall have received valid certificates of insurance for the Policies required under Article VI of the Mortgage Loan Agreement. Lender shall be included as an "additional insured" or "additional named insured", as applicable, under such Policies and Lender shall have received evidence of the payment of all Insurance Premiums payable for the existing policy period. (e) ENVIRONMENTAL REPORTS. Lender shall have received copies of the Phase I environmental report (and, if performed, the Phase II environmental reports) in respect of each Individual Property delivered to Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement. (f) ZONING. With respect to each Individual Property, Lender shall have received copies of the Zoning Reports delivered to Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement. (g) ENCUMBRANCES. Borrower shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date on the Collateral and Lender shall have received satisfactory evidence thereof. (h) MORTGAGE LOAN DOCUMENTS. The Mortgage Loan Documents shall have been duly authorized, executed and delivered by all parties thereto and all of the conditions precedent set forth in Article III of the Mortgage Loan Agreement shall have been satisfied (or waived) and the Mortgage Loan shall have closed and the proceeds of the Mortgage Loan shall have been fully advanced in accordance therewith. (i) LEASEHOLD MORTGAGES. Lender shall have received final fully executed and acknowledged counterparts of the Leasehold Mortgages. 44 (j) INTERCREDITOR AGREEMENTS. Lender shall have received final fully executed copies of the General Intercreditor Agreement (as defined in the Guarantor Revolving Credit Agreement) and the Intercreditor Agreement. (k) ADDITIONAL GUARANTEES. Lender shall have received from The Woodlands Resource Management L.P. and The Woodlands Healthcare Center, L.P. final fully executed copies of unsecured guarantees substantially similar in form and substance to such guarantees delivered to Guarantor Revolving Credit Lender pursuant to Section 4.1(r) of the Guarantor Revolving Credit Loan Agreement. 3.1.4 RELATED DOCUMENTS. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall be in form and substance reasonably satisfactory to Lender, and shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies thereof. 3.1.5 DELIVERY OF ORGANIZATIONAL DOCUMENTS. Borrower shall deliver or cause to be delivered to Lender copies certified by Borrower of all organizational documentation related to each Significant Party and/or their respective formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its reasonable discretion, including, without limitation, good standing certificates dated not more than thirty (30) days prior to the Closing Date, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and Mortgage Loan, as applicable, and incumbency certificates. 3.1.6 OPINIONS OF BORROWER'S COUNSEL. Lender shall have received opinions from Borrower's counsel (a) with respect to the perfection of Lender's Lien on the Collateral and (b) with respect to the due execution, authority, enforceability of the Loan Documents and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender's counsel in their reasonable discretion. 3.1.7 BUDGETS. Borrower shall have delivered, and Lender shall have approved, the Annual Budget for the current Fiscal Year. 3.1.8 BASIC CARRYING COSTS. Borrower shall have caused Mortgage Borrower to have paid (or to pay with proceeds from the Loan) all Basic Carrying Costs relating to the Properties which are in arrears, including without limitation, (a) accrued but unpaid Insurance Premiums, (b) currently due Taxes (including any in arrears) and (c) currently due Other Charges, which amounts shall be funded with proceeds of the Loan. 3.1.9 COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all such 45 counterpart originals or certified copies of such documents as Lender may reasonably request. 3.1.10 PAYMENTS. All payments, deposits or escrows required to be made or established by Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date shall have been paid. 3.1.11 ORIGINATION FEES AND TRANSACTION COSTS. Borrower shall have paid to Lender an origination fee of $230,000.00 (less any amount previously paid by Borrower to Lender) and shall have paid or reimbursed Lender for all UCC Title Insurance Policy premiums, recording and filing fees, costs of environmental reports, Physical Conditions Reports, appraisals and other reports, the fees and costs of Lender's counsel and all other third party out-of pocket expenses incurred in connection with the origination of the Loan to the extent such costs and expenses relating to third party costs have not already been paid or reimbursed by Mortgage Borrower to Mortgage Lender. 3.1.12 MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition or business condition of any Significant Party, the Collateral or the Properties since the date of the most recent financial statements delivered to Lender. The income and expenses of the Properties, the occupancy thereof, and all other features of the transaction shall be as represented to Lender without material adverse change. No Significant Party nor any of their respective constituent Persons shall be the subject of any bankruptcy, reorganization, or insolvency proceeding. 3.1.13 LEASES AND OCCUPANCY REPORT. Lender shall have received copies of all material Leases other than residential Leases or occupancy agreements and a copy of the Occupancy Report(s) for the Properties delivered to Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement. 3.1.14 INTENTIONALLY DELETED 3.1.15 PHYSICAL CONDITIONS REPORT. Lender shall have received copies of the Physical Conditions Report with respect to each Individual Property delivered to Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement. 3.1.16 OPERATING LEASES AND MASTER LEASES. Lender shall have received a copy of the Operating Leases and the Master Leases, which shall be satisfactory in form and substance to Lender, and copies of all necessary approvals in accordance with all Legal Requirements. 3.1.17 INTENTIONALLY DELETED. 3.1.18 APPRAISAL. Lender shall have received an appraisal of each Individual Property, satisfactory to Lender in its sole discretion.. 3.1.19 FINANCIAL STATEMENTS. Lender shall have received a balance sheet with respect to each Individual Property for the two (2) most recent Fiscal Years and statements of income and statements of cash flows with respect to each Individual 46 Property for the three (3) most recent Fiscal Years, each in form and substance satisfactory to Lender. 3.1.20 MEDICARE/MEDICAID AGREEMENTS. Lender shall have received, at Lender's option, copies of Mortgage Borrower's current and valid Medicare and Medicaid provider numbers and agreements, copies of the most recent state surveys, copies of all participation agreements relating to health plans, and information pertaining to the patient census for each Individual Property. 3.1.21 APPROVAL OF REORGANIZATION PLAN. Lender shall have received evidence of the approval of the Plan of Reorganization by the Bankruptcy Court having jurisdiction thereof (the "CONFIRMATION ORDER"). 3.1.22 FURTHER DOCUMENTS. Lender or its counsel shall have received such other and further approvals, opinions, documents and information as Lender or its counsel may have reasonably requested including the Loan Documents in form and substance satisfactory to Lender and its counsel. IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1. BORROWER REPRESENTATIONS. Borrower represents and warrants as of the date hereof and as of the Closing Date that: 4.1.1 ORGANIZATION. Each Significant Party has been duly organized and is validly existing and in good standing with requisite power and authority to own its assets and to transact the businesses in which it is now engaged and is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its assets and to transact the businesses in which it is now engaged. The ownership interests of Borrower are as set forth on the organizational chart attached hereto as SCHEDULE IV (the "ORGANIZATIONAL CHART"). 4.1.2 PROCEEDINGS. Borrower has taken all necessary action to authorize the execution, delivery, and performance of this Agreement and the other Loan Documents by it and has the power and authority to execute, deliver and perform under this Agreement and the other Loan Documents and all transactions contemplated thereby. This Agreement and such other Loan Documents have been duly executed and delivered by or on behalf of Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 4.1.3 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the 47 Loan Documents) upon any of the property or assets of any Significant Party pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or other agreement or instrument to which any Significant Party is a party or by which any of any Significant Party's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over any Significant Party or any of any Significant Party's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any such Governmental Authority required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect. 4.1.4 LITIGATION. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting any Significant Party or any Individual Property, which actions, suits or proceedings, if determined against such Significant Party any Individual Property, might reasonably be expected to have a material adverse effect on the condition (financial or otherwise) or business of such Significant Party or the condition or ownership of any Individual Property. 4.1.5 AGREEMENTS. Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower, Mortgage Borrower, any Individual Property or the Collateral, Mortgage Borrower's or Borrower's business, properties or assets, operations or condition, financial or otherwise. Neither Borrower nor Mortgage Borrower is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower, Mortgage Borrower, the Collateral or any of the Properties are bound. Neither Borrower nor Mortgage Borrower has any material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower or Mortgage Borrower is a party or by which Borrower, Mortgage Borrower, the Collateral or any of the Properties is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property as permitted pursuant to clause (t) of the definition of "Special Purpose Entity" set forth in Section 1.1 of the Mortgage Loan Agreement or this Agreement, and (b) obligations under the Loan Documents, and (c) obligations under the Revolving Credit, Loan Documents and the Mortgage Loan Documents, as applicable. 4.1.6 TITLE. Each of the Pledgors under the Pledge Agreement are the record and beneficial owner of, and have good and marketable title to, the applicable Collateral, free and clear of all Liens whatsoever except the Liens created by the Loan Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the Collateral, will create valid liens on, and security interests in and to, the Collateral, all in accordance with the terms thereof. There are no claims for payment for work, labor or materials affecting the Properties which are or may become a Lien prior to, or of equal priority with, the Liens created by the Mortgage Loan Documents. 48 4.1.7 SOLVENCY. Borrower has (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for its obligations under such Loan Documents. The fair saleable value of Borrower's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of Borrower's assets is and will, immediately following the making of the Loan, be greater than Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured. Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debt and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debt and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of obligations of Borrower). Except the petition that commenced the reorganization proceedings titled In re Fountain View, Inc, et al (jointly administered under Case No. LA 01-39678BB) in the United States Bankruptcy Court for the Central District of California, no petition in bankruptcy has been filed against Borrower or any Affiliate, and neither Borrower nor any Affiliate has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor any of its Affiliates are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower's assets or properties, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or such constituent Persons. 4.1.8 FULL AND ACCURATE DISCLOSURE. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no material fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might reasonably be anticipated to have a material adverse effect on the Collateral, any Significant Party, any Individual Property or the business, operations or condition (financial or otherwise) of Borrower or Mortgage Borrower. 4.1.9 NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitutes or will constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) Borrower is not a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not subject to any state statute regulating investments of, or fiduciary obligations with respect to, governmental plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect, which prohibit or otherwise restrict the transactions contemplated by this Loan Agreement. 49 4.1.10 COMPLIANCE. Except as set forth in the Zoning Reports, each Significant Party and the Properties (including the use thereof) comply in all material respects with all applicable Legal Requirements, including building and zoning ordinances and codes. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, except where any default or violation could not reasonably be expected to have a material adverse effect. No Significant Party or any other Person in occupancy of or involved with the operation or use of the Properties has committed any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. 4.1.11 FINANCIAL INFORMATION. All financial data, including balance sheets, cost reports and the statements of cash flow and income and operating expense, that have been delivered to Lender in connection with the Loan (a) are true, complete and correct in all material respects, (b) accurately represent the financial condition of the Properties as of the date of such reports, and (c) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein. Except for Permitted Encumbrances, no Significant Party has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on any Significant Party, the Collateral, or any Individual Property or the operation of any Individual Property as a skilled nursing facility or assisted living facility, in each case as indicated on Schedule I attached hereto, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no material adverse change in the financial condition, operation or business of Mortgage Borrower, Borrower or any of the Properties from that set forth in said financial statements. 4.1.12 CONDEMNATION. No Condemnation or other proceeding has been commenced or, to Borrower's best knowledge, is threatened or contemplated with respect to all or any portion of any Individual Property or for the relocation of roadways providing access to any Individual Property. 4.1.13 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 4.1.14 UTILITIES AND PUBLIC ACCESS. Each Individual Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Individual Property for its respective intended uses. All public utilities necessary or convenient to the full use and enjoyment of each 50 Individual Property are located either in the public right-of-way abutting such Individual Property (which are connected so as to serve such Individual Property without passing over other property) or in recorded easements serving such Individual Property and such easements are set forth in and insured by the Title Insurance Policies. All roads necessary for the use of each Individual Property for their current respective purposes have been completed and dedicated to public use and accepted by all Governmental Authorities. 4.1.15 NOT A FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 4.1.16 SEPARATE LOTS. Each Individual Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Individual Property. 4.1.17 ASSESSMENTS. There are no pending or, to Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting any Individual Property, nor are there any contemplated improvements to any Individual Property that may result in such special or other assessments. 4.1.18 ENFORCEABILITY. The Loan Documents are not subject to any right of rescission, set off, counterclaim or defense by Borrower or Guarantor, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors' rights and the enforcement of debtors' obligations), and Borrower and Guarantor have not asserted any right of rescission, set off, counterclaim or defense with respect thereto. 4.1.19 NO PRIOR ASSIGNMENT. There are no prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents. 4.1.20 INSURANCE. Borrower has obtained and has delivered to Lender certified copies of all Policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement naming Lender as an "additional insured" or "additional named insured", as applicable. No claims have been made under any such Policies, and no Person, including Borrower and Mortgage Borrower, has done, by act or omission, anything which would impair the coverage of any such Policies. 4.1.21 USE OF PROPERTY. Each Individual Property is used exclusively as a skilled nursing facility or assisted living facility, in each case as indicated on Schedule I attached hereto, and other appurtenant and related uses. 4.1.22 CERTIFICATE OF OCCUPANCY. The use being made of each Individual Property is in conformity with the certificate of occupancy issued for such Individual Property (or the equivalent thereto). 51 4.1.23 FLOOD ZONE. Except as set forth in the Surveys, none of the Improvements on any Individual Property are located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards or, if so located, the flood insurance required pursuant to Section 6.1(a)(i) of the Mortgage Loan Agreement is in full force and effect with respect to each such Individual Property. 4.1.24 PHYSICAL CONDITION. Except as set forth in the Physical Conditions Report, each Individual Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; to Borrower's knowledge, there exists no structural or other material defects or damages in any Individual Property, whether latent or otherwise, and Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any Individual Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. 4.1.25 BOUNDARIES. To Borrower's knowledge, all of the improvements which were included in determining the appraised value of each Individual Property lie wholly within the boundaries and building restriction lines of such Individual Property, and other than as disclosed to Lender on the Survey for such Individual Property, (a) no improvements on adjoining properties encroach upon such Individual Property, and (b) no easements or other encumbrances upon the applicable Individual Property encroach upon any of the improvements, so as to affect the value or marketability of the applicable Individual Property except those which are insured against by the Title Insurance Policy. 4.1.26 OCCUPANCY REPORT. Borrower has delivered to Lender a true, correct and complete Occupancy Report for each Individual Property as of the date hereof. All Leases comply with applicable law, regulation and/or policy issued by any Health Care Authority that has direct or indirect authority or oversight over Borrower, the applicable Individual Property or the operations conducted on such Individual Property. No tenant/resident under any Lease has, as of the date hereof, paid rent more than thirty (30) days in advance, and the rents or charges under such Leases have not been waived, released, or otherwise discharged or compromised. 4.1.27 SURVEY. The Survey for each Individual Property delivered to Lender in connection with the Mortgage Loan Agreement has been prepared in accordance with the provisions of Section 3.1.3(c) of the Mortgage Loan Agreement, and, to Borrower's knowledge, does not fail to reflect any material matter affecting such Individual Property or the title thereto. 4.1.28 PRINCIPAL PLACE OF BUSINESS; STATE OF ORGANIZATION. Borrower's principal place of business as of the Closing Date is the address set forth in the 52 introductory paragraph of this Agreement and Borrower shall not change its principal place of business without first delivering thirty (30) days prior written notice to Lender. Borrower is organized under the laws of the State of Delaware. 4.1.29 FILING AND RECORDING TAXES. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Collateral to Borrower have been paid. All recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Pledge Agreement, have been paid, and, under current Legal Requirements, the Loan Documents are enforceable in accordance with their respective terms by Lender (or any subsequent holder thereof), subject to principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors' rights and the enforcement of debtors' obligations. 4.1.30 SPECIAL PURPOSE ENTITY/SEPARATENESS. (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants that (i) Borrower is, shall be and shall continue to be a Special Purpose Entity and (ii) Mortgage Borrower is, shall be and shall continue to be a Special Purpose Entity. (b) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document. 4.1.31 O&M AGREEMENT. Any O&M Agreements required by Mortgage Lender are in full force and effect and there is no default under any such agreement by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default under any such agreement. 4.1.32 ILLEGAL ACTIVITY. No portion of any Individual Property or the Collateral has been or will be purchased with proceeds of any illegal activity. 4.1.33 NO CHANGE IN FACTS OR CIRCUMSTANCES; DISCLOSURE. All information submitted by Borrower to Lender and in all financial statements, Occupancy Reports, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by Borrower in this Agreement or in any other Loan Document, are accurate, complete and correct in all material respects. There has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects or might materially and adversely affect the use, operation or value of the Properties or the business operations or the financial condition of Mortgage Borrower or Borrower. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any Provided Information or representation or warranty made herein to be materially misleading. 53 4.1.34 INVESTMENT COMPANY ACT. Borrower is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 4.1.35 EMBARGOED PERSON. At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of any Significant Party constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701, et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in any Significant Party as applicable (whether directly or indirectly), is prohibited by law or the Loan made by Lender is in violation of law ("EMBARGOED PERSON"); (b) no Embargoed Person has any interest of any nature whatsoever in any Significant Party with the result that the investment in such Significant Party (whether directly or indirectly), is prohibited by law or the Loan is in violation of law; and (c) none of the funds of any Significant Party have been derived from, or are the proceeds of, any unlawful activity, including money laundering, terrorism or terrorism activities, with the result that the investment in any Significant Party (whether directly or indirectly), is prohibited by law or the Loan is in violation of law or may cause any Individual Property to be subject to forfeiture or seizure. (a) SECURITY INTEREST. This Agreement, together with the other Loan Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of Delaware) in the Borrower Pledged Entity Interests in favor of Lender, which security interests are prior to all other Liens, other than Permitted Encumbrances, and is enforceable as such against creditors of and purchasers from Borrower. Other than in connection with the Loan Documents and except for Permitted Encumbrances, Borrower has not sold or otherwise conveyed the Borrower Pledged Entity Interests. 4.1.36 MASTER LEASES AND OPERATING LEASES. The Master Leases and Operating Leases are in full force and effect and there is no default under any Master Lease or any Operating Lease by any party thereto and no event has occurred that, with the passage and/or the giving of notice would constitute a default under any such Master Lease or any such Operating Lease. 4.1.37 NO CONTRACTUAL OBLIGATIONS. Other than the Loan Documents, as of the date of this Agreement, and the Summit Note, Borrower is not subject to any Contractual Obligations and has not entered into any agreement, instrument or undertaking by which it or its assets are bound, or has incurred any Indebtedness, and prior to the date of this Agreement and Borrower has not entered into any Contractual 54 Obligation (other than the Loan Documents), or any agreement, instrument or undertaking by which it or its assets are bound or incurred any Indebtedness. 4.1.38 MORTGAGE LOAN REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in the Mortgage Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver amendment or other modification thereof by the Mortgage Lender or to whether the related Mortgage Loan Document has been repaid, defeased or otherwise terminated, unless otherwise consented to in writing by Lender. 4.1.39 TAX FILINGS. Guarantor has filed all federal, state and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower. Borrower believes that its tax returns (if any) properly reflect the income and taxes of Borrower for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit. SECTION 4.2. HEALTH CARE REPRESENTATIONS. Borrower, for itself and its successors and assigns, does hereby represent and warrant to Lender, its successors and assigns, as of the date hereof, that: (a) All certificates, certifications, permits, licenses and approvals, including certificates of operation, completion and occupancy, required for the legal use, occupancy and operation of each Facility (collectively, the "LICENSES") have been obtained and are in full force and effect except for Licenses which, if not maintained, would not have a material adverse effect on the use or operating of the Facility. Mortgage Borrower owns and/or possesses, and holds free from restrictions or conflicts with the rights of others, all such Licenses, provided that with respect to the Facilities listed on SCHEDULE II, all such Licenses are held by Summit Care Corporation, a California corporation, directly or as successor-by-merger to Summit Care California, Inc., a California corporation, which has entered into an interim sublease and interim management agreement with the applicable Operator to operate such Facilities, which interim management agreement is effective to permit the operation of such Facilities in accordance with all Legal Requirements; (b) Each Facility is duly licensed as a skilled nursing facility or assisted living facility (as set forth on Schedule I attached hereto) as required under the applicable laws of the State in which such Facility is located. The licensed bed capacity of each Facility is as set forth on Schedule V attached hereto. Mortgage Borrower has not applied to reduce the number of licensed or certified beds of any Facility or to move the right to any and all of the licensed or certified beds of any Facility to any other location and there are no proceedings or actions pending or contemplated to reduce the number of licensed or certified beds of any Facility; (c) Except as otherwise provided in paragraph (d), Mortgage Borrower (and the operation of each Facility) is in material compliance with the applicable 55 provisions of the laws, ordinances, statutes, regulations, orders, standards, policies, restrictions or rules of any Health Care Authority having jurisdiction over the operation of any Facility, including, (i) staffing requirements, (ii) health and fire safety codes, (iii) federal, state or local laws, rules, regulations or published interpretations or policies relating to the prevention of fraud and abuse, (iv) insurance, reimbursement and cost reporting requirements, and (v) any other applicable laws, regulations or agreements for reimbursement for the type of care or services provided by Operator with respect to each Facility. As used in this Section 4.2(c), "material compliance" means a level of compliance that would keep Mortgage Borrower (and the operation of the Facility) free from any proceedings or sanctions by any Governmental Authority having jurisdiction over the operation of the Facility and that would not be reasonably be expected to have a material adverse effect on Mortgage Borrower's operations, including, but not limited to, its right to receive reimbursement or insurance payments with no opportunity to contest or correct; (d) Mortgage Borrower is in substantial compliance with the requirements for participation in the Medicare and Medicaid Programs with respect to each Facility that currently participates in such programs and has a current provider agreement under Title XVIII and/or XIX of the Social Security Act. Borrower has not had any deficiencies on its most recent survey (standard or complaint) that would result in a denial of payment for new admissions with no opportunity to correct prior to termination other than as disclosed in SCHEDULE IX hereto. Other than as set forth on SCHEDULE IX hereto Borrower did not have any deficiencies at level G or above on its most recent survey (standard or complaint), nor has Borrower been cited with any substandard quality of care deficiencies (as that term is defined in Part 488 of 42 C.F.R) for the past two consecutive surveys. (e) Mortgage Borrower is not a participant in, subject to, or, to Mortgage Borrower's knowledge, a target of, any action, proceeding, suit, audit, investigation or sanction by any Health Care Authority or any other administrative or investigative body or entity or any other third party or any patient or resident (including, without limitation, whistleblower suits, or suits brought pursuant to federal or state False Claims Acts, and Medicaid/Medicare/State fraud/abuse laws) which could reasonably be expected to result in the imposition of a fine, penalty, alternative, interim or final sanction, a lower rate certification, recoupment, recovery, suspension or discontinuance of all or part of reimbursement from any Health Care Authority, third-party payor, insurance carrier or private payor, a lower reimbursement rate for services rendered to eligible patients, or any other civil or criminal remedy, or which could reasonably be expected to have a material adverse effect on Mortgage Borrower or the operation of the Facility, or which could reasonably be expected to result in the appointment of a receiver or manager, or in the revocation, transfer, surrender, suspension or other impairment of a License, nor has any such action, proceeding, suit, investigation proceeding or audit been threatened; (f) There are no agreements with residents of any Facility, or with any other persons or organizations, which deviate in any material adverse respect from, or which conflict with, any statutory or regulatory requirements. All resident records at 56 each Facility, including patient and/or resident accounts records, are true, complete, and correct in all material respects; (g) Neither the execution, delivery or performance of the Note, this Agreement, the Pledge Agreement, the UCC Financing Statements or the other Loan Documents, nor Mortgage Borrower's execution, delivery or performance under the Mortgage Loan Documents will (i) adversely affect Mortgage Borrower's right to receive Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or to receive private payor payments or reimbursements, (ii) materially reduce the Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or materially reduce private payor payments or reimbursements which Mortgage Borrower is receiving as of the date hereof, or (iii) adversely affect the Licenses; (h) Other than the Medicare and Medicaid programs and as set forth on Schedule 4.2(h) attached hereto, Mortgage Borrower is not a participant in any federal, state or local program whereby any federal, state or local government or quasi-governmental body, or any intermediary, agency, board or other authority or entity may have the right to recover funds with respect to any Individual Property by reason of the advance of federal, state or local funds, including, without limitation, those authorized under the Hill-Burton Act (42 U.S.C. 291, et seq.). Mortgage Borrower has received no notice, and is not aware of any violation of applicable antitrust laws; (i) Mortgage Borrower's private payor, Medicaid, Medicare, and/or managed care company, insurance company or other third-party insurance accounts receivable with respect to each Individual Property are free of any liens; (j) Except as set forth on Schedule 4.2(j) attached hereto, Mortgage Borrower is not a party to any collective bargaining agreement or other labor contract applicable to persons employed by it at any Facility and, to Borrower's knowledge, there are no threatened or pending labor disputes at any Facility; (k) Mortgage Borrower has instituted, and each Facility is operated in substantial compliance with, a compliance plan which follows applicable guidelines established by Health Care Authorities; and (l) Mortgage Borrower is in material compliance with the Healthcare Insurance Portability and Accountability Act of 1996, and the regulations promulgated thereunder. SECTION 4.3. SURVIVAL OF REPRESENTATIONS. Borrower agrees that all of the representations and warranties of Borrower set forth in Article IV and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrower. All representations, warranties, covenants and agreements made in this Agreement, as qualified by the Schedules hereto, or in the other Loan Documents by 57 Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. V. BORROWER COVENANTS SECTION 5.1. AFFIRMATIVE COVENANTS. From the date hereof and until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the Pledge Agreement (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender that: 5.1.1 EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and all material licenses (including, without limitation, the Licenses), permits and franchises and cause Mortgage Borrower to comply in all material respects with all Legal Requirements of all Governmental Authorities and Health Care Authorities applicable to Borrower or Mortgage Borrower and the Properties, including, without limitation, Medicare, Medicaid, or other Health Care Authority laws, orders, decrees, rules or regulations relating to the operations conducted at the Facility, laws, orders, decrees, rules or regulations concerning employment and compensation of persons engaged in operation and maintenance of each Individual Property and any environmental or ecological requirements. Borrower shall cause Mortgage Borrower to keep and maintain in full force and effect all Licenses necessary for the operation of the Facility on each Individual Property other than Licenses which, if not maintained, would not have a material adverse effect on the use or operation of such Individual Property. Borrower will cause the Facility located on the applicable Individual Property to remain in operation without interruption in accordance with all Legal Requirements. There shall never be committed by Borrower and Borrower shall not permit Mortgage Borrower to commit or permit any other Person in occupancy of or involved with the operation or use of the Properties to commit any act or omission affording the federal government or any state or local government the right of forfeiture against any Individual Property or any part thereof or any monies paid in performance of Borrower's obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to cause or permit Mortgage Borrower to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times cause Mortgage Borrower to maintain, preserve and protect all material franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and shall keep, and cause Mortgage Borrower to keep the Properties in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage Loan and/or the Mortgage. Borrower shall keep, or cause Mortgage Borrower to keep, the Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in this Agreement. Borrower shall cause Mortgage Borrower to operate any Individual Property in accordance with the terms and provisions of any applicable O&M Agreement in all material respects. After prior notice to Agent, Borrower, at its own expense, may contest (or cause Mortgage Borrower to contest) by 58 appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to Borrower or Mortgage Borrower or any Individual Property or any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred and remains uncured; (ii) Borrower is permitted to do so under the provisions of any mortgage or deed of trust superior in lien to the Mortgage; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Mortgage Borrower or Borrower is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iv) neither any Individual Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (v) Borrower shall promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or Mortgage Borrower or any Individual Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or as may be reasonably requested by Agent, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Agent may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Agent, the validity, applicability or violation of such Legal Requirement is finally established or any Individual Property (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost. 5.1.2 TAXES AND OTHER CHARGES. Borrower shall cause Mortgage Borrower to pay all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof as the same become due and payable in accordance with Section 5.1.2 of the Mortgage Loan Agreement. 5.1.3 LITIGATION. Borrower shall give prompt notice to Agent of any litigation or governmental proceedings pending or threatened against any Significant Party, any Individual Property or the Collateral, which might reasonably be expected to have a material adverse effect on such Significant Party's condition (financial or otherwise) or business or any Individual Property or Borrower's, Mortgage Borrower's or Guarantor's ability to perform its obligations hereunder under the other Loan Documents or the Mortgage Loan Documents, to which each is a party. 5.1.4 ACCESS TO PROPERTIES. Borrower shall cause Mortgage Borrower to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice. 5.1.5 NOTICE OF DEFAULT. Borrower shall promptly advise Agent of any material adverse change in any Significant Party's condition, financial or otherwise, or of the occurrence of any Event of Default of which Borrower has knowledge, including any Mortgage Loan Event of Default. 59 5.1.6 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate with Lender with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Lender or Agent hereunder or any rights obtained by Lender or Agent under any of the other Loan Documents and, in connection therewith, permit Lender and Agent, at its election, to participate in any such proceedings. 5.1.7 PERFORM LOAN DOCUMENTS. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, Borrower. 5.1.8 USURY. Borrower, by reason of its own business and financial experience or that of its professional advisors has the capacity to protect its interests in connection with the Loan and the transactions contemplated by this Agreement and the other Loan Documents to which it is a party.. 5.1.9 FURTHER ASSURANCES. Borrower shall, at Borrower's sole cost and expense: (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements relating to any Individual Property, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or which are reasonably requested by Lender in connection therewith; (b) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrower under the Loan Documents, as Lender may reasonably require; and (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time. 5.1.10 MORTGAGE TAXES. Borrower represents that it has caused Mortgage Borrower to pay all state, county and municipal recording and all other taxes imposed upon the execution and recordation of the Mortgage. 5.1.11 FINANCIAL REPORTING. (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP (or such other accounting basis acceptable to Agent), books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense in connection with the operation on an individual basis of the Properties, which such books, records and accounts shall be proper and accurate in all material respects. Agent and 60 each Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Agent or Lender shall desire. After the occurrence of an Event of Default, Borrower shall pay any costs and expenses incurred by Agent or Lender to examine Borrower's accounting records with respect to the Properties and/or the Collateral, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender's interest. (b) Borrower will furnish and cause to be furnished to Lender annually, within ninety (90) days following the end of each Fiscal Year of Borrower, a complete copy of annual consolidated financial statements of Fountain View, Inc. audited by a "Big Four" accounting firm or other independent certified public accountant acceptable to Lender in accordance with GAAP (or such other accounting basis acceptable to Lender) covering Borrower and its Affiliates (with a supplemental unaudited combining balance sheet by property for each Individual Property and for the Properties on a combined basis), containing statements of profit and loss for Mortgage Borrower and each Individual Property and the Properties in the aggregate, including the operations of the Facilities and a balance sheet for Mortgage Borrower. Borrower's unaudited financial statements for each Property shall include a balance sheet, statement of profit and loss, census and occupancy schedule and a Net Cash Flow statement. In addition, Borrower will provide unaudited financial statements for all Properties, which such financial statements shall include a combining balance sheet, profit and loss statement, census and occupancy schedule and Net Cash Flow statement. Such statements shall set forth the financial condition and the results of operations for the Properties for such Fiscal Year, and shall include, but not be limited to, aggregated amounts representing annual Net Cash Flow, Net Operating Income, Gross Income from Operations and Operating Expenses. Borrower's annual consolidated financial statements shall be accompanied by (i) a comparison of the budgeted income and expenses and the actual income and expenses for the prior Fiscal Year, (ii) an unqualified opinion of a "Big Four" accounting firm or other independent certified public accountant reasonably acceptable to Lender, (iii) a schedule audited by such independent certified public accountant reconciling Net Operating Income to Net Cash Flow (the "NET CASH FLOW SCHEDULE"), which shall itemize all adjustments made to Net Operating Income to arrive at Net Cash Flow deemed material by such independent certified public accountant and (iv) an Officer's Certificate (which shall be co-signed by Guarantor) certifying that (A) each annual financial statement presents fairly the financial condition and the results of operations of Guarantor, Borrower, Mortgage Borrower and the Properties being reported upon and that such financial statements have been prepared in accordance with GAAP and as of the date thereof whether there exists, to Borrower's knowledge, an event or circumstance which constitutes a Default or Event of Default under the Loan Documents executed and delivered by, or applicable to, Borrower, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same and (B) Guarantor is in compliance with all financial covenants attached hereto as Annex I and Section 5.3.1 hereof (such certificate shall be accompanied by calculations necessary to show compliance with the financial covenants in a form reasonably satisfactory to Agent). 61 (c) Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, accompanied by an Officer's Certificate stating that such items are true, correct, accurate, and complete in all material respects and fairly present the financial condition and results of the operations of Borrower, Mortgage Borrower and the Properties on a combined basis as well as each Individual Property including the operations of the Facility (subject to normal year-end adjustments) as applicable: (i) a Occupancy Report for the subject quarter; (ii) quarterly and year-to-date operating statements for each Individual Property and the Properties combined, prepared for each calendar quarter, noting Net Operating Income, Gross Income from Operations, and Operating Expenses (not including any contributions to the Replacement Reserve Fund), and, upon Lender's request, other information reasonably necessary and sufficient to fairly represent the financial position and results of operation of the Properties during such quarter, and containing a comparison of budgeted income and expenses and the actual income and expenses together with a detailed explanation of any variances of ten percent (10%) or more with respect to the line item entitled "Total Controllable Expenses" on the Occupancy Report and five percent (5%) or more in the aggregate between budgeted and actual amounts for such periods, all in form satisfactory to Lender; (iii) a calculation reflecting the annual Debt Service Coverage Ratio for the immediately preceding twelve (12) month period as of the last day of such quarter; (iv) a consolidated Net Cash Flow Schedule (including Capital Expenditures) for the Properties and (v) (A) a quarterly calculation of Excess Cash Flow, (B) current cash, Cash Equivalents and marketable securities held by Borrower and Guarantor and (C) amounts currently available under the Guarantor Revolving Credit Loan Agreement and the Revolving Credit Loan Agreement. In addition, such Officer's Certificate shall also state that (A) the representations and warranties of Borrower set forth in Section 4.1.30 are true and correct in all material respects as of the date of such certificate and that there are no trade payables outstanding for more than sixty (60) days and (B) Guarantor is in compliance with all financial covenants attached hereto as Annex I and Section 5.3.1 hereof (such certificate shall be accompanied by calculations necessary to show compliance with the financial covenants in a form reasonably satisfactory to Agent). (d) For so long as Mortgage Borrower is required to deliver monthly financial statements to Mortgage Lender, then Borrower shall furnish or cause to be furnished to Lender as soon as available and in any event within thirty (30) calendar days after the end of each calendar month (other than the last calendar month of a fiscal quarter), unaudited financial statements of Borrowers on a Consolidated Basis consisting of a balance sheet and statements of income, retained earnings, cash flows and owners' equity as of the end of the immediately preceding calendar month. (e) Borrower shall furnish Lender, within ten (10) Business Days of the receipt by Borrower, all material notices (regardless of form) from any Health Care Authority and/or any insurance company, managed care company, or other third-party payor that Borrower's license, Medicare or Medicaid certification, or accreditation or ranking by any Health Care Authority, insurance company, managed care company, or other third-party payor is being downgraded, revoked, or suspended, that action is pending, being considered or being taken to downgrade, revoke, or suspend the 62 Borrower's license or certification or to fine, penalize or impose remedies upon the Borrower, or that action is pending, being considered, or being, or could be, taken, to discontinue, suspend, deny, decrease or recoup any payments due, made or coming due to Borrower or related to the operation of any Individual Property. (f) Borrower shall furnish Lender, simultaneously with Borrower's delivery to the Guarantor Revolving Credit Loan Lender, each of the other materials delivered to Guarantor Revolving Credit Loan Lender pursuant to Section 6.1(b) of the Guarantor Revolving Credit Loan Agreement. (g) Borrower shall cause Mortgage Borrower to file all required Medicare or Medicaid cost reports on or prior to the date such reports are due and shall furnish Lender, within thirty (30) days of the date of filing, a complete and accurate copy of the annual Medicare or Medicaid cost report for Mortgage Borrower, which will be prepared by Mortgage Borrower, and promptly furnish Lender any material amendments filed with respect to such reports and all material notices, responses, audit reports or inquiries with respect to such reports. (h) Borrower shall furnish Lender, within thirty (30) days of the receipt by Mortgage Borrower, the annual Medicaid and Medicare provider agreement(s) and the annual Medicaid and Medicare reimbursement rate sheets and any new, revised or amended rate sheet which may be issued subsequent to the annual reimbursement rate sheets. (i) Borrower shall furnish Lender, within ten (10) Business Days of receipt but at least five (5) days prior to the earliest date on which Mortgage Borrower is required to take any action with respect thereto or would suffer any adverse consequence, a copy of any material Medicare, Medicaid or other licensing or accreditation or ranking agency or entity survey, report, warning letter, or notice, and any statement of deficiencies, and within the time period required by the particular agency for furnishing a plan of correction also furnish or cause to be furnished to Lender a copy of the plan of correction generated from such survey, report, warning letter, or notice for Mortgage Borrower and by subsequent correspondence related thereto, and correct or cause to be corrected any deficiency, the curing of which is a condition of continued licensure or of full participation in Medicare or Medicaid or a care program offered by an insurance company, managed care company, or other third-party payor by the date required for cure by such agency or entity (plus extensions granted by such agency or entity). (j) Borrower shall furnish Lender, within ten (10) Business Days of receipt by Mortgage Borrower, any other notices or charges issued relating to the non-compliance by Borrower with any Health Care Authority, insurance company, managed care company, or other third-party payor laws, regulations, requirements, licenses, permits, certificates, authorizations or approvals. (k) Borrower shall furnish to Lender on or prior to the Closing Date and for each fiscal year of Borrowers thereafter not more than sixty (60) calendar days after the commencement of such fiscal year, consolidated and consolidating by Business 63 Group month by month projected operating budgets, annual projections, profit and loss statements, balance sheets and cash flow reports of and for Borrower on Consolidated Basis for such upcoming fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), in each case prepared in accordance with GAAP consistently applied with prior periods. (l) For each Fiscal Year commencing after the date hereof, Borrower shall submit to Agent a proposed Annual Budget not later than fifteen (15) days prior to the commencement of such period or Fiscal Year in form reasonably satisfactory to Agent and a final Annual Budget not later than thirty (30) days after the commencement of such Fiscal Year. The Annual Budget shall be subject to Agent's approval, which approval shall not be unreasonably withheld provided such Annual Budget provides for amounts as are sufficient to make the payments to Agent required hereunder and under the Promissory Note B (each such Annual Budget, an "APPROVED ANNUAL BUDGET"). In the event that Agent objects to a proposed Annual Budget submitted by Borrower which requires the approval of Agent hereunder, Agent shall advise Borrower of such objections within fifteen (15) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise such Annual Budget and resubmit the same to Agent. Agent shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall promptly revise the same in accordance with the process described in this subsection until Agent approves the Annual Budget. Until such time that Agent approves a proposed Annual Budget which requires the approval of Agent hereunder, the most recently Approved Annual Budget shall apply; provided, that such Approved Annual Budget shall be adjusted to reflect actual increases in Taxes, Insurance Premiums and utilities expenses. (m) In the event that Mortgage Borrower or Borrower must incur an extraordinary Operating Expense or Capital Expenditure not set forth in the Approved Annual Budget (each, an "EXTRAORDINARY EXPENSE"), then Borrower shall promptly deliver to Lender a reasonably detailed explanation of such proposed Extraordinary Expense. (n) Any reports, statements or other information required to be delivered under this Agreement shall be delivered (i) in paper form, (ii) on a diskette, and (iii) if requested by Lender and within the capabilities of Borrower's data systems without change or modification thereto, in electronic form and prepared using a Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). (o) It is understood and agreed that Lender shall accept the financial reports required pursuant to this Section 5.1.11 in the forms prepared in accordance with the Mortgage Loan Agreement, the Revolving Credit Loan Agreement and the Guarantor Revolving Credit Loan Agreement, as applicable. 64 5.1.12 BUSINESS AND OPERATIONS. Borrower will cause Mortgage Borrower to continue to be engaged in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Properties. Borrower shall cause Mortgage Borrower to qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Properties. 5.1.13 TITLE. Borrower will warrant and defend the validity and priority of Lender's security interest in the Collateral. 5.1.14 COSTS OF ENFORCEMENT. In the event (a) that the Note or the Pledge Agreement is put into the hands of an attorney for collection, suit or action, (b) Lender exercises any or all of its rights or remedies under the Pledge Agreement or any other Loan Documents as and when permitted thereby, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees and costs, incurred by Lender or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes. 5.1.15 ESTOPPEL STATEMENT. (a) After request by Agent or any Lender, Borrower shall within ten (10) days furnish Agent or such Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the unpaid principal amount of the Loan, (iii) the Applicable Interest Rate of the Loan, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. (b) In connection with a sale or transfer of all or a portion of the Loan, after request by Agent or Lender, Borrower shall cause Mortgage Borrower to, within ten (10) days, furnish Agent or such Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Mortgage Loan, (ii) the unpaid principal amount of the Mortgage Loan, (iii) the Applicable Interest Rate of the Mortgage Loan, (iv) the date installments of interest and/or principal were last paid under the Mortgage Loan, (v) any offsets or defenses to the payment of the Debt, if any, under the Mortgage Loan and (vi) that the Mortgage Note, the Mortgage Loan Agreement, the Mortgage and the other Mortgage Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. 65 5.1.16 LOAN PROCEEDS. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the purposes set forth in Section 2.1.4 hereof. 5.1.17 PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior consent of Lender. 5.1.18 INTENTIONALLY DELETED. 5.1.19 NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate or permit Mortgage Borrower to suffer, permit or initiate the joint assessment of any Individual Property (a) with any other real property constituting a tax lot separate from such Individual Property, and (b) which constitutes real property with any portion of such Individual Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Individual Property. 5.1.20 INTENTIONALLY DELETED. 5.1.21 INTENTIONALLY DELETED. 5.1.22 CERTAIN FURTHER COVENANTS. Borrower further covenants and agrees with Lender as follows: (a) Borrower shall cause Mortgage Borrower to cause the operations conducted or to be conducted at the Facility to be conducted at all times, at a minimum, in a manner consistent with or better than (x) Legal Requirements, (y) the level of operation of the Facility as of the Closing Date, and (z) with the level of operation of other such facilities in the industry, and, in connection therewith, Borrower shall cause Mortgage Borrower to: (i) maintain or cause to be maintained the standard of care for the residents of the Facility at all times at a level necessary to insure a level of quality care for the residents of the Facility in compliance with Legal Requirements and comparable to or better than that existing on the Closing Date; (ii) maintain or cause to be maintained a standard of care in the storage, use, transportation and disposal of all medical equipment, medical supplies, medical products or gases, and medical waste, of any kind and in any form, that is in accordance with, at least, that of the commercially reasonable industry standard and in conformity with all applicable Legal Requirements; (iii) operate the Facility in a commercially reasonable manner in substantial and material compliance with applicable laws and regulations relating 66 thereto and cause all material Licenses, reimbursement or care contracts, and any other agreements necessary for the certification, licensure, accreditation or operation of the Facility as may be necessary for participation in the Medicare or Medicaid reimbursement programs, managed care company, insurance company, or other third-party payor reimbursement programs to remain in effect without reduction in the number of licensed beds or beds authorized for use in Medicare or Medicaid reimbursement programs, managed care company, insurance company, or other third-party payor reimbursement programs; (iv) take no action which has a reasonable likelihood of resulting in a suspension, denial, elimination or material reduction of reimbursement for services from Medicare or Medicaid (without opportunity to correct), or any managed care company, insurance company, or other commercial third-party payor provided, however, that Borrower may cancel or terminate any managed care company, insurance company or other third-party commercial payor contract (i) if such managed care company, insurance company or third-party commercial payor has materially breached such contract, or (ii) such cancellation or termination does not have a material adverse effect on Net Operating Income; and (v) maintain or cause to be maintained all deposits, including, without limitation, deposits relating to residents or residency agreements. If such deposits are in cash, such deposits are to be deposited and held by Borrower, or any manager of the Facility, as the case may be, in accordance with any Legal Requirements, at such commercial or savings bank or banks as may be reasonably satisfactory to Lender. If such deposits are in any other form, such deposits are to be maintained as Lender may expressly permit. Any bond or other instrument which Borrower, or any manager of the Facility, as the case may be, is permitted to hold in lieu of cash deposits under any applicable legal requirements shall be maintained in full force and effect unless replaced by cash deposits as hereinabove described, shall be issued by an institution reasonably satisfactory to Lender, shall, if permitted pursuant to any Legal Requirements, name Lender as payee or Lender thereunder (or at Lender's option, be fully assignable to Lender) and shall, in all respects, comply with any applicable legal requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon request, provide Lender with evidence reasonably satisfactory to Lender of Borrower's compliance with the foregoing. (b) Borrower shall not permit Mortgage Borrower to assign or transfer any of its interest in any Licenses or reimbursement or care contracts (including rights to payment thereunder), including any Medicare, Medicaid, managed care company, insurance company, or other third-party payor agreements, pertaining to Borrower or the Facility, or assign, transfer, or remove or permit any other person to assign, transfer, or remove any records pertaining to the Facility, including, without limitation, resident records, medical and clinical records (except for removal of such patient resident records as directed by the patients or residents owning such records), without Lender's prior written consent, which consent may be granted or refused in Lender's sole discretion. 67 (c) Borrower shall not permit Mortgage Borrower to enter into any transaction with any person or entity affiliated with Borrower other than in the ordinary course of its business and on fair and reasonable terms in compliance with Legal Requirements and, no less favorable to Borrower than those it would obtain in a comparable arms-length transaction with a person or entity not an affiliate. (d) Borrower shall, upon request, cause Mortgage Borrower to deliver evidence of compliance with any applicable post-transfer license requirements of Health Care Authorities. 5.1.23 OWNERSHIP APPLICATION. Borrower shall cause Mortgage Borrower to file an application or filing as appropriate to initiate the process to have each Operator become the licensed operator of its respective Individual Property with the applicable Health Care Authorities within thirty (30) days from the date hereof and shall diligently prosecute such ownership application to completion. Upon completion of all required approvals for the ownership application with respect to any Individual Property, Borrower shall cause Mortgage Borrower to take all actions necessary to transfer the operations of the applicable Individual Property (including the related Facility) to the applicable Operator and to terminate any license or management agreement with the current operator of such Individual Property. Borrower shall cause Mortgage Borrower to complete the transfers of the operations of Individual Properties with Allocated Loan Amounts at least equal, in the aggregate, to seventy five percent (75%) of the original principal balance of the Loan on or before March 1, 2004 and to complete all such transfers of operations on or before July 1, 2004 and to deliver an opinion of counsel confirming that the Operators are properly licensed and that operations of the Facility have been transferred to the applicable Operator. 5.1.24 COMPLIANCE WITH PLAN OF REORGANIZATION. Borrower shall comply with the Plan of Reorganization approved by the Bankruptcy Court having jurisdiction thereof and with the order of such Bankruptcy Court confirming the Plan of Reorganization. 5.1.25 MORTGAGE LOAN RESERVE FUNDS. Borrower shall cause Mortgage Borrower to deposit and maintain each of the Mortgage Loan Reserve Funds as more particularly set forth in Article VII of the Mortgage Loan Agreement and to perform and comply with all the terms and provisions relating thereto. 5.1.26 NOTICES. Borrowers shall promptly, and in any event within five (5) Business Days after any Borrower or any authorized officer of any Borrower obtain knowledge thereof, notify Lender in writing of (i) any pending or threatened litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative proceeding brought or initiated by any Borrower or otherwise affecting or involving or relating to any Borrower or any of its property or assets to the extent (A) (x) with respect to professional liability claims, the amount in controversy exceeds $5,000,000 (provided that Borrower shall notify Lender if in their judgment any such claim has merit and the Borrowers' potential exposure with respect thereto is greater than $500,000), and (y) with respect to all other claims the amount in controversy exceeds $500,000 or (B) to the 68 extent any of the foregoing seeks injunctive relief which could reasonably be expected to have a Material Adverse Effect, (ii) the occurrence of any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iii) any other development, event, fact, circumstance or condition that could reasonably be expected to have a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (iv) any notice received by Borrower from any payor of a material claim, suit or other action such payor has, claims or has filed against Borrower, (v) any matter(s) materially and adversely affecting the value, enforceability or collectability of the Collateral, including, without limitation, claims or disputes in the amount of $250,000 or more in the aggregate, in existence at any one time, (vi) any notice given by Borrower to any other lender of Borrower (with a copy of such notice), (vii) receipt of any notice or request from any Governmental Authority or governmental payor regarding any material liability or claim of liability, and (viii) receipt of any notice by Borrower regarding termination of any manager of any facility owned, operated or leased by Borrower. 5.1.27 INTENTIONALLY DELETED. 5.1.28 INTENTIONALLY DELETED. 5.1.29 MORTGAGE BORROWER COVENANTS. Borrower shall cause Mortgage Borrower to comply with all obligations with which Mortgage Borrower has covenanted to comply under the Mortgage Loan Agreement and all other Mortgage Loan Documents (including, without limitation, those certain affirmative and negative covenants set forth in Article V of the Mortgage Loan Agreement), whether the related Mortgage Loan Document has been repaid or otherwise terminated, unless otherwise consented to in writing by Agent. 5.1.30 ASSUMPTION OF A PORTION OF LOAN. Except in accordance with Section 2.7 hereof, Borrower shall not engage and shall not permit Mortgage Borrower to engage in any transaction contemplated by Section 2.7 of the Mortgage Loan Agreement without the prior written consent of Agent, which may be withheld in its sole discretion. 5.1.31 MONUMENT HILL PROPERTY. With respect to the Individual Property know as Monument Hill Nursing Center (the "MONUMENT HILL PROPERTY"), Mortgage Borrower has filed a Plan of Correction with the applicable Health Care Authorities. If, on or prior to November 7, 2003 either (A) the applicable Health Care Authorities have not accepted such Plan of Correction (or the deficiency addressed in the Plan of Correction is not otherwise resolved in a manner satisfactory to Lender with written evidence thereof delivered to Lender), or (B) a Denial of Payment for New Admissions ("DOPNA") is issued with respect to the Monument Hill Property, and such DOPNA is not rescinded, Borrower shall, within ten (10) days of such occurrence (and in any event on or prior to November 17, 2003), cause Mortgage Borrower to (i) pay to Mortgage Lender the Release Amount (as defined in the Mortgage Loan Agreement) for the Monument Hill Property and release the Monument Hill Property from the lien of the Mortgage in accordance with the provisions of Section 2.5.1 of the Mortgage Loan 69 Agreement and (ii) pay to Lender an amount equal to the Mezzanine Loan Release Amount applicable to the Monument Hill Property without a prepayment premium or penalty. Failure of Mortgage Borrower to release the Monument Hill Property on or prior to November 17, 2003 when such release is required in accordance with the foregoing provision shall be an immediate and non-curable Event of Default hereunder. To the extent needed to pay the applicable release amounts in connection with the release of the Monument Hill Property, Borrower shall cause Mortgage Borrower to borrow such funds under the Revolving Credit Loan. Borrower shall promptly inform Lender of (1) rejection of its Plan of Correction by the applicable Health Care Authorities with respect to the Monument Hill Property, (2) the issuance of a DOPNA with respect to the Monument Hill Property or (3) any other pertinent information related to the Monument Hill Property. 5.1.32 INTENTIONALLY DELETED. SECTION 5.2. BORROWER NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Collateral in accordance with the terms of this Agreement and the other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following: 5.2.1 NEGATIVE PLEDGE. Borrower shall not pledge or grant a Lien on any stock, partnership or other equity interests of any Subsidiary which it owns at any time to any Person other than to Lender (or Agent for the benefit of Lender). 5.2.2 LIENS. (a) Borrower shall not create, incur, assume or suffer to exist any Lien on any portion of the Collateral or permit any such action to be taken, except: (i) Permitted Encumbrances and (ii) Liens created by or permitted pursuant to the Loan Documents, and (b) except for any Lien being contested in accordance with the provisions of the Mortgage Loan Agreement, Borrower shall not permit or cause Mortgage Borrower to create, incur, assume or suffer to exist any Lien on any portion of any Individual Property or permit any such action to be taken, except: (i) Permitted Encumbrances, (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents, (iii) Liens for Taxes and Other Charges not yet due. 5.2.3 DISSOLUTION. Borrower shall not and shall not permit Mortgage Borrower to (a) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (b) in the case of Borrower, engage in any business activity not related to the ownership of the Collateral, in the case of Mortgage Borrower, engage in any business not related to the ownership and operation of the Properties (c) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of Borrower or Mortgage Borrower, as applicable, except to the extent permitted by the Loan Documents, (d) modify or amend in any manner effecting its status and Special Purpose Entity, waive or terminate its organizational documents or its qualification and good standing in any jurisdiction or (e) cause permit or suffer Borrower or Mortgage Borrower or any Subsidiary thereof which is a Special Purpose Entity to (i) dissolve, wind up or liquidate or take any action, 70 or omit to take an action, as a result of which Borrower or Mortgage Borrower or such Subsidiary would be dissolved, wound up or liquidated in whole or in part, or (ii) amend, modify in any manner effecting its status as a Special Purpose Entity, waive or terminate the certificate of incorporation/formation or bylaws of Borrower or Mortgage Borrower or any Subsidiary thereof which is a Special Purpose Entity, in each case, without obtaining the prior consent of Agent. 5.2.4 CHANGE IN BUSINESS. Borrower shall not permit Mortgage Borrower to enter into any line of business other than the ownership, leasing and operation of the Properties, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. Borrower shall not enter into any line of business other than the ownership of the Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business. Borrower shall not change Borrower's name without giving Agent thirty (30) days prior written notice. Borrower shall, at Borrower's sole cost and expense, take all action required by Agent for the purpose of perfecting or protecting the lien and security interest of Lender, including, without limitation, the execution and/or delivery of UCC-1 financing statements. Borrower shall promptly notify Agent in writing of any change in Borrower's organizational identification number. If Borrower does not now have an organizational identification number and later obtains one, Borrower shall promptly notify Agent in writing of such organizational identification number. 5.2.5 DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or release any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower's business. 5.2.6 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 7.6, Borrower shall not enter into or consummate any transaction of any kind with any of its Affiliates or Guarantor or its Affiliates other than: (i) salary, bonus, employee stock option and other compensation and employment arrangements with directors or officers in the ordinary course of business, provided, that no payment of any bonus shall be permitted if an Event of Default under Section 8.1(a) has occurred and remains in effect or would be caused by or result from such payment; (ii) distributions and dividends permitted pursuant to Section 5.2.11, (iii) transactions on overall terms at least as favorable to Borrower as would be the case in an arm's length transaction between unrelated parties of equal bargaining power, and (iv) payments permitted under and pursuant to written agreements entered into by and between Borrower and one or more of its Affiliates or Guarantor or one or more of its Affiliates that both (A) reflect and constitute transactions on overall terms at least as favorable to Borrower as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power, and (B) are subject to such terms and conditions as determined by Agent in its commercially reasonable discretion; provided, that notwithstanding the foregoing or any provision of any Loan Document, Borrower shall not (Y) enter into or consummate any transaction or agreement pursuant to which it becomes a party to any mortgage, note, 71 indenture or guarantee evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any of its Affiliates or otherwise becomes responsible or liable, as a guarantor, surety or otherwise, pursuant to any agreement for any Indebtedness for Borrowed Money or Contingent Obligations of any such Affiliate or (Z) make any payment to any of its Affiliates in excess of $100,000 without the prior written consent of Agent. By execution of this Agreement, Lender consents to the payments made to Affiliates pursuant to the agreements set forth on SCHEDULE 7.6. 5.2.7 ZONING. Borrower shall not permit Mortgage Borrower to initiate or consent to any zoning reclassification of any portion of any Individual Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Individual Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Agent. 5.2.8 PRINCIPAL PLACE OF BUSINESS AND ORGANIZATION. Borrower shall not change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Agent thirty (30) days prior notice. Borrower shall not change the place of its organization as set forth in Section 4.1.28 without the consent of Lender, which consent shall not be unreasonably withheld. Upon Agent's request, Borrower shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender's security interest in the Collateral or the Properties as a result of such change of principal place of business or place of organization. 5.2.9 ERISA. (a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. (b) Borrower further covenants and agrees to deliver to Agent such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i) Borrower is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to any state statute regulating investments of, or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true: (A) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-l01(b)(2); (B) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(0(2); or 72 (C) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 25 10.3-101(c) or (e). 5.2.10 TRANSFERS. (a) Borrower acknowledges that Lender has examined and relied on the experience of Borrower and its general partners, members, principals and (if Borrower is a trust) beneficial owners in owning the Collateral in agreeing to make the Loan, and will continue to rely on Borrower's ownership of the Collateral as a means of maintaining the value of the Collateral as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Collateral so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender can recover the Debt by a sale of the Collateral. (b) Without the prior consent of Agent and except to the extent otherwise set forth in this Section 5.2.10, Borrower shall not, and shall not permit any Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) the Collateral, any Individual Property or any part thereof or any legal or beneficial interest therein or (ii) permit a Sale or Pledge of an interest in any Restricted Party ((i) and (ii) collectively, a "TRANSFER"), other than pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.20 hereof. (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein Borrower or Mortgage Borrower, as applicable, agrees to sell the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by Mortgage Borrower leasing all or a substantial part of an Individual Property for other than actual occupancy by a resident or space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Mortgage Borrower's right, title and interest in and to any Leases or any Rents; (iii) if a Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation's stock or the creation or issuance of new stock; (iv) if a Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation or addition of a general partner or the Sale or Pledge of the partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interest or the creation or issuance of new limited partnership interests; (v) if a Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing membership interests or the creation or issuance of new non-managing membership interests; (vi) if a Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or 73 Pledge of the legal or beneficial interest in a Restricted Party or the creation or issuance of new legal or beneficial interests; or (vii) the removal or the resignation of the managing agent (including, without limitation, an Affiliated Manager). (d) Notwithstanding the provisions of this Section 5.2.10, the following transfers shall not be deemed to be a Transfer: (i) a sale or transfer of any direct or indirect interest in any shareholder of Guarantor, (ii) a sale or transfer of any direct or indirect interest in any Affiliate of Guarantor, provided such entity or entities are not a Pledgor or a Subsidiary of a Pledgor, (iii) a sale or transfer, pledge or encumbrance of all or substantially all of the stock or Guarantor, a merger or consolidation of Guarantor or a sale or transfer of all or substantially all of the assets of Guarantor, provided that (A) Agent shall receive not less than thirty (30) days prior notice of such proposed merger, consolidation or acquisition, and (B) the successor entity in connection with any such merger or consolidation and the acquiring entity in connection with any such acquisition shall have a net worth that is equal to or greater than the greater of the net worth of Guarantor on the date hereof or the net worth of Guarantor immediately prior to such merger, consolidation or acquisition, (iv) the issuance, sale or transfer of stock of Guarantor in connection with an initial public offering of the stock of Guarantor, provided that (A) Agent shall receive not less than thirty (30) days prior notice of such proposed initial public offering, and (B) such stock will be listed on the New York Stock Exchange or such other nationally recognized stock immediately following such offering and such initial public offering is widely marketed to institutional investors exchange, and (v) the subsequent sale, transfer or issuance of stock in Guarantor, provided such stock is listed on the New York Stock Exchange or such other nationally recognized stock exchange. In addition, at all times, Heritage Partners must continue to own, directly or indirectly, at least a thirty three and one-third percent (33.33%) interest in Borrower, Mortgage Borrower and Guarantor, provided, however, that in connection with an initial public offering permitted pursuant to subsection (v) above, Heritage Partners must continue to own, directly or indirectly, at least a twenty-five percent (25%) interest in Borrower and Guarantor. (e) Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Transfer without Lender's consent. This provision shall apply to every Transfer regardless of whether voluntary or not, or whether or not Lender has consented to any previous Transfer. 5.2.11 LIMITATIONS ON DISTRIBUTIONS. Borrower shall not (i) declare, pay or make any dividend or distribution on any shares of capital stock or other securities or interests (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock); (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any capital stock or other securities or interests or of any options to purchase or acquire any of the foregoing (provided, however, that Borrower may redeem its capital stock from any terminated employee pursuant to, but only to the extent required or permitted under, the terms of the related employment or other agreements with such employee, as long as no Default or Event of Default has occurred and is continuing or would be caused by or result therefrom), or (iii) 74 otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person's capacity as an equity owner. Notwithstanding the foregoing, Borrower may make Distributions and other payments to the owner of such Borrower. 5.2.12 OTHER LIMITATIONS. Prior to the payment in full of the Debt, neither Borrower nor any of its Affiliates shall, without the prior written consent of Lender (which may be furnished or withheld at its sole and absolute discretion), give its consent or approval to any of the following actions or items: (a) except as permitted by Lender herein or otherwise expressly permitted under the other Loan Documents (i) any refinance of the Mortgage Loan, (ii) any prepayment in full of the Mortgage Loan, (iii) any Transfer (except as expressly permitted herein) of any or all of the Properties or any portion thereof, or (iv) any action in connection with or in furtherance of the foregoing; (b) creating, incurring, assuming or suffering to exist any additional Liens on any portion of the Properties except for Permitted Encumbrances; or (c) any modification, amendment, consolidation, spread, restatement, waiver or termination of any of the Mortgage Loan Documents. 5.2.13 REFINANCING OF GUARANTOR REVOLVING CREDIT LOAN. Borrower shall not refinance or replace the Guarantor Revolving Credit Loan unless it obtains the prior consent of Agent, provided that Agent shall consent to a refinancing or replacement in full of the Guarantor Revolving Credit Loan if, after considering the following factors, Agent determines in its reasonable discretion that such factors have been satisfied: (a) Agent shall have received at least thirty (30) days prior written notice of such refinancing; (b) no Default or Event of Default under this Agreement shall have occurred and be continuing; (c) the new guarantor revolving credit loan ("NEW GUARANTOR REVOLVING CREDIT LOAN") shall have (A) an interest rate that is no higher than the current interest rate provided for under the Guarantor Revolving Credit Loan (or in the event the Guarantor Revolving Credit Loan is a floating rate loan, an interest rate that is benchmarked off the same index and with a spread over such index which is no greater than the then current spread applicable to the Guarantor Revolving Credit Loan), as determined by Lender absent manifest error, (B) a maximum principal amount that is no more than the maximum principal amount of the Guarantor Revolving Credit Loan; (C) a maturity date that is no earlier than that provided for under the Guarantor Revolving Credit Loan at the time of the closing hereof; (D) no provisions providing for the payment of any additional interest, fees, participating interest or other similar equity feature; (E) no provision in which collateral not granted for the benefit of Guarantor Revolving Credit Lender or otherwise encumbered with respect to the Guarantor Revolving Credit Loan as of the date hereof is granted for the benefit of or with respect 75 to the New Revolving Credit Loan; (F) no provision whereby the New Revolving Credit Loan is cross-defaulted with any other Indebtedness; (G) a cash management and lockbox arrangement substantially similar to that maintained under the Guarantor Revolving Credit Loan; and (H) no provisions that prohibit the prepayment of the New Revolving Credit Loan without the payment of a prepayment premium or penalty; (d) the terms of the New Guarantor Revolving Credit Loan shall provide the same express rights to the Lender as the Guarantor Revolving Credit Loan and shall not conflict with the terms of the Loan and the lender under the New Guarantor Revolving Credit Loan shall enter into an intercreditor agreement with Lender no less favorable to Lender than the intercreditor agreement between Lender and Guarantor Revolving Credit Lender dated as of the date hereof; (e) Borrower shall pay all reasonable costs and expenses of Lender incurred in connection with the New Guarantor Revolving Credit Loan, including, without limitation, reasonable fees and expenses of Lender's counsel; (f) Borrower shall execute and deliver such amendments to this Agreement and the other Loan Documents as Agent may reasonably request in connection with such New Guarantor Revolving Credit Loan; and (g) Agent shall have received such settlement statements, pay-off letters, opinions and other documentation as it shall reasonably request in connection with the New Guarantor Revolving Credit Loan. Upon the satisfaction of the foregoing, Borrower may consummate a replacement or a refinancing of the Guarantor Revolving Credit Loan , whereupon such New Guarantor Revolving Credit Loan shall be deemed to be the Guarantor Revolving Credit Loan as defined herein. 5.2.14 REFINANCING OF REVOLVING CREDIT LOAN. Borrower shall not refinance or replace the Revolving Credit Loan unless it obtains the prior consent of Agent, provided that Agent shall consent to a refinancing or replacement in full of the Revolving Credit Loan if, after considering the following factors, Agent determines in its reasonable discretion that such factors have been satisfied: (a) Lender shall have received at least thirty (30) days prior written notice of such refinancing; (b) no Default or Event of Default under this Agreement shall have occurred and be continuing; (c) the new revolving credit loan ("NEW REVOLVING CREDIT LOAN") shall have (A) an interest rate that is no higher than the current interest rate provided for under the Revolving Credit Loan (or in the event the Revolving Credit Loan is a floating rate loan, an interest rate that is benchmarked off the same index and with a spread over such index which is no greater than the then current spread applicable to the Revolving Credit Loan), as determined by Lender absent manifest error, (B) a maximum principal 76 amount that is no more than the maximum principal amount of the Revolving Credit Loan; (C) a maturity date that is no earlier than that provided for under the Revolving Credit Loan at the time of the closing hereof; (D) no provisions providing for the payment of any additional interest, fees, participating interest or other similar equity feature; (E) no provision in which collateral not granted for the benefit of Revolving Credit Lender or otherwise encumbered with respect to the Revolving Credit Loan as of the date hereof is granted for the benefit of or with respect to the New Revolving Credit Loan; (F) no provision whereby the New Revolving Credit Loan is cross-defaulted with any other Indebtedness; (G) a cash management and lockbox arrangement substantially similar to that maintained under the Revolving Credit Loan; and (H) no provisions that prohibit the prepayment of the New Revolving Credit Loan without the payment of a prepayment premium or penalty; (d) the terms of the New Revolving Credit Loan shall provide the same express rights to the Lender as the Revolving Credit Loan and shall not conflict with the terms of the Loan and the lender under the New Revolving Credit Loan shall enter into an intercreditor agreement with Lender no less favorable to Lender than the intercreditor agreement between Lender and Revolving Credit Lender dated as of the date hereof; (e) Borrower shall pay all costs and expenses of Lender incurred in connection with the New Revolving Credit Loan, including, without limitation, reasonable fees and expenses of Lender's counsel; (f) Borrower shall execute and deliver such amendments to this Agreement and the other Loan Documents as Lender may request in connection with such New Revolving Credit Loan; and (g) Lender shall have received such settlement statements, pay-off letters, opinions and other documentation as it shall reasonably request in connection with the New Revolving Credit Loan. Upon the satisfaction of the foregoing, Borrower may consummate a replacement or a refinancing of the Revolving Credit Loan, whereupon such New Revolving Credit Loan shall be deemed to be the Revolving Credit Loan as defined herein. 5.2.15 REFINANCING OF MORTGAGE LOAN. (a) Borrower shall not consent to or permit a refinancing of the Mortgage Loan unless it obtains the prior consent of Lender, provided that Lender shall consent to a refinancing in full of the Mortgage Loan if, after considering the following factors, Lender determines in its reasonable discretion that such factors have been satisfied: (i) no Event of Default or event which with the giving of notice and/or lapse of time would constitute an Event of Default under this Agreement shall have occurred and be continuing; 77 (ii) the new mortgage loan including, without limitation, any successive refinancing ("NEW MORTGAGE LOAN") shall have (i) an interest rate that is no higher than the current interest rate provided for under the Mortgage Loan (or in the event the Mortgage Loan is a floating rate loan, an interest rate that is benchmarked off the same index and with a spread over such index which is no greater than the then current spread applicable to the Mortgage Loan), as determined by Lender in its sole discretion (and shall provide for an interest rate cap substantially identical to the Interest Rate Cap Agreement), provided, however, that in connection with a permitted refinancing during the three (3) months prior to the Maturity Date the interest rate may be at the then prevailing market rate; (ii) a principal balance that is no more than the balance of the Mortgage Loan on the date of the refinancing plus any advances made by the Mortgage Lender or the Servicer in order to protect or preserve the Property or the lien of the Mortgage Loan Documents on the Property; provided, however, that in connection with a permitted refinancing during the three (3) months prior to the Maturity Date, the principal balance may also include reasonable and customary closing costs; (iii) if the New Mortgage Loan provides for amortization, amortization amounts not greater than that calculated on the basis of an equal monthly payment self liquidating twenty-five (25) year loan using the initial interest rate for the permitted refinancing in question for such calculation; provided, however, that the amount of amortization may be greater than the amortization under the Mortgage Loan due to an increase in the principal balance as permitted under subsection (ii) above; (iv) a maturity date that is no earlier than that provided for under the Mortgage Loan at the time of the closing hereof; (v) no provisions providing for the payment of any additional interest, fees, participating interest or other similar equity feature; (vi) no provision in which collateral not granted for the benefit of Mortgage Lender or otherwise encumbered with respect to the Mortgage Loan as of the date hereof is granted for the benefit of or with respect to the New Mortgage Loan; (vii) no provision whereby the New Mortgage Loan is cross-defaulted with any other Indebtedness; (viii) reserves substantially the same as those maintained under the Mortgage Loan and a cash management and lockbox arrangement substantially similar to that maintained under the Mortgage Loan; and (ix) no provisions that prohibit the prepayment of the New Mortgage Loan from and after the Permitted Prepayment Date (as defined in the Mortgage Loan Agreement) without the payment of a prepayment premium or penalty that is greater than the prepayment premium or penalty required under the Mortgage Loan Agreement; (iii) the terms of the New Mortgage Loan shall permit the Loan, shall provide the same express rights to the Lender as the Mortgage Loan and shall not conflict with the terms of the Loan and the new mortgage lender shall assume the existing Intercreditor Agreement without amendment or modification; (iv) Borrower shall pay all reasonable costs and expenses of Lender incurred in connection with any such refinancing, including, without limitation, reasonable fees and expenses of Lender's counsel; 78 (v) Agent shall have received at least thirty (30) days prior written notice of such refinancing. (b) Upon the satisfaction of the foregoing, Borrower may permit or consent to a refinancing of the Mortgage Loan, whereupon such New Mortgage Loan shall be deemed to be the Mortgage Loan as defined herein. (c) Borrower may permit or consent to a refinancing of the Revolving Credit Loan upon satisfaction of the terms and conditions set forth in the Mortgage Loan Agreement. 5.2.16 CONTRACTUAL OBLIGATIONS. Other than the Loan Documents and the organizational documents of such entity and the Summit Note, neither Borrower nor any of its assets shall be subject to any Contractual Obligations, and Borrower shall not enter into any agreement, instrument or undertaking by which it or its assets are bound, except for such liabilities, not material in the aggregate, that are incidental to its activities, as a limited partner or regular member, as applicable, of its Subsidiaries shown in the Organizational Chart. 5.2.17 LIMITATIONS ON SECURITIES ISSUANCES. None of Borrower of any of its Subsidiaries shall issue any membership, partnership or other ownership interests, stock or other securities other than those issued as of the date hereof unless pledged to Lender in an agreement substantially similar in form and substance to the Pledge Agreement. 5.2.18 ASSETS. Borrower shall not purchase or own any property other than the Collateral. Borrower shall not permit Mortgage Borrower to purchase or own any property of than the Properties and any property necessary or incidental for the operation of the Properties, except as permitted under the Mortgage Loan Documents. 5.2.19 MASTER LEASES AND OPERATING LEASES. Borrower shall not and shall not permit the Mortgage Borrower or any Operator to amend, modify, terminate, cancel or surrender the Master Leases or the Operating Leases, as applicable, without the prior written consent of Agent. SECTION 5.3. GUARANTOR COVENANTS 5.3.1 NEGATIVE PLEDGE. Guarantor shall at all times be in compliance with the financial covenants set forth on ANNEX I to this Agreement, which is incorporated herein and made a part hereof. 5.3.2 PERMITTED INDEBTEDNESS. Guarantor shall not create, incur, assume or suffer to exist any Indebtedness for Borrowed Money, except the following (collectively, "PERMITTED INDEBTEDNESS"): (a) Indebtedness under the Loan Documents or the Guarantor Revolving Credit Loan Documents; (b) any Indebtedness set forth on SCHEDULE 5.3.2 and any Indebtedness which refinances or replaces such Indebtedness to the extent such refinanced Indebtedness does not increase the total principal amount thereof, extend the maturity date, accelerate the amortization or is otherwise on terms and 79 conditions which are not materially more onerous to Guarantor ("PERMITTED REFINANCED INDEBTEDNESS"); (c) (i) Capitalized Lease Obligations incurred after the Closing Date and Indebtedness incurred pursuant to purchase money Liens permitted by Section 5.3.3(v) and any Permitted Refinanced Indebtedness with respect thereto, provided that the aggregate amount thereof outstanding at any time shall not exceed $5,000,000; (ii) Indebtedness on a non-recourse (other than customary carve-outs for non-recourse financings) basis to any assets of Guarantor other than the asset or assets that are collateral securing such Indebtedness and which is secured by a Lien permitted pursuant to Section 5.3.3(v) and any Permitted Refinancing Indebtedness with respect thereto and (iii) Indebtedness incurred in connection with the Eureka Transaction; provided that the aggregate amount outstanding under at any time under Section 5.3.2(c)(ii) plus Section 5.3.2(c)(iii) shall not exceed $30,000,000; (d) Indebtedness in connection with advances made by a stockholder in order to cure any default of the financial covenants set forth on Annex I; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Debt and to all of Lender's rights and in form and substance reasonably satisfactory to Lender; (e) borrowings incurred in the ordinary course of business and not exceeding $10,000,000 individually or in the aggregate outstanding at any one time; provided, however, that such Indebtedness shall be on an unsecured basis, subordinated in right of repayment and remedies to all of the Debt and to all of Lender's rights and in form and substance satisfactory to Lender; (f) Subordinated Debt, provided, however, the aggregate principal amount of Subordinated Debt (i) evidenced by the Indenture and the Indenture Notes and any Permitted Refinanced Indebtedness with respect thereto shall not exceed $106,761,608, and (ii) evidenced by the Bergen Note and any Permitted Refinanced Indebtedness with respect thereto shall not exceed $1,237,880, (i) Indebtedness constituting Priority Claims; (j) Indebtedness in respect of insurance premiums payable to the Insurance Subsidiary in an aggregate amount not to exceed $10,000,000 and (k) additional unsecured Indebtedness in the ordinary course of business in an aggregate amount not to exceed $2,000,000. Notwithstanding anything in this Section 5.3.2 or this Agreement to the contrary, the aggregate amount of Indebtedness for Borrowed Money of Guarantor on a Consolidated Basis, exclusive of the Obligations (as defined in the Revolving Loan Documents) shall not exceed $255,000,000 in the aggregate. 5.3.3 PERMITTED LIENS. Guarantor shall not create, incur, assume or suffer to exist any Lien upon, in or against, or pledge of, any of its properties or assets, whether now owned or hereafter acquired, except the following (collectively, "PERMITTED LIENS"): (i) Liens under the Loan Documents or the Guarantor Revolving Credit Loan Documents or otherwise arising in favor of Lender or the Guarantor Revolving Credit Lender; (ii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (iv) statutory Liens of landlords (provided, that with respect to any landlord for leased locations acquired after the Closing Date, Borrower shall have used reasonable efforts (which shall not include the unreasonable payment of money) in accordance with the terms of Section 5.3.12 hereof, to cause such landlord to execute a Landlord Waiver and a memorandum of lease in form and substance reasonably satisfactory to Agent in its commercially 80 reasonable discretion, provided, further, in the event Borrower is unable to obtain any such Landlord Waiver and/or memorandum of lease, Borrower shall maintain a duplicate up to date set of any books and records maintained at the location related to the real property owned by the applicable landlord at a location owned by Borrower or with respect to which a Landlord Waiver reasonably satisfactory to Agent shall have been obtained) and of carriers, warehousemen, mechanics, materialmen and (B) other Liens imposed by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP; (v) Liens (A) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of progress payments under government contracts; (vi) purchase money Liens and Liens securing Capitalized Lease Obligations (A) securing Indebtedness permitted under Section 5.3.2(c), or (B) in connection with the purchase by such Person of assets in the normal course of business, provided that (x) such payables shall not exceed any limits on Indebtedness provided for herein and shall otherwise be Permitted Indebtedness hereunder and (y) with respect to Indebtedness incurred pursuant to Section 5.3.2(c)(ii) such Liens shall not extend to or cover any property of Guarantor other than the property being acquired and improvements thereon or which is the subject of the applicable Capital Lease, (vii) easements, rights-of-way, restrictions and other similar encumbrances which do not materially interfere with the conduct of the business of Guarantor; (viii) any intercompany Liens between a Subsidiary Borrower or Guarantor on the one hand and another Subsidiary Borrower or Guarantor on the other; (ix) any interest or title of a lessor under a operating lease; (x) Liens pursuant to Subordinated Debt; (xi) Liens securing the Priority Claims; (xii) the Vendors' Lien in accordance with the Plan of Reorganization so long as the amount secured does not exceed $8,000,000 and is otherwise subject to the Revolving Loan Documents; (xiii) Liens securing Class 10 Deferred Obligations and Continuing Creditor Deferred Obligations in accordance with the Plan of Reorganization so long as the amount secured does not exceed $25,000,000 and is otherwise subject to the Revolving Loan Documents; and (xiv) Liens disclosed on SCHEDULE 5.3.3. 5.3.4 INVESTMENTS; NEW FACILITIES OR COLLATERAL; SUBSIDIARIES. Guarantor, directly or indirectly, shall not (a) purchase, own, hold, invest in or otherwise acquire obligations or stock or securities of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture or (b) make or permit to exist any loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (collectively, an "INVESTMENT"), in each case, other than (i) Investments in any Borrower (as defined in the Guarantor Revolving Credit Agreement) or any Subsidiary of any Borrower (as defined in the Guarantor Revolving Credit Loan Agreement); (ii) Investments in any Person to the extent such Person either (x) becomes a Borrower or guarantor under the Revolving Credit Loan Documents or the 81 Guarantor Revolving Loan Documents, (y) becomes a borrower or a guarantor under the Loan Documents or (z) with respect to investments existing on the Closing Date by Guarantor in any Person or Subsidiary which is a borrower or guarantor under the Mortgage Loan Documents; (iii) Investments in Cash Equivalents; (iv) Investments listed on SCHEDULE 5.3.4; (v) trade credit extended in the ordinary course of business, (vi) advances for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees, (vii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (viii) guaranties by Guarantor or any Subsidiary of Guarantor of obligations of a Borrower or a guarantor under the Guarantor Revolving Credit Documents to the extent the obligation guaranteed is otherwise permitted under this Agreement; (ix) Investments in the Insurance Subsidiary in an amount not to exceed $1,500,000; and (x) additional Investments in an amount not to exceed $2,000,000. Guarantor, directly or indirectly, shall not purchase, own, operate, hold, invest in or otherwise acquire any facility, property or assets that is not located at the locations set forth on SCHEDULE 5.3.4 unless Guarantor shall provide to Agent at least ten (10) Business Days prior written notice. Guarantor shall not have any Subsidiaries other than (i) Borrowers under the Guarantor Revolving Credit Documents, (ii) or as set forth in the Organizational Chart, (iii) such Subsidiaries which execute a Joinder Agreement or a Guaranty and Security Agreement pursuant to Section 5.3.14 or (iv) Excluded Subsidiaries. 5.3.5 DIVIDENDS; REDEMPTIONS. Guarantor shall not (i) declare, pay or make any dividend or distribution on any shares of capital stock or other securities or interests (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock); (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any capital stock or other securities or interests or of any options to purchase or acquire any of the foregoing (provided, however, that Guarantor may redeem its capital stock from any terminated employee pursuant to, but only to the extent required or permitted under, the terms of the related employment or other agreements with such employee, as long as no Default or Event of Default has occurred and is continuing or would be caused by or result therefrom), or (iii) otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person's capacity as an equity owner. 5.3.6 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 5.3.6, Guarantor shall not enter into or consummate any transaction of any kind with any of its Affiliates or any guarantor of any obligations of Borrower under the Loan Documents or any of their respective Affiliates other than: (i) salary, bonus, employee stock option and other compensation and employment arrangements with directors or officers in the ordinary course of business, provided, that no payment of any bonus shall be permitted if an Event of Default under Section 8.1(a)(i) has occurred and remains in effect or would be caused by or result from such payment; (ii) distributions and dividends permitted pursuant to Section 5.3.4 or Section 5.3.5, (iii) transactions on overall terms at least as favorable to Guarantor as would be the case in an arm's length transaction between unrelated parties of equal bargaining power, and (iv) payments permitted under and pursuant to written agreements entered into by and between Guarantor and one or more of its Affiliates that both (A) reflect and constitute transactions on overall terms at 82 least as favorable to Guarantor as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power, and (B) are subject to such terms and conditions as determined by Lender in its commercially reasonable direction; provided, that notwithstanding the foregoing or any provision of any Loan Document, Guarantor shall not (Y) enter into or consummate any transaction or agreement pursuant to which it becomes a party to any mortgage, note, indenture or guarantee evidencing any Indebtedness for Borrowed Money or Contingent Obligations of any of its Affiliates (other than a direct or indirect subsidiary of Guarantor) or otherwise becomes responsible or liable, as a guarantor, surety or otherwise, pursuant to any agreement for any Indebtedness for Borrowed Money or Contingent Obligations of any such Affiliate (other than a direct or indirect subsidiary of Guarantor) or (Z) make any payment to any of its Affiliates in excess of $100,000 without the prior written consent of Agent. By execution of this Agreement, the Lender consents to the payments made to Affiliates pursuant to the agreements set forth on SCHEDULE 5.3.6. 5.3.7 CHARTER DOCUMENTS; FISCAL YEAR; DISSOLUTION. Guarantor shall not (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents in a manner that would be adverse to Lender, (ii) change its fiscal year unless Guarantor demonstrates to Agent's reasonable satisfaction compliance with the covenants contained herein for both the fiscal year in effect prior to any change and the new fiscal year period by delivery to Agent of appropriate interim and annual pro forma, historical and current compliance certificates for such periods and such other information as Agent may reasonably request, (iii) amend, alter or suspend or terminate or make provisional in any material way, any permit material to the business of Guarantor without the prior written consent of Agent, which consent shall not be unreasonably withheld or delayed, or (iv) use any proceeds of the Loan for "purchasing" or "carrying" "margin stock" as defined in Regulations U, T or X of the Board of Governors of the Federal Reserve System. 5.3.8 TRANSFER OF ASSETS. Guarantor shall not sell, lease, transfer, pledge, assign or otherwise dispose of any facility, property or assets or any interest therein or agree to do any of the foregoing, except that: (a) Guarantor may lease (other than by a sale-leaseback transaction) as lessee real or personal property or surrender all or a portion of a lease of the same, in each case in the ordinary course of business (so long as such lease does not create or result in and is not otherwise a Capitalized Lease Obligation prohibited under this Agreement); provided that, if books and records relating to any facility, property or assets or any interest therein which has been granted to Lender pursuant to the Loan Documents are to be kept at any new leased location, a Landlord Waiver is executed, reasonably satisfactory in form and substance to Agent; (b) Guarantor may sell obsolete, worn-out or replaced assets or excess assets no longer needed in the ordinary course of business; (c) Guarantor may sell Inventory in the ordinary course of business; 83 (d) the sale, transfer, lease or other disposition by Guarantor of assets aggregating not more than $5,000,000 during in the term of the Loan; (e) Guarantor may sell or transfer any of its facilities, properties or assets to any Subsidiary of Guarantor, provided no such facilities, properties or assets constitute security for this Loan or the Mortgage Loan; (f) the sale, transfer, lease or other disposition by Guarantor of not more than five (5) Facilities during the term of the Loan, provided that any such sale, transfer, lease or other disposition shall not result in a Default or Event of Default and shall be in accordance with the applicable provisions of the Mortgage Loan Agreement and this Agreement; and (g) the sale, transfer, lease or other disposition by Guarantor of all or any portion of the pharmacy business or the locomotion business, provided that any such sale, transfer, lease or other disposition shall not result in a Default or an Event of Default. 5.3.9 CONTINGENT OBLIGATIONS. Guarantor shall not enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person except for (a) Contingent Obligations permitted pursuant to Section 5.3.2 or Section 5.3.4; (b) Contingent Obligations of Guarantor for Borrower, to the extent the underlying obligation is otherwise permitted under this Agreement; (c) Contingent Obligations of Guarantor for any borrower or a guarantor under the Revolving Credit Loan Agreement, the Guarantor Revolving Credit Loan Agreement, or the Mortgage Loan Documents, to the extent the underlying obligations is otherwise permitted under this Agreement; (d) Contingent Obligations set forth in SCHEDULE 5.3.9 hereof; and (e) refinancings and replacements of Contingent Obligations otherwise permitted hereunder. 5.3.10 PAYMENT ON SUBORDINATED DEBT. Guarantor shall not (i) make any payment of any part or all of any Subordinated Debt or repurchase, redeem or retire any instrument evidencing any such Subordinated Debt prior to maturity except, in each case, to the extent permitted in the Guarantor Revolving Credit Loan Documents or Article 12 of the Indenture as in effect on the Closing Date or the applicable Subordination Agreement, provided that (x) no payment, repurchase or redemption may be made in respect of Subordinated Debt if an Event of Default shall exist or be continuing or would exist after giving effect to such payment and (y) no principal prepayments may be made in respect of the Indenture Notes, the Continuing Creditor Deferred Obligation or the Class 10 Deferred Obligations until the outstanding balance of the Loan and the Promissory Note B has been paid in full and the Special Advance Amount (as defined in and pursuant to the Guarantor Revolving Credit Agreement) has been reduced to zero; or (ii) enter into any agreement (oral or written) which could in any way be construed to amend, modify, alter or terminate any one or more instruments or agreements evidencing or relating to any Subordinated Debt (other than Vendors' liens) which increases the principal amount of such Subordinated Indebtedness, increases the interest rate charged with respect thereto, accelerates the maturity date of any payment of 84 principal or interest or increases any fees or other compensation payable thereunder or amends any event of default or any other material covenant or agreement of any obligor thereunder or in respect thereof in a manner materially adverse to Lender; provided, however, so long as (x) no Default or Event of Default shall exist or be continuing at the time of or after giving effect to any such payment and (y) the outstanding balance of the Loan and the Promissory Note B has been paid in full and the Special Advance Amount (as defined in and pursuant to the Guarantor Revolving Credit Agreement) has been reduced to zero, Guarantor may make prepayments of Subordinated Indebtedness; and provided, further, no mandatory prepayments or redemptions from excess cash flow of Borrowers may be made in respect of Subordinated Indebtedness until all mandatory prepayments from excess cash flow have been made in accordance with this Agreement, the Mortgage Loan Agreement and the Special Advance Amount (as defined in and pursuant to the Guarantor Revolving Credit Agreement) has been reduced to zero. 5.3.11 LEASEHOLD PROPERTIES. Guarantor shall cause Lender to have a perfected first priority Lien on all Leasehold Properties, subject only to Liens, if any, for Taxes imposed by any Governmental Authority not yet due or delinquent, and such other Liens as Agent has approved or may approve in writing in Agent's commercially reasonable discretion. After the recordation of the Leasehold Mortgages in the appropriate jurisdiction, Lender shall have a perfected first priority Lien in such Leasehold Property senior to any Lien asserted by the Indenture Trustee or any other Person with respect thereto. To the extent any Leasehold Mortgage cannot be recorded because of a missing or inaccurate legal description thereto, Borrower shall, within thirty (30) days after it is notified that any legal description to a Leasehold Mortgage is missing or inaccurate, obtain a corrected legal description and cause the Leasehold Mortgage with such corrected legal description to be recorded. 5.3.12 LEASEHOLD MORTGAGES. Guarantor and Borrower shall record and provide Lender with a copy of the recorded memorandum of lease with respect to each Leasehold Property and shall use commercially reasonable efforts to provide Lender with a landlord waiver and consent (each in form and substance reasonably satisfactory to Agent) with respect to each Leasehold Property; provided, however, that neither Guarantor nor Borrower shall be required to expend any sums of money other than de minimus amounts and such other reasonable amounts to obtain the foregoing and the reasonable costs and expenses incurred by counsel for the landlords for such properties in connection with reviewing proposed the foregoing documents. 5.3.13 ADDITIONAL COLLATERAL. On the date hereof, Revolving Credit Lender, Indenture Trustee, Lender and Guarantor are entering into that certain Intercreditor Agreement (the "INDENTURE INTERCREDITOR AGREEMENT"). Borrower and Guarantor hereby covenant and agree that Lender has a perfected first priority security interest in all of the Collateral (as defined in the Indenture Intercreditor Agreement) and that Lender's Lien in and to the Collateral (as defined in the Indenture Intercreditor Agreement) is senior in priority to the Lien thereon granted to the Indenture Trustee. 5.3.14 NEW SUBSIDIARIES. Within thirty (30) calendar days of any Person becoming a Subsidiary (other than an Excluded Subsidiary) after the Closing Date, 85 Guarantor shall cause such Person to (a) deliver to Agent a Joinder Agreement to this Agreement and to each other Loan Document or a Guaranty and Security Agreement to which Borrower or Guarantor is a party duly executed by such Person, which Joinder Agreement or Guaranty and Security Agreement shall be in substantially the forms of the Exhibits C and D, respectively to the Guarantor Revolving Credit Loan Agreement, (b) provide Agent with copies of such Person's organizational documents, material contracts, financial information, and any other information reasonably requested by Lender, in order to perform legal and financial diligence and UCC, tax and judgment lien searches, (c) cause to be delivered a written legal opinion of counsel substantially consistent with the opinions of counsel delivered on the Closing Date and otherwise in form and substance reasonably satisfactory to Agent which shall cover such matters incident to the transactions contemplated by this Section 5.3.14 and the other agreements and instruments executed and delivered pursuant hereto in substantially the form as delivered at the Closing and (d) cause such Person to duly execute and deliver such further agreements, assignments, instructions or documents as Agent may request in its commercially reasonable discretion with respect to the purposes, terms and conditions of the Loan Documents. 5.3.15 COMPLIANCE WITH PLAN OF REORGANIZATION. Guarantor shall comply with the Plan of Reorganization approved by the Bankruptcy Court having jurisdiction thereof and with the order of such Bankruptcy Court confirming the Plan of Reorganization. 5.3.16 USURY. Guarantor, by reason of its own business and financial experience or that of its professional advisors has the capacity to protect its interests in connection with the Loan and the transactions contemplated by this Agreement and the other Loan Documents to which it is a party. VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS SECTION 6.1. INSURANCE. (a) Borrower shall cause Mortgage Borrower to maintain at all times during the term of the Loan the Policies required under Section 6.1 of the Mortgage Loan Agreement, including meeting all insurer requirements thereunder. In addition, Borrower shall cause Agent to be named as an additional named insured under each of the Policies described in Sections 6.1 (a)(ii), (v), (vii), (viii), (ix) and (x) of the Mortgage Loan Agreement. In addition, Borrower shall cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the Policies required under Sections 6.1 (a)(i), (iii), (iv) and (vi) of the Mortgage Loan Agreement. Borrower shall also cause all insurance policies required under this Section 6.1 to provide for at least thirty (30) days prior notice to Agent in the event of policy cancellation or material changes. Borrower shall provide Agent with evidence of all such insurance required hereunder simultaneously with Mortgage Borrower's provision of such evidence to Mortgage Lender. (b) If at any time Agent is not in receipt of written evidence that all Policies are in full force and effect, Lender shall have the right, without notice to 86 Borrower, to take such action as Lender deems necessary to protect its interest in the Properties, including, without limitation, the obtaining of such insurance coverage as Lender in its reasonable discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and shall bear interest at the Default Rate. SECTION 6.2. CASUALTY AND CONDEMNATION. 6.2.1 CASUALTY. If an Individual Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), Borrower shall give prompt notice of such damage to Agent and shall cause Mortgage Borrower to promptly commence and diligently prosecute the completion of the Restoration of the Individual Property as nearly as possible to the condition the Individual Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Mortgage Lender and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement. Notwithstanding any Casualty, Borrower shall continue to pay the Debt at the time and in the manner provided for in the Note and this Agreement. 6.2.2 CONDEMNATION. Borrower shall promptly give Agent notice of the actual or threatened commencement of any proceeding for the Condemnation of all or any part of any Individual Property and shall cause Mortgage Borrower to deliver to Lender copies of any and all papers served in connection with such proceedings. Notwithstanding any taking by any public or quasi public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. If any Individual Property or any portion thereof is taken by Condemnation, Borrower shall cause Mortgage Borrower to promptly commence and diligently prosecute the Restoration of such Individual Property and otherwise comply with the provisions of Section 6.4 of the Mortgage Loan Agreement. 6.2.3 RESTORATION. Borrower shall, or shall cause Mortgage Borrower to, deliver to Agent all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with the Restoration of the Property after a Casualty or Condemnation. VII. RESERVE FUNDS SECTION 7.1. RESERVE FUNDS GENERALLY. Borrower shall cause Mortgage Borrower to maintain the Reserve Funds and corresponding accounts in accordance with all of the terms and conditions set forth in Article 7 of the Mortgage Loan Agreement. To extent that the Mortgage Loan Agreement is no longer in place, Borrower shall cause Mortgage Borrower to maintain substantially similar reserve funds and accounts required in accordance with the terms of the Mortgage Loan Agreement or 87 if the Mortgage Loan is refinanced or paid off in full (without a prepayment of the Loan) and Reserve Funds that are required hereunder are not required under the new mortgage loan, if any, then Borrower shall cause any amounts that would have been deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be transferred to and deposited with Lender in accordance with the terms of this Article VII (and Borrower shall enter into a cash management and lockbox agreement for the benefit of Lender substantially similar to the arrangement entered into at the time of the closing of the Mortgage Loan), and, if any Letters of Credit have been substituted by Mortgage Borrower for any such reserves or escrows as may be specifically permitted by the Mortgage Loan Agreement, then Borrower shall also cause such Letters of Credit to be transferred to Lender to be held by Lender upon the same terms and provisions as set forth in the Mortgage Loan Agreement. VIII. DEFAULTS SECTION 8.1. EVENT OF DEFAULT. (a) Each of the following events shall constitute an event of default hereunder (an "EVENT OF DEFAULT"): (i) (a) if any portion of the Debt Service (excluding any Excess Cash Flow Principal Payments), including, without limitation, any amounts due and payable on maturity, whether on the scheduled Maturity Date or by acceleration or otherwise, is not paid when due, or if any other amounts payable hereunder are not paid within five (5) days after the date on which such amounts are due and payable; and (b) if any Excess Cash Flow Principal Payment is not paid within five (5) days after delivery of notice to Borrower following a failure of Borrower to make any such payment; (ii) if any of the Taxes or Other Charges are not paid when the same are due and payable and prior to delinquency; (iii) if the Policies are not kept in full force and effect, or if certified copies of the Policies are not delivered to Agent upon request; (iv) if Borrower Transfers or otherwise encumbers any portion of the Properties or the Collateral without Agent's prior consent in violation of the provisions of this Agreement (including, without limitation, Section 5.2.10) or the Pledge Agreement or any other Loan Document; (v) if any representation or warranty made by Borrower or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect as of the date the representation or warranty was made; (vi) if any Significant Party shall make an assignment for the benefit of creditors; 88 (vii) if a receiver, liquidator or trustee shall be appointed for any Significant Party or if any Significant Party shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, any Significant Party or if any proceeding for the dissolution or liquidation of any Significant Party shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by such Significant Party upon the same not being discharged, stayed or dismissed within thirty (30) days; (viii) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents; (ix) (a) if Borrower breaches any of its respective negative covenants contained in Section 5.2 (provided, that with respect a breach of Section 5.2.2(a), such breach shall not be deemed to be a default unless same is not cured within five (5) days after delivery of notice to Borrower) or any covenant contained in Section 4.1.30, Section 5.1.11 or 5.1.26 hereof; or (b) if Guarantor breaches any of its covenants contained in Section 5.3 or Annex I; (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if Borrower or Guarantor shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period; (xi) Intentionally Deleted; (xii) if Borrower or Guarantor shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in Subsections (i) to (xi) above, for fifteen (15) days after notice to Borrower from Agent, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and, provided, further, that Borrower shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days; (xiii) if there shall be default under any of the other Loan Documents beyond any applicable cure periods contained in such documents, whether as to Borrower, Guarantor or any of the Collateral, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is 89 to accelerate the maturity of any portion of the Debt or to permit Agent to accelerate the maturity of all or any portion of the Debt; (xiv) Mortgage Borrower ceases to continuously operate any Individual Property or any material portion thereof as a Facility for any reason whatsoever (other than temporary cessation as a result of a total Casualty or in connection with any Restoration thereof undertaken with the consent of Agent); (xv) Mortgage Borrower, any manager of any Facility, or any Facility violates any applicable law or regulation and shall fail to correct, within the time deadlines set by any Health Care Authority, managed care company, insurance company or other third-party payor any deficiency, and the violation or deficiency would reasonably be expected to result in any of the following actions by such entities with respect to the Facility: (a) a termination of Mortgage Borrower's or the Facility's Medicare contract or Medicaid contract, or the Facility Licenses; (b) a ban on payment for new admissions generally or on payment for residents otherwise qualifying for Medicaid or Medicare coverage with no opportunity to correct or to contest (provided such contest shall stay enforcement actions or exercise of remedies by Health Care Authorities) prior to termination; or (c) a suspension, discontinuance, elimination or material reduction or recoupment of reimbursement for services (without opportunity to correct or to contest (provided such contest shall stay enforcement actions or exercise of remedies by Health Care Authorities)); or (xvi) Mortgage Borrower shall revoke or modify the Medicare/Medicaid Receivables Agreement (as defined in the Cash Management Agreement) without the prior written consent of Lender. (xvii) (a) any of the Loan Documents ceases to be in full force and effect, or (b) any Lien created thereunder ceases to constitute a valid perfected first priority Lien on the Collateral (other than Priority Liens) in accordance with the terms thereof, or Lender ceases to have a valid perfected first priority security interest (subject to Priority Liens) in any of the Collateral or any securities pledged to Lender pursuant to the Loan Documents; (xviii) (i) a Mortgage Loan Event of Default shall occur or (ii) an Event of Default (as defined in each of the Revolving Loan Agreement and the Guarantor Revolving Loan Agreement shall occur and be continuing or (iii) an Event of Default (as defined in the Indenture) shall occur and be continuing; 90 (xix) if Guarantor breaches in any material respect any covenant, warranty or representation contained in the Guaranty or herein; (xx) Intentionally Deleted; (xxi) if any Operator fails to pay and rent, additional rent or other charges under any Operating Lease; or (xxii) if any Master Lease or any Operating Lease shall be terminated in violation of the terms of this Agreement or any other Loan Document. (b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vi), (vii) or (viii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, Agent may take such action, without notice or demand, that Agent deems advisable to protect and enforce its rights against Borrower and in and to the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Agent may enforce or avail itself of any or all rights or remedies provided in the Loan Documents and may exercise all the rights and remedies of a secured party under the Uniform Commercial Code, as adopted and enacted by the State or States where any of the Collateral is located against Borrower and the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding. SECTION 8.2. REMEDIES. (a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Agent against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Agent at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Agent shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any of the Collateral. Any such actions taken by Agent shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Agent may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Agent permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) to the fullest extent permitted by applicable law, Agent and Lender shall not be subject to any "one action" or "election of remedies" law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Agent has exhausted all of its remedies against the Collateral 91 and the Collateral has been foreclosed upon, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. (b) Upon the occurrence of an Event of Default and acceleration of the Loan, Agent shall have the right from time to time to partially foreclose upon the Collateral in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Agent in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Agent may foreclose upon the Collateral to recover such delinquent payments, or (ii) in the event Agent elects to accelerate less than the entire outstanding principal balance of the Loan, Agent may foreclose upon the Collateral to recover so much of the principal balance of the Loan as Agent may accelerate and such other sums secured by the Collateral as Agent may elect. Notwithstanding one or more partial foreclosures, the Collateral shall remain subject to the Pledge Agreement and the other Loan Documents to secure payment of sums secured by the Loan Documents and not previously recovered. (c) With respect to Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Agent to resort to any portion of the Collateral for the satisfaction of any of the Debt in any preference or priority to any other portion of the Collateral, and Agent may seek satisfaction out of all of the Collateral or any part thereof, in its absolute discretion in respect of the Debt. In addition, Agent shall have the right from time to time to partially foreclose upon the Collateral in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Agent in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of Debt Service, Agent may foreclose upon the Collateral to recover such delinquent payments, or (ii) in the event Agent elects to accelerate less than the entire outstanding principal balance of the Loan, Agent may foreclose upon the Collateral to recover so much of the principal balance of the Loan as Agent may accelerate and such other sums secured by the Collateral as Agent may elect. Notwithstanding one or more partial foreclosures, the Collateral shall remain subject to the Pledge Agreement and the other Loan Documents to secure payment of sums secured by the Pledge Agreement and the other Loan Documents and not previously recovered. (d) Agent shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the "SEVERED LOAN DOCUMENTS") in such denominations as Agent shall determine in its reasonable discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Agent from time to time, promptly after the request of Agent, a severance agreement and such other documents as Agent shall reasonably request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Agent. Borrower hereby absolutely and irrevocably appoints Agent as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all 92 that its said attorney shall do by virtue thereof; provided, however, Agent shall not make or execute any such documents under such power until five (5) days after notice has been given to Borrower by Agent of Agent's intent to exercise its rights under such power. Borrower shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. (e) Any amounts recovered from the Collateral after an Event of Default may be applied by Agent toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Agent in its sole discretion shall determine. (f) Agent may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder or being deemed to have cured any Event of Default hereunder, make, do or perform any obligation of Borrower hereunder in such manner and to such extent as Agent may deem necessary. All such costs and expenses incurred by Agent in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any action or proceeding shall bear interest at the Default Rate, for the period after such cost or expense was incurred into the date of payment to Agent. All such costs and expenses incurred by Agent together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and be secured by the liens, claims and security interests provided to Agent under the Loan Documents and shall be immediately due and payable upon demand by Agent therefore. (g) The rights, powers and remedies of Agent under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Agent may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Agent's rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Agent may determine in Agent's sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon. (h) For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted in this Section 8.2, Borrower hereby irrevocably constitutes and appoints the Agent its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and do and perform any acts such as are referred to in this subsection in the name and on behalf of Borrower. This power of attorney is a power coupled with an interest and cannot be revoked. 93 IX. SPECIAL PROVISIONS SECTION 9.1. INTENTIONALLY DELETED. SECTION 9.2. INTENTIONALLY DELETED. SECTION 9.3. INTENTIONALLY DELETED. SECTION 9.4. INTENTIONALLY DELETED. SECTION 9.5. SERVICER. At the option of Agent, the Loan may be serviced by a servicer/trustee (the "SERVICER") selected by Agent and Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "SERVICING AGREEMENT") between Agent and Servicer. Agent shall be responsible for all fees and costs relating to or arising under the Servicing Agreement. X. MISCELLANEOUS SECTION 10.1. SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender. SECTION 10.2. LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Agent to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Agent and shall be final and conclusive. Whenever this Agreement expressly provides that Lender or Agent may not withhold its consent or its approval of an arrangement or term, such provisions shall also be deemed to prohibit Lender or Agent from delaying or conditioning such consent or approval. SECTION 10.3. GOVERNING LAW. (A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF 94 THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. (B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT: Latham & Watkins LLP 885 Third Avenue, Suite 1000 New York, New York 10022-4802 David C. Meckler, Esq. and David Gordon, Esq. 95 AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. SECTION 10.4. MODIFICATION, WAIVER IN WRITING. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. SECTION 10.5. DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Lender shall have the right to waive or reduce any time periods that Lender is entitled to under the Loan Documents in its sole and absolute discretion. SECTION 10.6. NOTICES. All notices, demands, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by 96 (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a notice to the other parties hereto in the manner provided for in this Section 10.6): If to Agent: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2380 If to Lender: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2380 Highbridge/Zwirn Special Opportunities Fund, L.P. 9 West 57th Street, 27th Floor New York, New York 10019 Attention: David Brenner Facsimile No. (212) 287-4263 Fortress Credit Opportunities I, LP 1251 Avenue of the Americas, 16th Floor New York, New York 10020 Attention: Joshua A. Pack Facsimile No. (212) 798-6060 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: David L. Nagler Facsimile No. (917) 777-2369 with a copy to: Hahn & Hessen LLP 488 Madison Avenue New York, New York 10022 Attention: Daniel D. Batterman Facsimile No. (212) 478-7400 97 If to Borrower: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Facsimile No.: (949) 282-5820 With a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626-1525 Attention: David C. Meckler, Esq. Facsimile No.: (714) 755-8290 A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender's receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy notice is forthcoming. SECTION 10.7. TRIAL BY JURY. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND BORROWER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER. SECTION 10.8. HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 10.9. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 10.10. PREFERENCES. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any 98 portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. SECTION 10.11. WAIVER OF NOTICE. Borrower hereby expressly waives, and shall not be entitled to, any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. SECTION 10.12. REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. SECTION 10.13. EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender upon receipt of notice from Lender for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby and all the costs of furnishing all opinions by counsel for Borrower (including without limitation any opinions requested by Lender as to any legal matters arising under this Agreement or the other Loan Documents with respect the Collateral); (ii) Borrower's ongoing performance of and compliance with Borrower's respective agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental, healthcare and insurance requirements; (iii) Lender's ongoing performance and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date (except as otherwise expressly provided for herein); (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters reasonably requested by Lender; (v) securing Borrower's compliance with any requests made pursuant to the provisions of this Agreement; (vi) the filing and recording fees and expenses, title insurance and 99 reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents or the Collateral, or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Collateral, including the Operators, or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and expenses due and payable to Lender may be paid from any amounts in the Mezzanine Deposit Account. (b) Borrower shall indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. (c) Borrower covenants and agrees to pay for or, if Borrower fails to pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection with any Rating Agency review of the Loan, the Loan Documents or any transaction contemplated thereby or any consent, approval, waiver or confirmation obtained from such Rating Agency pursuant to the terms and conditions of this Agreement or any other Loan Document and the Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the obtaining of any such consent, approval, waiver or confirmation. SECTION 10.14. SCHEDULES INCORPORATED. The Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. 100 SECTION 10.15. OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of any constituent Lender's interest in and to this Agreement, such constituent Lender's Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. SECTION 10.16. NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES (a) Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Properties, or the Collateral other than that of mortgagee, beneficiary or lender. (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so. SECTION 10.17. PUBLICITY. All news releases, publicity or advertising by Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents, the financing evidenced by the Loan Documents, to Lender or any of its Affiliates shall be subject to the prior approval of Agent. SECTION 10.18. WAIVER OF MARSHALLING OF ASSETS. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower's members partners and others with interests in Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the Mortgage, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort 101 for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Collateral in preference to every other claimant whatsoever. SECTION 10.19. WAIVER OF OFFSETS/COUNTERCLAIMS. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender. SECTION 10.20. CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE. In the event of any conflict between the provisions of this Loan Agreement and any of the other Loan Documents, the provisions of this Loan Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender's exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. SECTION 10.21. BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Lender's attorneys' fees and expenses) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21 shall survive the expiration and termination of this Agreement and the payment of the Debt. SECTION 10.22. PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, including, without limitation, the Conditional Commitment Letter dated March 6, 2003 (as amended) between Borrower and Lender are superseded by the terms of this Agreement and the other Loan Documents. 102 SECTION 10.23. CERTAIN ADDITIONAL RIGHTS OF LENDER (VCOC). Notwithstanding anything which may be contained in this Agreement to the contrary, Agent and each Lender shall have: (a) the right to routinely consult with Borrower's management regarding the significant business activities and business and financial developments of Borrower, provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur at Agent's or the Lender's request on a regular basis (no less frequently than quarterly) with Agent or each Lender having the right to call special meetings at any reasonable times and upon reasonable advance notice; and (b) the right, in accordance with the terms of this Agreement, to examine the books and records of Borrower at any time upon reasonable notice. SECTION 10.24. SUCCESSORS AND ASSIGNS. All covenants, promises, and agreements in this Agreement, by or on behalf of Borrower, shall insure to the benefit of the legal representatives, successors and assigns of Lender, provided that any assignment by Lender is in accordance with Section 11.6 hereof. SECTION 10.25. COUNTERPARTS; LOST NOTES. 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. Upon receipt of notice of the mutilation, destruction, loss or theft of any Note and the ownership thereof, Borrower shall, upon the written request of the holder of such Note, execute and deliver in replacement thereof a new Note in the same form, in the same original principal amount, so mutilated, destroyed, lost or stolen; and such Note so mutilated, destroyed, lost or stolen shall then be deemed no longer outstanding hereunder. If the Note being replaced has been mutilated, it shall be surrendered to Borrower after receipt of the replacement Note; and if such replaced Note has been destroyed, lost or stolen, the holder of such Note shall furnish Borrower with a written indemnity in form reasonably satisfactory to Borrower to save them harmless in respect of such replaced Note. SECTION 10.26. REINSTATEMENT. This Agreement and each other Loan Document shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Debt or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Borrower, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Debt shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 10.27. JOINT AND SEVERAL. If Borrower or Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 103 XI. AGENCY PROVISIONS; ASSIGNMENTS AND PARTICIPATIONS SECTION 11.1. AGENT (a) Appointment. Each Lender hereby designates and appoints CapitalSource Finance LLC as administrative agent and collateral agent under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes Agent, as administrative agent and collateral agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent, as administrative agent and the collateral agent, by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article. Except for rights specifically noted, the provisions of this Article are solely for the benefit of Agent and Lenders, and Borrower shall have no rights as a third-party beneficiary of any of the provisions hereof. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. Notwithstanding anything herein contained to the contrary or in any other Loan Document, Agent, as administrative agent and collateral agent, and each of the Lenders agree that the rights and benefits conferred upon Agent in its capacity as administrative agent and collateral agent under this Agreement or any other Loan Document and/or its exercise or enforcement of the rights and remedies under this Agreement or at law or in equity with respect to this Agreement or any other Loan Document shall be for the benefit of Agent on behalf of itself and the Lenders. (b) Nature of Duties. In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders and its duties are administrative in nature and it does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or for Borrower. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of Lenders. Except for information, notices, reports, and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, Lenders shall make their own independent investigation of the financial condition and affairs of Borrower in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrower, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide Lenders with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to Lenders. Agent shall promptly notify (in writing) each Lender any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto. 104 (c) Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder, and Agent shall be liable with respect to its own gross negligence or willful misconduct. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of such Lender to whom payment was due but not made shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such Lender hereby agrees to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrower herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrower. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from any Lender with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders and notwithstanding the instructions of any Lender, Agent shall have no obligation to take any action if it, in good faith believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees or agents to any personal liability unless Agent receives an indemnification reasonably satisfactory to it from any Lender with respect to such action. (d) Reliance. Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion. (e) Indemnification. Each Lender, severally and not jointly, agree to reimburse and indemnify Agent and its officers, directors, managers, members, equity 105 owners, employees and agents (to the extent not reimbursed by Borrower or Guarantor), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding obligations (or, if indemnification is sought after the date the Loan shall have been paid in full, ratably in accordance with their Pro Rata Share immediately prior to such date of the total outstanding obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any of its officers, directors, managers, members, equity owners, employees or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct. The obligations of Lenders under this Article XI shall survive the payment in full of the Debt and the termination of this Agreement. (f) Agent Individually. With respect to the Loan made by it, Agent shall have and may exercise the same rights and powers hereunder and under the other Loan Documents and is subject to the same obligations and liabilities as and to the extent set forth herein and the other Loan Documents as any other Lender. The terms "Lenders" or "Required Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender or one of the Required Lenders. Agent may lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Subsidiary of any Borrower as if it were not acting as administrative agent and collateral agent pursuant hereto. (g) Successor Agent. (i) Resignation and Removal. Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) days' prior written notice to Borrower and Lenders. Such resignation shall take effect upon the acceptance by a successor to Agent of appointment pursuant to clause (ii) below or as otherwise provided below. Agent may be removed as agent by the Required Lenders, on at least thirty (30) days' prior written notice to Borrower and Agent and the other Lenders. (ii) Appointment of Successor. Upon any such notice of resignation or removal pursuant to clause (g)(i) above, Required Lenders shall appoint a successor to Agent (a "SUCCESSOR AGENT") with, so long as no Event of Default shall have occurred and be continuing, the consent of Agent (which consent shall not be unreasonably withheld or delayed). If a Successor Agent shall not have been so appointed within said thirty (30) day period, Agent, upon notice to Borrower, may, on behalf of Lenders, then appoint a Successor Agent who shall serve as administrative agent and collateral agent until such time as Required Lenders (with, so long as no Event of Default shall have occurred and be continuing, the consent of Agent (which consent 106 shall not be unreasonably withheld or delayed)), appoint a Successor Agent as provided above. If no Successor Agent has been appointed pursuant to the foregoing within said thirty (30) day period, the resignation shall become effective and Required Lenders shall thereafter perform all the duties of Agent hereunder, until such time, if any, as Lenders appoint a Successor Agent as provided above. (iii) Successor Agent. Upon the acceptance of any appointment under the Loan Documents by a Successor Agent, such Successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of Agent, as administrative agent and collateral agent and, upon the earlier of such acceptance or the effective date of Agent's resignation, Agent shall be discharged from its duties and obligations under the Loan Documents, except that any indemnity rights or other rights in favor of Agent, as administrative agent and collateral, shall continue. After Agent's resignation as administrative agent and collateral agent under the Loan Documents, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was administrative agent and collateral agent under the Loan Documents. In the event that Agent shall have resigned or otherwise been replaced, references in this Article XI to Agent shall be deemed to mean a Successor Agent. (h) Collateral Matters. (i) Collateral. Each Lender agrees that any action taken by Agent or the Required Lenders (or, where required by the express terms of this Agreement, a greater proportion of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by Borrowers or any of their Subsidiaries; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) subject to the terms of this Article XI, manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral, and, (vi) subject to the terms of this Article XI, exercise all remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (ii) Release of Collateral. Lenders hereby irrevocably authorize Agent, and Agent and Lenders agree for the benefit of Borrower, to release any Lien granted to or held by Agent for the benefit of Lenders upon (A) all Collateral upon termination of this Agreement and payment and satisfaction in full of all Debt; or (B) any 107 portion of the Collateral which is sold, transferred or otherwise disposed of in accordance with the provisions of this Agreement, if Borrower certifies to Agent that such sale, transfer or other disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry). Upon at least five (5) Business Days prior written request by Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent for the benefit of Lenders herein or pursuant hereto upon all or any portion of the Collateral in accordance with the previous sentence. (iii) Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by Borrower or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 11.1(h) or in any of the Loan Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Loan Documents or any act, omission, or event related thereto, Agent may act in any manner consistent with the provisions of this Agreement and the other Loan Documents and as it may otherwise deem appropriate, in its commercially reasonable discretion, given Agent's own interest in property covered by this Agreement or the Loan Documents as one of Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; provided, that Agent shall exercise the same care which it would in dealing with loans for its own account. Notwithstanding the foregoing, Agent shall be liable with respect to its own gross negligence or willful misconduct. (i) Agency for Perfection. Each Lender hereby appoints Agent as agent for the purpose of perfecting each Lenders' security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. (j) Exercise of Remedies. Except as set forth in Section 11.3, each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize upon any collateral security for the Loans, it being understood and agreed that such rights and remedies may be exercised only by Agent. SECTION 11.2. ACTIONS BY AGENT AND LENDERS. (a) If Agent shall request instructions from Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other 108 Loan Document, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders; and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, Lenders shall not have any right of action whatsoever against Agent as a result of its acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders. (b) All amendments, waivers and consents to any provision of this Agreement or the other Loan Documents may be amended or waived or consented to if, but only if, such amendment or waiver or consent is in writing and is signed by the Borrowers and the Required Lenders (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver or consent shall, unless signed by all the Lenders, (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitment of all Lenders) or subject any Lender to any additional obligation, (ii) reduce the principal of or rate of interest hereunder or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on the Loan or any fees hereunder or change the amortization terms hereunder, (iv) release the Lien of Agent on any other collateral (except pursuant to Section 11.1(h)(ii)), or (v) change the percentage of the aggregate unpaid principal amount of the Notes, or the number of Lenders which shall be required for the Agent or the Lenders to take any action under this Section or any other provision of this Agreement. (c) Upon the occurrence of an Event of Default, Agent shall consult with the Lenders in respect of any such Event of Default to determine the course of action which is acceptable to the Required Lenders. Agent shall pursue such course of action approved by the Required Lenders in respect of any such Event of Default, including, without limitation, commencement of any suit to foreclose any security for the Loan and acquire title to the Collateral or any portion thereof in connection with such foreclosure, or defend, settle or compromise any claims. In the event the Required Lenders cannot decide which remedies, if any, are to be pursued within thirty (30) days after notice of such Event of Default from Agent to the Lenders, Agent may commence foreclosure proceedings on behalf of the Lenders; provided, however, that if at any time thereafter the Required Lenders shall direct that a different or additional remedial action shall be taken, such different or additional remedial action shall be taken by Agent in lieu of or in addition to such foreclosure. SECTION 11.3. SET OFF AND SHARING OF PAYMENTS. In addition to any rights and remedies now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, to the fullest extent permitted by law, with reasonably prompt subsequent notice to Borrower or to any other Person (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrower or the Guarantor (regardless of whether such balances are then due to Borrower or the Guarantor), and (b) other property at any time held or 109 owing by such Lender or such holder to or for the credit or for the account of Borrower or the Guarantor, against and on account of any of the Debt which are not paid when due; except that no Lender shall exercise any such right without the prior written consent of Agent; provided, however, that the failure to give notice to Borrower shall not affect the validity of such set-off and application. Any Lender which has exercised its right to set off or otherwise has received any payment on account of the Debt shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of Lenders on account of such Debt, purchase for cash participations in each such other Lender's Pro Rata Share of Debt as would be necessary to cause such Lender to share such excess with each other Lender or holder in accordance with their respective Pro Rata Shares; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrower agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Debt and may sell participations in such excess to other Lenders and holders, and (b) any Lender or holder so purchasing a participation in the Loan made or other Debt held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of the Loan and other Debt in the amount of such participation. SECTION 11.4. PAYMENTS. (a) Advances and Payments; Interest and Fee Payments. If payments are made directly to Agent, payments of principal, interest and fees in respect of the Loan will be settled, in accordance with each Lender's Pro Rata Share on the first Business Day after such payments are received. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind. (b) Return of Payments. If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrowers and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind. If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any solvency law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind. SECTION 11.5. DISSEMINATION OF INFORMATION. Agent will distribute promptly to each Lender copies of all notices, schedules, reports, projections, financial statements, agreements and other material and other information, including, but not limited to, financial and reporting information received from Borrower, the Guarantor or their Subsidiaries or generated by a third party (and excluding only internal information 110 generated by Agent for its own use as a Lender), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall promptly give notice to Lenders of the receipt or sending of any notice, schedule, report, projection, financial statement or other document or information pursuant to this Agreement or any of the other Loan Documents and shall promptly forward a copy thereof to each Lender. Agent shall request information from Borrower, the Guarantor or their Subsidiaries as Lenders may request from time to time. Agent shall not be liable to Lenders for any failure to comply with its obligations under this Section 11.6, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. SECTION 11.6. ASSIGNMENTS AND PARTICIPATIONS (a) Any constituent Lender may assign to one or more Persons all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of such Lender's Note); provided that the parties to each such assignment shall execute and deliver to Agent and Borrower an assignment and acceptance agreement (an "ASSIGNMENT AND ACCEPTANCE") in connection with such assignment, and to, to the extent substitute Notes are required in connection with such assignment, deliver the Note(s) held by the assigning Lender to Agent, to be held until such replacement Notes are delivered to Agent. In addition any constituent Lender may participate to one or more Persons all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including without limitation, all or a portion of such Lender's Note) utilizing such documentation to evidence such participation and the parties' respective rights thereunder as such Lender, in its sole discretion, shall elect, provided, however, that (i) such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof, (iii) such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents and Borrower and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and he other Loan Documents and and (iv) any agreement pursuant to which any Lender shall sell any such participation shall provide that such participant's rights and responsibilities to exercise such Lender's rights and enforce each of Borrowers' obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents, shall, prior to an Event of Default, be limited to the right to consent to (A) a reduction of the principal of, or rate or amount of interest on the Loan subject to such participation (other than by payment or prepayment thereof), (B) postponement of any date fixed for any payment of principal of, or interest on, the Loan subject to such participation and (C) release of any guarantor of the Debt or release of any collateral that Lender is not otherwise required to release under the Loan. (b) Upon such execution and delivery, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of the assigning Lender, as the case may be, hereunder and such assignee shall be deemed to 111 have assumed such rights and obligations, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder have been assumed by the assignee pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of Lender's rights and obligations under this Agreement and the other Loan Documents, Lender shall cease to be a party hereto) accruing from and after the effective date of the Assignment and Acceptance. (c) Upon its receipt of an Assignment and Acceptance executed by an assignee, Agent shall (i) accept such Assignment and Acceptance, and (ii) give prompt written notice thereof to Borrower along with notice of any replacement Notes required in connection with such assignment (and shall make specify to Borrower that upon receipt of such replacement Notes, it shall deliver the Notes being replaced). Within five (5) Business Days after its receipt of such notice, Borrower, shall execute and deliver to Agent a new Note or Notes to the order of such parties and in such amounts specified in Agent's notice, and Agent shall make a notation of such transaction in the Note Register referenced in Section 11.7. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate then outstanding principal amount of the to be surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the Note. (d) Prior to the occurrence of an Event of Default, a Lender may assign or pledge its interest in the Loan only to a Person (an "Eligible Assignee") that either, (i) is an Affiliate of such Lender, (ii) on an aggregate basis with its Affiliates, has at least $50 million of shareholder's equity or capital/statutory surplus and $100 million of total assets (in name or under management), (iii) is a "Qualified Transferee" under the Mortgagae Intercreditor Agreement or (iv) qualifies as a "Loan Pledgee" or "Conduit" under the Mortgage Intercreditor Agreement. Upon the occurrence and during the continuance of an Event of Default, none of the foregoing restrictions on assignments or pledges shall be applicable. Addtionally, (x) none of the restrictions on assignments contained in this Agreement shall be applicable to participations in any Lender's interest in the Loan and (y) any lender may assign all or a portion of its rights in the Loan to the Federal Reserve Bank. SECTION 11.7. NOTE REGISTER. The ownership of an interest in each Note shall be registered on a record of ownership maintained by Borrower or its agent. Notwithstanding anything else in the Loan Agreement or any Note to the contrary, the right to the principal of, and stated interest on, a Note may be transferred only if the transfer is registered on such record of ownership and the transferee is identified as the owner of an interest in the obligation. All parties to this Agreement shall be entitled to treat the registered holder of a Note (as recorded on such record of ownership) as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in a Note on the part of any other person or entity. 112 [NO FURTHER TEXT ON THIS PAGE] 113 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. SHG PROPERTY RESOURCES, LLC By: \s\ Roland G. Rapp -------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: \s\ Roland G. Rapp -------------------------------- Name: Roland G. Rapp Title: Secretary Commitment $11,500,000.00 CAPITALSOURCE FINANCE LLC By: \s\ James J. Pieczynski -------------------------------- Name: James J. Pieczynski Title: Director Commitment $5,750,000.00 HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P. By: \s\ Daniel B. Zwirn -------------------------------- Name: Daniel B. Zwirn Title: Managing Principal Commitment $5,750,000.00 FORTRESS CREDIT OPPORTUNITIES I, LP By: FORTRESS CREDIT OPPORTUNITIES I GP LLC, its General Partner By: \s\ Marc K. Furstein ------------------------------ Name: Marc K. Furstein Title: Chief Operating Officer Solely for the purposes set forth in the last sentence of Section 2.6.3, Section 4.1.39 and Section 5.3 of this Agreement: FOUNTAIN VIEW, INC., a Delaware corporation By: \s\ Roland G. Rapp ------------------------ Name: Roland G. Rapp Title: Secretary SCHEDULE I PROPERTIES AND MORTGAGE BORROWERS
MORTGAGE BORROWERS TYPE OF ------------------------------------------------------- INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ------------------------------------------------------------------------------------------------------------------------ 1. Carehouse Care Center SNF Orange CA Carehouse SHG Secured California Secured Healthcare Center, Resources, LP Resources, LLC LLC - ------------------------------------------------------------------------------------------------------------------------ 2. Devonshire Care Center SNF Riverside CA Devonshire Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 3. Fountain Care Center SNF Orange CA Fountain Care SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 4. Fountain Senior Assisted ALF Orange CA Fountain Senior SHG Secured California Secured Living Assisted Living, Resources, LP Resources, LLC LLC - ------------------------------------------------------------------------------------------------------------------------ 5. Spring Assisted Living ALF Los Angeles CA Spring Senior SHG Secured California Secured and Retirement Assisted Living, Resources, LP Resources, LLC LLC - ------------------------------------------------------------------------------------------------------------------------ 6. Earlwood Care Center SNF Los Angeles CA The Earlwood, LLC SHG Secured California Secured Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 7. Valley Health Care Center SNF Fresno CA Valley Healthcare SHG Secured California Secured Center, LLC Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 8. Villa Maria Care Center SNF Santa CA Villa Maria SHG Secured California Secured Barbara Healthcare Center, Resources, LP Resources, LLC LLC - ------------------------------------------------------------------------------------------------------------------------ 9. Willow Creek Health Care SNF Fresno CA Willow Creek SHG Secured California Secured Center Healthcare Center, Resources, LP Resources, LLC LLC - ------------------------------------------------------------------------------------------------------------------------ 10. Briarcliff Nursing and SNF Hidalgo TX Briarcliff Nursing SHG Secured Texas Secured Rehabilitation Center and Rehabilitation Resources, LP Resources, LLC Center, LP - ------------------------------------------------------------------------------------------------------------------------ 11. Clairmont Nursing Home SNF Jefferson TX Clairmont SHG Secured Texas Secured (Beaumont) Beaumont, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 12. Clairmont Nursing Home SNF Gregg TX Clairmont SHG Secured Texas Secured (Longview) Longview, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 13. Colonial Manor Care SNF Comal TX Colonial New SHG Secured Texas Secured Center Braunfels Care Resources, LP Resources, LLC Center, LP - ------------------------------------------------------------------------------------------------------------------------ 14. Colonial Manor (Tyler) SNF Smith TX Colonial Tyler SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 15. Comanche Trail Nursing SNF Howard TX Comanche Nursing SHG Secured Texas Secured Center Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------
Sched. I-1
MORTGAGE BORROWERS TYPE OF ------------------------------------------------------- INDIVIDUAL PROPERTIES FACILITY COUNTY STATE OPERATOR FEE OWNERS MASTER LESSEE - ------------------------------------------------------------------------------------------------------------------------ 16. Coronado Nursing Center SNF Taylor TX Coronado Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 17. Oak Manor Nursing Center SNF Fayetee TX Flatonia Oak SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 18. Guadalupe Valley Nursing SNF Guadalupe TX Guadalupe Valley SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 19. Hallettsville Nursing SNF Lavaca TX Hallettsville SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ------------------------------------------------------------------------------------------------------------------------ 20. Lubbock Hospitality House SNF Lubbock TX Hospitality SHG Secured Texas Secured Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ------------------------------------------------------------------------------------------------------------------------ 21. Live Oak Nursing Center SNF Live Oak TX Live Oak Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 22. Monument Hill Nursing SNF Fayette TX Monument SHG Secured Texas Secured Center Rehabilitation and Resources, LP Resources, LLC Nursing Center, LP - ------------------------------------------------------------------------------------------------------------------------ 23. Oak Crest Nursing Center SNF Aransas TX Oak Crest Nursing SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 24. Oakland Manor Nursing SNF Lee TX Oakland Manor SHG Secured Texas Secured Center Nursing Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 25. Southwood Care Center SNF Travis TX Southwood Care SHG Secured Texas Secured Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 26. Cityview Care Center SNF Tarrant TX Texas Cityview SHG Secured Texas Secured Care Center, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 27. Heritage Oaks Nursing SNF Lubbock TX Texas Heritage SHG Secured Texas Secured and Rehabilitation Center Oaks Nursing and Resources, LP Resources, LLC Rehabilitation Center, LP - ------------------------------------------------------------------------------------------------------------------------ 28. Clairmont Nursing Home SNF Smith TX The Clairmont SHG Secured Texas Secured (Tyler) Tyler, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 29. Town & Country Manor SNF Kendall TX Town and Country SHG Secured Texas Secured Manor, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------ 30. West Side Campus of Care SNF Tarrant TX West Side Campus SHG Secured Texas Secured of Care, LP Resources, LP Resources, LLC - ------------------------------------------------------------------------------------------------------------------------
Sched. 1-2 SCHEDULE II LICENSES Fountain Senior Assisted Living Spring Assisted Living and Retirement Sched. II-1 SCHEDULE III FORM OF OCCUPANCY REPORT See attached. Sched. III-1 SCHEDULE IV ORGANIZATIONAL STRUCTURE See attached. Sched. IV-1 SCHEDULE V LICENSED BED CAPACITY
LICENSED BED/UNIT INDIVIDUAL PROPERTIES CAPACITY - ------------------------------------------------------- 1. Carehouse Care Center 174 beds - ------------------------------------------------------- 2. Devonshire Care Center 99 beds - ------------------------------------------------------- 3. Fountain Care Center 179 beds - ------------------------------------------------------- 4. Fountain Senior Assisted Living 153 units - ------------------------------------------------------- 5. Spring Assisted Living and Retirement 51 units - ------------------------------------------------------- 6. Earlwood Care Center 87 beds - ------------------------------------------------------- 7. Valley Health Care Center 99 beds - ------------------------------------------------------- 8. Villa Maria Care Center 88 beds - ------------------------------------------------------- 9. Willow Creek Health Care Center 159 beds - ------------------------------------------------------- 10. Briarcliff Nursing and Rehabilitation 194 beds Center - ------------------------------------------------------- 11. Clairmont Nursing Home (Beaumont) 148 beds - ------------------------------------------------------- 12. Clairmont Nursing Home (Longview) 178 beds - ------------------------------------------------------- 13. Colonial Manor Care Center 172 beds - ------------------------------------------------------- 14. Colonial Manor (Tyler) 172 beds - ------------------------------------------------------- 15. Comanche Trail Nursing Center 119 beds - ------------------------------------------------------- 16. Coronado Nursing Center 221 beds - ------------------------------------------------------- 17. Oak Manor Nursing Center 90 beds - ------------------------------------------------------- 18. Guadalupe Valley Nursing Center 150 beds - ------------------------------------------------------- 19. Hallettsville Nursing Center 120 beds - -------------------------------------------------------
Sched. V-1 \
LICENSED BED/UNIT INDIVIDUAL PROPERTIES CAPACITY - ------------------------------------------------------- - ------------------------------------------------------- 20. Lubbock Hospitality House 117 beds - ------------------------------------------------------- 21. Live Oak Nursing Center 100 beds - ------------------------------------------------------- 22. Monument Hill Nursing Center 110 beds - ------------------------------------------------------- 23. Oak Crest Nursing Center 92 beds - ------------------------------------------------------- 24. Oakland Manor Nursing Center 120 beds - ------------------------------------------------------- 25. Southwood Care Center 120 beds - ------------------------------------------------------- 26. Cityview Care Center 210 beds - ------------------------------------------------------- 27. Heritage Oaks Nursing and 159 beds Rehabilitation Center - ------------------------------------------------------- 28. Clairmont Nursing Home (Tyler) 120 beds - ------------------------------------------------------- 29. Town & Country Manor 126 beds - ------------------------------------------------------- 30. West Side Campus of Care 240 beds - -------------------------------------------------------
Sched. V-1 SCHEDULE VI INTENTIONALLY DELETED. Sched. VI-1 SCHEDULE VII MEZZANINE LOAN ALLOCATED AMOUNTS
TEXAS FACILITIES MEZZANINE LOAN ALLOCATION ---------------- ------------------------- City View Care Center $ 734,225.16 Clairmont Beaumont $ 1,328,534.12 Clairmont of Longview $ 1,235,722.35 Colonial Manor Tyler $ 908,080.45 Clairmont of Tyler $ 1,100,482.35 Coronado Nursing Center $ 786,248.24 Colonial Manor Care Center $ 674,914.24 Lubbock Hospitality House $ 393,976.47 Halletsville Rehab and Nursing Center $ 73,261.91 Heritage Oaks Nursing and Rehab $ 1,092,905.88 Monument Hill Nursing $ 684,155.29 Oak Crest Center $ 197,556.47 Oak Manor Nursing Center $ 239,984.71 Oakland Manor Nursing Center $ 92,438.41 Southwood Care Center $ 385,831.76 Town and Country Manor $ 380,717.65 West Side Campus of Care $ 620,512.94 Briarcliff Nursing and Rehab Center $ 2,040,776.47 Comanche Trail Nursine Center $ 268,964.71 Guadalupe Valley Nursing Center $ 917,510.59 Live Oak Nursing Center $ 700,065.88 SUB TOTALS $ 14,856,866.05 CALIFORNIA FACILITIES --------------------- Fountain Assisted Living Center $ 332,715.37 Spring Retirement Center $ 413,204.15 Carehouse Care Center $ 1,076,888.20 Devonshire Care Center $ 799,844.55 Earlwood Care Center $ 799,642.92 Fountain Care Center $ 883,225.37 Valley Health Care Center $ 1,448,201.02 Villa Maria Care Center $ 714,803.26 Willow Creek Care Center $ 1,674,609.12 SUB TOTALS $ 8,143,133.95 TOTAL COMBINED $ 23,000,000.00
Sched. VIII-1 SCHEDULE VIII BORROWER PLEDGED ENTITY INTERESTS DE 1-21 ENTITIES Texas Cityview Care Center GP, LLC, a Delaware limited liability company Clairmont Beaumont GP, LLC, a Delaware limited liability company Clairmont Longview GP, LLC, a Delaware limited liability company The Clairmont Tyler GP, LLC, a Delaware limited liability company Colonial New Braunfels GP, LLC, a Delaware limited liability company Colonial Tyler GP, LLC, a Delaware limited liability company Coronado Nursing Center GP, LLC, a Delaware limited liability company Hallettsville Rehabilitation GP, LLC, a Delaware limited liability company Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, a Delaware limited liability company Hospitality Nursing GP, LLC, a Delaware limited liability company Monument Rehabilitation GP, LLC, a Delaware limited liability company Oak Crest Nursing Center GP, LLC, a Delaware limited liability company Flatonia Oak Manor GP, LLC, a Delaware limited liability company Oakland Manor GP, LLC, a Delaware limited liability company Southwood Care Center GP, LLC, a Delaware limited liability company Town and Country Manor GP, LLC, a Delaware limited liability company West Side Campus of Care GP, LLC, a Delaware limited liability company Comanche Nursing Center GP, LLC, a Delaware limited liability company Guadalupe Valley Nursing Center GP, LLC, a Delaware limited liability company Briarcliff Nursing and Rehabilitation Center GP, LLC, a Delaware limited liability company Live Oak Nursing Center GP, LLC, a Delaware limited liability company DE 24-32 ENTITIES Carehouse Healthcare Center, LLC, a Delaware limited liability company Devonshire Care Center, LLC, a Delaware limited liability company The Earlwood, LLC, a Delaware limited liability company Fountain Care Center, LLC, a Delaware limited liability company Fountain Senior Assisted Living, LLC, a Delaware limited liability company Spring Senior Assisted Living, LLC, a Delaware limited liability company Valley Healthcare Center, LLC, a Delaware limited liability company Villa Maria Healthcare Center, LLC, a Delaware limited liability company Willow Creek Healthcare Center, LLC, a Delaware limited liability company NTLP 1-21 ENTITIES Texas Cityview Care Center, LP, a Delaware limited partnership Sched. VIII-2 Clairmont Beaumont, LP, a Delaware limited partnership Clairmont Longview, LP, a Delaware limited partnership The Clairmont Tyler, LP, a Delaware limited partnership Colonial New Braunfels Care Center, LP, a Delaware limited partnership Colonial Tyler Care Center, LP, a Delaware limited partnership Coronado Nursing Center, LP, a Delaware limited partnership Hallettsville Rehabilitation and Nursing Center, LP, a Delaware limited partnership Texas Heritage Oaks Nursing and Rehabilitation Center, LP, a Delaware limited partnership Hospitality Nursing and Rehabilitation Center, LP, a Delaware limited partnership Monument Rehabilitation and Nursing Center, LP, a Delaware limited partnership Oak Crest Nursing Center, LP, a Delaware limited partnership Flatonia Oak Manor, LP, a Delaware limited partnership Oakland Manor Nursing Center, LP, a Delaware limited partnership Southwood Care Center, LP, a Delaware limited partnership Town and Country Manor, LP, a Delaware limited partnership West Side Campus of Care, LP, a Delaware limited partnership Comanche Nursing Center, LP, a Delaware limited partnership Guadalupe Valley Nursing Center, LP, a Delaware limited partnership Briarcliff Nursing and Rehabilitation Center, LP, a Delaware limited partnership Live Oak Nursing Center, LP, a Delaware limited partnership Sched. VIII-3 SCHEDULE IX EXCEPTIONS TO HEALTH CARE REPRESENTATIONS
SUBSTANDARD DENIAL OF FACILITY SURVEY DATE TAG QUALITY OF CARE PAYMENT DEFICIENCY DEFICIENCY - ------------------------------------------------------------------------------------ Clairmont Nursing Home 4/16/03 F224G None None (Tyler) - ------------------------------------------------------------------------------------ Colonial Manor (Tyler) 6/13/03 F314G None None - ------------------------------------------------------------------------------------ Comanche Trail Nursing 6/19/03 F279G, F324G None None Center - ------------------------------------------------------------------------------------ Monument Hill Nursing 7/15/03 F224G None None Center - ------------------------------------------------------------------------------------ Guadalupe Valley Nursing 3/28/03 F327G None None Center - ------------------------------------------------------------------------------------
Sched. IX-1 SCHEDULE 4.2(h)
MEDICARE MEDICAID INDIVIDUAL PROPERTIES PROVIDER # PROVIDER # - ----------------------------------------------------------------- 1. Carehouse Care Center 05-6332 LTC55765F - ----------------------------------------------------------------- 2. Devonshire Care Center 05-6095 ZZT06095F - ----------------------------------------------------------------- 3. Fountain Care Center 55-5259 LTC55259F - ----------------------------------------------------------------- 4. Earlwood Care Center 05-5032 ZZT05032G - ----------------------------------------------------------------- 5. Valley Health Care Center 05-6225 ZZR06225F - ----------------------------------------------------------------- 6. Villa Maria Care Center 05-5830 ZZT05830H - ----------------------------------------------------------------- 7. Willow Creek Health Care Center 55-5652 LTC55652F - ----------------------------------------------------------------- 8. Briarcliff Nursing and 67-5162 H06751629 Rehabilitation Center - ----------------------------------------------------------------- 9. Clairmont Nursing Home (Beaumont) 45-5757 H04557577 - ----------------------------------------------------------------- 10. Clairmont Nursing Home (Longview) 45-5684 H04556843 - ----------------------------------------------------------------- 11. Colonial Manor Care Center 45-5020 H04550201 - ----------------------------------------------------------------- 12. Colonial Manor (Tyler) 45-5429 H04554293 - ----------------------------------------------------------------- 13. Comanche Trail Nursing Center 67-5462 H06754623 - ----------------------------------------------------------------- 14. Coronado Nursing Center 67-5746 H04556817 - ----------------------------------------------------------------- 15. Oak Manor Nursing Center 67-5445 H06754457 - ----------------------------------------------------------------- 16. Guadalupe Valley Nursing Center 45-5869 H04558697 - ----------------------------------------------------------------- 17. Hallettsville Nursing Center 67-5095 H06750955 - ----------------------------------------------------------------- 18. Lubbock Hospitality House 45-5940 H04559403 - ----------------------------------------------------------------- 19. Live Oak Nursing Center 67-5104 H06751045 - -----------------------------------------------------------------
Sched. 4.2(h)-1
MEDICARE MEDICAID INDIVIDUAL PROPERTIES PROVIDER # PROVIDER # - ----------------------------------------------------------------- 20. Monument Hill Nursing Center 45-5715 H04557157 - ----------------------------------------------------------------- 21. Oak Crest Nursing Center 45-5974 H04559745 - ----------------------------------------------------------------- 22. Oakland Manor Nursing Center 67-5101 H06751011 - ----------------------------------------------------------------- 23. Southwood Care Center 45-5887 H04558871 - ----------------------------------------------------------------- 24. Cityview Care Center 67-5622 001004921 - ----------------------------------------------------------------- 25. Heritage Oaks Nursing and 67-5346 H06753467 Rehabilitation Center - ----------------------------------------------------------------- 26. Clairmont Nursing Home (Tyler) 45-5485 H04554855 - ----------------------------------------------------------------- 27. Town & Country Manor 45-5796 H04557965 - ----------------------------------------------------------------- 28. West Side Campus of Care 45-5592 H04555927 - -----------------------------------------------------------------
Sched. 4.2(h)-1 SCHEDULE 4.2(j) None. Sched. 5.3.2-1 SCHEDULE 5.3.2 PERMITTED INDEBTEDNESS Indebtedness as contemplated or permitted by the Loan Documents and the Plan of Reorganization. Sched. VIII-2 SCHEDULE 5.3.3 PERMITTED LIENS
- --------------------------------------------------------------------------------------------------------------------- DEBTOR LIEN COLLATERAL (SEARCH NAME) JURISDICTION SECURED PARTY TYPE FILING INFO DESCRIPTION - --------------------------------------------------------------------------------------------------------------------- Fountain View Inc. Woodland Care California Minolta Business Systems UCC 9821760613 Equipment Center 7120 Corbin Ave Secretary of State Inc. filed: 8-3-98 7120 Corbin Ave Po Box 728 Reseda, CA 91335 Park Ridge, NJ 07656 - --------------------------------------------------------------------------------------------------------------------- Hancock Park Convalescent Hospital California BCL Capital UCC 199823960967 Equipment 505 North La Brea Avenue Secretary of State 115 W. College Dr filed: 8-27-98 Los Angeles, CA 90036 Marshall, MN 56258 - --------------------------------------------------------------------------------------------------------------------- Rio Hondo Convalescent Hospital California Ecolab Inc. UCC 199932360360 Equipment 273 East Beverly Blvd. Secretary of State 370 Wabasha St filed: 11-12-99 Los Angeles, CA 90640 St. Paul, MN 90540 - --------------------------------------------------------------------------------------------------------------------- Summit Care-California, Inc. California Safeco Credit Co, Inc. UCC 0112961109 Equipment 1835 W. La Veta Ave Secretary of State dba Safeline Leasing filed: 5-7-01 Orange, CA 92868 10915 Willows Rd NE Redmond, WA 98052 and Fountain Care Center 1835 W. La Veta Ave Orange, CA 92868 - --------------------------------------------------------------------------------------------------------------------- Summit Care Corp., Texas Secretary of IKON Office Solutions UCC 9900115658 Equipment dba Oak Crest Nursing Center State 2090 Woodward filed: 6-7-99 1902 FM 3036 Austin, TX 78744 Rockport, TX 78382 - ---------------------------------------------------------------------------------------------------------------------
Sched. 5.3.3-1
- --------------------------------------------------------------------------------------------------------------------- DEBTOR LIEN COLLATERAL (SEARCH NAME) JURISDICTION SECURED PARTY TYPE FILING INFO DESCRIPTION - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Summit Care Corporation Texas Secretary of Mellon First United UCC 9800136642 Equipment 1300 Old Blanco Rd., Ste 150 State Leasing filed: 7-3-98 San Antonio, TX 78216 100 Corporate North Brannockburn, IL 60015 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Shackelford Incorporated UCC 9800160360 Equipment 2600 West Magnolia Blvd. State 10900 Northwest Frwy Ste filed: 8-6-03 Burbank, CA 91505 103 Houston, TX 77092 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Safeco Credit Co., Inc. UCC 0100088987 Equipment 1950 Las Vegas Trail South State dba Safeline Leasing filed: 5-7-01 White Settlement, TX 76108 10950 Willows Rd NE Redmond, WA 98052 and West Side Campus Care 1950 Las Vegas Trail South White Settlement, TX 76108 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Norwest Financial UCC 9900093404 Equipment 1751 N. 15th St State Leasing, Inc. filed: 5-10-99 Abilene, TX 79601 1700 Iowa Ave., Ste 240 Riverside, CA 92507 - --------------------------------------------------------------------------------------------------------------------- Summit Care Texas, L.P. Texas Secretary of Dan Tipps UCC 020008568685 Equipment 4710 Slide Rd. State PO Box 12380 filed: 5-10-99 Lubbock, TX 79414 Lubbock, TX 79452 - ---------------------------------------------------------------------------------------------------------------------
Sched. VIII-2 SCHEDULE 5.3.4 INVESTMENTS; NEW FACILITIES OR COLLATERAL None. Sched. 5.3.4-1 SCHEDULE 5.3.6 TRANSACTIONS WITH AFFILIATES 1. Agreements, whether written or oral, regarding the reimbursement of certain out-of-pocket and allocated overhead expenses incurred by Heritage Partners in connection with the management and operation of Guarantor. 2. $32,392,800 Promissory Note by SHG Investments, LLC in favor of Summit Care Texas, L.P. 3. Long-term care facilities leases with Robert and Sheila Snukal: a. Fountainview Convalescent Hospital, 5310 Fountain Avenue, Los Angeles, CA. b. Rio Hondo Nursing Center, 237 East Beverly Boulevard, Montebello, CA. c. Sycamore Park Convalescent Hospital, 4585 North Figueroa Street, Los Angeles, CA. d. Montebello Convalescent Hospital, 1035 West Beverly Boulevard, Montebello, CA 4. Intercompany agreements to provide services and supplies at the facilities. Sched. 5.3.6-1 SCHEDULE 5.3.9 CONTINGENT OBLIGATIONS None. Sched. 5.3.9-1 SCHEDULE 5.3.11 LEASEHOLD PROPERTIES
TYPE OF INDIVIDUAL PROPERTIES FACILITY COUNTY STATE - ------------------------------------------------------------------ 1. Alexandria Convalescent SNF Los Angeles CA Hospital - ----------------------------------------------------------------- 2. Brier Oak Terrace Care SNF Los Angeles CA Center - ----------------------------------------------------------------- 3. Elmcrest Convalescent SNF Los Angeles CA - ----------------------------------------------------------------- 4. Hancock Park Convalescent SNF Los Angeles CA - ----------------------------------------------------------------- 5. Hancock Park Retirement ALF Los Angeles CA Hotel - ----------------------------------------------------------------- 6. Fountainview Convalescent SNF Los Angeles CA - ----------------------------------------------------------------- 7. Rio Hondo Nursing Center SNF Los Angeles CA - ----------------------------------------------------------------- 8. Sycamore Park SNF Los Angeles CA Convalescent - ----------------------------------------------------------------- 9. Montebello Convalescent SNF Los Angeles CA - ----------------------------------------------------------------- 10. Anaheim Terrace Care SNF Orange CA Center - ----------------------------------------------------------------- 11. Bay Crest Care Center SNF Los Angeles CA - ----------------------------------------------------------------- 12. Palm Grove Care Center SNF Orange CA - ----------------------------------------------------------------- 13. Royalwood Care Center SNF Los Angeles CA - ----------------------------------------------------------------- 14. Sharon Care Center SNF Los Angeles CA - ----------------------------------------------------------------- 15. Woodland Care Center SNF Los Angeles CA - ----------------------------------------------------------------- 16. Carson Retirement ALF Los Angeles CA - ----------------------------------------------------------------- 17. Hemet Assisted Living ALF Riverside CA Retirement Center - ----------------------------------------------------------------- 18. Foothill Ranch Corporate n/a Orange CA Office - ----------------------------------------------------------------- 19. Texas Regional Office n/a Comal TX - ----------------------------------------------------------------- 20. Skilled Care Pharmacy n/a Los Angeles CA (Monrovia) - ----------------------------------------------------------------- 21. Skilled Care Pharmacy n/a Orange CA (Yorba Linda) - -----------------------------------------------------------------
Sched. 5.3.11-1 EXHIBIT A INTENTIONALLY DELETED. Exhibit A-1 ANNEX I FINANCIAL COVENANTS 1) Minimum EBITDA Guarantor shall not permit EBITDA as of the end of any fiscal quarter during any fiscal year (calculated for the four fiscal quarter period ended as of the end of such fiscal quarter) to be less than the amounts set forth below corresponding to such fiscal year.
FISCAL YEAR ENDED MINIMUM EBITDA - ----------------- -------------- ~~12/31/03 $ 42,000,000 12/31/04 and as at the end of each fiscal quarter during each fiscal year thereafter $ 45,000,000~~
2) Net Total Leverage Ratio (Total Debt to EBITDA) Guarantor shall not permit the Net Total Leverage Ratio of Guarantor on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 6.5 to 1. 3) Net Senior Leverage Ratio (Senior Debt to EBITDA) Guarantor shall not permit the Net Senior Leverage Ratio of Guarantor on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to exceed 4 to 1. 4) Net Interest Coverage Ratio (EBITDA/Interest Expense) Guarantor shall not permit the Net Interest Coverage Ratio of Guarantor on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter to be less than 1.75 to 1. 5) Fixed Charge Coverage Ratio (EBITDA/Fixed Charges) Guarantor shall not permit the Fixed Charge Ratio of Guarantor on a Consolidated Basis as of the end of any fiscal quarter during any fiscal year (calculated as of the end of such fiscal quarter) to be less than the ratio set forth below for such fiscal year:
FISCAL YEAR ENDED FIXED CHARGE COVERAGE RATIO - ----------------- --------------------------- ~~December 31, 2003 1.10 to 1~~
Annex I-1 December 31, 2004 and at the end of each 1.25 to 1 of each fiscal quarter during each fiscal year thereafter 6) Tangible Net Worth Until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than Unmatured Surviving Obligations), Guarantor on a Consolidated Basis will at all times maintain Tangible Net Worth of not less than ($100,000,000). 7) Minimum Liquidity At Closing and at all other times Guarantor and the Borrowers under the Guarantor Revolving Credit Agreement shall have not less than $3,000,000 of Available Cash on hand. 8) Capital Expenditures Guarantor on a Consolidated Basis shall not permit Maintenance Capital Expenditures made during any fiscal year to exceed $7,000,000. For purposes of the covenants set forth in this Annex I, the terms listed below shall have the following meanings: "Available Cash" shall mean, for any date of determination, the sum without duplication of the following for Guarantor and the Borrowers under the Guarantor Revolving Credit Agreement: (a) unrestricted cash on hand on such date, (b) Cash Equivalents held on such date, and (c) the unborrowed Availability (as defined in the Guarantor Revolving Credit Agreement) on and as of such date. "Consolidated Basis" shall mean the consolidation in accordance with GAAP of the accounts or other items of Guarantor and its Subsidiaries. "EBITDA" shall mean, for any period, the sum, without duplication, of the following for Guarantor on a Consolidated Basis (i) Net Income, (ii) Interest Expense, (iii) taxes on income, whether paid, payable or accrued, (iv) depreciation expense, (v) amortization expense, (vi) the impact on Net Income of FASB 121 and 142, (vii) Restructuring Costs and (viii) the impact on Net Income of any gains and losses from the sales of fixed assets, and (ix) the impact on Net Income of any extraordinary items, each calculated for such period in accordance with GAAP. "Fixed Charge Coverage Ratio" shall mean, as of any date of determination, the ratio for Guarantor on a Consolidated Basis of (i) EBITDA to (ii) Fixed Charges, in each case for the four fiscal quarter period ended as of such date of determination. Annex I-2 "Fixed Charges" shall mean for any period for Guarantor on a Consolidated Basis, the sum during such period of (i) Total Debt Service, (ii) Capital Expenditures not financed with Non-Recourse Indebtedness (as defined in the Guarantor Revolving Credit Agreement), (iii) taxes on income whether paid, payable or accrued, and (iv) dividends whether paid, payable or accrued, each calculated in accordance with GAAP. "Intangible Assets" means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income, restricted funds, investments in Subsidiaries, intercompany receivables and accumulated depreciation. "Interest Expense" shall mean, for any period, total interest expense (including attributable to Capital Leases in accordance with GAAP) of Guarantor on a Consolidated Basis for such period, calculated in accordance with GAAP, including capitalized interest, provided, however, for purposes of this Agreement for any fiscal quarter ended prior to September 30, 2004, Interest Expense shall be calculated as follows: (i) for the four fiscal quarters ended September 30, 2003 Interest Expense shall equal $23,700,000, (ii) for the four fiscal quarters ended December 31, 2003, Interest Expense shall equal actual Interest Expense for the fiscal quarter ended December 31, 2003 multiplied by 4, (iii) for the four fiscal quarters ended March 31, 2004, Interest Expense shall equal actual Interest Expense for the 2 fiscal quarters ended March 31, 2004 multiplied by 2 and (iv) for the four fiscal quarters ended June 30, 2004, Interest Expense shall equal actual Interest Expense for the three fiscal quarters ended June 30, 2004 multiplied by 1.33. "Maintenance Capital Expenditures" shall mean Capital Expenditures other than Capital Expenditures that are made in connection with the acquisition by Borrower or any Subsidiary of Borrower of a Facility or the operations related to a Facility. "Net Income" shall mean, for any period, the net income (or loss) of Guarantor on a Consolidated Basis for such period, determined in conformity with GAAP, provided that there shall be excluded (i) the income (or loss) of any Person in which any other Person (other than Guarantor) has a joint interest, but the amount of dividends or other distributions actually paid to a Borrower by such Person shall be included in net income (or loss), (ii) the income (or loss) of any Person accrued prior to the date it became a Borrower or is merged into or consolidated with a Borrower or that Person's assets are acquired by a Borrower, (iii) the income of any Subsidiary of any Borrower to the extent that the declaration or payment of dividends or similar distributions of that income by such Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, (iv) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of any Borrower or any Subsidiary of any Borrower, or the exercise of such options or rights, in each case to the Annex I-3 extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or any Subsidiary thereof, and (v) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (iv) of this definition of Net Income. "Net Interest Coverage Ratio" shall mean, as of any date of determination, the ratio for Guarantor on a Consolidated Basis of (i) EBITDA, to (ii) Interest Expense, in each case for the four fiscal quarter period ended as of such date of determination. "Net Senior Leverage Ratio" shall mean, as of any date of determination, the ratio for Guarantor on a Consolidated Basis of (i) the amount of Senior Debt as of such date of determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Net Total Leverage Ratio" shall mean, as of any date of determination, the ratio for Guarantor on a Consolidated Basis of (i) the amount of Total Debt as of such date of determination, to (ii) EBITDA for the four fiscal quarter period ended as of such date of determination. "Restructuring Costs" shall mean, for any period, restructuring and/or reorganization costs relating to the Bankruptcy Case incurred by Guarantor on a Consolidated Basis during such period, calculated in accordance with GAAP. "Senior Debt" shall mean at any date of determination, the sum of the amount (determined in accordance with GAAP) on such date of determination of (i) the Obligations (as defined in the Guarantor Revolving Credit Agreement), (ii) Indebtedness in respect of the Senior Mortgage Loan, (iii) Indebtedness in respect of the Mezzanine Loan, (iv) Indebtedness in respect of the Revolving Credit Loan and (v) Indebtedness in respect of Priority Claims. "Tangible Net Worth" shall mean assets (excluding Intangible Assets) less liabilities (determined in accordance with GAAP). "Total Debt" shall mean, as of any date of determination, the aggregate amount of Indebtedness for Borrowed Money on such date of determination of Guarantor, on a Consolidated Basis calculated in accordance with GAAP. "Total Debt Service" shall mean for any period the sum during such period of (i) scheduled or other required payments of principal on Total Debt during such period, and (ii) Interest Expense during such period, in each case calculated exclusive of payments on Total Debt (x) which was repaid or satisfied in full prior to the Closing Date and which does not survive after the Closing Date and (y) required to be made pursuant to the Plan of Reorganization on, or within thirty (30) days after, the Closing Date. Annex I-4 EX-10.13 23 a94359exv10w13.txt EXHIBIT 10.13 EXHIBIT 10.13 PROMISSORY NOTE (MEZZANINE LOAN) $11,500,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company and SHG INVESTMENTS, LLC, a Delaware limited liability company, jointly and severally, as maker, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promise to pay to the order of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, having an address at 31111 Agoura Road, Suite 220, Westlake Village, California 91361 (together with its successors and assigns, "LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of Eleven Million Five Hundred Thousand Dollars ($11,500,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate, and to be paid in accordance with the terms of this Note and that certain Mezzanine Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may hereafter be amended, restated, replaced, supplemented renewed, extended or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE I: PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE II: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE III: LOAN DOCUMENTS This Note is secured by the Pledge Agreement and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Pledge Agreement and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE IV: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE V: NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE VI: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or 2 successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement, the Pledge Agreement or any other Loan Document. ARTICLE VII: TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE VIII: INTENTIONALLY DELETED ARTICLE IX: GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE X: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. ARTICLE XI: JOINT AND SEVERAL If more than one Person has executed this Note as "Borrower", the obligations of all such Persons hereunder shall be joint and several. [NO FURTHER TEXT ON THIS PAGE] 3 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. SHG PROPERTY RESOURCES, LLC By: /s/ Roland G. Rapp ---------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: /s/ Roland G. Rapp ------------------------------------ Name: Roland G. Rapp Title: Secretary EX-10.14 24 a94359exv10w14.txt EXHIBIT 10.14 EXHIBIT 10.14 PROMISSORY NOTE (MEZZANINE LOAN) $5,750,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company and SHG INVESTMENTS, LLC, a Delaware limited liability company, jointly and severally, as maker, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promise to pay to the order of HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P., a Delaware limited partnership, having an address at 9 West 57th Street, 27th Floor, New York, New York 10019 (together with its successors and assigns, "LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate, and to be paid in accordance with the terms of this Note and that certain Mezzanine Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may hereafter be amended, restated, replaced, supplemented renewed, extended or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE I: PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE II: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE III: LOAN DOCUMENTS This Note is secured by the Pledge Agreement and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Pledge Agreement and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE IV: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE V: NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE VI: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or 2 successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement, the Pledge Agreement or any other Loan Document. ARTICLE VII: TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE VIII: INTENTIONALLY DELETED ARTICLE IX: GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE X: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. ARTICLE XI: JOINT AND SEVERAL If more than one Person has executed this Note as "Borrower", the obligations of all such Persons hereunder shall be joint and several. [NO FURTHER TEXT ON THIS PAGE] 3 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. SHG PROPERTY RESOURCES, LLC By: /s/ Roland G. Rapp ----------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: /s/ Roland G. Rapp ----------------------------------- Name: Roland G. Rapp Title: Secretary EX-10.15 25 a94359exv10w15.txt EXHIBIT 10.15 EXHIBIT 10.15 PROMISSORY NOTE (MEZZANINE LOAN) $5,750,000.00 New York, New York August 19, 2003 FOR VALUE RECEIVED, SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company and SHG INVESTMENTS, LLC, a Delaware limited liability company, jointly and severally, as maker, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (collectively, "BORROWER"), hereby unconditionally promise to pay to the order of FORTRESS CREDIT OPPORTUNITIES I, L.P., a Delaware limited partnership, having an address at 1251 Avenue of the Americas, 16th Floor, New York, New York 10020 (together with its successors and assigns, "LENDER"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate, and to be paid in accordance with the terms of this Note and that certain Mezzanine Loan Agreement, dated as of the date hereof, between Borrower and Lender (as the same may hereafter be amended, restated, replaced, supplemented renewed, extended or otherwise modified from time to time, the "LOAN AGREEMENT"). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement. ARTICLE I: PAYMENT TERMS Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in Article 2 of the Loan Agreement and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon shall be due and payable on the Maturity Date. ARTICLE II: DEFAULT AND ACCELERATION The Debt shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid on or prior to the date when due or if not paid on the Maturity Date or on the happening of any other Event of Default. ARTICLE III: LOAN DOCUMENTS This Note is secured by the Pledge Agreement and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement, the Pledge Agreement and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern. ARTICLE IV: SAVINGS CLAUSE Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender and (c) if through any contingency or event Lender receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender. ARTICLE V: NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. ARTICLE VI: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other Person who may become liable for the payment of all or any part of the Debt, under this Note, the Loan Agreement or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership, and the term "BORROWER," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "BORROWER" as used herein, shall include any alternative or 2 successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. If any Borrower is a limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the members comprising the limited liability company, and the term "BORROWER" as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability. Nothing in the foregoing three sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company, as applicable, which may be set forth in the Loan Agreement, the Pledge Agreement or any other Loan Document. ARTICLE VII: TRANSFER Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred. ARTICLE VIII: INTENTIONALLY DELETED ARTICLE IX: GOVERNING LAW This Note shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. ARTICLE X: NOTICES All notices or other written communications hereunder shall be delivered in accordance with Section 10.6 of the Loan Agreement. ARTICLE XI: JOINT AND SEVERAL If more than one Person has executed this Note as "Borrower", the obligations of all such Persons hereunder shall be joint and several. [NO FURTHER TEXT ON THIS PAGE] 3 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. SHG PROPERTY RESOURCES, LLC By: /s/ Roland G. Rapp ------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: /s/ Roland G. Rapp ------------------------------- Name: Roland G. Rapp Title:Secretary EX-10.16 26 a94359exv10w16.txt EXHIBIT 10.16 EXHIBIT 10.16 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT") is entered into as of August 19, 2003, by and among SUMMIT CARE CORPORATION, a California corporation ("SUMMIT"), SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company ("REH"), SHG INVESTMENTS, LLC, a Delaware limited liability company ("DE 23", and, collectively with REH, "BORROWER"), SKILLED HEALTHCARE, LLC, a Delaware limited liability company ("SH") and SUMMIT CARE TEXAS, L.P., a Texas limited partnership ("SCTX"), SUMMIT CARE TEXAS MANAGEMENT, LLC, a Delaware limited liability company ("SCTM" and, together with Summit, REH, DE 23, SH and SCTX, collectively, "PLEDGOR") and CAPITALSOURCE FINANCE LLC a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Loan Agreement (as defined below) (in such capacity as Agent, with its successors and assigns "SECURED PARTY"). WHEREAS, Borrower has requested that Fortress Credit Opportunities I, L.P., Highbridge/Zwirn Special Opportunities Fund, L.P. and CapitalSource Finance LLC (together with their successors and assigns, collectively referred to herein as "LENDER"), make a loan to Borrower in the aggregate principal amount of $23,000,000.00 (the "LOAN"), as evidenced by those certain Mezzanine Promissory Notes, each dated as of the date hereof (as the same may be amended, restated, replaced, supplemented, increased, extended, consolidated or otherwise modified from time to time, collectively, the "NOTE"); WHEREAS, as a condition precedent to the obligation of Secured Party to make the Loan to Borrower, Pledgor is required, and has agreed, to enter into and deliver this Agreement and to pledge to Secured Party, and grant a security interest in, the Pledged Collateral (as hereinafter defined) as security for Pledgor's obligations under the Loan Agreement; and WHEREAS, Secured Party is willing to execute, deliver and perform under the Loan Agreement only upon, among others, the condition that Pledgor executes and delivers to Secured Party this Agreement and agrees to perform and to comply with its obligations under this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, and as an inducement for Secured Party to enter into the Loan Agreement and the other Loan documents, the parties hereto, intending to be legally bound hereby, do agree as follows: 1. DEFINITIONS AND REFERENCES 1.1. DEFINED TERMS As used in this Agreement, the following terms shall have the meanings specified in this Section 1.1: "AGREEMENT" shall be defined to mean this Pledge and Security Agreement as the same may amended, restated, replaced, supplemented, extended, consolidated or otherwise modified from time to time. "CODE" means the Uniform Commercial Code from time to time in effect in the State of New York and the State of Delaware. "DE 1-21" means, collectively, the entities set forth on Schedule A hereto. "DE 23" has the meaning ascribed to such term in the Recitals. "DE 23 PLEDGED ENTITY INTERESTS" means all of the membership and limited partnership interests of DE 23 in (i) DE 1-21 and (ii) NTLP 1-21, each as listed on Schedule 1 hereto. "DE 24-32" shall mean, collectively, the entities set forth on Schedule B hereto. "LOAN" has the meaning ascribed to such term in the Recitals. "LOAN AGREEMENT" means the Mezzanine Loan Agreement, dated as of the date hereof, between Borrower, Mezzanine Lender and Secured Party as administrative and collateral agent for Mezzanine Lender. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean any event, condition or circumstance or set of events, conditions or circumstances or any change(s) which (i) has, had or could reasonably be expected to have any material adverse effect upon or change in the validity or enforceability of any Loan Document, (ii) has been or could reasonably be expected to be material and adverse to the value of the Pledged Collateral or to the business, operations, prospects, properties, assets, liabilities or condition of Borrower and the Guarantor taken as a whole, or (iii) has materially impaired or could reasonably be expected to materially impair the ability of any Borrower or Guarantor to perform the obligations or to consummate the transactions under the Loan Documents executed by such Person. "NEW YORK COURT" and "NEW YORK COURTS" have the meanings ascribed to such terms in Section 6.7 hereof. "NOTE" has the meaning ascribed to such term in the Recitals. "NTLP 1-21" shall mean, collectively, the entities set forth on Schedule C hereto. "PLEDGED COLLATERAL" shall mean, collectively and each individually, (i) Pledged Entity Interests (and the certificates, copies of which are attached hereto, representing such shares, membership or partnership interests and other equity securities and ownership interests); (ii) all other equity, membership or partnership interest certificates, options or rights of any nature whatsoever which may be issued or granted to Pledgor while this Agreement is in effect, other than those relating to any Subsidiary of Pledgor which is in existence as of the date first written above but whose equity, membership or partnership interest is not included as Pledged Entity Interests; and (iii) any and all replacements, products and Proceeds of, and dividends, distributions in property, returns of capital or other distributions made on or with respect to, any of the foregoing shares and other equity securities and ownership interests. "PLEDGED ENTITY INTERESTS" means, collectively, the DE 23 Pledged Entity Interests, REH Pledged Entity Interests, SCTX Pledged Entity Interests, SH Pledged Entity Interests, the SCTM Pledged Entity Interests and the Summit Pledged Entity Interests. "PROCEEDS" means all "proceeds" as such term is defined in Section 9-102(a)(64) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Collateral, collections thereon or distributions with respect thereto. "QUALIFIED COURT" and "QUALIFIED COURTS" have the meanings ascribed to such terms in Section 6.7 hereof. "REH" has the meaning ascribed to such term in the Recitals. "REH PLEDGED ENTITY INTERESTS" means all of the membership or limited partnership interests of REH in (i) DE 24-32 as listed on Schedule 1 hereto, (ii) Texas Secured Resources, LLC, a Delaware limited liability company (iii) California Secured Resources, LLC, a Delaware limited liability 2 company, (iv) Secured Resource Management GP, LLC, a Delaware limited liability company, and (v) RPLP. "RPLP" means SHG Secured Resources, LP, a Delaware limited partnership. "SCTM" has the meaning ascribed to such term in the Recitals. "SCTM PLEDGED ENTITY INTERESTS" means all of the the general partnership interests of SCTM in SCTX. "SCTX" has the meaning ascribed to such term in the Recitals. "SCTX PLEDGED ENTITY INTERESTS" means all of the membership or limited partnership interests of SCTX in DE 23. "SH" has the meaning ascribed to such term in the Recitals. "SH PLEDGED ENTITY INTERESTS" means all of the % membership interests of SH in Skilled Healthcare II, LLC, a Delaware limited liability company. "SECURED OBLIGATIONS" shall have the meaning ascribed to such term in Section 2(a) hereof. "SUMMIT" has the meaning ascribed to such term in the Recitals. "SUMMIT PLEDGED ENTITY INTERESTS" means all of the membership or limited partnership interests of Summit in (i) REH, (ii) SCTX and (iii) SCTM. GENERAL TERMS All capitalized terms used in this Agreement and not defined herein shall have the meanings given them in the Loan Agreement. Unless otherwise specified, as used in this Agreement or in any certificate, report, instrument or other document made or delivered pursuant to this Agreement, all accounting terms not defined in this Agreement or in the Loan Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with GAAP. 2. PLEDGE OF COLLATERAL (a) As security for the due and punctual payment when due (whether as the stated maturity, by acceleration or otherwise) of the Debt and the performance by Pledgor, applicable, of all obligations to Secured Party under the Loan Agreement, this Agreement and the other Loan Documents (collectively, the "SECURED OBLIGATIONS"), Pledgor hereby (i) pledges and assigns to Secured Party all of the Pledged Collateral and all of its right, title and interest in and to the Pledged Collateral, and (ii) grants to Secured Party a continuing security interest in and lien upon the Pledged Collateral. (b) Simultaneously with the execution of this Agreement, Pledgor shall deliver to Secured Party all certificates representing the Pledged Collateral described in clause (i) of the definition of Pledged Collateral, and will deliver to Secured Party all certificates representing the Pledged Collateral described in clauses (ii) and (iii) of the definition of Pledged Collateral within five (5) Business Days after Pledgor's acquisition of such equity, membership or partnership interest or other items. Each such certificate shall be registered in the name of Pledgor, duly endorsed in blank or accompanied by a stock power or membership power duly executed by Pledgor in blank, in form and substance reasonably satisfactory to Secured Party, as applicable, with any and all documentary tax stamps and other documents necessary to cause Secured Party to have a good, valid and perfected continuing first priority 3 pledge of, lien on and security interest in the Pledged Collateral, free and clear of any other Lien, including without limitation notations, if any, which are required in the corporate or other records books of Pledgor or the entity in which such shares, equity securities or ownership interests evidence an ownership stake in order to perfect Secured Party's lien in the Pledged Collateral. At any time following the occurrence and during the continuation of an Event of Default, any or all of the Pledged Collateral, at the option of Secured Party exercised in accordance with Section 3 hereof, may be registered in the name of Secured Party or of its nominee, and Pledgor hereby covenants that, upon demand therefor by Secured Party, Pledgor shall or shall cause the entity in which such shares, equity securities or ownership interests evidence an ownership stake to effect such registration. (c) Secured Party hereby confirms receipt of the certificates representing the Pledged Collateral described in clause (i) of the definition of Pledged Collateral and agrees to hold the Pledged Collateral in accordance with the terms of this Agreement. (d) In addition to and notwithstanding any other provision of this Agreement, Secured Party, in its sole discretion, shall have the right, at any time that Pledgor fails to do so, without prior notice to Pledgor, to: (i) pay for the performance of any of the Pledgor's obligations hereunder which Pledgor has not performed; (ii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Pledged Collateral in violation of this Agreement unless Pledgor is in good faith with due diligence by appropriate proceedings contesting those items; and (iii) pay for the maintenance and preservation of any of the Pledged Collateral. Such expenses and advances shall be added to the Secured Obligations until reimbursed to Secured Party and shall be secured by the Pledged Collateral. Any such payments and advances by Secured Party shall not be construed as a waiver by Secured Party of an Event of Default or any other rights, remedies or powers of Secured Party hereunder or otherwise. (e) Pledgor hereby authorizes to Secured Party to file such financing statements and continuation statements and hereby agrees that within five (5) Business Days of any request by Secured Party, at Pledgor's cost and expense, it will duly execute and deliver to Secured Party such assignments, certificates and/or such other agreements, instructions or documents as Secured Party may reasonably request to enable Secured Party to create, maintain and perfect or from time to time renew the security interests granted hereby or to create, maintain and perfect a security interest in any additional Pledged Collateral hereafter acquired by Pledgor or in any and all additions to and/or replacements, products and proceeds of any of the foregoing, all in form and substance reasonably satisfactory to Secured Party. Pledgor will pay all costs associated therewith, including without limitation, the cost of filing any of the foregoing in all public offices or other locations wherever Secured Party reasonably deems filing to be necessary or desirable. Pledgor irrevocably grants Secured Party the right, at Secured Party's option, to file any or all of the foregoing pursuant to the Code and otherwise, and Pledgor irrevocably appoints Secured Party as Pledgor's attorney in fact to execute any of the foregoing in Pledgor's name and to perform all other acts that Secured Party reasonably deems appropriate to perfect and continue the security interests granted pursuant to this Agreement. (f) No injury to, or loss or destruction of, the Pledged Collateral or any Material Adverse Effect or Material Adverse Change shall relieve Pledgor of any of the Secured Obligations. 3. VOTING RIGHTS, DIVIDENDS AND DISTRIBUTIONS So long as no Event of Default shall have occurred and be continuing or would result from or be caused by any of the following: (a) Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers relating or pertaining to the Pledged Collateral or any part thereof, subject to the terms hereof; 4 (b) Pledgor shall be entitled to receive and retain dividends payable on the Pledged Collateral; provided, however, that all dividends (other than cash dividends) (including, without limitation, stock and liquidating dividends), distributions in property and other distributions made on or in respect of the Pledged Collateral, (i) whether resulting from a subdivision, combination or reclassification of the outstanding capital stock, equity securities or other ownership interests of Pledgor, any Guarantor, any Subsidiary of Pledgor or any other Person, or (ii) received in exchange for the Pledged Collateral or any part thereof or as a result of any merger, consolidation, acquisition, transfer, sale or disposition of the Pledged Collateral or other exchange of assets to which Pledgor, any Guarantor, any Subsidiary of Pledgor or any other Person may be a party or otherwise, and any and all property (other than cash) received in exchange for or redemption of any of the Pledged Collateral, shall be retained by Secured Party, or, if delivered to Pledgor, shall be held in trust for the benefit of Secured Party and forthwith delivered to Secured Party and shall be considered as part of the Pledged Collateral for all purposes of this Agreement; (c) Secured Party shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies, powers of attorney, dividend orders and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise the voting and/or consensual rights and powers that Pledgor is entitled to exercise pursuant to Section 3(a) and/or to receive the dividends that Pledgor is authorized to receive and retain pursuant to Section 3(b); and Pledgor shall execute and deliver to Secured Party all proxies, powers of attorney, dividend orders and other instruments and documents as may be required or may be reasonably requested by Secured Party to enable Secured Party to receive and retain the dividends, distributions in property and other distributions it is authorized to receive and retain pursuant to Section 3(b); and (d) After the occurrence and during the continuation of an Event of Default, all rights of Pledgor to exercise the voting and/or consensual rights and powers that Pledgor is entitled to exercise pursuant to Section 3(a) and/or to receive the dividends that Pledgor is authorized to receive and retain pursuant to Section 3(b) shall cease immediately, without any prior notice to Pledgor or action by or on behalf of Secured Party or any other Person, and all such rights thereupon shall become vested in Secured Party automatically without any action by any Person, and Secured Party shall have the sole and exclusive right and authority to exercise such voting and/or consensual rights and powers and/or to receive and retain such dividends, provided, that Secured Party shall give reasonable notice to Pledgor following the occurrence of such rights becoming vested in Secured Party. In such case, Pledgor shall execute and deliver such proxies, powers of attorney, dividend orders and other instruments and documents as Secured Party may reasonably request to enable Secured Party to exercise such rights and receive such dividends. In addition, Secured Party is hereby appointed the attorney-in-fact of Pledgor, with full power of substitution, which appointment as attorney-in-fact is irrevocable and coupled with an interest, to take all such actions after the occurrence and during the continuation of an Event of Default, whether in the name of Secured Party or Pledgor, as Secured Party may reasonably consider necessary or desirable for the purpose of exercising such rights and receiving such dividends. Any and all money and other property paid over to or received by Secured Party pursuant to the provisions of this Section 3(d) shall be retained by Secured Party as part of the Pledged Collateral and shall be applied in accordance with the provisions hereof. 4. REMEDIES ON DEFAULT (a) Notwithstanding and without limiting any other provision of this Agreement or any of the Loan Documents, if at any time an Event of Default shall have occurred and be continuing, then, in addition to having the right to exercise any right or remedy of a secured party upon default under the Code or applicable law or at equity, Secured Party may, to the extent permitted by law, without being required to give any notice to Pledgor or to take or do any action (except as provided below): 5 (i) apply any cash held by it hereunder in the manner provided in Section 4(k); and (ii) if there shall be no such cash or if the cash so applied shall be insufficient to pay in full the items specified in Section 4(k)(i) and 4(k)(ii), collect, receive, appropriate and realize upon the Pledged Collateral or any part thereof, and/or sell, assign, transfer, contract to sell or otherwise dispose of and deliver the Pledged Collateral or any part thereof, in its entirety or in portions, at public or private sale or at any broker's board, on any securities exchange or at any of Secured Party's places of business or elsewhere, for cash, upon credit or for future delivery, and at such price or prices as Secured Party may reasonably deem best, and Secured Party may (except as otherwise provided by law) be the purchaser of any or all of the Pledged Collateral so sold and thereafter may hold the same, absolutely, free from any right or claim of whatsoever kind. (b) In the event of a sale as aforesaid, Secured Party may, at any such sale, restrict the number of prospective bidders or purchasers and/or further restrict such prospective bidders or purchasers to Persons who will represent and agree that they are purchasing for their own account, for investment and not with a view to the distribution or resale of the Pledged Collateral, and may otherwise require that such sale be conducted subject to restrictions as to such other matters as Secured Party may reasonably deem necessary in order that such sale may be effected in such manner as to comply with all applicable state and federal securities and other laws. Upon any such sale, Secured Party shall have the right to deliver, assign and transfer the Pledged Collateral so sold to the purchaser thereof. (c) Pledgor hereby acknowledges that, notwithstanding that a higher price might be obtained for the Pledged Collateral at a public sale than at a private sale or sales, the making of a public sale of the Pledged Collateral may be subject to registration requirements under applicable securities laws and other legal restrictions, compliance with which would make a public sale of the Pledged Collateral impractical. Accordingly, so long as any such sale is conducted in a commercially reasonable manner, Pledgor hereby agrees that private sales made by Secured Party in good faith in accordance with the provisions of this Article 4 may be at prices and on other terms less favorable to the seller than if the Pledged Collateral were sold at a public sale, and that Secured Party shall not have any obligation to take any steps in order to permit the Pledged Collateral to be sold at a public sale. (d) Each purchaser at any such sale shall hold the property sold, absolutely free from any claim or right whatsoever, including any equity or right of redemption of Pledgor, and to the extent permitted by law, Pledgor hereby specifically waives all rights of redemption, stay or appraisal and other rights that Pledgor has or may have under any law, regulation or statute now existing or hereafter adopted or otherwise. Secured Party shall give Pledgor not less than ten (10) calendar days' written notice of its intention to make any such public or private sale. Such notice, in case of a public sale, shall state the time and place fixed for such sale, and, in case of a sale at broker's board, on a securities exchange, at one or more of Secured Party's places of business or elsewhere, shall state the board, exchange or other location at which such sale is to be made and the day on which the Pledged Collateral, or that portion thereof so being sold, will first be offered for sale at such location. Such notice, in case of a private sale, shall state only the date on or after which such sale may be made and, if known, the location of such sale. Any such notice given as aforesaid shall be deemed to be reasonable notification. (e) Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. At any sale the Pledged Collateral may be sold in one lot as an entirety or in parts, as Secured Party may determine. Secured Party shall not be obligated to make any sale pursuant to any such notice. Secured Party may, without notice or publication, adjourn any sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Pledged Collateral on credit or for future delivery, the Pledged Collateral so sold may be retained by Secured Party until the 6 selling price is paid by the purchaser thereof, but Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may again be sold upon like notice. (f) Secured Party, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose its lien or security interest arising from this Agreement and sell the Pledged Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. (g) Notwithstanding and without limiting any other provision of this Agreement or any of the Loan Documents, upon the occurrence and during the continuation of an Event of Default, Secured Party or its nominee shall have the right, without notice to or the consent of Pledgor, to exercise any and all rights of conversion, exchange or subscription and any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to transfer, sell, dispose of or exchange, at its discretion, any or all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of Pledgor or the applicable Guarantor, or Subsidiary of Pledgor or such other Person. (h) On any sale of any part of the Pledged Collateral, Secured Party is hereby authorized to comply with any limitation or restriction in connection with such sale that may be necessary in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser(s) by any Governmental Authority or officer or court. (i) Pledgor hereby acknowledges, understands and agrees that Secured Party (i) may exercise its rights under the Loan Documents, whether or not they provide security for any of the Secured Obligations, without exercising its rights hereunder or affecting the security provided hereunder, and (ii) may proceed against all or any portion of the Pledged Collateral and all other collateral securing any of the Secured Obligations in such order and at such time as determined by Secured Party in its sole discretion. Pledgor hereby expressly waives any rights under the doctrine of marshalling of assets. (j) Except as otherwise set forth above, Pledgor hereby acknowledges, understands and agrees that compliance with the foregoing procedures shall satisfy any applicable requirements that such sale or disposition be made in a commercially reasonable manner. (k) The proceeds of any collection, recovery, receipt, appropriation, realization, transfer, exchange, disposition or sale as aforesaid shall be applied by Secured Party in the following order: (i) First, to the payment of all reasonable costs and expenses of every kind incurred by Secured Party in connection therewith or incidental to the care, safekeeping or otherwise of any of the Pledged Collateral, and to the payment of all sums which Secured Party may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Pledged Collateral or any part thereof, and all other payments that Secured Party may be required or authorized to make under any provision of this Agreement including, without limitation, reasonable in-house documentation and diligence fees, search, audit, recording, and filing fees and expenses and reasonable attorneys' fees and expenses; (ii) Second, to the payment of any other amounts due under the Secured Obligations (to be applied in accordance with the Loan Agreement); (iii) Third, to the satisfaction of indebtedness secured by any subordinate security interest of record in the Pledged Collateral if written notification of demand therefor is received before distribution of the proceeds is completed; provided that the holder of a subordinate security interest 7 shall furnish reasonable proof of its interest to Secured Party, and unless it does so, Secured Party need not address its claims; and (iv) Finally, to the payment to Pledgor of any surplus then remaining from such proceeds, unless otherwise required by law or directed by a court of competent jurisdiction; provided that Pledgor shall be liable for any deficiency if such proceeds are insufficient to satisfy all of the Secured Obligations. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR (a) Pledgor represents and warrants to Secured Party as of the date hereof and as of each Borrowing Date (which representations and warranties shall survive the execution and delivery of this Agreement) as follows: (i) Pledgor is, or, with respect to the Pledged Collateral described in clauses (ii) and (iii) of the definition of Pledged Collateral not later than the time of delivery of certificates therefor will be, the direct record and beneficial owner of each share, security and other interest that comprises the Pledged Collateral, and Pledgor has and will have good, valid and marketable title thereto, free and clear of all Liens other than the security interests created by this Agreement; (ii) all of the Pledged Collateral has been, or, with respect to the Pledged Collateral described in clauses (ii) and (iii) of the definition of Pledged Collateral not later than the time of delivery of certificates therefor will be, duly and validly issued, fully paid and nonassessable; (iii) the Pledged Collateral described in clause (i) of the definition of Pledged Collateral constitutes the percentage set forth on Schedule 1 of the issued and outstanding equity, membership or limited partnership interests, as applicable, of each Guarantor, Subsidiary of Pledgor and other Person in which such Pledged Collateral represents an ownership interest (calculated on a fully diluted, as converted basis); (iv) the Pledged Collateral is and will be duly and validly pledged to Secured Party in accordance with law, and Secured Party has a good, valid and perfected first priority lien on and security interest in the Pledged Collateral and the proceeds thereof subject to no Liens in favor of any other Person; (v) the obligations of Pledgor under this Agreement are not subordinated in any way to any other obligation of Pledgor or to the rights of any other Person. (b) Until all Secured Obligations (exclusive of any indemnity obligations with respect to which no claim has been made and which pursuant to the provisions of the Loan Agreement survive termination of the Loan Agreement) have been performed and satisfied in full and indefeasibly paid in full in cash and the Loan Agreement has been terminated, Pledgor hereby covenants that: (i) Pledgor shall not sell, lease, transfer, pledge, assign or otherwise dispose of any of the Pledged Collateral or any interest therein, and Pledgor shall not create, incur, assume or suffer to exist any Lien upon, in, against or with respect to any of the Pledged Collateral or any interest therein except in accordance with the provisions of the Loan Agreement; (ii) Pledgor shall, and shall cause each entity whose securities constitute part of the Pledged Collateral to, keep true, complete and accurate books of record with respect to the Pledged Collateral in accordance with commercially reasonable business practices; and (iii) Except for actions permitted pursuant to the Loan Agreement, Pledgor shall not take or permit to be taken, or permit or cause any entity whose securities constitute part of the 8 Pledged Collateral to take or permit to be taken, any action in connection with the Pledged Collateral or otherwise which would impair the value of the Pledged Collateral or any portion thereof or the value of the interests or rights of Pledgor or Secured Party therein or with respect thereto, including, without limitation, any amendment to or modification of the certificate of incorporation (or similar charter documents) or bylaws (or similar documents) of Pledgor or such Person which would result in or cause any of the foregoing. 6. MISCELLANEOUS PROVISIONS 6.1. NOTICES Any notice or request under this Agreement shall be given in accordance with Section 10.6 of the Loan Agreement. 6.2. DELAY No course of action or dealing, renewal, release or extension of any provision of this Agreement, or single or partial exercise of any such provision, or delay, failure or omission on Secured Party's part in enforcing any such provision shall affect the liability of Pledgor or operate as a waiver of such provision or affect the liability of Pledgor or preclude any other or further exercise of such provision. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. 6.3. RELEASE OF PLEDGED COLLATERAL Promptly following full performance and satisfaction and indefeasible payment in full in cash of the Secured Obligations (exclusive of any indemnity obligations with respect to which no claim has been made and which pursuant to the provisions of the Loan Agreement survive termination of the Loan Agreement) and the termination of the Loan Agreement, the security interests and liens created hereby shall automatically terminate and be released and Secured Party shall execute and deliver such documents, at Pledgor's expense, as are necessary to evidence such termination and shall return the Pledged Collateral to Pledgor at the address of Pledgor set forth herein or at such other address as Pledgor may direct in writing. Secured Party shall not be deemed to have made any representation or warranty with respect to any Pledged Collateral so delivered, except that such Pledged Collateral is free and clear, on the date of such delivery, of any and all liens, charges and encumbrances arising from Secured Party's own acts. 6.4. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NEW SECURED PARTIES This Agreement shall inure to the benefit of Secured Party and all future holders of any Note and/or the Obligations transferred in accordance with the provisions of the Loan Agreement, and each of their respective successors and assigns. This Agreement shall be binding upon the Persons' other than Secured Party that are parties to this Agreement and their respective successors and assigns, and no such Person may assign, delegate or transfer this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Secured Party. No rights are intended to be created under this Agreement for the benefit of any third party donee, creditor or incidental beneficiary of Pledgor. Nothing contained in any Loan Document shall be construed as a delegation to Secured Party of any other Person's duty of performance. 9 6.5. SEVERABILITY; CAPTIONS; COUNTERPARTS; FACSIMILE SIGNATURES If any provision of this Agreement is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Agreement which shall be given effect so far as possible. The captions in this Agreement are intended for convenience and reference only and shall not affect the meaning or interpretation of this Agreement. The Agreement may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission, which facsimile signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party. 6.6. SURVIVAL It is the express intention and agreement of the parties hereto that all obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Pledgor herein shall survive the execution, delivery and termination of this Agreement until all Secured Obligations (exclusive of any indemnity obligations with respect to which no claim has been made and which pursuant to the provisions of the Loan Agreement survive termination of the Loan Agreement) are performed in full and indefeasibly paid in full in cash and the Loan Agreement is terminated. 6.7. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS; VENUE This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding with respect to the Obligations, any Loan Document or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a "New York Court," and all such courts collectively, the "New York Courts"), provided nothing in this Agreement shall be deemed or operate to preclude Secured Party from bringing suit or taking other legal action in any jurisdiction to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations (any such court and any New York Court, individually a "Qualified Court" and collectively, the "Qualified Courts"), and provided, further that Secured Party, Lenders and Pledgor acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of this agreement, Pledgor (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 10.6 of the Loan Agreement and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Secured Party or any Lender involving, directly or indirectly, the Obligations, any Loan Document or any related agreement shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 6.8. WAIVER OF NOTICE; WAIVER OF STATUTE OF LIMITATIONS; DEFENSES Except as expressly provided for herein, Pledgor hereby waives demand, presentment, protest, notice of dishonor or non-payment, as well as all defenses with respect to any and all instruments, notice of acceptance hereof, notice of Loans or Advances made, credit extended, collateral received or delivered, or any other action taken by Secured Party in reliance hereon, and all other demands and notices of any description. The pleading of any statute of limitations as a defense to any demand against 10 Pledgor hereunder and under the Loan Documents is expressly waived by Pledgor. Pledgor hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Secured Party to obtain an order of court recognizing the assignment of or security interests and liens of Secured Party in and to the Pledged Collateral. 6.9. JURY WAIVER EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY. 6.10. ENTIRE AGREEMENT This Agreement and the other Loan Documents to which Pledgor is a party constitute the entire agreement between Pledgor and Secured Party with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Pledgor and Secured Party. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Secured Party and Pledgor. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 6.11. NO DUTY OF SECURED PARTY Except for the duty to exercise reasonable care in the custody and preservation of the Pledged Collateral in its possession, Secured Party shall have no responsibility for or obligation or duty with respect to all or any part of the Pledged Collateral or any matter or proceeding arising out of or relating thereto, including without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights pertaining thereto. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 11 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Pledge and Security Agreement as of the date first written above. SUMMIT CARE CORPORATION By: /s/ Roland G. Rapp -------------------------------------------- Name: Roland G. Rapp Title: Secretary SHG PROPERTY RESOURCES, LLC By: /s/ Roland G. Rapp ------------------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: /s/ Roland G. Rapp ------------------------------------------- Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC, its general partner By: /s/ Roland G. Rapp --------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel SKILLED HEALTHCARE, LLC By: /s/ Roland G. Rapp ----------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel 2 SUMMIT CARE TEXAS MANAGEMENT, LLC By: \s\ Roland G. Rapp --------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel 3 CAPITALSOURCE FINANCE LLC By: /s/ James J. Pieczynski --------------------------------- Name: James J. Pieczynski Title: Director Address for Notices: 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile: (301) 841-2340 4 PLEDGE AND SECURITY AGREEMENT SCHEDULE A DE 1-21 Entities Texas Cityview Care Center GP, LLC, a Delaware limited liability company Clairmont Beaumont GP, LLC, a Delaware limited liability company Clairmont Longview GP, LLC, a Delaware limited liability company The Clairmont Tyler GP, LLC, a Delaware limited liability company Colonial New Braunfels GP, LLC, a Delaware limited liability company Colonial Tyler GP, LLC, a Delaware limited liability company Coronado Nursing Center GP, LLC, a Delaware limited liability company Hallettsville Rehabilitation GP, LLC, a Delaware limited liability company Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, a Delaware limited liability company Hospitality Nursing GP, LLC, a Delaware limited liability company Monument Rehabilitation GP, LLC, a Delaware limited liability company Oak Crest Nursing Center GP, LLC, a Delaware limited liability company Flatonia Oak Manor GP, LLC, a Delaware limited liability company Oakland Manor GP, LLC, a Delaware limited liability company Southwood Care Center GP, LLC, a Delaware limited liability company Town and Country Manor GP, LLC, a Delaware limited liability company West Side Campus of Care GP, LLC, a Delaware limited liability company Comanche Nursing Center GP, LLC, a Delaware limited liability company Guadalupe Valley Nursing Center GP, LLC, a Delaware limited liability company Briarcliff Nursing and Rehabilitation Center GP, LLC, a Delaware limited liability company Live Oak Nursing Center GP, LLC, a Delaware limited liability company PLEDGE AND SECURITY AGREEMENT SCHEDULE B DE 24-32 Entities Carehouse Healthcare Center, LLC, a Delaware limited liability company Devonshire Care Center, LLC, a Delaware limited liability company The Earlwood, LLC, a Delaware limited liability company Fountain Care Center, LLC, a Delaware limited liability company Fountain Senior Assisted Living, LLC, a Delaware limited liability company Spring Senior Assisted Living, LLC, a Delaware limited liability company Valley Healthcare Center, LLC, a Delaware limited liability company Villa Maria Healthcare Center, LLC, a Delaware limited liability company Willow Creek Healthcare Center, LLC, a Delaware limited liability company PLEDGE AND SECURITY AGREEMENT SCHEDULE C NTLP 1-21 Entities Texas Cityview Care Center, LP, a Delaware limited partnership Clairmont Beaumont, LP, a Delaware limited partnership Clairmont Longview, LP, a Delaware limited partnership The Clairmont Tyler, LP, a Delaware limited partnership Colonial New Braunfels Care Center, LP, a Delaware limited partnership Colonial Tyler Care Center, LP, a Delaware limited partnership Coronado Nursing Center, LP, a Delaware limited partnership Hallettsville Rehabilitation and Nursing Center, LP, a Delaware limited partnership Texas Heritage Oaks Nursing and Rehabilitation Center, LP, a Delaware limited partnership Hospitality Nursing and Rehabilitation Center, LP, a Delaware limited partnership Monument Rehabilitation and Nursing Center, LP, a Delaware limited partnership Oak Crest Nursing Center, LP, a Delaware limited partnership Flatonia Oak Manor, LP, a Delaware limited partnership Oakland Manor Nursing Center, LP, a Delaware limited partnership Southwood Care Center, LP, a Delaware limited partnership Town and Country Manor, LP, a Delaware limited partnership West Side Campus of Care, LP, a Delaware limited partnership Comanche Nursing Center, LP, a Delaware limited partnership Guadalupe Valley Nursing Center, LP, a Delaware limited partnership Briarcliff Nursing and Rehabilitation Center, LP, a Delaware limited partnership Live Oak Nursing Center, LP, a Delaware limited partnership PLEDGE AND SECURITY AGREEMENT SCHEDULE 1 DESCRIPTION OF PLEDGED MEMBERSHIP OR PARTNERSHIP INTERESTS I. DE 23 Pledged Entity Interests
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Texas Cityview DE 1 LLC Care Center GP, LLC - ------------------------------------------------------------------------------------------- Clairmont SHG Investments, DE 100% Beaumont GP, DE 1 LLC LLC - ------------------------------------------------------------------------------------------- Clairmont SHG Investments, DE 100% Longview GP, DE 1 LLC LLC - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% The Clairmont DE 1 LLC Tyler GP, LLC - ------------------------------------------------------------------------------------------- Colonial New SHG Investments, DE 100% Braunfels GP, DE 1 LLC LLC - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Colonial Tyler DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- Coronado SHG Investments, DE 100% Nursing DE 1 LLC Center, GP, LLC - ------------------------------------------------------------------------------------------- Hallettsville SHG Investments, DE 100% Rehabilitation DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- Texas Heritage Oaks Nursing SHG Investments, DE 100% and DE 1 LLC Rehabilitation Center GP, LLC - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Hospitality DE 1 LLC Nursing GP, LLC - ------------------------------------------------------------------------------------------- Monument SHG Investments, DE 100% Rehabilitation DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- Oak Crest SHG Investments, DE 100% Nursing Center DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Flatonia Oak DE 1 LLC Manor GP, LLC - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Oakland Manor GP, DE 1 LLC LLC - -------------------------------------------------------------------------------------------
2
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- SHG Investments, DE 100% Southwood Care DE 1 LLC Center GP, LLC - ------------------------------------------------------------------------------------------- Town and SHG Investments, DE 100% Country Manor DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- West Side SHG Investments, DE 100% Campus of Care DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- Comanche SHG Investments, DE 100% Nursing Center DE 1 LLC GP, LLC - ------------------------------------------------------------------------------------------- Guadalupe SHG Investments, DE 100% Valley Nursing DE 1 LLC Center GP, LLC - ------------------------------------------------------------------------------------------- Briarcliff Nursing and SHG Investments, DE 100% Rehabilitation DE 1 LLC Center, GP, LLC - ------------------------------------------------------------------------------------------- Live Oak SHG Investments, DE 100% Nursing Center DE 1 LLC GP, LLC - -------------------------------------------------------------------------------------------

Name of Name of State of Partnership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Texas Cityview DE LP-01 LLC Care Center, LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Clairmont DE LP-01 LLC Beaumont, LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Clairmont DE LP-01 LLC Longview, LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% The Clairmont DE LP-01 LLC Tyler, LP - ------------------------------------------------------------------------------------------- Colonial New SHG Investments, DE 99% Braunfels Care DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Colonial Tyler DE LP-01 LLC Care Center, LP - ------------------------------------------------------------------------------------------- Coronado SHG Investments, DE 99% Nursing DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Hallettsville SHG Investments, Rehabilitation LLC DE 99% and Nursing DE LP-01 Center, LP - -------------------------------------------------------------------------------------------
3
Name of Name of State of Partnership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- Oaks Nursing and Rehabilitation SHG DE 99% Texas Heritage DE LP-01 Investments, Rehabilitation LLC Center, LP - ------------------------------------------------------------------------------------------- Hospitality Nursing and SHG Investments, DE 99% Rehabilitation DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Monument Rehabilitation SHG Investments, DE 99% and Nursing DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Oak Crest Nursing SHG Investments DE 99% Center, DE LP-01 LLC LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Flatonia Oak DE LP-01 LLC Manor, LP - ------------------------------------------------------------------------------------------- Oakland Manor SHG Investments, DE 99% Nursing DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- SHG Investments, DE 99% Southwood Care DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Town and SHG Investments, DE 99% Country Manor, DE LP-01 LLC LP - ------------------------------------------------------------------------------------------- West Side SHG Investments, DE 99% Campus of DE LP-01 LLC Care, LP - ------------------------------------------------------------------------------------------- Comanche SHG Investments, DE 99% Nursing DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Guadalupe SHG Investments, DE 99% Valley Nursing DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Briarcliff Nursing and SHG Investments, DE 99% Rehabilitation DE LP-01 LLC Center, LP - ------------------------------------------------------------------------------------------- Live Oak SHG Investments, DE 99% Nursing Center DE LP-01 LLC LP, LLC - -------------------------------------------------------------------------------------------
II. REH Pledged Entity Interests
Membership/ Name of Name of State of Partnership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- Carehouse SHG Property DE 100% Healthcare DE 1 Resources, LLC Center, LLC - -------------------------------------------------------------------------------------------
4
Membership/ Name of Name of State of Partnership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- SHG DE 100% Devonshire DE 1 Property Care Center, Resources, LLC LLC - ------------------------------------------------------------------------------------------- SHG Property DE 100% The Earlwood, DE 1 Resources, LLC LLC - ------------------------------------------------------------------------------------------- SHG Property DE 100% Fountain Care DE 1 Resources, LLC Center, LLC - ------------------------------------------------------------------------------------------- Fountain SHG Property Senior Resources, LLC DE 100% Assisted DE 1 Living, LLC - ------------------------------------------------------------------------------------------- Spring Senior SHG Property DE 100% Assisted DE 1 Resources, LLC Living, LLC - ------------------------------------------------------------------------------------------- Valley SHG Property DE 100% Healthcare DE 1 Resources, LLC Center, LLC - ------------------------------------------------------------------------------------------- Villa Maria SHG Property DE 100% Healthcare DE 1 Resources, LLC Center, LLC - ------------------------------------------------------------------------------------------- Willow Creek SHG Property DE 100% Healthcare DE 1 Resources, LLC Center, LLC - ------------------------------------------------------------------------------------------- SHG Property DE 100% Texas Secured DE 1 Resources, LLC Resurces, LLC - ------------------------------------------------------------------------------------------- California SHG Property DE 100% Secured DE 1 Resources, LLC Resources, LLC - ------------------------------------------------------------------------------------------- Secured Resource SHG Property DE 100% Management GP, DE 1 Resources, LLC LLC - ------------------------------------------------------------------------------------------- SHG Property DE 99% LP SHG Secured DE LP-01 Resources, LLC Resources, LP - -------------------------------------------------------------------------------------------
III. SCTX Pledged Entity Interests 5
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- SHG Summit Care TX 100% Investments, DE 1 Texas, L.P. LLC - -------------------------------------------------------------------------------------------
IV. SH Pledged Entity Interests
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- Skilled Skilled DE 100% Healthcare II, DE 1 Healthcare, LLC LLC - -------------------------------------------------------------------------------------------
V. Summit Pledged Entity Interests
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- Summit Care California 100% SHG Property DE 1 Corporation Resources, LLC - ------------------------------------------------------------------------------------------- Summit Care California 99% LP Summit Care TX LP-01 Corporation Texas, L.P. - ------------------------------------------------------------------------------------------- Summit Care California 100% Summit Care Texas DE 1 Corporation Management, LLC - -------------------------------------------------------------------------------------------
VI. SCTM Pledged Entity Interests
Name of Name of State of Membership Collateral State of Certificate Debtor Formation Interest Entity Formation Number - ------------------------------------------------------------------------------------------- Summit Care DE 1% Summit Care TX GP-01 Texas Texas, L.P. Management, LLC - -------------------------------------------------------------------------------------------
6 EX-10.17 27 a94359exv10w17.txt EXHIBIT 10.17 EXHIBIT 10.17 ENVIRONMENTAL INDEMNITY AGREEMENT (Mezzanine Loan) THIS ENVIRONMENTAL INDEMNITY AGREEMENT (the "AGREEMENT") is made as of August 19, 2003, by SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company ("REH LLC") and SHG INVESTMENTS, LLC a Delaware limited liability company ("DE 23"), jointly and severally, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (REH LLC and DE 23, collectively, "INDEMNITOR") in favor of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Loan Agreement, having an address at 4445 Willard Avenue, 12th Floor, Chevy Chase, Maryland 20815 (in such capacity as Agent, together with its successors and assigns, referred to herein as "INDEMNITEE") and other Indemnified Parties (defined below). RECITALS: A. Indemnitee is prepared to make a loan (the "LOAN") to Indemnitor in the principal amount of Twenty-Three Million Dollars ($23,000,000.00) pursuant to a Loan Agreement of even date herewith between Indemnitor and the lenders under the Loan Agreement (as the same may hereafter be amended, restated, replaced, supplemented, renewed, extended or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan shall be evidenced by those certain Promissory Notes each of even date herewith given by Indemnitor in favor of Indemnitee (as amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the "NOTE"). Capitalized terms not otherwise defined herein shall have the meaning set forth in the Loan Agreement. B. Pursuant to that certain Loan Agreement dated as of the date hereof (as the same may hereafter be amended, restated, replaced, supplemented, renewed, extended or otherwise modified from time to time, the "MORTGAGE LOAN AGREEMENT") by the entities listed on SCHEDULE A annexed thereto (collectively, "MORTGAGE BORROWER") and Column Financial, Inc. ("MORTGAGE LENDER"), Mortgage Lender has provided financing to Mortgage Borrower in the original principal amount of Ninety-Five Million Dollars ($95,000,000.00), secured by the Properties owned by Mortgage Borrower and described in the Mortgage Loan Agreement and the other Mortgage Loan Documents. C. Indemnitee is unwilling to make the Loan unless Indemnitor agrees to provide the indemnification, representations, warranties, covenants and other matters described in this Agreement for the benefit of the Indemnified Parties. D. Indemnitor is entering into this Agreement to induce Indemnitee to make the Loan. AGREEMENT: NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitor hereby represents, warrants, covenants and agrees for the benefit of the Indemnified Parties as follows: 1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Except as otherwise disclosed by that certain Phase I environmental report (or Phase II environmental report, if required by Mortgage Lender) with respect to the Properties in connection with the Loan (hereinafter referred to below as the "ENVIRONMENTAL REPORT"), a copy of which has been provided to Indemnitee (a) there are no Hazardous Substances (defined below) or underground storage tanks in, on, or under the Properties, except those that are both (i) in compliance with all Environmental Laws (defined below) and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing pursuant to the Environmental Report; (b) there are no past or present Releases (defined below) of Hazardous Substances in, on, under or from the Properties which have not been fully remediated in accordance with Environmental Law; (c) Indemnitor does not know of, and has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to any threat of any Release of Hazardous Substances migrating to the Properties; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Properties which has not been fully remediated in accordance with Environmental Law; (e) Indemnitor does not know of, and has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Substances or Remediation (defined below) thereof, of possible liability of any Person pursuant to any Environmental Law, any other environmental conditions in connection with the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (f) Indemnitor has truthfully and fully delivered to Indemnitee, in writing, any and all information relating to conditions in, on, under or from the Properties that is known to Indemnitor and all information that is contained in files and records of Indemnitor, including but not limited to any reports relating to Hazardous Substances in, on, under or from the Properties and/or to the environmental condition of the Properties. 2. ENVIRONMENTAL COVENANTS. Indemnitor covenants and agrees that: (a) all uses and operations on or of the Properties, whether by Indemnitor or any other Person, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on, under or from the Properties, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing; (c) there shall be no Hazardous Substances in, on, or under the Properties, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing; (d) Indemnitor shall keep the Properties free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Indemnitor or any other Person (the "Environmental Liens"); (e) Indemnitor shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Paragraph 3 of this Agreement, including, but not limited to, providing all relevant information and making knowledgeable persons available for interviews; (f) Indemnitor shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Properties, pursuant to any reasonable written request of Indemnitee (including, but not limited to, sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), and share with 2 Indemnitee the reports and other results thereof, and Indemnitee and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (g) Indemnitor shall, at its sole cost and expense, comply with all reasonable written requests of Indemnitee to (i) effectuate Remediation of any condition (including, but not limited to, a Release of a Hazardous Substance) in, on, under or from the Properties; (ii) comply with any Environmental Law; (iii) comply with any directive from any Governmental Authority; and (iv) take any other reasonable action necessary or appropriate for protection of human health or the environment with respect to the Properties; (h) Indemnitor shall not do, or knowingly allow any tenant or other user of the Properties to do, any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any Person (whether on or off the Properties), impairs or may impair the value of the Properties, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste; and (i) Indemnitor shall immediately notify Indemnitee in writing of (i) any presence or Releases or threatened Releases of Hazardous Substances in, on, under, from or migrating towards the Properties; (ii) any non-compliance with any Environmental Laws related in any way to the Properties; (iii) any actual or potential Environmental Lien; (iv) any required or proposed Remediation of environmental conditions relating to the Properties; and (v) any written or oral notice or other communication of which any Indemnitor becomes aware from any source whatsoever (including, but not limited to, a Governmental Authority) relating in any way to Hazardous Substances or Remediation thereof, possible liability of any Person pursuant to any Environmental Law, other environmental conditions in connection with the Properties, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Agreement. 3. INDEMNIFIED RIGHTS/COOPERATION AND ACCESS. In the event the Indemnified Parties have reason to believe that an environmental hazard exists on the Properties that does not, in the sole discretion of the Indemnified Parties, endanger any tenants or other occupants of the Properties or their guests or the general public or materially and adversely affect the value of the Properties, upon reasonable notice from the Indemnitee, Indemnitor shall, at Indemnitor's expense, promptly cause an engineer or consultant satisfactory to the Indemnified Parties to conduct an environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the Indemnified Parties) and take any samples of soil, groundwater or other water, air, or building materials or any other invasive testing requested by Indemnitee and promptly deliver to Indemnitee the results of any such assessment, audit, sampling or other testing; provided, however, if such results are not delivered to the Indemnified Parties within a reasonable period or if the Indemnified Parties have reason to believe that an environmental hazard exists on the Properties that, in the sole judgment of the Indemnified Parties, endangers any tenant or other occupant of the Properties or their guests or the general public or may materially and adversely affect the value of the Properties, upon reasonable notice to Borrower, the Indemnified Parties and any other Person designated by the Indemnified Parties, including, but not limited to, any receiver, any representative of a governmental entity, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Properties at all reasonable times to assess any and all aspects of the environmental condition of the Properties and its use, including but not limited to, conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the Indemnified Parties) and taking samples of soil, groundwater or other water, air, or building materials, and reasonably conducting other invasive testing. Indemnitor shall cooperate with and 3 provide the Indemnified Parties and any such Person designated by the Indemnified Parties with access to the Properties. 4. INDEMNIFICATION. Indemnitor covenants and agrees, at its sole cost and expense, to protect, defend, indemnify, release and hold Indemnified Parties harmless from and against any and all Losses (defined below) imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances in, on, above, or under the Properties; (b) any past, present or threatened Release of Hazardous Substances in, on, above, under or from the Properties; (c) any activity by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Properties of any Hazardous Substances at any time located in, under, on or above the Properties; (d) any activity by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in connection with any actual or proposed Remediation of any Hazardous Substances at any time located in, under, on or above the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including, but not limited to, any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Properties or operations thereon, including, but not limited to, any failure by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Properties; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Agreement; (h) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Properties, including, but not limited to, costs to investigate and assess such injury, destruction or loss; (i) any acts of Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Substances at any facility or incineration vessel containing Hazardous Substances; (j) any acts of Indemnitor, any Person affiliated with any Indemnitor, and any tenant or other user of the Properties in accepting any Hazardous Substances for transport to disposal or treatment facilities, incineration vessels or sites from which there is a Release, or a threatened Release of any Hazardous Substance which causes the incurrence of costs for Remediation; (k) any personal injury, wrongful death, or property or other damage arising under any statutory or common law or tort law theory relating to Hazardous Substances, including, but not limited to, damages assessed for private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Properties; and (l) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations relating to Hazardous Substances or Environmental Laws pursuant to this Agreement, the Loan Agreement or any other Loan Document. 5. DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES. Upon written request by any Indemnified Party, Indemnitor shall defend same (if requested by any 4 Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of any claim or proceeding, providing that no compromise or settlement shall be entered without Indemnitor's consent, which consent shall not be unreasonably withheld. Upon demand, Indemnitor shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. 6. DEFINITIONS. Capitalized terms used herein and not specifically defined herein shall have the respective meanings ascribed to such terms in the Loan Agreement. As used in this Agreement, the following terms shall have the following meanings: The term "ENVIRONMENTAL LAW" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of other actual or threatened danger to human health or the environment. The term "ENVIRONMENTAL LAW" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. The term "Environmental Law" also includes, but is not limited to, any present and future federal, state and local laws, statutes ordinances, rules, regulations, permits or authorizations and the like, as well as common law, that (a) condition transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the Properties; (b) require notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Properties to any Governmental Authority or other Person, whether or not in connection with transfer of title to or interest in property; (c) impose conditions or requirements in connection with permits or other authorization for lawful activity with respect to Hazardous Substances; or (d) relate to nuisance, trespass or other causes of action related to the Release or Remediation of Hazardous Substances on, from or to the Properties. The term "HAZARDOUS SUBSTANCES" includes, but is not limited to, any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including, but not limited to, petroleum and petroleum products, asbestos and asbestos-containing materials, 5 polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives, but excluding substances of kinds and in amounts ordinarily and customarily used or stored in properties similar to the Properties for the purposes of cleaning or other maintenance or operations and otherwise in compliance with all Environmental Laws. The term "INDEMNIFIED PARTIES" includes Indemnitee, any Person who is or will have been involved in the origination of the Loan, any Person who is or will have been involved with the servicing of the Loan, any Person who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, Investors (defined below) or prospective Investors in the Securities (as defined below), as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties) as well as the respective directors, officers, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including, but not limited to, any other Person who holds or acquires, or will have held, a participation or other full or partial interest in the Loan or the collateral therefor, whether during the term of the Loan or as a part of, or following, a foreclosure of the collateral for the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Indemnitee's assets and business). The term "INVESTORS" means collectively, any purchaser, transferee, assignee, servicer, participant or investor of, or in, the Loan or the Securities. The term "LEGAL ACTION" means any claim, suit or proceeding, whether administrative or judicial in nature. The term "LOSSES" includes any losses, damages, costs, fees, expenses, claims, suits, judgments, awards, liabilities (including, but not limited to, strict liabilities), obligations, debts, diminutions in value, fines, penalties, charges, costs of Remediation (whether or not performed voluntarily), amounts paid in settlement, foreseeable and unforeseeable consequential damages, litigation costs, attorneys' fees, engineers' fees, environmental consultants' fees, and investigation costs (including, but not limited to, costs for sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), of whatever kind or nature, and whether or not incurred in connection with any judicial or administrative proceedings, actions, claims, suits, judgments or awards. The term "RELEASE" includes, but is not limited to, any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances. The term "REMEDIATION" includes, but is not limited to, any response, remedial, removal, or corrective action; any activity to clean up, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance; any actions to prevent, cure or mitigate any Release of any Hazardous Substance; any action to comply with any Environmental Laws or with any permits issued pursuant thereto; any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to herein. 6 7. UNIMPAIRED LIABILITY. The liability of Indemnitor under this Agreement shall in no way be limited or impaired by, and Indemnitor hereby consents to and agrees to be bound by, any amendment or modification of the provisions of the Note, the Loan Agreement or any other Loan Document to or with Indemnitee by Indemnitor or any Person who succeeds Indemnitor or any Person as owner of the Loan or the collateral therefor. In addition, the liability of Indemnitor under this Agreement shall in no way be limited or impaired by (a) any extensions of time for performance required by the Note, the Loan Agreement or any of the other Loan Documents, (b) any sale or transfer of all or part of the Properties, (c) except as provided herein, any exculpatory provision in the Note, the Loan Agreement or any of the other Loan Documents limiting Indemnitee's recourse or limiting Indemnitee's rights to a deficiency judgment against Indemnitor, (d) the accuracy or inaccuracy of the representations and warranties made by Indemnitor under the Note, the Loan Agreement, or any of the other Loan Documents or herein, (e) the release of Indemnitor or any other Person from performance or observance of any of the agreements, covenants, terms or condition contained in any of the other Loan Documents by operation of law, Indemnitee's voluntary act, or otherwise, (f) the release or substitution in whole or in part of any security for the Note, or (g) Indemnitee's failure to file any UCC financing statements (or Indemnitee's improper recording or filing of any thereof) or to otherwise perfect, protect, secure or insure any security interest or lien given as security for the Note; and, in any such case, whether with or without notice to Indemnitor and with or without consideration. 8. ENFORCEMENT. Indemnified Parties may enforce the obligations of Indemnitor without first resorting to, or exhausting any security or collateral under, or without first having recourse pursuant to, the Note, the Loan Agreement or any other Loan Documents or any of the collateral therefor, through foreclosure proceedings or otherwise, provided, however, that nothing herein shall inhibit or prevent Indemnitee from suing on the Note, foreclosing, or exercising any power of sale under, the Pledge Agreement, or exercising any other rights and remedies thereunder. This Agreement is not collateral or security for the debt of Indemnitor pursuant to the Loan, unless Indemnitee expressly elects in writing to make this Agreement additional collateral or security for the debt of Indemnitor pursuant to the Loan, which Indemnitee is entitled to do in its sole and absolute discretion. It is not necessary for an Event of Default to have occurred for Indemnified Parties to exercise their rights pursuant to this Agreement. Notwithstanding any provision of the Loan Agreement, the obligations pursuant to this Agreement are exceptions to any non-recourse or exculpation provision of the Loan Agreement and Indemnitor is fully and personally liable for such obligations, and such liability is not limited to the original or amortized principal balance of the Loan or the value of the collateral therefor. 9. SURVIVAL. The obligations and liabilities of Indemnitor under this Agreement shall fully survive indefinitely notwithstanding any termination, satisfaction, assignment, entry of a judgment of foreclosure, exercise of any power of sale, or delivery of a deed in lieu of foreclosure of the Mortgage. Notwithstanding the provisions of this Agreement to the contrary, the liabilities and obligations of Indemnitor hereunder shall not apply to the extent that Indemnitor can prove that such liabilities and obligations arose solely from Hazardous Substances that: (a) were not present on or a threat to the Properties prior to the date that Indemnitee or its nominee acquired title to the Properties, whether by foreclosure, exercise of 7 power of sale or otherwise and (b) were not the result of any act or negligence of Indemnitor or any of Indemnitor's affiliates, agents or contractors. 10. INTEREST. Any amounts payable to any Indemnified Parties under this Agreement shall become immediately due and payable on demand and, if not paid within thirty (30) days of such demand therefor, shall bear interest at the Default Rate. 11. WAIVERS. (a) Indemnitor hereby waives (i) any right or claim of right to cause a marshaling of Indemnitor's assets or to cause Indemnitee or other Indemnified Parties to proceed against any of the security for the Loan before proceeding under this Agreement against Indemnitor; (ii) and relinquishes all rights and remedies accorded by applicable law to indemnitors or guarantors, except any rights of subrogation which Indemnitor may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Indemnitee or other Indemnified Parties; (iii) the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against or by Indemnitee or other Indemnified Parties; (iv) notice of acceptance hereof and of any action taken or omitted in reliance hereon; (v) presentment for payment, demand of payment, protest or notice of nonpayment or failure to perform or observe, or other proof, or notice or demand; and (vi) all homestead exemption rights against the obligations hereunder and the benefits of any statutes of limitations or repose. Notwithstanding anything to the contrary contained herein, Indemnitor hereby agrees to postpone the exercise of any rights of subrogation with respect to any collateral securing the Loan until the Loan shall have been paid in full. (b) EACH OF INDEMNITEE AND INDEMNITOR HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF ANY INDEMNIFIED PARTIES IN CONNECTION THEREWITH. 12. SUBROGATION. Indemnitor shall take any and all reasonable actions, including institution of legal action against third parties, necessary or appropriate to obtain reimbursement, payment or compensation from such persons responsible for the presence of any Hazardous Substances at, in, on, under or near the Properties or otherwise obligated by law to bear the cost. Indemnified Parties shall be and hereby are subrogated to all of Indemnitor's rights now or hereafter in such claims. 13. INDEMNITOR'S REPRESENTATIONS AND WARRANTIES. Indemnitor represents and warrants that: (a) it has the full power and authority to execute and deliver this Agreement and to perform its obligations hereunder; the execution, delivery and performance of this Agreement by Indemnitor has been duly and validly authorized; and all requisite action has been 8 taken by Indemnitor to make this Agreement valid and binding upon Indemnitor, enforceable in accordance with its terms; (b) its execution of, and compliance with, this Agreement is in the ordinary course of business of Indemnitor and will not result in the breach of any term or provision of the charter, by-laws, partnership or trust agreement, or other governing instrument of Indemnitor or result in the breach of any term or provision of, or conflict with or constitute a default under, or result in the acceleration of any obligation under, any agreement, indenture or loan or credit agreement or other instrument to which Indemnitor or the Properties is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which Indemnitor or the Properties is subject; (c) to the best of Indemnitor's knowledge, there is no action, suit, proceeding or investigation pending or threatened against it which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of Indemnitor, or in any material impairment of the right or ability of Indemnitor to carry on its business substantially as now conducted, or in any material liability on the part of Indemnitor, or which would draw into question the validity of this Agreement or of any action taken or to be taken in connection with the obligations of Indemnitor contemplated herein, or which would be likely to impair materially the ability of Indemnitor to perform under the terms of this Agreement; (d) it does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement; (e) to the best of Indemnitor's knowledge, no approval, authorization, order, license or consent of, or registration or filing with, any governmental authority or other person, and no approval, authorization or consent of any other party is required in connection with this Agreement; and (f) this Agreement constitutes a valid, legal and binding obligation of Indemnitor, enforceable against it in accordance with the terms hereof. 14. NO WAIVER. No delay by any Indemnified Party in exercising any right, power or privilege under this Agreement shall operate as a waiver of any such privilege, power or right. 15. NOTICE OF LEGAL ACTIONS. Each party hereto shall, within five (5) business days of receipt thereof, give written notice to the other party hereto of (a) any notice, advice or other communication from any Governmental Authority or any source whatsoever with respect to Hazardous Substances on, from or affecting the Properties, and (b) any legal action brought against such party or related to the Properties, with respect to which Indemnitor may have liability under this Agreement. Such notice shall comply with the provisions of Section 19 hereof. 16. EXAMINATION OF BOOKS AND RECORDS. Indemnified Parties and their accountants shall have the right to examine the records, books, management and other papers of Indemnitor which reflect upon its financial condition upon reasonable notice to Indemnitor, at 9 the Properties or at the office regularly maintained by Indemnitor where the books and records are located. Indemnified Parties and their accountants shall have the right to make copies and extracts from the foregoing records and other papers. 17. TRANSFER OF LOAN. (a) Indemnitee may, at any time, sell, transfer or assign the Note, the Loan Agreement, the Pledge Agreement, this Agreement and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue securities evidencing a beneficial interest in a rate or unrated public offering or private placement (the "SECURITIES"). Indemnitee may forward to each purchaser, transferee, assignee, servicer, participant or investor in such Securities or any credit rating agency rating such Securities (the foregoing entities hereinafter collectively referred to as the "INVESTOR") and each prospective Investor, all documents and information which Indemnitee now has or may hereafter acquire relating to Indemnitor and the Properties, whether furnished by Indemnitor, any guarantor or otherwise, as Indemnitee determines necessary or desirable. Indemnitor and any guarantor agree to cooperate with Indemnitee in connection with any transfer made or any Securities created pursuant to this Section, including, without limitation, the delivery of an estoppel certificate required in accordance with the Loan Agreement and such other documents as may be reasonably requested by Indemnitee without cost to Indemnitor except as otherwise provided in the Loan Agreement. Indemnitor shall also furnish, and Indemnitor and any guarantor hereby consent to Indemnitee furnishing to such Investors or such prospective Investors, any and all information concerning the financial condition of the Indemnitor and any guarantor and any and all information concerning the Properties and the Leases as may be reasonably requested by Indemnitee, any Investor or any prospective Investor in connection with any sale, transfer or participation interest. (b) Upon any transfer or proposed transfer contemplated above and by Section 9.1 of the Loan Agreement, at Indemnitee's request, Indemnitor shall provide an estoppel certificate to the Investor or any prospective Investor in such for, substance and detail as Indemnitee, such Investor or prospective Investor may reasonably require with respect to this Agreement. 18. TAXES. Indemnitor has filed all federal, state, county, municipal, and city income and other tax returns required to have been filed by it and has paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by it. Indemnitor has no knowledge of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years. 19. NOTICES. All notices or other written communications hereunder shall be made in accordance with Section 10.6 of the Loan Agreement. 20. DUPLICATE ORIGINALS; COUNTERPARTS. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. 10 21. NO ORAL CHANGE. This Agreement, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Indemnitor or any Indemnified Party, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 22. HEADINGS, ETC. The headings and captions of various paragraphs of this Agreement are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 23. NUMBER AND GENDER/SUCCESSORS AND ASSIGNS. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require. Without limiting the effect of specific references in any provision of this Agreement, the term "Indemnitor" shall be deemed to refer to each and every Person comprising an Indemnitor from time to time, as the sense of a particular provision may require, and to include the heirs, executors, administrators, legal representatives, successors and assigns of Indemnitor, all of whom shall be bound by the provisions of this Agreement, provided that no obligation of Indemnitor may be assigned except with the written consent of Indemnitee. Each reference herein to Indemnitee shall be deemed to include its successors and assigns. This Agreement shall inure to the benefit of Indemnified Parties and their respective successors and assigns forever. 24. RELEASE OF LIABILITY. Any one or more parties liable upon or in respect of this Agreement may be released without affecting the liability of any party not so released. 25. RIGHTS CUMULATIVE. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies which Indemnitee has under the Note, the Mortgage, the Loan Agreement or the other Loan Documents or would otherwise have at law or in equity. 26. INAPPLICABLE PROVISIONS. If any term, condition or covenant of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. 27. GOVERNING LAW. This Agreement shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement. 28. MISCELLANEOUS. (a) Wherever pursuant to this Agreement (i) Indemnitee exercises any right given to it approve or disapprove, (ii) any arrangement or term is to be satisfactory to Indemnitee, or (iii) any other decision or determination is to be made by Indemnitee, the decision of Indemnitee to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Indemnitee, shall be in the sole and absolute discretion of Indemnitee and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. (b) Wherever pursuant to this Agreement it is provided that Indemnitor pay any costs and expenses, such costs and expenses shall include, but not be limited to, reasonable legal fees and disbursements of Indemnitee, whether retained firms, the reimbursements for the expenses of the in-house staff or otherwise. 11 29. JOINT AND SEVERAL. If more than one Person has executed this Agreement as "INDEMNITOR", the obligations of all such Persons hereunder shall be joint and several. [NO FURTHER TEXT ON THIS PAGE] 12 IN WITNESS WHEREOF, this Agreement has been executed by Indemnitor and is effective as of the day and year first above written. SHG PROPERTY RESOURCES, LLC By: \s\ Roland G. Rapp ---------------------------------- Name: Roland G. Rapp Title: Secretary SHG INVESTMENTS, LLC By: \s\ Roland G. Rapp ---------------------------------- Name: Roland G. Rapp Title: Secretary 13 EX-10.18 28 a94359exv10w18.txt EXHIBIT 10.18 EXHIBIT 10.18 MEZZANINE GUARANTY OF PAYMENT THIS MEZZANINE GUARANTY OF PAYMENT (this "GUARANTY") is executed as of August 19, 2003, by FOUNTAIN VIEW INC., a Delaware corporation having an address at 2600 West Magnolia Boulevard, Burbank, California 91505 (whether one or more collectively referred to as "GUARANTOR"), for the benefit of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Loan Agreement, having an address at 4445 Willard Avenue, 12th Floor, Chevy Chase, Maryland 20815 (in such capacity as Agent, together with its successors and assigns, referred to herein as "LENDER"). W I T N E S S E T H : WHEREAS, pursuant to those certain Mezzanine Promissory Notes, each dated of even date herewith, executed by SHG PROPERTY RESOURCES, LLC a Delaware limited liability company, and SHG INVESTMENTS LLC, a Delaware limited liability company (collectively, "BORROWER"), and payable to the order of the lenders under the Loan Agreement in the original principal amount of Twenty Three Million Dollars ($23,000,000.00) (as the same may hereafter be amended, restated, renewed, supplemented, replaced, increased, extended or otherwise modified from time to time, collectively, the "NOTE"), Borrower has become indebted, and may from time to time be further indebted, to the lenders under the Loan Agreement with respect to a loan ("LOAN"), made pursuant to that certain Mezzanine Loan Agreement, of even date herewith, between Borrower and the lenders under the Loan Agreement (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan is secured by that certain Pledge Agreement of even date herewith (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the "PLEDGE AGREEMENT"), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement are hereinafter collectively, the "LOAN DOCUMENTS"); and WHEREAS, the lenders under the Loan Agreement are not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower, and Guarantor will directly benefit from the making of the Loan to Borrower. NOW, THEREFORE, as an inducement to the lenders under the Loan Agreement to make the Loan to Borrower, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: ARTICLE I NATURE AND SCOPE OF GUARANTY 1.1 GUARANTY OF PAYMENT. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the full payment and performance of all obligations of Borrower under the Loan Documents as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise, either before or after maturity thereof, and Guarantor shall be liable for, the full amount of the Debt, including, without limitation, any costs and expenses incurred by Lender in connection with collecting or enforcing against Guarantor the terms and provisions of this Guaranty and enforcing all terms and provisions of the Loan Documents (including, without limitation, all court costs and attorneys' fees and costs) (the "GUARANTEED OBLIGATIONS"). Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a direct and primary obligor. 1.2 INTENTIONALLY DELETED NATURE OF GUARANTY. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor. The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 1.5 PAYMENT BY GUARANTOR. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender's address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies 2 against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender's rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender's rights against any other guarantors of the Guaranteed Obligations, (d) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations. 1.7 WAIVERS. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (a) any loans or advances made by Lender to Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Pledge Agreement, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by Borrower or an Event of Default, (f) Lender's transfer or disposition of the Guaranteed Obligations, in accordance with the Loan Agreement, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by Borrower and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations. 1.8 PAYMENT OF EXPENSES. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys' fees and costs) incurred by Lender in the enforcement hereof or the preservation of Lender's rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations. 1.9 EFFECT OF BANKRUPTCY. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's performance of such obligations and then only to the extent of such performance. 1.10 WAIVER OF SUBROGATION, REIMBURSEMENT AND CONTRIBUTION. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. 3 1.11 BORROWER. The term "BORROWER" as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust, limited liability company or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower. 1.12 Guarantor Covenant. Guarantor covenants and agrees that during the term of the Loan, Guarantor shall make all required equity contributions to Borrower in order to cause Borrower to make such payments as are required by the terms of Section 2.3.2 of the Loan Agreement. A violation of the foregoing covenant shall be an Event of Default under the Loan Documents. ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: 2.1 MODIFICATIONS. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action. 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor. 2.3 CONDITION OF BORROWER OR GUARANTOR. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor. 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (a) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) the Borrower has 4 valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 RELEASE OF OBLIGORS. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other Persons will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other Persons to pay or perform the Guaranteed Obligations. 2.6 OTHER COLLATERAL. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations. 2.7 RELEASE OF COLLATERAL. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations. 2.8 CARE AND DILIGENCE. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. 2.9 UNENFORCEABILITY. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance 5 on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations. 2.10 OFFSET. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of the Guarantor to Lender shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other Person, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 2.11 MERGER . The reorganization, merger or consolidation of Borrower into or with any other Person. 2.12 PREFERENCE . Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else. 2.13 OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows: 3.1 BENEFIT. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations. 3.2 FAMILIARITY AND RELIANCE. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty. 3.3 NO REPRESENTATION BY LENDER. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty. 6 3.4 GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. 3.5 LEGALITY. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 3.6 SURVIVAL. All representations and warranties made by Guarantor herein shall survive the execution hereof. ARTICLE IV SUBORDINATION OF CERTAIN INDEBTEDNESS 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the Guaranteed Obligations. Upon the occurrence of an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims. 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed 7 Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims. 4.3 PAYMENTS HELD IN TRUST. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender. 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (a) exercise or enforce any creditor's right it may have against Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor. ARTICLE V MISCELLANEOUS 5.1 WAIVER. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 5.2 NOTICES. Any notice, demand, statement, request or consent made hereunder shall be in writing and shall be deemed to be received by the addressee on the third day following the day such notice is deposited with the United States Postal Service first class certified mail, return receipt requested, addressed to the address, as set forth below, of the party to whom such notice is to be given, or to such other address as either party shall in like manner designate in writing. The addresses of the parties hereto are as follows: 8 Guarantor: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Facsimile No.: (949) 282-5820 with a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626-1925 Attention: David Meckler, Esq. Facsimile No.: (714) 755-8290 Lender: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2340 Highbridge/Zwirn Special Opportunities Fund, L.P. 9 West 57th Street, 27th Floor New York, New York 10019 Attention: David Brenner Facsimile No. (212) 287-4263 Fortress Credit Opportunities I, LP 1251 Avenue of the Americas, 16th Floor New York, New York 10020 Attention: Joshua A. Pack Facsimile No. (212) 798-6060 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: David L. Nagler Facsimile No. (917) 777-2369 with a copy to: Hahn & Hessen LLP 488 Madison Avenue New York, New York 10022 Attention: Daniel D. Batterman Facsimile No. (212) 478-7400 5.3 GOVERNING LAW. This Guaranty shall be governed in accordance with the State of New York and the applicable law of the United States of America. 9 5.4 INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. 5.5 AMENDMENTS. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. 5.6 PARTIES BOUND; ASSIGNMENT; JOINT AND SEVERAL. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 5.7 HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. 5.8 RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. 5.9 COUNTERPARTS. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. 5.10 RIGHTS AND REMEDIES. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 10 5.11 OTHER DEFINED TERMS. Any capitalized term utilized herein shall have the meaning as specified in the Loan Agreement, unless such term is otherwise specifically defined herein. 5.12 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER. 5.13 WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND GUARANTOR ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR AND LENDER. 5.14 REINSTATEMENT IN CERTAIN CIRCUMSTANCES. If at any time any payment of the principal of or interest under the Note or any other amount payable by Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time. 11 ARTICLE VI STATE SPECIFIC PROVISIONS - CALIFORNIA To the extent this document is enforceable in the State of California, and notwithstanding the provisions of Section 5.3 hereof, the laws of the State of California are held to govern this Agreement and the following provisions shall apply: 6.1 PRINCIPLES OF CONSTRUCTION. IN THE EVENT OF ANY INCONSISTENCIES BETWEEN THE TERMS AND CONDITIONS OF THIS ARTICLE 6 AND THE TERMS AND CONDITIONS OF THIS SECURITY INSTRUMENT, THE TERMS AND CONDITIONS OF THIS ARTICLE 6 SHALL CONTROL AND BE BINDING. 6.2 GUARANTOR. GUARANTOR ACKNOWLEDGES THAT IT IS GUARANTEEING THE OBLIGATIONS OF BORROWER TO LENDER. ACCORDINGLY, GUARANTOR AGREES AS FOLLOWS: (a) Modifications to Loan and Loan Documents. Guarantor agrees that Lender may do any of the following without affecting the enforceability of this Agreement: (i) take or release additional security for any obligation in connection with the Loan Documents; (ii) discharge or release (by judicial or nonjudicial foreclosure, acceptance of a deed in lieu of foreclosure or otherwise) any party or parties liable under the Loan Documents; (iii) accept or make compositions or other arrangements or file or refrain from filing a claim in any bankruptcy proceeding of Borrower, any guarantor of Borrower's obligations under the Loan Documents or any pledgor of collateral for any person's obligations to Lender; and (iv) credit payments in such manner and order of priority to principal, interest or other obligations as Lender may determine. (b) Waivers. (i) Guarantor agrees that Lender's right to enforce this Agreement is absolute and is not contingent upon the genuineness, validity or enforceability of any of the Loan Documents. Guarantor waives all benefits and defenses it may have under California Civil Code Section 2810 and agrees that Lender's rights under this Agreement shall be enforceable even if Borrower had no liability at the time of execution of the Loan Documents or later ceases to be liable. (ii) Guarantor waives all benefits and defenses it may have under California Civil Code Section 2809 and agrees that Lender's rights under this Agreement will remain enforceable even if the amount secured by this Agreement is larger in amount and more burdensome than that for which Borrower is responsible. The enforceability of this Agreement against Guarantor shall continue until all sums due under the Loan Documents have been paid in full and shall not be limited or affected in any way by any 12 impairment or any diminution or loss of value of any security or collateral for Borrower's obligations under the Loan Documents, from whatever cause, the failure of any security interest in any such security or collateral or any disability or other defense of Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan. (iii) Guarantor waives all benefits and defenses it may have under California Civil Code Sections 2845, 2849 and 2850, including, without limitation, the right to require Lender to (A) proceed against Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, (B) proceed against or exhaust any other security or collateral Lender may hold, or (C) pursue any other right or remedy for Guarantor's benefit, and agrees that Lender may exercise its rights under this Agreement or may foreclose against the Mortgaged Property without taking any action against Borrower, Guarantor, guarantor of Borrower's obligations under the Loan Document, any pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, and without proceeding against or exhausting any security or collateral Lender holds. (iv) Guarantor waives any rights or benefits it may have by reason of California Code of Civil Procedure Section 580a which could limit the amount which Lender could recover in a foreclosure of the Mortgaged Property to the difference between the amount owing under the Loan Documents and the fair value of the property or interests sold at a nonjudicial foreclosure sale or sales of any other real property held by Lender as security for the obligations under the Loan Documents. (v) Guarantor waives diligence and all demands, protests, presentments and notices of protest, dishonor, nonpayment and acceptance of this Agreement. (c) Guarantor Informed of Borrower's Condition. Guarantor acknowledges that it has had an opportunity to review the Loan Documents, the value of the security for Borrower's obligations under the Loan Documents and Borrower's financial condition and ability to satisfy its obligations to Lender. Guarantor agrees to keep itself fully informed of all aspects of Borrower's financial condition and the performance of Borrower's obligations to Lender and agrees that Lender has no duty to disclose to Guarantor any information pertaining to Borrower or any security for Borrower's obligations under the Loan Documents. (d) Waiver of Estoppel Defense. Upon Borrower's default under the Loan Documents, Lender may elect to foreclose nonjudicially on real property given by Borrower or others as security under the Loan Documents and also to exercise its rights under this Agreement. Guarantor acknowledges that its right to seek reimbursement from Borrower for any amounts paid by Guarantor to Lender under this Agreement will be eliminated if Lender elects to so foreclose on Borrower's property. Nevertheless, Guarantor waives any such right to reimbursement and agrees that a nonjudicial foreclosure by Lender against any real property security owned by Borrower or others will not affect the enforceability of this Agreement on 13 Guarantor's interest in the Mortgaged Property. In order to further effectuate such waiver Guarantor hereby agrees as follows: Guarantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to the Mortgaged Property, has destroyed Guarantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. (e) Subrogation. Guarantor agrees that its rights of subrogation and reimbursement against Borrower, its right of subrogation against the Mortgaged Property or any other collateral or security for Lender's loan to Borrower or the pledgor of such collateral or security and its right of contribution from any guarantor or surety of Borrower's obligation sunder the Loan Documents shall be subordinate to Lender's rights against Borrower, in such collateral or security, against any such pledgor and against any such guarantor or surety. Guarantor shall have no such rights of subrogation, reimbursement or contribution until all amounts due under the Note, the Mortgage and the other Loan Documents have been paid in full and Lender has released, transferred or disposed of all of its rights in any collateral or security. Guarantor waives its rights under California Civil Code Sections 2847, 2848 and 2849 to the extent inconsistent with the foregoing. (f) Confirmation of Waivers. In accordance with California Civil Code Section 2856(c), Guarantor hereby makes the following waivers: (i) The guarantor waives all rights and defenses that the guarantor may have because the debtor's debt is secured by real property. This means, among other things: (A) The creditor may collect from the guarantor without first foreclosing on any other real or personal property collateral pledged by the debtor or any other person. (B) If the creditor forecloses on any real property collateral pledged by the debtor: a. The amount of the debt may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. b. The creditor may collect from the guarantor even if the creditor, by foreclosing on the real property collateral, has destroyed any right the guarantor may have to collect from the debtor. (ii) This is an unconditional and irrevocable waiver of any rights and defenses the guarantor may have because the debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedures. 14 [NO FURTHER TEXT ON THIS PAGE] 15 EXECUTED as of the day and year first above written. FOUNTAINVIEW, INC., a Delaware corporation By: \s\ Roland G. Rapp ----------------------- Name: Roland G. Rapp Title: Secretary 16 EX-10.19 29 a94359exv10w19.txt EXHIBIT 10.19 EXHIBIT 10.19 GUARANTY OF PAYMENT (PLEDGOR) THIS GUARANTY OF PAYMENT (PLEDGOR) (this "GUARANTY") is executed as of August 19, 2003, by SUMMIT CARE CORPORATION, a California corporation, SUMMIT CARE TEXAS, L.P., a Texas limited partnership, SUMMIT CARE TEXAS MANAGEMENT, LLC, a Delaware limited liability company, SKILLED HEALTHCARE, LLC, a Delaware limited liability company (collectively referred to as "GUARANTOR"), for the benefit of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Loan Agreement, having an address at 4445 Willard Avenue, 12th Floor, Chevy Chase, Maryland 20815 (in such capacity as Agent, referred to herein as "LENDER"). W I T N E S S E T H : WHEREAS, pursuant to those certain Promissory Notes each of even date herewith given by SHG Property Resources, LLC, a Delaware limited liability company and SHG Investments, LLC a Delaware limited liability company (collectively, "BORROWER") in favor of the lenders under the Loan Agreement in the original principal amount of Twenty Three Million and No/100 Dollars ($23,000,000.00) (as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the "NOTE"), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan ("LOAN"), made pursuant to that certain Mezzanine Loan Agreement, of even date herewith, between Borrower and the lenders under the Loan Agreement (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan is secured by that certain Pledge and Security Agreement of even date herewith (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the "PLEDGE AGREEMENT"), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement are hereinafter collectively, the "LOAN DOCUMENTS"); and WHEREAS, the lenders under the Loan Agreement are not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and WHEREAS, Guarantor will directly benefit from the making of the Loan to Borrower. NOW, THEREFORE, as an inducement to the lenders under the Loan Agreement to make the Loan to Borrower, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: ARTICLE I NATURE AND SCOPE OF GUARANTY 1.1 GUARANTY OF PAYMENT. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the full payment and performance of all obligations of Borrower under the Loan Documents as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise, either before or after maturity thereof, and Guarantor shall be liable for, the full amount of the Debt, including, without limitation, any costs and expenses incurred by Lender in connection with collecting or enforcing against Guarantor the terms and provisions of this Guaranty and enforcing all terms and provisions of the Loan Documents (including, without limitation, all court costs and attorneys' fees and costs) (the "GUARANTEED OBLIGATIONS"); provided, however, that notwithstanding anything to the contrary in this Guaranty, Guarantor's liability under this Guaranty shall be limited to its interests in and to (i) Summit Pledged Entity Interests (as defined in the Pledge Agreement), SCTX Pledged Entity Interests (as defined in the Pledge Agreement), SCTM Pledged Entity Interests (as defined in the Pledge Agreement) and SH Pledged Entity Interests (as defined in the Pledge Agreement); (ii) all other equity, membership or partnership interest certificates, options or rights of any nature whatsoever which may be issued or granted to Guarantor while this Agreement is in effect, other than those relating to any subsidiary of Guarantor which is in existence as of the date first written above but whose equity, membership or partnership interest is not included as Pledged Entity Interests (as defined in the Pledge Agreement); and (iii) any and all replacements, products and Proceeds (as defined in the Pledge Agreement) of, and dividends, distributions in property, returns of capital or other distributions made on or with respect to, any of the foregoing shares and other equity securities and ownership interests. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a direct and primary obligor. 1.2 INTENTIONALLY DELETED. 1.3 NATURE OF GUARANTY. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor. The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. 2 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 1.5 PAYMENT BY GUARANTOR. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender's address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender's rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender's rights against any other guarantors of the Guaranteed Obligations, (d) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations. 1.7 WAIVERS. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (a) any loans or advances made by Lender to Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Pledge Agreement, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by Borrower or an Event of Default, (f) Lender's transfer or disposition of the Guaranteed Obligations, in accordance with the Loan Agreement, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by Borrower and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations. 3 1.8 PAYMENT OF EXPENSES. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys' fees and costs) incurred by Lender in the enforcement hereof or the preservation of Lender's rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations. 1.9 EFFECT OF BANKRUPTCY. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's performance of such obligations and then only to the extent of such performance. 1.10 WAIVER OF SUBROGATION, REIMBURSEMENT AND CONTRIBUTION. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. 1.11 BORROWER. The term "BORROWER" as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust, limited liability company or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower. ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: 2.1 MODIFICATIONS. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action. 4 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor. 2.3 CONDITION OF BORROWER OR GUARANTOR. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor. 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (a) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 RELEASE OF OBLIGORS. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other Persons will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other Persons to pay or perform the Guaranteed Obligations. 2.6 OTHER COLLATERAL. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations. 2.7 RELEASE OF COLLATERAL. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time 5 existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations. 2.8 CARE AND DILIGENCE. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. 2.9 UNENFORCEABILITY. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations. 2.10 OFFSET. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of the Guarantor to Lender shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other Person, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 2.11 MERGER . The reorganization, merger or consolidation of Borrower into or with any other Person. 2.12 PREFERENCE . Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else. 2.13 OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations. 6 ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows: 3.1 BENEFIT. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations. 3.2 FAMILIARITY AND RELIANCE. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty. 3.3 NO REPRESENTATION BY LENDER. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty. 3.4 GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. 3.5 LEGALITY . The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 3.6 SURVIVAL. All representations and warranties made by Guarantor herein shall survive the execution hereof. ARTICLE IV SUBORDINATION OF CERTAIN INDEBTEDNESS 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of 7 Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the Guaranteed Obligations. Upon the occurrence of an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims. 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims. 4.3 PAYMENTS HELD IN TRUST. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender. 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (a) exercise or enforce any creditor's right it may have against Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor. 8 ARTICLE V MISCELLANEOUS 5.1 WAIVER. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 5.2 NOTICES. Any notice, demand, statement, request or consent made hereunder shall be in writing and shall be deemed to be received by the addressee on the third day following the day such notice is deposited with the United States Postal Service first class certified mail, return receipt requested, addressed to the address, as set forth below, of the party to whom such notice is to be given, or to such other address as either party shall in like manner designate in writing. The addresses of the parties hereto are as follows: Guarantor: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Facsimile No.: (949) 282-5820 with a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626-1925 Attention: David Meckler, Esq. Facsimile No.: (714) 755-8290 Lender: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2380 Highbridge/Zwirn Special Opportunities Fund, L.P. 9 West 57th Street, 27th Floor New York, New York 10019 Attention: David Brenner Facsimile No. (212) 287-4263 9 Fortress Credit Opportunities I, LP 1251 Avenue of the Americas, 16th Floor New York, New York 10020 Attention: Joshua A. Pack Facsimile No. (212) 798-6060 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: David L. Nagler Facsimile No. (917) 777-2369 with a copy to: Hahn & Hessen LLP 488 Madison Avenue New York, New York 10022 Attention: Daniel D. Batterman Facsimile No. (212) 478-7400 5.3 GOVERNING LAW. This Guaranty shall be governed in accordance with the State of New York and the applicable law of the United States of America. 5.4 INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. 5.5 AMENDMENTS. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. 5.6 PARTIES BOUND; ASSIGNMENT; JOINT AND SEVERAL. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 5.7 HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. 5.8 RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. 10 5.9 COUNTERPARTS. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. 5.10 RIGHTS AND REMEDIES. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 5.11 OTHER DEFINED TERMS. Any capitalized term utilized herein shall have the meaning as specified in the Loan Agreement, unless such term is otherwise specifically defined herein. 5.12 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER. 5.13 WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND GUARANTOR ARE HEREBY 11 AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR AND LENDER. 5.14 REINSTATEMENT IN CERTAIN CIRCUMSTANCES. If at any time any payment of the principal of or interest under the Note or any other amount payable by Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time. ARTICLE VI STATE SPECIFIC PROVISIONS - CALIFORNIA To the extent this document is enforceable in the State of California, and notwithstanding the provisions of Section 5.3 hereof, the laws of the State of California are held to govern this Agreement and the following provisions shall apply: 6.1 PRINCIPLES OF CONSTRUCTION. IN THE EVENT OF ANY INCONSISTENCIES BETWEEN THE TERMS AND CONDITIONS OF THIS ARTICLE 6 AND THE TERMS AND CONDITIONS OF THIS SECURITY INSTRUMENT, THE TERMS AND CONDITIONS OF THIS ARTICLE 6 SHALL CONTROL AND BE BINDING. 6.2 GUARANTOR. GUARANTOR ACKNOWLEDGES THAT IT IS GUARANTEEING THE OBLIGATIONS OF BORROWER TO LENDER. ACCORDINGLY, GUARANTOR AGREES AS FOLLOWS: (a) Modifications to Loan and Loan Documents. Guarantor agrees that Lender may do any of the following without affecting the enforceability of this Agreement: (i) take or release additional security for any obligation in connection with the Loan Documents; (ii) discharge or release (by judicial or nonjudicial foreclosure, acceptance of a deed in lieu of foreclosure or otherwise) any party or parties liable under the Loan Documents; (iii) accept or make compositions or other arrangements or file or refrain from filing a claim in any bankruptcy proceeding of Borrower, any guarantor of Borrower's obligations under the Loan Documents or any pledgor of collateral for any person's obligations to Lender; and (iv) credit payments in such manner and order of priority to principal, interest or other obligations as Lender may determine. (b) Waivers. (i) Guarantor agrees that Lender's right to enforce this Agreement is absolute and is not contingent upon the genuineness, validity or enforceability of any 12 of the Loan Documents. Guarantor waives all benefits and defenses it may have under California Civil Code Section 2810 and agrees that Lender's rights under this Agreement shall be enforceable even if Borrower had no liability at the time of execution of the Loan Documents or later ceases to be liable. (ii) Guarantor waives all benefits and defenses it may have under California Civil Code Section 2809 and agrees that Lender's rights under this Agreement will remain enforceable even if the amount secured by this Agreement is larger in amount and more burdensome than that for which Borrower is responsible. The enforceability of this Agreement against Guarantor shall continue until all sums due under the Loan Documents have been paid in full and shall not be limited or affected in any way by any impairment or any diminution or loss of value of any security or collateral for Borrower's obligations under the Loan Documents, from whatever cause, the failure of any security interest in any such security or collateral or any disability or other defense of Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan. (iii) Guarantor waives all benefits and defenses it may have under California Civil Code Sections 2845, 2849 and 2850, including, without limitation, the right to require Lender to (A) proceed against Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, (B) proceed against or exhaust any other security or collateral Lender may hold, or (C) pursue any other right or remedy for Guarantor's benefit, and agrees that Lender may exercise its rights under this Agreement or may foreclose against the Mortgaged Property without taking any action against Borrower, Guarantor, guarantor of Borrower's obligations under the Loan Document, any pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, and without proceeding against or exhausting any security or collateral Lender holds. (iv) Guarantor waives any rights or benefits it may have by reason of California Code of Civil Procedure Section 580a which could limit the amount which Lender could recover in a foreclosure of the Mortgaged Property to the difference between the amount owing under the Loan Documents and the fair value of the property or interests sold at a nonjudicial foreclosure sale or sales of any other real property held by Lender as security for the obligations under the Loan Documents. (v) Guarantor waives diligence and all demands, protests, presentments and notices of protest, dishonor, nonpayment and acceptance of this Agreement. (c) Guarantor Informed of Borrower's Condition. Guarantor acknowledges that it has had an opportunity to review the Loan Documents, the value of the security for Borrower's obligations under the Loan Documents and Borrower's financial condition and ability to satisfy its obligations to Lender. Guarantor agrees to keep itself fully informed of all aspects of Borrower's financial condition and the performance of Borrower's obligations to Lender and 13 agrees that Lender has no duty to disclose to Guarantor any information pertaining to Borrower or any security for Borrower's obligations under the Loan Documents. (d) Waiver of Estoppel Defense. Upon Borrower's default under the Loan Documents, Lender may elect to foreclose nonjudicially on real property given by Borrower or others as security under the Loan Documents and also to exercise its rights under this Agreement. Guarantor acknowledges that its right to seek reimbursement from Borrower for any amounts paid by Guarantor to Lender under this Agreement will be eliminated if Lender elects to so foreclose on Borrower's property. Nevertheless, Guarantor waives any such right to reimbursement and agrees that a nonjudicial foreclosure by Lender against any real property security owned by Borrower or others will not affect the enforceability of this Agreement on Guarantor's interest in the Mortgaged Property. In order to further effectuate such waiver Guarantor hereby agrees as follows: Guarantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to the Mortgaged Property, has destroyed Guarantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. (e) Subrogation. Guarantor agrees that its rights of subrogation and reimbursement against Borrower, its right of subrogation against the Mortgaged Property or any other collateral or security for Lender's loan to Borrower or the pledgor of such collateral or security and its right of contribution from any guarantor or surety of Borrower's obligation sunder the Loan Documents shall be subordinate to Lender's rights against Borrower, in such collateral or security, against any such pledgor and against any such guarantor or surety. Guarantor shall have no such rights of subrogation, reimbursement or contribution until all amounts due under the Note, the Mortgage and the other Loan Documents have been paid in full and Lender has released, transferred or disposed of all of its rights in any collateral or security. Guarantor waives its rights under California Civil Code Sections 2847, 2848 and 2849 to the extent inconsistent with the foregoing. (f) Confirmation of Waivers. In accordance with California Civil Code Section 2856(c), Guarantor hereby makes the following waivers: (i) The guarantor waives all rights and defenses that the guarantor may have because the debtor's debt is secured by real property. This means, among other things: (A) The creditor may collect from the guarantor without first foreclosing on any other real or personal property collateral pledged by the debtor or any other person. (B) If the creditor forecloses on any real property collateral pledged by the debtor: 14 a. The amount of the debt may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. b. The creditor may collect from the guarantor even if the creditor, by foreclosing on the real property collateral, has destroyed any right the guarantor may have to collect from the debtor. (ii) This is an unconditional and irrevocable waiver of any rights and defenses the guarantor may have because the debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedures. 15 EXECUTED as of the day and year first above written. SUMMIT CARE CORPORATION By: \s\ Roland G. Rapp -------------------------------------- Name: Roland G. Rapp Title: Secretary SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC, its General Partner By: \s\ Roland G. Rapp ------------------------------- Name: Roland G. Rapp Title: Secretary 16 SKILLED HEALTHCARE, LLC By: \s\ Roland G. Rapp -------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel 17 SUMMIT CARE TEXAS MANAGEMENT, LLC By: \s\ Roland G. Rapp -------------------------------------- Name: Roland G. Rapp Title: Secretary Address for Notices: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel 18 EX-10.20 30 a94359exv10w20.txt EXHIBIT 10.20 EXHIBIT 10.20 SECURITY AGREEMENT This SECURITY AGREEMENT, dated as of August 19, 2003 (this "Security Agreement"), among FOUNTAIN VIEW, INC., a Delaware corporation (the "Company"), the Subsidiaries of the Company listed in Schedule 1 annexed hereto (the Company and such undersigned Subsidiaries are sometimes collectively referred to herein as "Grantors" and individually as a "Grantor"); and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Mezzanine Loan Agreement, having an address at 4445 Willard Avenue, 12th Floor, Chevy Chase, Maryland 20815 (in such capacity as Agent, together with its successors and assigns, referred to herein as "Lender"). W I T N E S S E T H: 1. The Company and certain of its subsidiaries filed for reorganization under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court"); and 2. By order, dated July 10, 2003, the Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678BB through LA 01-39697BB and LA 01-45516BB, LA 01-45520BB and LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time (the "Plan"), has been approved in accordance with section 1129 of the Bankruptcy Code and such Plan has become effective as of August __, 2003; 3. As part of the Plan, the Company has agreed to grant Liens on the Collateral. 4. SHG Property Resources, LLC, a Delaware limited liability company and SHG Investments, LLC, a Delaware limited liability company (collectively "Borrower") has requested that the lenders under the Loan Agreement make a loan to Borrower in the aggregate principal amount of $23,000,000.00 (the "Loan"), pursuant to that certain Mezzanine Loan Agreement (as defined herein), and as evidenced by those certain Mezzanine Promissory Notes, each dated as of the date hereof (as the same may be amended, restated, replaced, supplemented, increased, extended, consolidated or otherwise modified from time to time, collectively, the "Note"); 5. As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Debt, Grantors have agreed to grant the lenders under the Loan Agreement, subject to the Permitted Liens, a first priority security interest upon all of Grantor's right, title and interest in, to and under the Collateral (as defined below). NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Mezzanine Loan Agreement or Annex A attached hereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Debt, each Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender, a Lien upon all of its right, title and interest in, to and under the following personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, such Grantor, and regardless of where located which is used in the conduct of the pharmaceutical business and the physical therapy business of the Company and its Subsidiaries (all of which being hereinafter collectively referred to as the "Collateral"): (i) all tangible personal property, including without limitation all present and future Inventory and Equipment (other than items of Equipment which are or become Fixtures); (ii) all intangible personal property, including without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Chattel Paper, Documents, Instruments, Deposit Accounts, Letter-of-Credit Rights and Supporting Obligations, commercial tort claims, rights to the payment of money or other forms of consideration of any kind, including, without limitation, payment intangibles, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing; (iii) all present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof; provided, however, that the Collateral shall not include any rights under any Government Contract of any Grantor or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, Section 203 or Title 41, Section 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; and (iv) any and all additions to any of the foregoing, and any and all replacements, products and Proceeds (including insurance proceeds) of any of the foregoing. Notwithstanding the foregoing provisions of this Section 2, such grant of a security interest shall not extend to, and the term "Collateral" shall not include, (x) any General Intangible, contract, agreement or document of any Grantor to the extent that (i) such General Intangible, contract, agreement or document is not assignable or capable of being encumbered as 2 a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law, which applicable law includes Section 9-408 of the Uniform Commercial Code), without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; (y) any asset of any Grantor to the extent that (i) such asset is subject to a contract, agreement or document otherwise permitted pursuant to the Mezzanine Loan Agreement, which contract, agreement or document restricts the grant of such security interest (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term "Collateral" shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term "Collateral"; and (c) any Permit of any Grantor to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Each Grantor shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent. 3. LENDER'S RIGHTS: LIMITATIONS ON LENDER'S OBLIGATIONS. (a) It is expressly agreed by Grantors that, anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of its Contracts and each of its Licenses, to observe and perform in all material respects all the conditions and obligations to be observed and performed by it thereunder. Lender shall have no obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Lender of any payment relating to any Contract or License pursuant hereto. Lender shall not be required or obligated in any manner to perform or fulfill any of the obligations of any Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 3 (b) Lender may, at any time after an Event of Default has occurred and be continuing, notify (i) Account Debtors owing Accounts to Grantors other than Medicaid/Medicare Account Debtors that their Accounts have been assigned to Lender and to collect such Accounts directly in its own name and to charge reasonable collection costs and expenses, including reasonable attorney's fees, to Grantors, and (ii) Medicaid/Medicare Account Debtors that Grantors have waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Lender to obtain a court order recognizing the collateral assignment or security interest and lien of Lender in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Lender is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Lender in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. Upon the request of Lender, at any time after an Event of Default has occurred and is continuing, each Grantor shall so notify Account Debtors and other Persons obligated on Collateral. Lender's rights under this Section 3(b), shall be subject to the provisions of the Intercreditor Agreement. (c) Lender may at any time in Lender's own name or in the name of any Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper and/or payment intangibles to verify with such Persons, to Lender's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper and/or payment intangibles. 4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants that: (a) Such Grantor has rights in and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder free and clear of any and all Liens other than Permitted Liens. (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by any Grantor in favor of Lender pursuant to this Security Agreement, the other Loan Documents, the Revolving Credit Facility or the Indenture, each of which are subordinated in right of repayment and remedies to all of the Debt and to all of Lender's rights, and (ii) in connection with any other Permitted Lien. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto, a perfected Lien in favor of Lender on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except Permitted Liens, and is enforceable as such as against any and all creditors of and purchasers from any Grantor (other than purchasers (but not creditors of such purchasers) and lessees in the ordinary course of business). All action by any Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken or shall be promptly taken. (d) As of the Effective Date, Schedule II hereto lists all Instruments, Letter of Credit Rights and Chattel Paper constituting Collateral of each Grantor. All action by any Grantor 4 necessary or desirable to protect and perfect the Lien of Lender on each item set forth on Schedule II (including the delivery of all originals thereof to Lender and the legending of all Chattel Paper as required by Section 5(b) hereof) has been duly taken; provided so long as the Intercreditor Agreement shall be in effect, no Grantor shall be required to deliver such collateral to Lender under this Section 4(d). The Lien of Lender on the Collateral listed on Schedule II hereto is prior to all other Liens, except Permitted Liens, and is enforceable as such against any and all creditors of and purchasers from any Grantor. (e) Each Grantor's name as it appears in official filings in the state of its incorporation or other organization, the type of entity of each Grantor (including corporation, partnership, limited partnership or limited liability company), organizational identification number issued by each Grantor's state of incorporation or organization or a statement that no such number has been issued, each Grantor's state of organization or incorporation, the location of each Grantor's chief executive office, principal place of business, offices, all warehouses and premises where Collateral is stored or located, and the locations of its books and records concerning the Collateral are set forth on Schedule III hereto. (f) With respect to the Accounts constituting Collateral, (i) Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of each Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; and (ii) to each Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on any Grantor's books and records and any invoices, statements with respect thereto. Further with respect to the Accounts (x) the amounts shown on all invoices and statements are actually and absolutely owing to such Grantor as indicated thereon and are not in any way contingent; (y) no payments have been or shall be made thereon except payments immediately delivered to the applicable Accounts; and (z) to each Grantor's knowledge, all Account Debtors have the capacity to contract. Notwithstanding anything in this Section 4(f) to the contrary, the failure of any Account to satisfy the representations contained in the of this Section 4(f) shall not constitute misrepresentation unless Accounts having an aggregate face amount of $250,000 or greater fail to comply with the representations contained in this Section 4(f). (g) With respect to any Inventory constituting Collateral, (i) such Inventory is located as of the Effective Date at one of the applicable Grantor's locations set forth on Schedule III hereto, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without at least thirty (30) days prior written notice to Lender and after Grantors have completed all reasonable action requested by Lender in connection therewith required to continue the perfection of any Liens in favor of Lender in any Collateral; provided that any such new location shall be in the continental United States, (iii) the applicable Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Lender and except for Permitted Liens, (iv) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (v) the completion of manufacture, sale or other disposition of such Inventory by Lender following an 5 Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such property is subject. Notwithstanding anything in this Section 4(g) to the contrary, the failure of any Inventory to satisfy the representations contained in the of this Section 4(g) shall not constitute misrepresentation unless Inventory having an aggregate face amount of $250,000 or greater fail to comply with the representations contained in this Section 4(g). (h) As of the Effective Date, no Grantor has any interest in, or title to, any Patent, Trademark or Copyright constituting Collateral except as set forth in Schedule IV hereto. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the financing statements listed on Schedule I hereto, and filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United State Patent and Trademark Office, perfected Liens in favor of Lender on each Grantor's material Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers (but not creditors of such purchasers) from any Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United State Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Lender's Lien on each Grantor's material Patents, Trademarks or Copyrights shall have been duly taken. 5. COVENANTS. Each Grantor covenants and agrees with Lender that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances. (i) At any time and from time to time, upon the written request of Lender and at the sole expense of Grantors, each Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Lender may deem desirable to perfect the security interest herein granted, including (A) using commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Lender of any License or Contract held by such Grantor, and (B) filing any financing or continuation statements under the Code. (ii) Upon written request of Lender, each Grantor shall deliver to Lender all Collateral consisting of negotiable Documents, certificated securities, Chattel Paper and Instruments (other than checks received in the ordinary course of business, which shall be delivered to Lender or into a lockbox or Deposit Account with respect to which the Grantor has entered into a control agreement with Lender and the related bank) (in each case, accompanied by stock powers, allonges or other instruments of transfer executed in blank) promptly after such Grantor receives the same. (iii) If requested by Lender, each Grantor shall obtain or use commercially reasonable efforts to obtain waivers or subordinations of Liens from landlords and mortgagees, and each Grantor shall in all instances obtain signed acknowledgements of 6 Lender's Liens from bailees having possession of any Grantor's Goods that they hold for the benefit of Lender. (iv) If requested by Lender in writing, each Grantor shall obtain authenticated Control Letters from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor. (v) Unless otherwise restricted by the Revolving Credit Facility, upon the occurrence of a Default, each Grantor shall obtain a blocked account, lockbox or similar agreement, as applicable, with each bank or financial institution holding a Deposit Account for such Grantor. (vi) Unless otherwise restricted by the Revolving Credit Facility, if requested by Lender, each Grantor that is or becomes the beneficiary of a letter of credit shall promptly, and in any event within five (5) Business Days after becoming a beneficiary, notify Lender thereof and enter into a tri-party agreement with Lender and the issuer and/or confirmation bank with respect to Letter-of-Credit Rights assigning such Letter-of-Credit Rights to Lender and directing all payments thereunder to a Deposit Account, all in form and substance reasonably satisfactory to Lender. (vii) Unless otherwise restricted by the Revolving Credit Facility, if requested by Lender, each Grantor shall take all steps necessary to grant Lender control of all electronic chattel paper in accordance with the Code and all "transferable records" as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act (viii) Each Grantor hereby irrevocably authorizes Lender at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Grantor which is used in the conduct of the pharmaceutical business and the physical therapy business of the Company and its Subsidiaries, or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Code or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance of any financing statement or amendment, including (x) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor, and (y) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Each Grantor agrees to promptly furnish any such information as Lender shall request in writing. Each Grantor also ratifies its authorization for Lender to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. (ix) Each Grantor shall promptly, and in any event within five (5) Business Days after the same is acquired by it, notify Lender of any commercial tort claim (as 7 defined in the Code) acquired by it, and if requested by the Lender, such Grantor shall enter into a supplement to this Security Agreement, granting to Lender a Lien in such commercial tort claim; provided that no Grantor shall be in default of this provision for failure to notify of any commercial tort claims unless the value of all commercial tort claims of Grantors for which not notice has been given hereunder shall be $250,000 or more. (b) Maintenance of Records. Grantors shall keep and maintain, at their own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantors shall notify Lender immediately if they know or have reason to know that any application or registration relating to any material Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding any Grantor's ownership of any material Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any material Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Lender prior written notice thereof, and, upon request of Lender, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Lender may request to evidence Lender's Lien on such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby. (iii) Grantors shall take all actions necessary or requested by Lender to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the material Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, each at Grantor's expense. (iv) In the event that any of the material Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, such Grantor shall comply with Section 5(a)(v) of this Security Agreement. Such Grantor shall, unless such Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as 8 Lender shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Lender relating to any Collateral for any sum owing with respect thereto or to enforce any rights or claims with respect thereto, each Grantor will save, indemnify and keep Lender harmless from and against all reasonable expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the Account Debtor or other Person obligated on the Collateral, arising out of a breach by any Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from such Grantor, except to the extent such expense, loss, or damage is attributable solely to the negligence or willful misconduct of Lender as finally determined by a court of competent jurisdiction. All such obligations of Grantors shall be and remain enforceable against and only against Grantors and shall not be enforceable against Lender. (e) Compliance with Terms of Accounts, etc. Each Grantor will perform and comply in all material respects with all obligations in respect of the Collateral and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. No Grantor will create, permit or suffer to exist, and each Grantor will defend the Collateral against, and take such other action as is necessary to remove, any material Lien on the Collateral except Permitted Liens and the Lien granted to the Claims Agent for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Noteholders (which Liens are subordinated in right of repayment and remedies to all of the Debt and to all of Lender's rights), and will defend the right, title and interest of Lender in and to any of such Grantor's rights under the Collateral against the material claims and demands of all Persons whomsoever, in each case defended in accordance with Lender's request and at Grantor's expense. (g) Limitations on Disposition. No Grantor will sell, license, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so, except as permitted by the Mezzanine Loan Agreement. (h) Further Identification of Collateral. Grantors will, if so requested by Lender, furnish to Lender, as often as Lender reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in such detail as Lender may reasonably specify. (i) Notices. Grantors will advise Lender promptly, in reasonable detail, (i) of any Lien (other than Permitted Liens) or claim made or asserted against any of the Collateral, (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder and (iii) updates of any of the schedules to this Security Agreement to the extent necessary to keep them accurate on an ongoing basis in all material respects. 9 (j) No Reincorporation. No Grantor shall reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof or change its name without providing 30 days prior written notice to Lender and taking all action necessary to maintain the perfection of the security interests in accordance with this Security Agreement. (k) Terminations; Amendments Not Authorized. Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of Lender and agrees that it will not do so without the prior written consent of Lender, subject to such Grantor's rights under Section 9-509(d)(2) of the Code. (l) Authorized Terminations. Lender will promptly deliver to each Grantor for filing or authorize each Grantor to prepare and file termination statements and releases in accordance with the Indenture. 6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date each Grantor shall execute and deliver to Lender a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the termination of this Security Agreement in accordance with its terms. The powers conferred on Lender under the Power of Attorney are solely to protect Lender's interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender agrees that (a) except for the powers granted in clause (h) of the Power of Attorney, it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Lender shall account for any moneys received by Lender in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that Lender shall not have any duty as to any Collateral, and Lenders shall be accountable only for amounts that it actually receive as a result of the exercise of such powers. NEITHER LENDER NOR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES: RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement and under any other instrument or agreement securing, evidencing or relating to any of the Debt, if any Event of Default shall have occurred and be continuing, Lender may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, each Grantor expressly agrees that in any such event Lender, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon such Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the 10 maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of such Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving such Grantor or any other Person notice and opportunity for a hearing on Lender's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, license, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Lender, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption each Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Lender shall have the right to conduct such sales on any Grantor's premises or elsewhere and shall have the right to use any Grantor's premises without charge for such time or times as Lender deems necessary or advisable. If any Event of Default shall have occurred and be continuing, each Grantor further agrees, at Lender's request, to assemble the Collateral and make it available to Lender at a place or places designated by Lender which are reasonably convenient to Lender and such Grantor, whether at such Grantor's premises or elsewhere. Until Lender is able to effect a sale, lease or other disposition of Collateral, Lender shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Lender. Lender shall have no obligation to any Grantor to maintain or preserve the rights of such Grantor as against third parties with respect to Collateral while Collateral is in the possession of Lender. Lender may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Lender's remedies with respect to such appointment without prior notice or hearing as to such appointment. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Debt as provided in the Mezzanine Loan Agreement, and only after so paying over such net proceeds, and after the payment by Lender of any other amount required by any provision of law, need Lender account for the surplus, if any, to any Grantor. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against Lender arising out of the repossession, retention or sale of the Collateral except such as arise solely out of the negligence or willful misconduct of Lender as finally determined by a court of competent jurisdiction. Each Grantor agrees that ten (10) days' prior notice by Lender to Grantor of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantors shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Debt, including any reasonable attorneys' fees and other expenses incurred by Lender to collect such deficiency. (b) Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 11 (c) Lender shall not be required to make any demand upon, or pursue or exhaust any of their rights or remedies against, any Grantor, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Debt or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof. Lender shall not be required to marshal the Collateral or any guarantee of the Debt or to resort to the Collateral or any such guarantee in any particular order, and all of its and their rights hereunder or under any other Security Document shall be cumulative. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against Lender, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Lender to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Lender shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to Lender, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Lender shall have no other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Debt, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Debt, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Debt shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11. NOTICES. Except as otherwise provided herein, all notices, demands, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be 12 effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a notice to the other parties hereto in the manner provided for in this Section 11): If to Lender: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2380 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: David L. Nagler Facsimile No. (917) 777-2369 If to Company or Grantors: c/o Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: Bill Scott Facsimile No.: (949) 282-5889 With a copy to: Latham & Watkins LLP 650 Tower Center Drive, Suite 2000 Costa Mesa, California 92626-1925 Attention: David C. Meckler, Esq. Facsimile No.: (714) 755-8290 A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender's receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy notice is forthcoming. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the other instruments or agreements securing, evidencing or relating to any of the Debt which, taken together, set forth 13 the complete understanding and agreement of Lender and Grantors with respect to the matters referred to herein and therein. 13. NO WAIVER: CUMULATIVE REMEDIES. Lender shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Lender and then only to the extent therein set forth. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Lender and Grantors. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 15. TERMINATION OF THIS SECURITY AGREEMENT; RELEASE OF COLLATERAL. (a) Subject to Section 10 hereof, this Security Agreement shall terminate and the Collateral shall be released from the Lien created hereby upon payment and performance in full of the Debt (other than contingent indemnification obligations for which no claims have been asserted). Upon such termination, and at the request and sole expense of the Grantors, Lender shall execute and deliver such documents as the Grantors shall reasonably request to evidence such termination. (b) If any Collateral shall be sold, conveyed, or disposed of in compliance with the provisions of the this Security Agreement, the Lien of the Lender pursuant to this Security Agreement on such Collateral shall be released automatically. Lender shall execute deliver such documents as any Grantor shall reasonably request at the cost of Grantor to evidence such release. (c) If any Grantor (other than the Company) shall cease to be a Subsidiary of the Company in a transaction that complies with the provisions of the Indenture, then such Grantor shall automatically cease to be a Grantor under this Security Agreement and shall be released from all of its obligations under this Security Agreement and the Collateral of such Grantor shall be release from the created hereby. Lender shall execute deliver such documents as the 14 Company or such Grantor shall reasonably request at the cost of Grantor to evidence such release. 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantors hereunder shall be binding upon the successors and assigns of each Grantor (including any debtor-in-possession on behalf of such Grantor) and shall, together with the rights and remedies of Lender, inure to the benefit of Lender, all future holders of any instrument evidencing any of the Debt and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Debt or any portion thereof or interest therein shall in any manner affect the Lien granted to Lender hereunder. No Grantor may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTORS AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR THE INDENTURE OR ANY OF THE OTHER INSTRUMENTS OR AGREEMENTS SECURING, EVIDENCING OR RELATING TO ANY OF THE DEBT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER INSTRUMENTS OR AGREEMENTS SECURING, EVIDENCING OR RELATING TO ANY OF THE DEBT, PROVIDED, THAT LENDER AND GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY NEW YORK COURT, AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT 15 SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH ON SCHEDULE III TO THE SECURITY AGREEMENT OR AT SUCH OTHER ADDRESS AS SUCH GRANTEE SHALL STATE IN NOTICES DELIVERED PURSUANT TO THIS SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG LENDER AND GRANTORS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER INSTRUMENTS OR AGREEMENTS SECURING, EVIDENCING OR RELATING TO ANY OF THE DEBT OR THE TRANSACTIONS RELATED HERETO OR THERETO. 20. SECTION TITLES. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. ADVICE OF COUNSEL. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and, Section 19. with its counsel. 23. BENEFIT OF HOLDERS. All Liens granted or contemplated hereby shall be for the benefit of Lender and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Debt in accordance with the terms of the Mezzanine Loan Agreement. * * * 16 IN WITNESS WHEREOF, the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. "COMPANY" FOUNTAIN VIEW, INC. "GRANTORS" ALEXANDRIA CARE CENTER, INC. ALTA CARE CENTER, LLC ANAHEIM TERRACE CARE CENTER, LLC BAY CREST CARE CENTER, LLC BRIER OAK ON SUNSET, INC. CARSON SENIOR ASSISTED LIVING, LLC ELMCREST CARE CENTER, INC. FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. HALLMARK INVESTMENT GROUP, INC. HALLMARK REHABILITATION GP, LLC HALLMARK REHABILITATION LP By: Hallmark Rehabilitation LLC, its general partner HANCOCK PARK REHABILITATION CENTER, INC. HANCOCK PARK SENIOR ASSISTED LIVING, INC. HEMET SENIOR ASSISTED LIVING, LLC LEASEHOLD RESOURCE GROUP, LLC MONTEBELLO CARE CENTER, LLC RIO HONDO SUBACUTE AND NURSING CENTER, INC. ROYALWOOD CARE CENTER, LLC SHARON CARE CENTER, LLC SHG PROPERTY RESOURCES, LLC SHG INVESTMENTS, LLC SKILLED HEALTHCARE, LLC SUMMIT CARE CORPORATION SUMMIT CARE TEXAS MANAGEMENT, LLC SUMMIT CARE PHARMACY, INC. SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC, its general partner SYCAMORE PARK CARE CENTER, INC. WOODLAND CARE CENTER, LLC By: \s\ Roland G. Rapp -------------------------------------------- Name: Roland G. Rapp Title: Secretary 17 Address for Notices: ------------------- Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Telephone: (949) 282-5822 Facsimile: (949) 282-5820 E-Mail: rrapp@fountainviewinc.net 18 CAPITALSOURCE FINANCE LLC By: \s\ James J. Pieczynski ----------------------------------- Name: James J. Pieczynski Title: Director 19 SCHEDULE A "Account Debtor" means any Person who may become obligated to any Grantor under, with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a payment intangible). "Accounts" shall mean all "accounts" (as defined in the Code) of any Grantor, including without limitation, accounts, accounts receivables, monies due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, Instruments, General Intangibles or Chattel Paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) 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. "CapitalSource" shall mean CapitalSource Finance LLC, a Delaware limited liability company. "Chattel Paper" means any "chattel paper" as such term is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by any Grantor. "Code" means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York; provided, that to the extent that the Code is used to define any term in the Security Agreement and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided, further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the Lender's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. 1 "Contracts" shall mean all "contracts," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Grantor may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Control Letter" means a letter agreement between Lender and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Grantor, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Grantor, (iii) a futures commission merchant or clearing house with respect to commodity accounts and commodity contracts held by any Grantor, whereby, among other things, the issuer, securities intermediary or futures commission merchant disclaims any security interest in the applicable financial assets, acknowledges the Lien of Lender, on such financial assets, and agrees to follow the instructions or entitlement orders of Administrative Agent without further consent by the affected Grantor. "Copyright License" shall mean any and all rights now owned or hereafter acquired by any Grantor under any written agreement granting any right to use any Copyright or Copyright registration. "Copyrights" shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all copyrights and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registration and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof. "Debt" shall mean the outstanding principal amount set forth in, and evidenced by, the Mezzanine Loan Agreement and the Mezzanine Note together with all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Mezzanine Loan under the Mezzanine Note, the Mezzanine Loan Agreement and the other Mezzanine Loan Documents. "Deposit Account" shall mean all bank or other depository accounts of any Grantor. "Documents" means all "documents" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located. "Equipment" means all "equipment" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located and, in any event, including all such Grantor's machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment, including embedded software and peripheral equipment and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, together- 2 with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "Fixtures" means all "fixtures" as such term is defined in the Code, now owned or hereafter acquired by any Grantor. "General Intangibles" means all "general intangibles" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, including all right, title and interest that such Grantor may now or hereafter have in or under any Contract, all payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged Stock and Investment Property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Grantor or any computer bureau or service company from time to time acting for such Grantor. "Goods" means all "goods" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, including embedded software to the extent included in "goods" as defined in the Code, manufactured homes, standing timber that is cut and removed for sale and unborn young of animals. "Government Accounts" shall be defined to mean all Accounts arising out of or with respect to any Government Contract. "Government Contracts" shall be defined to mean all contracts with any Government Authority, and all amendments thereto. "Governmental Authority" shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia. 3 "Highbridge" shall mean Highbridge/Zwirn Opportunity Fund LP . "Instruments" means all "instruments" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists. "Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of the date hereof by and among CapitalSource Finance LLC, a Delaware limited liability company, as agent for itself and the other lenders under the Revolving Credit Agreement and the Mezzanine Loan Agreement, the Collateral Agent, AmerisourceBergen Drug Corporation, the Company and each of the obligors signatory thereto. "Inventory" shall mean all "inventory" (as defined in the Code) of any Grantor now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Investment Property" means all "investment property" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, including (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Grantor, including the rights of any Grantor to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts of any Grantor; (iv) all commodity contracts of any Grantor; and (v) all commodity accounts held by any Grantor. "Letter-of-Credit Rights" means all "letter-of-credit rights" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, including rights to payment or performance under a letter of credit, whether or not such Grantor, as beneficiary, has demanded or is entitled to demand payment or performance. "License" shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Grantor. "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). 4 "Mezzanine Borrower" means, collectively, SHG Property Resources, LLC, a Delaware limited liability company and SHG Investments, LLC a Delaware limited liability company, jointly and severally. "Mezzanine Loan Documents" means, collectively, the Loan Agreement, the Mezzanine Note, the Pledge Agreement, the Environmental Indemnity, the Guaranty, the Pledgor Guaranty, the Mezzanine Cash Management Agreement, the Intercreditor Agreement, the Subordination of Management Agreement, and all other documents executed and/or delivered in connection with the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Mezzanine Loan Facility" means a $23,000,000 aggregate principal amount term loan facility, pursuant to the Mezzanine Loan Agreement, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time. "Mezzanine Loan Agreement" shall mean that certain Loan Agreement between CapitalSource, as agent for the Mezzanine Lenders (as defined therein) and the Mezzanine Borrower thereunder, in an outstanding aggregate principal amount not to exceed $23,000,000, including any related guarantees, collateral documents, instruments and agreements, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time. "Mezzanine Note" shall mean that certain Promissory Note, dated as of the date hereof, in the principal amount of Twenty Three Million Dollars ($23,000,000.00) made by Mezzanine Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right with respect to any invention on which a patent is in existence. "Patents" shall mean all of the following in which any Grantor now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "Permits" shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other rights. "Proceeds" means "proceeds" as such term is defined in the Code, including (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Grantor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Grantor from time to time in connection with any requisition, 5 confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Grantor against third parties (i) for past, present or future infringement of any Patent or Patent License or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Grantor against third parties with respect to any litigation or dispute concerning any of the Collateral including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in, or damage to, Collateral, (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property and pledged stock, and (f) any and all other amounts, rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral. "Revolving Credit Facility" means the revolving credit facilities in an outstanding aggregate principal amount not to exceed $32,000,000.00 evidenced by the Revolving Credit and Security Agreement dated as of ______, 2003, by and among the Guarantors, the Company and CapitalSource Finance LLC and the Revolving Credit and Security Agreement dated as of _________, 2003, by and among the borrowers thereunder, and CapitalSource, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time. "Senior Mortgage Loan" means that certain loan issued pursuant to that certain Loan Agreement between Column Financial, Inc., a Delaware corporation and the borrowers thereunder, in an outstanding aggregate principal amount not to exceed $95,000,000, including any related guarantees, collateral documents, instruments and agreements, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time. "Software" means all "software" as such term is defined in the Code, now owned or hereafter acquired by any Grantor, other than software embedded in any category of goods, including all computer programs and all supporting information provided in connection with a transaction related to any program. "Subsidiary" means, with respect to any Person, (i) 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 thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) 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 such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subordination of Management Agreement" shall mean that certain Subordination of Interim Management Agreement and Interim Subleases (Mezzanine) dated as of August 19, 2003, by Summit Care Corporation, Fountainview Senior Assisted Living, LLC, Spring Senior 6 Assisted Living, LLC, Carson Senior Assisted Living, LLC, Hemet Senior Assisted Living, LLC and CapitalSource Finance LLC. "Summit Care Pharmacy" means Summit Care Pharmacy, Inc., a Restricted Subsidiary of the Company. "Supporting Obligations" means all "supporting obligations" as such term is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments or Investment Property. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right to use any Trademark. "Trademarks" shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing. "Uniform Commercial Code Jurisdiction" means any jurisdiction that had adopted all or substantially all of Article 9 as contained in the 2000 Official Text of the Uniform Commercial Code, as recommended by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, together with any subsequent amendments or modifications to the Official Text. 7 SCHEDULE I TO SECURITY AGREEMENT FILING JURISDICTIONS Delaware California Texas 1 SCHEDULE II TO SECURITY AGREEMENT INSTRUMENTS AND CHATTEL PAPER None. 2 SCHEDULE III TO SECURITY AGREEMENT SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS I. Grantor's official name, type of entity, organizational identification number, and state of organization/incorporation:
STATE OF ORGANIZATIONAL ORGANIZATION/ OFFICIAL NAME TYPE OF ENTITY ID # INCORPORATION - ----------------------------------------------------------------------------- Fountain View, Inc. corporation 2772638 Delaware - ----------------------------------------------------------------------------- Alexandria Care Center, corporation C1714192 California Inc. - ----------------------------------------------------------------------------- Alta Care Center, LLC limited liability 3677854 Delaware company - ----------------------------------------------------------------------------- Anaheim Terrace Care limited liability 3677853 Delaware Center, LLC company - ----------------------------------------------------------------------------- Bay Crest Care Center, limited liability 3677857 Delaware LLC company - ----------------------------------------------------------------------------- Brier Oak On Sunset, corporation C1459020 California Inc. - ----------------------------------------------------------------------------- Carson Senior Assisted limited liability 3677859 Delaware Living, LLC company - ----------------------------------------------------------------------------- Elmcrest Care Center, corporation C1477539 California Inc. - ----------------------------------------------------------------------------- Fountain View Subacute corporation C0529092 California And Nursing Center, Inc. - ----------------------------------------------------------------------------- Hallmark Investment corporation 2772640 Delaware Group, Inc. - ----------------------------------------------------------------------------- Hallmark Rehabilitation limited liability 3678206 Delaware GP, LLC company - ----------------------------------------------------------------------------- Hallmark Rehabilitation, limited partnership 3677880 Delaware LP - ----------------------------------------------------------------------------- Hancock Park corporation C1222398 California Rehabilitation Center, Inc. - ----------------------------------------------------------------------------- Hancock Park Senior corporation C1222399 California Assisted Living, Inc. - -----------------------------------------------------------------------------
1 Hemet Senior Assisted limited liability 3677860 Delaware Living, LLC company - ---------------------------------------------------------------------------- Leasehold Resource limited liability 3677795 Delaware Group, LLC company - ---------------------------------------------------------------------------- Montebello Care Center, limited liability 3677862 Delaware LLC company - ---------------------------------------------------------------------------- Rio Hondo Subacute And corporation C1482166 California Nursing Center, Inc. - ---------------------------------------------------------------------------- Royalwood Care Center, limited liability 3677863 Delaware LLC company - ---------------------------------------------------------------------------- Sharon Care Center, LLC limited liability 3677865 Delaware company - ---------------------------------------------------------------------------- Skilled Healthcare, LLC limited liability 3675398 Delaware company - ---------------------------------------------------------------------------- Summit Care Corporation corporation C1080507 California - ---------------------------------------------------------------------------- Summit Care Texas limited liability 3678960 Delaware Management, LLC company - ---------------------------------------------------------------------------- Summit Care Pharmacy, corporation C1151693 California Inc. - ---------------------------------------------------------------------------- Summit Care Texas, L.P. limited partnership 9948910 Texas - ---------------------------------------------------------------------------- Sycamore Park Care corporation C0495471 California Center, Inc. - ---------------------------------------------------------------------------- Woodland Care Center, limited liability 3677866 Delaware LLC company - ---------------------------------------------------------------------------- SHG Property Resources, limited liability 3677918 Delaware LLC company - ---------------------------------------------------------------------------- SHG Investments, LLC limited liability 3677832 Delaware company - ----------------------------------------------------------------------------

II. Chief Executive Office and principal place of business: 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 For Summit Care Texas, L.P.: 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 2 III. Corporate Offices: 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 For Summit Care Texas, L.P.: 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 IV. Warehouses: None V. Other Premises at which Collateral is Stored or Located: 1. 27442 Portola Parkway, Suite 200, Foothill Ranch, CA 92610 2. 2600 W. Magnolia Blvd., Burbank, CA 91505 3. 1515 N. Alexandria Avenue, Los Angeles, CA 90027 4. 5154 Sunset Blvd., Los Angeles, CA 90027 5. 3111 Santa Anita Avenue, Los Angeles, CA 91733 6. 505 N La Brea Avenue, Los Angeles, CA 90036 7. 515 N. La Brea Avenue, Los Angeles, CA 90036 8. 5310 Fountain Avenue, Los Angeles, CA 90029 9. 273 E. Beverly Blvd., Montebello, CA 90640 10. 4585 N. Figueroa Street, Los Angeles, CA 90065 11. 1036 W. Beverly Blvd., Montebello, CA 90640 12. 141 S. Knott Avenue, Anaheim, CA 92804 13. 3750 Garnet Street, Torrance, CA 90503 14. 13075 Blackbird, Garden Grove, CA 92643 15. 22520 Maple Avenue, Torrance, CA 90505 16. 8167 W. Third Street, Los Angeles, CA 90048 17. 7120 Corbin Avenue, Reseda, CA 91335 18. 345 East Carson St., Carson, CA 90745 19. 1353 E. Devonshire Avenue, Hemet, CA 92544 20. 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 21. 222 E. Huntington Drive #111, Monrovia, CA 91016 22. 22607 Old Canal Road, Yorba Linda, CA 92887 23. 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 3 VI. Locations of Records Concerning Collateral: 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 19365 FM 2252, Suite 5, Garden Ridge, TX 78266 2721 Michelle Drive, Tustin, California 92780 26862 Vista Terrace, Lake Forest, California 92630 4 PATENTS None. 5 TRADEMARKS
TRADEMARK OR SERVICE MARK HOLDER REGISTRATION DATE REGISTRATION NO. ------------------------- ------ ----------------- ---------------- Design of man with outstretched Summit Care Corporation 10/20/98 2197216 arms standing on top of a medicinal tablet - --------------------------------------------------------------------------------------------------- "Innovative Solutions In Health Summit Care Corporation 10/06/98 2193214 Care" - --------------------------------------------------------------------------------------------------- "RXPertise" Summit Care Corporation 03/03/98 2140771 - --------------------------------------------------------------------------------------------------- "SCP Systems" Summit Care Corporation 03/20/01 2436075 - --------------------------------------------------------------------------------------------------- "Skilled Care Pharmacy" Summit Care Corporation 03/07/00 2325082 - --------------------------------------------------------------------------------------------------- "SkilledCare Pharmacy" (including Summit Care Corporation 03/07/00 2325083 design of man with outreached arms standing on top of a medicinal tablet) - ---------------------------------------------------------------------------------------------------
6 LICENSED INTELLECTUAL PROPERTY None. 7 COPYRIGHTS None. 8 EXHIBIT A POWER OF ATTORNEY This Power of Attorney is executed and delivered by [FOUNTAIN VIEW, INC., A DELAWARE CORPORATION OR INSERT SUBSIDIARY NAME] ("Grantor"), to __________ (hereinafter referred to as "Attorney"), as Lender under that certain Security Agreement, dated as of __________, 2003, and other related documents (as amended from time to time, the "Security Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below (but Lender shall be required to request to such Person that it is entitled to take such action pursuant to the Security Agreement), or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. [The power of attorney granted hereby is subject to that certain Intercreditor Agreement dated as of ___________ ____, 2003 by and among CapitalSource Finance LLC, a Delaware limited liability company, as agent for itself and the other lenders under that certain Revolving Loan Agreement, as defined therein, the Collateral Agent, Amerisourcebergen Drug Corporation, the Company and each of the obligors signatory thereto, and to the extent that any provisions contained herein are inconsistent, the Intercreditor Agreement shall control.] The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to perfect the Lien of Attorney granted pursuant to the Security Agreement, and without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property other than those being contested by Grantor in accordance with the Security Agreement; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; (g) to file such financing statements and amendments thereto and continuation statements with respect to the Security Agreement, as Lender may deem appropriate to perfect the security interest in the collateral granted pursuant to the Security Agreement; and (h) execute, in connection with any sale provided for in any Security Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor, and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this ____day of __________, 2003. [INSERT NAME] By:__________________________________ Name: Title: 2 NOTARY PUBLIC CERTIFICATE On this _____ day of ______________, 2003, [OFFICER'S NAME] who is personally known to me appeared before me in his/her capacity as the [TITLE] of [_______________] ("Grantor") and executed on behalf of Grantor the Power of Attorney in favor of [__________] to which this Certificate is attached. _____________________________________ Notary Public SCHEDULE 1 Subsidiaries of the Company 1. SHG Property Resources, LLC 2. SHG Investments, LLC 3. Fountain View, Inc. 4. Summit Care Corporation 5. Summit Care Pharmacy, Inc. 6. Alexandria Care Center, Inc. 7. Brier Oak on Sunset, Inc. 8. Elmcrest Care Center, Inc. 9. Hancock Park Rehabilitation Center, Inc. 10. Hancock Park Senior Assisted Living, Inc. 11. Fountain View Subacute and Nursing Center, Inc. 12. Rio Hondo Subacute and Nursing Center, Inc. 13. Sycamore Park Care Center, Inc. 14. Anaheim Terrace Care Center, LLC 15. Bay Crest Care Center, LLC 16. Alta Care Center, LLC 17. Royalwood Care Center, LLC 18. Sharon Care Center, LLC 19. Woodland Care Center, LLC 20. Carson Senior Assisted Living, LLC 21. Hemet Senior Assisted Living, LLC 22. Montebello Care Center, LLC 23. Summit Care Texas, L.P. 24. Summit Care Texas Management, LLC 25. Hallmark Investment Group, Inc. 26. Hallmark Rehabilitation GP, LLC 27. Hallmark Rehabilitation, LP 28. Leasehold Resource Group, LLC 29. Skilled Healthcare, LLC 2 EX-10.21 31 a94359exv10w21.txt EXHIBIT 10.21 EXHIBIT 10.21 B NOTE GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (the "GUARANTY") is executed as of August 19, 2003, by FOUNTAIN VIEW, INC., a Delaware corporation, having an address at 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (whether one or more collectively referred to as "GUARANTOR"), for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an office at 11 Madison Avenue, New York, New York 10010 (in such capacity, together with its successors and assigns, "LENDER"). W I T N E S S E T H: WHEREAS, pursuant to that certain Promissory Note B-1 of even date herewith given by Borrower in favor of Lender in the principal amount of Five Million and No/100 Dollars ($5,000,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-1"), by that certain Promissory Note B-2 of even dated herewith given by Borrower in favor of Lender in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-2") and by that certain Promissory Note B-3 of even dated herewith given by Borrower in favor of Lender in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, "NOTE B-3"; and collectively with Note B-1 and Note B-2, the "NOTE"), Borrower has become indebted to Lender with respect to a loan ("LOAN"), made pursuant to that certain Loan Agreement, of even date herewith, between Borrower and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan is secured by the liens and security interests of certain mortgages, deeds of trust and/or deeds to secure debt, each of even date herewith (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the "MORTGAGES"), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and Mortgages, the "LOAN DOCUMENTS"); and WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower, and Guarantor will directly benefit from Lender's making the Loan to Borrower; and WHEREAS, immediately following closing of the Loan, Lender will assign Notes B-1, B-2 and B-3 to, respectively, CapitalSource Finance LLC, Fortress Credit Opportunities I, L.P., and Highbridge/Zwirn Special Opportunities Fund, L.P. (together, "SUCCESSOR NOTE B LENDER", and CapitalSource Finance LLC will serve as agent for Successor Note B Lender). NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: ARTICLE I NATURE AND SCOPE OF GUARANTY 1.1 GUARANTY OF OBLIGATION. Guarantor hereby irrevocably and unconditionally guarantees to Lender (which shall include Sucessor Note B Lender and its successors and assigns) and its successors and assigns the full payment and performance of all obligations of Borrower under the Note as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise, either before or after maturity thereof, and Guarantor shall be liable for, the full amount of the Note, including, without limitation, any costs and expenses incurred by Lender in connection with collecting or enforcing against Guarantor the terms and provisions of this Guaranty and enforcing all terms and provisions of the Note (including, without limitation, all court costs and attorneys' fees and costs) (the "GUARANTEED OBLIGATIONS"). Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a direct and primary obligor. The Guaranteed Obligations shall not include any amounts at anytime owing under that certain Promissory Note A of even date herewith in the principal amount of $85,000,000.00 made by Borrower in favor of Column Financial, Inc., as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time or under any other Loan Document other than the Note. 1.2 INTENTIONALLY DELETED. 1.3 NATURE OF GUARANTY. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor. The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 1.5 PAYMENT BY GUARANTOR. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice -2- of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender's address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender's rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender's rights against any other guarantors of the Guaranteed Obligations, (d) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations. 1.7 WAIVERS. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (a) any loans or advances made by Lender to Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Properties, (e) the occurrence of any breach by Borrower or an Event of Default, (f) Lender's transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by Borrower and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations. 1.8 PAYMENT OF EXPENSES. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys' fees) incurred by Lender in the enforcement hereof or the preservation of Lender's rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations. 1.9 EFFECT OF BANKRUPTCY. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and -3- Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's performance of such obligations and then only to the extent of such performance. 1.10 WAIVER OF SUBROGATION, REIMBURSEMENT AND CONTRIBUTION. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. 1.11 BORROWER. The term "BORROWER" as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust, limited liability company, or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower. 1.12 GUARANTOR COVENANT. Upon payment in full of the Mezzanine Loan, Guarantor covenants and agrees that it shall, from time to time, contribute all Excess Cash Flow (as defined on Annex I annexed hereto and made a part hereof) to Borrower, up to the maximum amount that Borrower is required to pay Lender from time to time pursuant to Section 2.3.2 of the Loan Agreement), provided, the foregoing required Guarantor contribution amount shall be reduced by any amounts held by Borrower and that Borrower is permitted to use and uses to make payments on account of the Note as provided in the Loan Agreement. A violation of the foregoing covenant shall be an Event of Default under the Loan Documents. ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: 2.1 MODIFICATIONS. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Loan Agreement, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action. 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor. -4- 2.3 CONDITION OF BORROWER OR GUARANTOR. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor. 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (a) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Loan Agreement or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 RELEASE OF OBLIGORS. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other Persons will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other Persons to pay or perform the Guaranteed Obligations. 2.6 OTHER COLLATERAL. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations. 2.7 RELEASE OF COLLATERAL. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations. -5- 2.8 CARE AND DILIGENCE. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. 2.9 UNENFORCEABILITY. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations. 2.10 OFFSET. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other Person, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 2.11 MERGER. The reorganization, merger or consolidation of Borrower into or with any other Person. 2.12 PREFERENCE. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else. 2.13 OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows: -6- 3.1 BENEFIT. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations. 3.2 FAMILIARITY AND RELIANCE. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty. 3.3 NO REPRESENTATION BY LENDER. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty. 3.4 GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. 3.5 LEGALITY. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 3.6 SURVIVAL. All representations and warranties made by Guarantor herein shall survive the execution hereof. ARTICLE IV SUBORDINATION OF CERTAIN INDEBTEDNESS 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the Guaranteed -7- Obligations. Upon the occurrence of an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims. 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims. 4.3 PAYMENTS HELD IN TRUST. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender. 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (a) exercise or enforce any creditor's right it may have against Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor. ARTICLE V MISCELLANEOUS 5.1 WAIVER. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No -8- modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 5.2 NOTICES. Any notice, demand, statement, request or consent made hereunder shall be in writing and shall be deemed to be received by the addressee on the third day following the day such notice is deposited with the United States Postal Service first class certified mail, return receipt requested, addressed to the address, as set forth below, of the party to whom such notice is to be given, or to such other address as either party shall in like manner designate in writing. The addresses of the parties hereto are as follows: Guarantor: Fountain View, Inc. 27442 Portola Parkway, Suite 200 Foothill Ranch, California 92610 Attention: General Counsel Facsimile No.: (949) 282-5820 with a copy to: Latham & Watkins LLP 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626-1925 Attention: David Meckler, Esq. Facsimile No.: (714) 755-8290 Lender: CapitalSource Finance LLC 4445 Willard Avenue, 12th Floor Chevy Chase, Maryland 20815 Attention: Healthcare Finance Group, Portfolio Manager Facsimile No. (301) 841-2380 Highbridge/Zwirn Special Opportunities Fund, L.P. 9 West 57th Street, 27th Floor New York, New York 10019 Attention: David Brenner Facsimile No. (212) 287-4263 Fortress Credit Opportunities I, LP 1251 Avenue of the Americas, 16th Floor New York, New York 10020 Attention: Joshua A. Pack Facsimile No. (212) 798-6060 -9- with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: David L. Nagler Facsimile No. (917) 777-2369 with a copy to: Hahn & Hessen LLP 488 Madison Avenue New York, New York 10022 Attention: Daniel D. Batterman Facsimile No. (212) 478-7400 5.3 GOVERNING LAW. This Guaranty shall be governed in accordance with the State of New York and the applicable law of the United States of America. 5.4 INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. 5.5 AMENDMENTS. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. 5.6 PARTIES BOUND; ASSIGNMENT; JOINT AND SEVERAL. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 5.7 HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. 5.8 RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. 5.9 COUNTERPARTS. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of -10- the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. 5.10 RIGHTS AND REMEDIES. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 5.11 OTHER DEFINED TERMS. Any capitalized term utilized herein shall have the meaning as specified in the Loan Agreement, unless such term is otherwise specifically defined herein. 5.12 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER. 5.13 WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND GUARANTOR ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR AND LENDER. -11- 5.14 REINSTATEMENT IN CERTAIN CIRCUMSTANCES. If at any time any payment of the principal of or interest under the Note or any other amount payable by Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time. ARTICLE VI STATE-SPECIFIC PROVISIONS - CALIFORNIA To the extent this document is enforceable in the State of California, and notwithstanding the provisions of Section 5.3 hereof, the laws of the State of California are held to govern this Agreement and the following provisions shall apply: 6.1 PRINCIPLES OF CONSTRUCTION. In the event of any inconsistencies between the terms and conditions of this Article 6 and the terms and conditions of this Security Instrument, the terms and conditions of this Article 6 shall control and be binding. 6.2 GUARANTOR. Guarantor acknowledges that it is guaranteeing the obligations of Borrower to Lender. Accordingly, Guarantor agrees as follows: (a) Modifications to Loan and Loan Documents. Guarantor agrees that Lender may do any of the following without affecting the enforceability of this Agreement: (i) take or release additional security for any obligation in connection with the Loan Documents; (ii) discharge or release (by judicial or nonjudicial foreclosure, acceptance of a deed in lieu of foreclosure or otherwise) any party or parties liable under the Loan Documents; (iii) accept or make compositions or other arrangements or file or refrain from filing a claim in any bankruptcy proceeding of Borrower, any guarantor of Borrower's obligations under the Loan Documents or any pledgor of collateral for any person's obligations to Lender; and (iv) credit payments in such manner and order of priority to principal, interest or other obligations as Lender may determine. (b) Waivers. (i) Guarantor agrees that Lender's right to enforce this Agreement is absolute and is not contingent upon the genuineness, validity or enforceability of any of the Loan Documents. Guarantor waives all benefits and defenses it may have under California Civil Code Section 2810 and agrees that Lender's rights under this Agreement -12- shall be enforceable even if Borrower had no liability at the time of execution of the Loan Documents or later ceases to be liable. (ii) Guarantor waives all benefits and defenses it may have under California Civil Code Section 2809 and agrees that Lender's rights under this Agreement will remain enforceable even if the amount secured by this Agreement is larger in amount and more burdensome than that for which Borrower is responsible. The enforceability of this Agreement against Guarantor shall continue until all sums due under the Loan Documents have been paid in full and shall not be limited or affected in any way by any impairment or any diminution or loss of value of any security or collateral for Borrower's obligations under the Loan Documents, from whatever cause, the failure of any security interest in any such security or collateral or any disability or other defense of Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan. (iii) Guarantor waives all benefits and defenses it may have under California Civil Code Sections 2845, 2849 and 2850, including, without limitation, the right to require Lender to (A) proceed against Borrower, any guarantor of Borrower's obligations under the Loan Documents, any other pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, (B) proceed against or exhaust any other security or collateral Lender may hold, or (C) pursue any other right or remedy for Guarantor's benefit, and agrees that Lender may exercise its rights under this Agreement or may foreclose against the Mortgaged Property without taking any action against Borrower, Guarantor, guarantor of Borrower's obligations under the Loan Document, any pledgor of collateral for any person's obligations to Lender or any other person in connection with Borrower's loan, and without proceeding against or exhausting any security or collateral Lender holds. (iv) Guarantor waives any rights or benefits it may have by reason of California Code of Civil Procedure Section 580a which could limit the amount which Lender could recover in a foreclosure of the Mortgaged Property to the difference between the amount owing under the Loan Documents and the fair value of the property or interests sold at a nonjudicial foreclosure sale or sales of any other real property held by Lender as security for the obligations under the Loan Documents. (v) Guarantor waives diligence and all demands, protests, presentments and notices of protest, dishonor, nonpayment and acceptance of this Agreement. (c) Guarantor Informed of Borrower's Condition. Guarantor acknowledges that it has had an opportunity to review the Loan Documents, the value of the security for Borrower's obligations under the Loan Documents and Borrower's financial condition and ability to satisfy its obligations to Lender. Guarantor agrees to keep itself fully informed of all aspects of Borrower's financial condition and the performance of Borrower's obligations to Lender and agrees that Lender has no duty to disclose to Guarantor any information pertaining to Borrower or any security for Borrower's obligations under the Loan Documents. -13- (d) Waiver of Estoppel Defense. Upon Borrower's default under the Loan Documents, Lender may elect to foreclose nonjudicially on real property given by Borrower or others as security under the Loan Documents and also to exercise its rights under this Agreement. Guarantor acknowledges that its right to seek reimbursement from Borrower for any amounts paid by Guarantor to Lender under this Agreement will be eliminated if Lender elects to so foreclose on Borrower's property. Nevertheless, Guarantor waives any such right to reimbursement and agrees that a nonjudicial foreclosure by Lender against any real property security owned by Borrower or others will not affect the enforceability of this Agreement on Guarantor's interest in the Mortgaged Property. In order to further effectuate such waiver Guarantor hereby agrees as follows: Guarantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to the Mortgaged Property, has destroyed Guarantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. (e) Subrogation. Guarantor agrees that its rights of subrogation and reimbursement against Borrower, its right of subrogation against the Mortgaged Property or any other collateral or security for Lender's loan to Borrower or the pledgor of such collateral or security and its right of contribution from any guarantor or surety of Borrower's obligation sunder the Loan Documents shall be subordinate to Lender's rights against Borrower, in such collateral or security, against any such pledgor and against any such guarantor or surety. Guarantor shall have no such rights of subrogation, reimbursement or contribution until all amounts due under the Note, the Mortgage and the other Loan Documents have been paid in full and Lender has released, transferred or disposed of all of its rights in any collateral or security. Guarantor waives its rights under California Civil Code Sections 2847, 2848 and 2849 to the extent inconsistent with the foregoing. (f) Confirmation of Waivers. In accordance with California Civil Code Section 2856(c), Guarantor hereby makes the following waivers: (i) The guarantor waives all rights and defenses that the guarantor may have because the debtor's debt is secured by real property. This means, among other things: (A) The creditor may collect from the guarantor without first foreclosing on any other real or personal property collateral pledged by the debtor or any other person. (B) If the creditor forecloses on any real property collateral pledged by the debtor: (1) The amount of the debt may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. -14- (2) The creditor may collect from the guarantor even if the creditor, by foreclosing on the real property collateral, has destroyed any right the guarantor may have to collect from the debtor. (ii) This is an unconditional and irrevocable waiver of any rights and defenses the guarantor may have because the debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedures. [NO FURTHER TEXT ON THIS PAGE] -15- EXECUTED as of the day and year first above written. FOUNTAIN VIEW, INC. By: \s\ Roland G. Rapp -------------------------------- Name: Roland G. Rapp Title: Secretary ANNEX I CALCULATION OF EXCESS CASH FLOW "Bank Midwest Amended and Restated Note" shall mean the amended and restated promissory note in a maximum principal amount not to exceed $5,633,333 to be issued by [New Woodlands Entity] to Bank Midwest, N.A. pursuant to the Plan, the repayment of which is secured by that certain deed of trust and security agreement dated December 1, 1993 and assigned to Bank Midwest by instrument dated July 17, 2001. "Excess Cash Flow" means for any fiscal year of Guarantor, (a) the sum, without duplication, of (i) the net income or loss of Guarantor and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by Guarantor or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP; and (vi) an amount equal to any decrease in the Working Capital during such fiscal year up to $2,000,000 per year; minus (b) the sum, without duplication, of (i) the Maintenance Capital Expenditures for such fiscal year; (ii) the aggregate amount of all interest expense of Guarantor and its Subsidiaries paid or payable during such fiscal year, (iii) an amount equal to any increase in the Working Capital during such fiscal year up to $2,000,000 per year; (iv) the aggregate amount of all federal and state income taxes of Guarantor and its Subsidiaries paid or payable during such fiscal year; (v) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such fiscal year with respect to the Mortgage Loan (including any required posting of cash collateral in connection with property releases or loans), the Bank Midwest Amended and Restated Note, the Woodlands Place Note, the Union Bank Note, the Mezzanine Loan, (vi) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Loan and the Mortgage Loan (as defined in the Senior Mortgage Loan Agreement) and (vii) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of Guarantor and its Subsidiaries during such fiscal year, calculated in accordance with GAAP. "GAAP" shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "Maintenance Capital Expenditures" means, for any fiscal year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection Annex I-1 with an acquisition) incurred or made by Guarantor and its Subsidiaries during such fiscal year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any fiscal year (for any fiscal year, the "Maximum Amount") shall not exceed (a) for fiscal year 2003, $7,000,000 and (b) for any fiscal year thereafter, $7,000,000 plus the Maximum Amount for the immediately preceding fiscal year minus the actual amount of Maintenance Capital Expenditures included in this definition pursuant to clause (a) in such immediately preceding fiscal year. "Mezzanine Borrower" shall mean, collectively, SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company ("REH LLC") and SHG INVESTMENTS, LLC a Delaware limited liability company ("DE 23"), jointly and severally, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (REH LLC and DE 23, collectively, "Borrower"), together with their respective successors and permitted assigns "Mezzanine Loan" shall mean the loan from Mezzanine Lender to Mezzanine Borrower in the original principal amount of Twenty Three Million and No/100 Dollars ($23,000,000.00). "Mezzanine Lender" shall mean, collectively, CapitalSource Finance LLC, a Delaware limited liability company, Highbridge/Zwirn Special Opportunities Fund, L.P., a Delaware limited partnership and Fortress Credit Opportunities I, LP, a Delaware limited partnership. "Senior Mortgage Term Loan B" shall mean that certain $10,000,000 Term Loan B under the Senior Mortgage Loan Documentation. "Senior Mortgage Loan Borrowers" shall mean the borrowers party to the Senior Mortgage Loan Agreement from time to time and shall include their respective successors and assigns. "Senior Mortgage Loan Agreement" shall mean that certain Adjustable Rate Multi-Property Loan Agreement dated as of the Closing Date among Senior Mortgage Loan Lender and the Senior Mortgage Loan Borrowers. "Senior Mortgage Loan Documentation" shall mean, collectively, the Senior Mortgage Loan Agreement and all other agreements, documents, instruments and certificates executed and delivered in connection therewith. "Senior Mortgage Loan Lender" shall mean Column Financial, Inc. and its successors and assigns under the Senior Mortgage Loan Documentation. "Subsidiary" shall mean, as to any other Person, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person's Subsidiaries. "Union Bank Note" shall mean that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 issued by Summit Care Corporation to Union Bank of California, N.A. with an outstanding principal balance of $823,333.04 on the date of this -2- Indenture and secured by certain real and personal property located in Burbank, California, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001. "Woodlands Place Note" shall mean that certain promissory note in the original principal amount of $1,887,866.62 made by Woodlands Resource Management, L.P., and The Woodlands Healthcare Center, L.P. in favor of Woodlands Place Nursing Center, LP, and all other agreements, documents, instruments and certificates executed and delivered in connection therewith, as each may be amended, modified and supplemented from time to time. "Working Capital" means, as of any date, (a) the sum, without duplication, of (i) current assets (other than cash and cash equivalents) and (ii) cash and cash equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long term debt) and (ii) long term liabilities related to accrued insurance, in each case calculated on such date for Guarantor and its Subsidiaries. -3- EX-10.22 32 a94359exv10w22.txt EXHIBIT 10.22 EXHIBIT 10.22 AMENDMENT NO. 1 TO REVOLVING CREDIT AND SECURITY AGREEMENT THIS AMENDMENT NO. 1 (this "Amendment") is entered into as of October 30, 2003, by and among the Subsidiary Borrowers signatory hereto (each individually a "SUBSIDIARY BORROWER" and collectively, the "SUBSIDIARY BORROWERS"), SKILLED HEALTCHARE GROUP, INC. (f/k/a Fountain View, Inc., a Delaware corporation) ("PARENT" and together with the Subsidiary Borrowers each individually a "BORROWER" and collectively, the "BORROWERS") and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company ("CAPITALSOURCE"), as administrative agent and Agent for Lenders (in such capacities, the "AGENT"), and Lenders party hereto. BACKGROUND Certain Borrowers, Agent and Lenders entered into a Revolving Credit and Security Agreement dated as of August 19, 2003, which was modified by Joinder Agreement dated as of September 30, 2003 to join as additional borrowers each of Eureka Healthcare and Rehabilitation Center, LLC, Granada Healthcare and Rehabilitation Center, LLC, Pacific Healthcare and Rehabilitation Center, LLC and Seaview Healthcare and Rehabilitation Center, LLC (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement") pursuant to which Agent and Lenders provide Borrowers with certain financial accommodations. Borrowers have requested that Agent and Lenders make certain amendments to the Loan Agreement, and Agent and Lenders are willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrowers by Agent and Lenders, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 2. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 3 below, the Loan Agreement is hereby amended as follows: (a) Appendix A is amended as follows: (i) the following defined terms are added in their appropriate alphabetical order: "Collateral Account" means a general interest bearing deposit account established at and maintained by Agent in the name of and for the benefit of Agent, L/C Banks and Lenders and under the exclusive dominion and control of Agent, into which Collateral in the form of cash shall be deposited and as to which Agent has "control" pursuant to Section 9-104 of the UCC. "Funded L/C Exposure" means the aggregate principal amount, as of any date of determination, of all payments that were made by Agent or any L/C Bank under any Letter of Credit, but which have not been reimbursed to Agent or such L/C Bank by the Borrowers or converted into Advances pursuant to the terms of this Agreement. "L/C Bank" means, any bank that issues a Letter of Credit for the account of the Borrowers. "L/C Exposure" means the sum, as of any date of determination, of the Unfunded L/C Exposure and the Funded L/C Exposure. "L/C Sublimit" shall mean Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000). "Letter of Credit" means each letter of credit issued by Agent or any L/C Bank for or on behalf of Borrowers, which (i) is a standby letter of credit, (ii) issued for the purpose for which the Borrowers have historically obtained letters of credit, or for such other purpose as is reasonably acceptable to the Agent, and, in all cases, for a purpose permitted for use of proceeds hereunder, (iii) is denominated in Dollars; (iv) is governed by the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500, except as otherwise agreed by the Agent or the applicable L/C Bank, and (v) is in form reasonably satisfactory to the Agent and the applicable L/C Bank. "Unfunded L/C Exposure" means the maximum amount which Agent or the L/C Banks may be required, under all Letters of Credit outstanding as of any date of determination, to pay on such date or at any future time. Unfunded L/C Exposure shall not include any amounts outstanding within the meaning of Funded L/C Exposure. (ii) the following defined term is amended in its entirety to provide as follows: "Requisite Lenders" shall mean Lenders holding or being responsible for (i) 100%, if there are only two Lenders, and (ii) at least 66-2/3% if there are more than two Lenders, in each case, of the sum of (a) all outstanding Loans and (b) all unutilized Commitments, including Unfunded L/C Exposure. (b) Section 2.1(a) is hereby amended by inserting the phrase ", including Advances in connection with the issuance of Letters of Credit," after the phrase "Pro Rata Share of Advances" in the second and third lines thereof. (c) A new Section 2.16 is hereby inserted in its appropriate sectional order to read as follows: "2.16. Letters of Credit (a) Letter of Credit Commitment. On the terms and subject to the conditions herein set forth, the Borrowing Agent, on behalf of Borrowers, may, at any time and from time to time after the date hereof and prior to the Termination Date, request that Agent issue, and on the terms and subject to the conditions contained herein, Agent, if so requested, shall issue, or shall cause an L/C Bank to issue, within ten (10) Business Days after the request for such Letter of Credit, for the account of the Borrowers one or more Letters of Credit; provided that no Letter of Credit shall be issued if and to the extent that after giving effect to its issuance, the Unfunded L/C Exposure, (i) exceeds the L/C Sublimit or (ii) taken together with the outstanding Advances, including, without duplication, any Funded L/C Exposure, would exceed the lesser of the Facility Cap or the Availability. Borrowers acknowledge that Availability shall be reduced by a reserve in the full face amount of any such Letter of Credit. (b) Related Letter of Credit Restrictions. If a requested Letter of Credit is to have or is for the purpose of replacing an existing Letter of Credit that has, an expiry date falling after the Maturity Date, then Borrower shall, on or before the Termination Date (x) provide a "back-to-back" letter of credit to Agent or the applicable L/C Bank in form and substance reasonably satisfactory to Agent or the applicable L/C Bank, as the case may be, issued by a bank reasonably satisfactory to Agent or the applicable L/C Bank, as the case may be, in an amount equal to the Relevant Percentage of the then undrawn stated amount of all outstanding Letters of Credit and/or (y) deposit cash in the Collateral Account in an amount equal to the Relevant Percentage of the then undrawn stated amount of each such outstanding Letter of Credit with respect to which a "back-to-back" letter of credit was not issued to Agent or the applicable L/C Bank; provided, however, that notwithstanding the provision of such "back-to-back" letter(s) of credit and/or the funding of such Collateral Account, Borrowers shall remain liable with respect to all Funded L/C Exposure and Unfunded L/C Exposure, pursuant to the terms of this Section 2.16 until the earlier of such time as each such Letter of Credit expires by its terms without any draws being made in respect thereof or such Letter of Credit has been returned to Agent or the applicable L/C Bank undrawn and marked "cancelled". For this purpose, "Relevant Percentage" means, with respect to the Termination Date, 105%, and with respect to each annual anniversary thereafter, two percent more than the Relevant Percentage for the preceding annual anniversary. (c) Issuance of Letters of Credit. If the Borrowers wish Agent to issue, or arrange for issuance by an L/C Bank of, a Letter of Credit, the Borrowing Agent, on behalf of Borrowers, shall give Agent notice to that effect, specifying the proposed issuance date for such Letter of Credit (which shall be a Business Day), the stated amount of the Letter of Credit so requested, the proposed expiration date of such Letter of Credit and the name and address of the beneficiary of such Letter of Credit (as well as such further information, relating to the use of such Letter of Credit and otherwise, as Agent or the applicable L/C Bank may reasonably request), at least ten Business Days before the proposed issuance date (or such shorter period as may be agreed upon in writing by Agent or the applicable L/C Bank, as the case may be, and the Borrowers). (d) Advances Arising from Letter of Credit Payments. Any payment by Agent or the applicable L/C Bank in respect of any Letter of Credit shall constitute for all purposes of this Agreement the making by Agent of an Advance in the amount of such payment (and if such payment is made by an L/C Bank, Agent shall reimburse such L/C Bank in the amount of such payment). All Funded L/C Amounts shall bear interest as provided pursuant to Section 2.3. With respect to each Advance made pursuant to this Section 2.16, Borrowers shall be deemed to have certified the statements contained in Section V as of the date the payment constituting such Advance was made by Agent; provided, however, that in the event any such statement was not true and correct in all material respects as of such date, such Advance shall be repayable on demand; provided, further, that upon any such repayment, the failure of any such statement to be true and correct in all material respects as of such date shall not constitute an Event of Default hereunder, unless the failure of any such statement to be true and correct in all material respects as of such date would have constituted an Event of Default hereunder even if such repaid Advance had never been made. (e) Absolute Nature of Loan Obligations Relating to Letters of Credit. The obligations of the Borrowers in respect of Advances that arise as a result of payments under Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which any Borrower may have at any time against a beneficiary of any Letter of Credit or the Agent or the applicable L/C Bank; (iii) the fact that, or any allegation that, any draft, demand, certificate or other document presented under such Letter of Credit is or was forged, fraudulent, invalid or insufficient in any respect, or any statement therein is or was untrue or inaccurate in any respect; (iv) any breach of contract or dispute among or between any Borrower, Agent, any L/C Bank, any Lender, or any other Person; (v) payment by the Agent or any L/C Bank to the beneficiary under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (vi) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vii) the fact that any Event of Default shall have occurred and be continuing (it being understood that any such payment by the Borrowers of its obligations hereunder in respect of any such Advance shall be without prejudice to, and shall not constitute a waiver of, any rights any Party hereto may have or might acquire against the beneficiary of any Letter of Credit or against the Agent or any L/C Bank). (f) Risks Related to Letters of Credit. (i) Borrowers assume all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to the use of any Letter of Credit. Each party hereto agrees that the Agent, Lenders and the L/C Banks and their respective directors, officers or employees shall not be liable or responsible, except that any such Person shall not be excused hereby on account of its gross negligence or willful misconduct, for (i) the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary or transferee in connection therewith; (ii) any reference which may be made to this Agreement or to any Letter of Credit in any agreements, instruments or other documents; (iii) the validity, sufficiency or genuineness of any document, or of any endorsement thereon, even if such document or endorsement should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged or any statement therein prove to be untrue or inaccurate in any respect whatsoever; (iv) payment by the Agent or any L/C Bank (acting in good faith) to the beneficiary thereof against presentation of documents which do not strictly comply with the terms of any Letter of Credit; or (v) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, but the foregoing is without prejudice to any claim that any Loan Party may have against Agent, any L/C Bank or any Lender. Agent or the applicable L/C Bank may, in connection with any Letter of Credit accept any document that appears on its face to be in order, without responsibility for further investigation. The determination whether a demand is properly presented under any Letter of Credit prior to its expiration or whether a demand presented under any Letter of Credit is in proper and sufficient form may be made by the Agent or the applicable L/C Bank in its sole discretion, and such determination shall be conclusive and binding upon the Borrowers to the extent permitted by law. The Borrowers hereby waive any right to object to any payment to the beneficiary thereof made under any Letter of Credit on presentation of any demand that is in the form provided in the Letter of Credit but varies with respect to punctuation, capitalization, spelling or similar matters of form. (ii) Each Lender shall to the extent of the percentage amount equal to the such Lender's Pro Rata Share of the aggregate Funded L/C Exposure be deemed to have irrevocably purchased an undivided participation ("Pro Rata Purchase") in (i) each such Funded L/C Exposure, (ii) Agent's credit support enhancement provided to any L/C Bank which issues any Letter of Credit and (iii) each Advance made as a consequence of the issuance of a Letter of Credit and all disbursements thereunder (the items set forth in clauses (i) (ii) and (iii) collectively referenced as "L/C Advances"), in each case in an amount equal to such Lender's applicable Pro Rata Share of the outstanding amount of the Letters of Credit and disbursements thereunder. In the event that at the time a disbursement is made the unpaid balance of Advances exceeds or would exceed, with the making of such disbursement, the amount permitted under Section 2.16(a), and such disbursement is not reimbursed by Borrower within two (2) Business Days, Agent shall promptly notify each Lender and upon Agent's demand each Lender shall pay to Agent such Lender's Pro Rata Share of such unreimbursed disbursement together with such Lender's Pro Rata Share of Agent's unreimbursed costs and expenses relating to such unreimbursed disbursement. Upon receipt by Agent of a repayment from Borrower of any amount disbursed by Agent for which Agent had already been reimbursed by Lenders, Agent shall deliver to each Lender that Lender's Pro Rata Share of such repayment. Each Lender's participation commitment shall continue until the last to occur of any of the following events: (A) Agent ceases to be obligated to issue or cause to be issued Letters of Credit hereunder; (B) no Letters of Credit issued hereunder remains outstanding and uncancelled or (C) all Persons (other than the Borrowers) have been fully reimbursed for all payments made under or relating to Letters of Credit. (g) Letter of Credit Fee. On the first day of each month, commencing on the first such day following the Closing Date and continuing thereafter until the date the Unfunded L/C Exposure has been reduced to zero, including on the Termination Date, the Borrowers shall pay to Agent, for the account of Lenders to the extent of their participation in the Unfunded L/C Exposure a letter of credit fee (the "Letter of Credit Fee"), computed by applying the Letter of Credit Fee rate set forth in Section 3.6 below, to the Unfunded L/C Exposure from day to day in the prior month or partial month, as the case may be (and, in the case of the first payment of this fee, without duplication of fees paid under Section 3.6 from the Closing Date). (h) The aggregate stated amount available for Letters of Credit issued by Agent or any L/C Bank from time to time outstanding shall not exceed the L/C Sublimit." (d) Sections 3.2 and 3.3 are hereby amended in their entirety to read as follows: "3.2. Unused Line Fee. (a) Borrower shall pay to Agent for the ratable benefit of Lenders monthly an unused line fee (the "UNUSED LINE FEE") in an amount equal to 0.042% per month of the difference derived by subtracting (i) the daily average amount of the balances under the Revolving Facility (excluding any Unfunded L/C Exposure under the L/C Sublimit) outstanding during the preceding month, from (ii) the Facility Cap. The Unused Line Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). (b) In the event the daily average amount of the balances under the Revolving Facility (excluding any Unfunded L/C Exposure under the L/C Sublimit) outstanding during any calendar month is less than $3,000,000 (the "MINIMUM AVERAGE MONTHLY LOAN AMOUNT") Borrowers shall pay to Agent for the benefit of Lenders a minimum loan fee in an amount equal to 0.042% per month on the amount by which the Minimum Average Monthly Loan Amount exceeds such daily average amount of unpaid balances. Such fee shall be calculated on the basis of a year of 360 days and actual days elapsed and such fee shall be charged to Borrowers' account on the first day of each month with respect to the prior month. In the event Borrowers request that Agent cease charging the minimum loan fee set forth in this Section 3.2(b), the Unused Line Fee shall automatically increase to 0.083% per month effective on the first month following the date of such request. 3.3. Collateral Management Fee. Borrower shall pay Agent for its own account as additional interest a monthly collateral management fee (the "COLLATERAL MANAGEMENT FEE") equal to 0.083% per month calculated on the basis of the daily average amount of the balances under the Revolving Facility (including any Unfunded L/C Exposure under the L/C Sublimit) outstanding during the preceding month. The Collateral Management Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs)." (e) A new Section 3.6 is inserted in its appropriate sectional order to read as follows: "3.6. Letter of Credit Fee. Borrower shall pay to Agent for the benefit of Lenders to the extent of their participation in the Unfunded L/C Exposure a Letter of Credit Fee of 3.5 % per annum of the Unfunded L/C Exposure, plus any administrative charges or expenses incurred by Agent or customarily charged by Agent for such Letters of Credit, which fee shall be payable monthly in arrears on each day that interest under the Revolving Facility is payable hereunder. Upon the occurrence and during the continuance of an Event of Default, all Letter of Credit Fees shall be payable on demand at a rate equal to the Letter of Credit Fee plus 3% per annum." (f) Section 4.2(c) is amended in its entirety to provide as follows: "(c) immediately after giving effect to the requested Advance, the sum of (i) the aggregate outstanding principal amount of Advances under the Revolving Facility, including Advances in connection with the Letters of Credit, and (ii) the Unfunded L/C Exposure, shall not exceed the lesser of the Availability and the Facility Cap and the L/C Exposure shall not exceed the L/C Sublimit;" (g) Section 8(a) is amended in its entirety to provide as follows: "(a) Borrower shall fail to pay any amount on the Obligations, including any Funded L/C Exposure, or provided for in any Loan Document when due (whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise);" (h) Section 11.1 is amended by adding the following immediately prior to the period at the end thereof: "; provided that if all Obligations (other than Unmatured Surviving Obligations and Unfunded L/C Exposure) have been satisfied and the Borrowers have satisfied the requirements set forth in Section 2.16(b) to provide a `back-to-back' letter of credit or deposit cash in the Collateral Account, then the Liens granted to Agent, for the benefit of itself and Lenders, under the Security Documents shall be released". 3. Conditions of Effectiveness. This Amendment shall become effective upon satisfaction of the following conditions precedent: Agent shall have received (i) four (4) copies of this Amendment executed by Borrowers and Lenders and (ii) and such other certificates, instruments, documents and agreements as may be reasonably required by Agent or its counsel, each of which shall be in form and substance reasonably satisfactory to Agent and its counsel. 4. Representations and Warranties. Each Borrower hereby represents and warrants as follows: (a) This Amendment and the Loan Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrowers and are enforceable against Borrowers in accordance with their respective terms. (b) Upon the effectiveness of this Amendment, each Borrower hereby reaffirms all covenants, representations and warranties made in the Loan Agreement to the extent the same are not amended hereby and agree that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment. (d) No Borrower has any defense, counterclaim or offset with respect to the Loan Agreement. 5. Effect on the Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Loan Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Lenders, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 6. Governing Law. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 8. Counterparts; Facsimile. This Amendment may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. BORROWERS SKILLED HEALTHCARE GROUP, INC. (F/K/A FOUNTAIN VIEW, INC.) ALEXANDRIA CARE CENTER, INC. ALTA CARE CENTER, LLC ANAHEIM TERRACE CARE CENTER, LLC BAY CREST CARE CENTER, LLC BRIER OAK ON SUNSET, INC. CARSON SENIOR ASSISTED LIVING, LLC ELMCREST CARE CENTER, INC. FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC. HALLMARK INVESTMENT GROUP, INC. HALLMARK REHABILITATION GP, LLC HALLMARK REHABILITATION LP By: Hallmark Rehabilitation GP, LLC, its general partner HANCOCK PARK REHABILITATION CENTER, INC. HANCOCK PARK SENIOR ASSISTED LIVING, INC. HEMET SENIOR ASSISTED LIVING, LLC LEASEHOLD RESOURCE GROUP, LLC MONTEBELLO CARE CENTER, LLC RIO HONDO SUBACUTE AND NURSING CENTER, INC. ROYALWOOD CARE CENTER, LLC SHARON CARE CENTER, LLC SKILLED HEALTHCARE, LLC SUMMIT CARE CORPORATION SUMMIT CARE TEXAS MANAGEMENT, LLC SUMMIT CARE PHARMACY, INC. SUMMIT CARE TEXAS, L.P. By: Summit Care Texas Management, LLC, its general partner SYCAMORE PARK CARE CENTER, INC. WOODLAND CARE CENTER, LLC EUREKA HEALTHCARE AND REHABILITATION CENTER, LLC GRANADA HEALTHCARE AND REHABILITATION CENTER, LLC PACIFIC HEALTHCARE AND REHABILITATION CENTER, LLC SEAVIEW HEALTHCARE AND REHABILITATION CENTER, LLC By: \s\ Roland G. Rapp ---------------------------------------- Name: Roland G. Rapp Title: Secretary AGENT AND SOLE LENDER CAPITALSOURCE FINANCE LLC By: \s\ J. Anthony Romero ---------------------------------------- Name: J. Anthony Romero Its: Portfolio Manager CONSENTED AND AGREED TO: THE WOODLANDS HEALTHCARE CENTER, LP By: The Woodlands Healthcare Center, GP LLC, its General Partner THE WOODLANDS RESOURCE MANAGEMENT, LP By: The Woodlands Resource Management, GP LLC, its General Partner By: \s\ Roland G. Rapp ---------------------------------------- Name: Roland G. Rapp Its: Secretary EX-10.23 33 a94359exv10w23.txt EXHIBIT 10.23 EXHIBIT 10.23 AMENDMENT NO. 1 TO REVOLVING CREDIT AND SECURITY AGREEMENT THIS AMENDMENT NO. 1 (this "Amendment") is entered into as of October 30, 2003, by and among the Borrowers signatory hereto (each individually a "BORROWER" and collectively, the "BORROWERS") and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company ("CAPITALSOURCE"), as administrative agent and Agent for Lenders (in such capacities, the "AGENT"), and Lenders party hereto. BACKGROUND Certain Borrowers, Agent and Lenders entered into a Revolving Credit and Security Agreement dated as of August 19, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement") pursuant to which Agent and Lenders provide Borrowers with certain financial accommodations. Borrowers have requested that Agent and Lenders make certain amendments to the Loan Agreement, and Agent and Lenders are willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrowers by Agent and Lenders, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 2. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 3 below, the Loan Agreement is hereby amended as follows: (a) Appendix A is amended as follows: (i) the following defined terms are added in their appropriate alphabetical order: "Collateral Account" means a general interest bearing deposit account established at and maintained by Agent in the name of and for the benefit of Agent, L/C Banks and Lenders and under the exclusive dominion and control of Agent, into which Collateral in the form of cash shall be deposited and as to which Agent has "control" pursuant to Section 9-104 of the UCC. "Funded L/C Exposure" means the aggregate principal amount, as of any date of determination, of all payments that were made by Agent or any L/C Bank under any Letter of Credit, but which have not been reimbursed to Agent or such L/C Bank by the Borrowers or converted into Advances pursuant to the terms of this Agreement. "L/C Bank" means, any bank that issues a Letter of Credit for the account of the Borrowers. "L/C Exposure" means the sum, as of any date of determination, of the Unfunded L/C Exposure and the Funded L/C Exposure. "L/C Sublimit" shall mean One Million and 00/100 Dollars ($1,000,000). "Letter of Credit" means each letter of credit issued by Agent or any L/C Bank for or on behalf of Borrowers, which (i) is a standby letter of credit, (ii) issued for the purpose for which the Borrowers have historically obtained letters of credit, or for such other purpose as is reasonably acceptable to the Agent, and, in all cases, for a purpose permitted for use of proceeds hereunder, (iii) is denominated in Dollars; (iv) is governed by the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500, except as otherwise agreed by the Agent or the applicable L/C Bank, and (v) is in form reasonably satisfactory to the Agent and the applicable L/C Bank. "Unfunded L/C Exposure" means the maximum amount which Agent or the L/C Banks may be required, under all Letters of Credit outstanding as of any date of determination, to pay on such date or at any future time. Unfunded L/C Exposure shall not include any amounts outstanding within the meaning of Funded L/C Exposure. (ii) the following defined term is amended in its entirety to provide as follows: "Requisite Lenders" shall mean Lenders holding or being responsible for (i) 100%, if there are only two Lenders, and (ii) at least 66-2/3% if there are more than two Lenders, in each case, of the sum of (a) all outstanding Loans and (b) all unutilized Commitments, including Unfunded L/C Exposure. (b) Section 2.1(a) is hereby amended by inserting the phrase ", including Advances in connection with the issuance of Letters of Credit," after the phrase "Pro Rata Share of Advances" in the second and third lines thereof. (c) A new Section 2.16 is hereby inserted in its appropriate sectional order to read as follows: "2.16. Letters of Credit (a) Letter of Credit Commitment. On the terms and subject to the conditions herein set forth, the Borrowing Agent, on behalf of Borrowers, may, at any time and from time to time after the date hereof and prior to the Termination Date, request that Agent issue, and on the terms and subject to the conditions contained herein, Agent, if so requested, shall issue, or shall cause an L/C Bank to issue, within ten (10) Business Days after the request for such Letter of Credit, for the account of the Borrowers one or more Letters of Credit; provided that no Letter of Credit shall be issued if and to the extent that after giving effect to its issuance, the Unfunded L/C Exposure, (i) exceeds the L/C Sublimit or (ii) taken together with the outstanding Advances, including, without duplication, any Funded L/C Exposure, would exceed the lesser of the Facility Cap or the Availability. Borrowers acknowledge that Availability shall be reduced by a reserve in the full face amount of any such Letter of Credit. (b) Related Letter of Credit Restrictions. If a requested Letter of Credit is to have or is for the purpose of replacing an existing Letter of Credit that has, an expiry date falling after the Maturity Date, then Borrower shall, on or before the Termination Date (x) provide a "back-to-back" letter of credit to Agent or the applicable L/C Bank in form and substance reasonably satisfactory to Agent or the applicable L/C Bank, as the case may be, issued by a bank reasonably satisfactory to Agent or the applicable L/C Bank, as the case may be, in an amount equal to the Relevant Percentage of the then undrawn stated amount of all outstanding Letters of Credit and/or (y) deposit cash in the Collateral Account in an amount equal to the Relevant Percentage of the then undrawn stated amount of each such outstanding Letter of Credit with respect to which a "back-to-back" letter of credit was not issued to Agent or the applicable L/C Bank; provided, however, that notwithstanding the provision of such "back-to-back" letter(s) of credit and/or the funding of such Collateral Account, Borrowers shall remain liable with respect to all Funded L/C Exposure and Unfunded L/C Exposure, pursuant to the terms of this Section 2.16 until the earlier of such time as each such Letter of Credit expires by its terms without any draws being made in respect thereof or such Letter of Credit has been returned to Agent or the applicable L/C Bank undrawn and marked "cancelled". For this purpose, "Relevant Percentage" means, with respect to the Termination Date, 105%, and with respect to each annual anniversary thereafter, two percent more than the Relevant Percentage for the preceding annual anniversary. (c) Issuance of Letters of Credit. If the Borrowers wish Agent to issue, or arrange for issuance by an L/C Bank of, a Letter of Credit, the Borrowing Agent, on behalf of Borrowers, shall give Agent notice to that effect, specifying the proposed issuance date for such Letter of Credit (which shall be a Business Day), the stated amount of the Letter of Credit so requested, the proposed expiration date of such Letter of Credit and the name and address of the beneficiary of such Letter of Credit (as well as such further information, relating to the use of such Letter of Credit and otherwise, as Agent or the applicable L/C Bank may reasonably request), at least ten Business Days before the proposed issuance date (or such shorter period as may be agreed upon in writing by Agent or the applicable L/C Bank, as the case may be, and the Borrowers). (d) Advances Arising from Letter of Credit Payments. Any payment by Agent or the applicable L/C Bank in respect of any Letter of Credit shall constitute for all purposes of this Agreement the making by Agent of an Advance in the amount of such payment (and if such payment is made by an L/C Bank, Agent shall reimburse such L/C Bank in the amount of such payment). All Funded L/C Amounts shall bear interest as provided pursuant to Section 2.3. With respect to each Advance made pursuant to this Section 2.16, Borrowers shall be deemed to have certified the statements contained in Section V as of the date the payment constituting such Advance was made by Agent; provided, however, that in the event any such statement was not true and correct in all material respects as of such date, such Advance shall be repayable on demand; provided, further, that upon any such repayment, the failure of any such statement to be true and correct in all material respects as of such date shall not constitute an Event of Default hereunder, unless the failure of any such statement to be true and correct in all material respects as of such date would have constituted an Event of Default hereunder even if such repaid Advance had never been made. (e) Absolute Nature of Loan Obligations Relating to Letters of Credit. The obligations of the Borrowers in respect of Advances that arise as a result of payments under Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which any Borrower may have at any time against a beneficiary of any Letter of Credit or the Agent or the applicable L/C Bank; (iii) the fact that, or any allegation that, any draft, demand, certificate or other document presented under such Letter of Credit is or was forged, fraudulent, invalid or insufficient in any respect, or any statement therein is or was untrue or inaccurate in any respect; (iv) any breach of contract or dispute among or between any Borrower, Agent, any L/C Bank, any Lender, or any other Person; (v) payment by the Agent or any L/C Bank to the beneficiary under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (vi) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vii) the fact that any Event of Default shall have occurred and be continuing (it being understood that any such payment by the Borrowers of its obligations hereunder in respect of any such Advance shall be without prejudice to, and shall not constitute a waiver of, any rights any Party hereto may have or might acquire against the beneficiary of any Letter of Credit or against the Agent or any L/C Bank). (f) Risks Related to Letters of Credit. (i) Borrowers assume all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to the use of any Letter of Credit. Each party hereto agrees that the Agent, Lenders and the L/C Banks and their respective directors, officers or employees shall not be liable or responsible, except that any such Person shall not be excused hereby on account of its gross negligence or willful misconduct, for (i) the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary or transferee in connection therewith; (ii) any reference which may be made to this Agreement or to any Letter of Credit in any agreements, instruments or other documents; (iii) the validity, sufficiency or genuineness of any document, or of any endorsement thereon, even if such document or endorsement should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged or any statement therein prove to be untrue or inaccurate in any respect whatsoever; (iv) payment by the Agent or any L/C Bank (acting in good faith) to the beneficiary thereof against presentation of documents which do not strictly comply with the terms of any Letter of Credit; or (v) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, but the foregoing is without prejudice to any claim that any Loan Party may have against Agent, any L/C Bank or any Lender. Agent or the applicable L/C Bank may, in connection with any Letter of Credit accept any document that appears on its face to be in order, without responsibility for further investigation. The determination whether a demand is properly presented under any Letter of Credit prior to its expiration or whether a demand presented under any Letter of Credit is in proper and sufficient form may be made by the Agent or the applicable L/C Bank in its sole discretion, and such determination shall be conclusive and binding upon the Borrowers to the extent permitted by law. The Borrowers hereby waive any right to object to any payment to the beneficiary thereof made under any Letter of Credit on presentation of any demand that is in the form provided in the Letter of Credit but varies with respect to punctuation, capitalization, spelling or similar matters of form. (ii) Each Lender shall to the extent of the percentage amount equal to the such Lender's Pro Rata Share of the aggregate Funded L/C Exposure be deemed to have irrevocably purchased an undivided participation ("Pro Rata Purchase") in (i) each such Funded L/C Exposure, (ii) Agent's credit support enhancement provided to any L/C Bank which issues any Letter of Credit and (iii) each Advance made as a consequence of the issuance of a Letter of Credit and all disbursements thereunder (the items set forth in clauses (i) (ii) and (iii) collectively referenced as "L/C Advances"), in each case in an amount equal to such Lender's applicable Pro Rata Share of the outstanding amount of the Letters of Credit and disbursements thereunder. In the event that at the time a disbursement is made the unpaid balance of Advances exceeds or would exceed, with the making of such disbursement, the amount permitted under Section 2.16(a), and such disbursement is not reimbursed by Borrower within two (2) Business Days, Agent shall promptly notify each Lender and upon Agent's demand each Lender shall pay to Agent such Lender's Pro Rata Share of such unreimbursed disbursement together with such Lender's Pro Rata Share of Agent's unreimbursed costs and expenses relating to such unreimbursed disbursement. Upon receipt by Agent of a repayment from Borrower of any amount disbursed by Agent for which Agent had already been reimbursed by Lenders, Agent shall deliver to each Lender that Lender's Pro Rata Share of such repayment. Each Lender's participation commitment shall continue until the last to occur of any of the following events: (A) Agent ceases to be obligated to issue or cause to be issued Letters of Credit hereunder; (B) no Letters of Credit issued hereunder remains outstanding and uncancelled or (C) all Persons (other than the Borrowers) have been fully reimbursed for all payments made under or relating to Letters of Credit. (g) Letter of Credit Fee. On the first day of each month, commencing on the first such day following the Closing Date and continuing thereafter until the date the Unfunded L/C Exposure has been reduced to zero, including on the Termination Date, the Borrowers shall pay to Agent, for the account of Lenders to the extent of their participation in the Unfunded L/C Exposure a letter of credit fee (the "Letter of Credit Fee"), computed by applying the Letter of Credit Fee rate set forth in Section 3.6 below, to the Unfunded L/C Exposure from day to day in the prior month or partial month, as the case may be (and, in the case of the first payment of this fee, without duplication of fees paid under Section 3.6 from the Closing Date). (h) The aggregate stated amount available for Letters of Credit issued by Agent or any L/C Bank from time to time outstanding shall not exceed the L/C Sublimit." (d) Sections 3.2 and 3.3 are hereby amended in their entirety to read as follows: "3.2. Unused Line Fee. (a) Borrower shall pay to Agent for the ratable benefit of Lenders monthly an unused line fee (the "UNUSED LINE FEE") in an amount equal to 0.042% per month of the difference derived by subtracting (i) the daily average amount of the balances under the Revolving Facility (excluding any Unfunded L/C Exposure under the L/C Sublimit) outstanding during the preceding month, from (ii) the Facility Cap. The Unused Line Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs). (b) In the event the daily average amount of the balances under the Revolving Facility (excluding any Unfunded L/C Exposure under the L/C Sublimit) outstanding during any calendar month is less than $3,000,000 (the "MINIMUM AVERAGE MONTHLY LOAN AMOUNT") Borrowers shall pay to Agent for the benefit of Lenders a minimum loan fee in an amount equal to 0.042% per month on the amount by which the Minimum Average Monthly Loan Amount exceeds such daily average amount of unpaid balances. Such fee shall be calculated on the basis of a year of 360 days and actual days elapsed and such fee shall be charged to Borrowers' account on the first day of each month with respect to the prior month. In the event Borrowers request that Agent cease charging the minimum loan fee set forth in this Section 3.2(b), the Unused Line Fee shall automatically increase to 0.083% per month effective on the first month following the date of such request. 3.3. Collateral Management Fee. Borrower shall pay Agent for its own account as additional interest a monthly collateral management fee (the "COLLATERAL MANAGEMENT FEE") equal to 0.083% per month calculated on the basis of the daily average amount of the balances under the Revolving Facility (including any Unfunded L/C Exposure under the L/C Sublimit) outstanding during the preceding month. The Collateral Management Fee shall be payable monthly in arrears on the first day of each successive calendar month (starting with the first calendar month following the month in which the Closing Date occurs)." (e) A new Section 3.6 is inserted in its appropriate sectional order to read as follows: "3.6. Letter of Credit Fee. Borrower shall pay to Agent for the benefit of Lenders to the extent of their participation in the Unfunded L/C Exposure a Letter of Credit Fee of 3.5 % per annum of the Unfunded L/C Exposure, plus any administrative charges or expenses incurred by Agent or customarily charged by Agent for such Letters of Credit, which fee shall be payable monthly in arrears on each day that interest under the Revolving Facility is payable hereunder. Upon the occurrence and during the continuance of an Event of Default, all Letter of Credit Fees shall be payable on demand at a rate equal to the Letter of Credit Fee plus 3% per annum." (f) Section 4.2(c) is amended in its entirety to provide as follows: "(c) immediately after giving effect to the requested Advance, the sum of (i) the aggregate outstanding principal amount of Advances under the Revolving Facility, including Advances in connection with the Letters of Credit, and (ii) the Unfunded L/C Exposure, shall not exceed the lesser of the Availability and the Facility Cap and the L/C Exposure shall not exceed the L/C Sublimit;" (g) Section 8(a) is amended in its entirety to provide as follows: "(a) Borrower shall fail to pay any amount on the Obligations, including any Funded L/C Exposure, or provided for in any Loan Document when due (whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise);" (h) Section 11.1 is amended by adding the following immediately prior to the period at the end thereof: "; provided that if all Obligations (other than Unmatured Surviving Obligations and Unfunded L/C Exposure) have been satisfied and the Borrowers have satisfied the requirements set forth in Section 2.16(b) to provide a `back-to-back' letter of credit or deposit cash in the Collateral Account, then the Liens granted to Agent, for the benefit of itself and Lenders, under the Security Documents shall be released". 3. Conditions of Effectiveness. This Amendment shall become effective upon satisfaction of the following conditions precedent: Agent shall have received (i) four (4) copies of this Amendment executed by Borrowers and Lenders and (ii) and such other certificates, instruments, documents and agreements as may be reasonably required by Agent or its counsel, each of which shall be in form and substance reasonably satisfactory to Agent and its counsel. 4. Representations and Warranties. Each Borrower hereby represents and warrants as follows: (a) This Amendment and the Loan Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrowers and are enforceable against Borrowers in accordance with their respective terms. (b) Upon the effectiveness of this Amendment, each Borrower hereby reaffirms all covenants, representations and warranties made in the Loan Agreement to the extent the same are not amended hereby and agree that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment. (d) No Borrower has any defense, counterclaim or offset with respect to the Loan Agreement. 5. Effect on the Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Loan Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Lenders, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 6. Governing Law. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 8. Counterparts; Facsimile. This Amendment may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. BORROWERS BRIARCLIFF NURSING AND REHABILITATION CENTER, LP By: Briarcliff Nursing and Rehabilitation Center GP, LLC, its general partner CAREHOUSE HEALTHCARE CENTER, LLC CLAIRMONT BEAUMONT, LP By: Clairmont Beaumont GP, LLC, its general partner CLAIRMONT LONGVIEW, LP By: Clairmont Longview GP, LLC, its general partner THE CLAIRMONT TYLER, LP By: The Clairmont Tyler GP, LLC, its general partner COLONIAL NEW BRAUNFELS CARE CENTER, LP By: Colonial New Braunfels GP, LLC, its general partner COLONIAL TYLER CARE CENTER, LP By: Colonial Tyler GP, LLC, its general partner COMANCHE NURSING CENTER, LP By: Comanche Nursing Center GP, LLC, its general partner CORONADO NURSING CENTER, LP By: Coronado Nursing Center GP, LLC, its general partner DEVONSHIRE CARE CENTER, LLC THE EARLWOOD, LLC FLATONIA OAK MANOR, LP By: Flatonia Oak Manor GP, LLC, its general partner FOUNTAIN CARE CENTER, LLC FOUNTAIN SENIOR ASSISTED LIVING, LLC GUADALUPE VALLEY NURSING CENTER, LP By: Guadalupe Valley Nursing Center GP, LLC, its general partner HALLETTSVILLE REHABILITATION AND NURSING CENTER, LP By: Hallettsville Rehabilitation GP, LLC its general partner HOSPITALITY NURSING AND REHABILITATION CENTER, LP By: Hospitality Nursing GP, LLC, its general partner LIVE OAK NURSING CENTER, LP By: Live Oak Nursing Center GP, LLC, its general partner MONUMENT REHABILITATION AND NURSING CENTER, LP By: Monument Rehabilitation Center GP, LLC, its general partner OAK CREST NURSING CENTER, LP By: Oak Crest Nursing Center GP, LLC, its general partner OAKLAND MANOR NURSING CENTER, LP By: Oakland Manor, GP, LLC, its general partner SKILLED HEALTHCARE II, LLC SOUTHWOOD CARE CENTER, LP By: Southwood Care Center GP, LLC, its general partner SPRING SENIOR ASSISTED LIVING, LLC TEXAS CITYVIEW CARE CENTER, LP By: Texas Cityview Care Center, GP, LLC, its general partner TEXAS HERITAGE OAKS NURSING AND REHABILITATION CENTER, LP By: Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC, its general partner TOWN AND COUNTRY MANOR, LP By: Town and Country Manor GP, LLC, its general partner VALLEY HEALTHCARE CENTER, LLC VILLA MARIA HEALTHCARE CENTER, LLC WEST SIDE CAMPUS OF CARE, LP By: West Side Campus of Care GP, LLC, its general partner WILLOW CREEK HEALTHCARE CENTER, LLC By: \s\ Roland G. Rapp ------------------------------------------ Name: Roland G. Rapp Title: Secretary AGENT AND SOLE LENDER CAPITALSOURCE FINANCE LLC By: \s\ J. Anthony Romero ------------------------------------------ Name: J. Anthony Romero Its: Portfolio Manager EX-10.24 34 a94359exv10w24.txt EXHIBIT 10.24 EXHIBIT 10.24 COMMERCIAL LEASE BETWEEN MATMEL ENTERPRISES, INC. AND FOUNTAIN VIEW, INC. EUREKA, CALIFORNIA AUGUST 25, 2003 COMMERCIAL LEASE THIS COMMERCIAL LEASE ("Lease") is entered into as of August 25, 2003 by and between MATMEL ENTERPRISES, INC., a California corporation formerly known as REDWOOD CARE CENTERS, INC. ("Landlord"), whose address and facsimile number for the purpose of this Lease are 4060 Campton Road, Eureka, California 95503, (707) 443-6964, and FOUNTAIN VIEW, INC., a California corporation ("Tenant") whose address and facsimile number for the purpose of this Lease are 2355 23rd Street, Eureka, California, 95601, (707) 444-9640. 1. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord, that certain improved real property consisting of four separate skilled nursing facilities and one office building and certain furniture, fixtures, improvements and other tangible personal property contained therein that is owned by Landlord, commonly known, respectively, as the Sunset Care Center, located at 2353 23rd Street, Eureka, California 95501, the Granada Care Center, located at 2885 Harris Street, Eureka, California 95501, the Pacific Care Center, located at 2211 Harrison Avenue, Eureka, California 95501, the Seaview Care Center, located at 8400 Purdue Drive, Eureka, California 95503 (individually, a "Care Center" and collectively, the "Care Centers") and the Redwood Care Center Office Building (the "Office Building"), located at 2355 23rd Street, Eureka, California 95501, as described more particularly in EXHIBIT A (the Care Centers and the Office Building are collectively referred to herein as the "Premises"). Upon the Commencement Date as defined below, Landlord shall deliver possession of the Premises to Tenant, and Tenant shall take possession of the Premises. 2. TERM. 2.1 INITIAL TERM. The initial term ("Initial Term") of this Lease shall be five (5) years commencing ten (10) business days (or earlier, at the option of Tenant) after the date when all the following conditions precedent (the "Conditions Precedent") shall have been fulfilled (the "Commencement Date"), and expiring on the fifth (5th) year anniversary of the Commencement Date. If the Conditions Precedent have not been fulfilled or waived by Tenant such that the Commencement Date may be fixed as of no later than October 1, 2003, then either Landlord or Tenant may rescind this Lease; and it shall thereafter become null and void and of no further force or effect. The Conditions Precedent are the following: 2.1.1 TERMINATION OF EXISTING LEASE AND SUBLEASE. Landlord shall have obtained a written acknowledgement and agreement from Unified Health Services, LLC ("UHS"), the current tenant of the Premises, terminating UHS' existing leases to the Premises and a written acknowledgement and agreement from SunBridge Healthcare Group, Inc. ("Sun"), the current subtenant to the Premises, terminating the existing subleases and setting forth Sun's commitment to vacate the Premises, promptly upon receipt of notice that Tenant is duly licensed to operate the Premises under the laws of the State of California and is certified to participate in Medicare and Medi-Cal, by no later than October 1, 2003. Landlord agrees to use reasonable business efforts to obtain such written acknowledgement and agreement as soon as is practicable. 2.1.2 SKILLED NURSING FACILITY APPROVAL. Tenant shall have obtained the required licensure and permits from the California Department of Health Services to operate - 1 - the Care Centers as skilled nursing facilities and to permit such skilled nursing facilities to participate in the Medicare and Medi-Cal reimbursement programs. Tenant agrees to use its reasonable business efforts to seek and obtain such licensure and permits as soon as is practicable. 2.1.3 OPERATIONS TRANSFER AGREEMENT WITH SUN. Tenant shall have entered into a Operations Transfer Agreement and any related transfer and other documents, with Sun relating to Tenant's succeeding Sun as operator of the Care Centers, in the form acceptable to Tenant in its sole discretion, and Sun shall have fully performed thereunder on or concurrent with the Commencement Date hereunder. Tenant agrees to use its reasonable business efforts to seek and obtain such agreement with Sun as soon as is practicable. 2.1.4 SIDE LETTER AGREEMENT WITH SUNDANCE REHABILITATION CORPORATION. Tenant shall have entered into a Side Letter with SunDance Rehabilitation Corporation ("SunDance") in the form acceptable to Tenant in its sole discretion, acknowledging that (a) all employees of SunDance will be released from any employment restrictions that would otherwise prevent them from accepting employment with Tenant or its affiliates; (b) SunDance will not solicit these same employees for employment at its other facilities, and (c) SunDance has released all claims to any property or equipment remaining at the Premises. 2.1.5 NO MATERIAL ADVERSE CHANGE. No material adverse change, loss, damage or destruction to, or any interruption in the use of, the Premises, whether or not covered by insurance, shall have occurred, including without limitation any change in the number of licensed beds. 2.2 OPTIONS TO EXTEND. 2.2.1 FIRST EXTENDED TERM. Tenant is hereby given the option to extend the Initial Term for a period of five (5) years (the "First Extended Term") following the expiration of the Initial Term, by giving Landlord written notice of Tenant's exercise of the option ("Option Notice") no later than one hundred eighty (180) days, nor sooner than three hundred sixty (360) days, before expiration of the Initial Term. 2.2.2 SECOND EXTENDED TERM. Provided Tenant exercises its option for the First Extended Term, Tenant is given the additional option to extend the First Extended Term for an additional period of five (5) years (the "Second Extended Term") following expiration of the First Extended Term, by giving Landlord an Option Notice no later than one hundred eighty (180) days, nor sooner than three hundred sixty (360) days, before expiration of the First Extended Term. 2.2.3 THIRD EXTENDED TERM. Provided Tenant exercises its option for the Second Extended Term, Tenant is given the additional option to extend the Second Extended Term for an additional period of five (5) years (the "Third Extended Term") following expiration of the Second Extended Term, by giving Landlord an Option Notice no later than one hundred eighty (180) days, nor sooner than three hundred sixty (360) days, before expiration of the Second Extended Term. - 2 - 2.2.4 PROVISIONS APPLICABLE TO OPTIONS. The preceding provisions to the contrary notwithstanding, if Tenant is in default of this Lease on the date of giving an Option Notice, then, at Landlord's sole election, such Option Notice shall be totally ineffective. If Tenant is in default of this Lease and any cure period provided hereunder with respect to such default has expired without such default having been cured on the date any Extended Term is to commence, then, at Landlord's sole election, such Extended Term shall not commence; and this Lease shall expire at the end of the then Term. 2.2.5 PROVISIONS APPLICABLE TO EXTENDED TERMS. Each Extended Term shall be upon all of the terms and conditions of the Lease except as follows: (a) Monthly Rent shall be as provided in SECTION 3.1. (b) Apart from the Right of First Refusal set forth in SECTION 18, Tenant will have no option to extend the Term of this Lease beyond the Third Extended Term. (c) The word "Term" as used in this Lease shall include the Initial Term and the three Extended Terms (to the extent Tenant exercises its options to implement such Extended Terms) unless specifically provided to the contrary. 2.3 OPTION TO PURCHASE THE PREMISES. Landlord, Landlord's sole shareholder, the Sutton Family Living Trust uta dated 4/16/97 ("Sutton") and Tenant are parties to that certain Option Agreement dated May 30, 2003 (the "Option Agreement") pursuant to which Sutton and Landlord granted to Tenant the right and option to purchase all outstanding capital stock of Landlord ("Stock") upon and subject to the terms and conditions set forth therein (the "Stock Purchase Option"). In the event that Tenant is entitled to exercise such Stock Purchase Option and for any reason is barred from consummating such transaction pursuant to applicable law or Tenant exercises such Stock Purchase Option within the time and in the manner provided therein but is unwilling or unable to close the transaction contemplated thereby because Landlord or Sutton is in default or breach of any of its representations, warranties or covenants thereunder, then as a material consideration for Tenant's execution and delivery of this Lease, Tenant shall have the option to purchase the Premises pursuant to this Lease at the fair market value of the Premises as determined pursuant to the process set forth in the Option Agreement and upon the same other terms that Tenant would have purchased the Stock under the Option Agreement, except that the provisions of Section 16.5 of the Option Agreement shall apply to any transfer and conveyance of the Premises pursuant to this option. 3. MONETARY PROVISIONS. 3.1 MONTHLY RENT. 3.1.1 FIRST 24 MONTHS. Tenant shall pay as monthly rent ("Monthly Rent") during the first twenty four (24) months of the Initial Term an amount equal to the lower of (a) Ninety Four Thousand Eight Hundred Seventy Five Dollars ($94,875) or (b) Two Hundred Seventy Five Dollars ($275) per licensed bed at the Care Center. - 3 - 3.1.2 NEXT 24 MONTHS. Tenant shall pay as monthly rent ("Monthly Rent") during the months 25 through 48 of the Initial Term an amount equal to the lower of (a) Ninety Eight Thousand Three Hundred Twenty Five Dollars ($98,325) or (b) Two Hundred Eighty Five Dollars ($285) per licensed bed at the Care Center. 3.1.3 NEXT 12 MONTHS. Tenant shall pay as monthly rent ("Monthly Rent") during the months 49 through 60 of the Initial Term an amount equal to the lower of (a) One Hundred One Thousand Seven Hundred Seventy Five Dollars ($101,775) or (b) Two Hundred Ninety Five Dollars ($295) per licensed bed at the Care Center. 3.1.4 EXTENDED TERMS. As of the commencement of each Lease Year during the Extended Terms, if any, Monthly Rent shall be increased by two percent (2%) of the Monthly Rent in effect immediately prior to the adjustment, subject to not exceeding one hundred two percent (102%) of such immediately preceding rate per licensed bed on the Premises. 3.1.5 PERIODIC ADJUSTMENT OF MONTHLY RENT. Notwithstanding SECTION 3.1.1 through SECTION 3.1.4 above, Monthly Rent shall be adjusted on a monthly basis throughout the Term if and to the extent there are any capacity adjustments to the licensed beds made by the Centers for Medicare and Medicaid Services ("CMS"). In the event of such a capacity adjustment, the Monthly Rent for the Premises shall be adjusted downward by an amount equal to (a) the Monthly Rent in effect immediately prior to the adjustment multiplied by (b) a fraction, (i) the numerator of which shall be the number of licensed beds as of the Commencement Date less the number of licensed beds lost in capacity due to such CMS requirement, and (ii) the denominator of which shall be the number of licensed beds as of the Commencement Date. 3.1.6 GENERAL PROVISIONS. Monthly rent shall be payable in advance on the first day of each calendar month of the Term, without deduction, offset, prior notice or demand, and in lawful money of the United States of America. If Tenant's obligation to pay monthly rent does not commence on the first day of a calendar month, Tenant shall pay to Landlord on the date when Tenant's obligation arises, a portion of the monthly rent for such month, prorated on a daily basis. When monthly rent changes during the Term as provided herein, and if a change occurs on a date other than the first day of a month, the monthly rent for the month in which the change takes effect shall be prorated between the monthly rent in effect before the change and the amount of monthly rent after the change. Rent shall be deemed paid when received by Landlord. 3.1.7 LEASE YEAR. The phrase "Lease Year" as used in this Lease is a period of twelve (12) full months during the Term, with the first Lease Year commencing on the date the Initial Term commences. 3.2 TAXES. 3.2.1 PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes, assessments, license fees and other charges that are levied and assessed on or as a result of Tenant's personal property, alterations, Tenant's Improvements and/or Tenant's Trade - 4 - Fixtures (as such terms are defined in SECTION 19.4). Tenant shall furnish Landlord with satisfactory evidence of these payments from time to time upon request from Landlord. 3.2.2 REAL PROPERTY TAXES. In addition to all other sums payable under this Lease, Tenant shall pay, promptly when due and otherwise in the manner and at the times set forth in this section, Real Property Taxes (as defined below) levied and assessed against the Premises (land and improvements) during the Term. Notwithstanding any contrary provision set forth in this section, Tenant shall not be responsible for the payment of Real Property Taxes assessed or imposed on a particular Care Center or Office Building if Tenant elects to terminate its rights and obligations relating to such Care Center or Office Building pursuant to the terms of this Lease. (a) DEFINITION OF REAL PROPERTY TAXES. The term "Real Property Taxes" as used in this Lease shall mean and include all taxes, assessments and other governmental charges, general and special, including, without limitation, assessments for public improvements or benefits, which shall, during the Term, be assessed, levied and imposed upon the land and improvements that comprise the Premises. Real Property Taxes shall also include, without limitation, any tax, fee or excise levied, assessed and/or based on rent, on the square footage of the Premises, on the act of entering into leases, on the occupancy of space in the Premises, on the receipt of rents, and any other tax, fee or excise, however described, in substitution for or in addition to Real Property Taxes, including, without limitation, a so-called value added tax; provided, however, Real Property Taxes shall not include any municipal, county, state or federal income or franchise taxes of Landlord, any excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes or other taxes to the extent applicable to Landlord's general or net income, or any transfer taxes of Landlord in connection with the sale or other transfer of the Premises to a third party. With respect to any assessment which may be levied against or upon the Premises and which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, there shall be included within the definition of Real Property Taxes with respect to any tax fiscal year only the current installments (including both principal and interest) for such tax fiscal year. In addition, in the event of any sale or change in ownership of the Premises occurring at any time prior to the expiration of the Initial Term, and as a direct result of which the Premises are reassessed for real estate tax purposes, the amount of the additional real estate taxes resulting from such reassessment shall be excluded from Real Property Taxes payable by Tenant hereunder. (b) TAX CONTEST. Tenant shall have the right, in Tenant's or Landlord's name, but at Tenant's sole cost and expense, to contest the validity of any tax or assessment by appropriate proceedings timely instituted; provided (a) Tenant gives Landlord written notice of Tenant's intention to do so at least ten (10) days prior to the delinquency thereof, and (b) Tenant diligently prosecutes any such contest, at all times effectively stays or prevents any official or judicial sale of the Premises, under execution or otherwise, pays any final judgment enforcing any tax or assessment so contested, and promptly procures record satisfaction thereof. Landlord shall, if requested by Tenant, cooperate with Tenant in any such proceedings; provided, however, that Landlord shall not be liable for any expenses whatsoever in connection therewith, and Tenant shall protect and indemnify Landlord against all loss, cost, expense, attorneys' fees or damages resulting therefrom. - 5 - (c) PAYMENTS. During each tax fiscal year, Landlord shall notify Tenant of the total Real Property Taxes, and with such notification Landlord shall provide Tenant with a copy of the current tax bill. Tenant shall pay the Real Property Taxes semiannually, no later than each delinquency date (i.e., April 10 and December 10), provided that Landlord has supplied the notification of such taxes as set forth above at least ten (10) business days prior to such due date, and concurrently therewith furnish Landlord with a copy of Tenant's checks used in such payment. (d) PRORATION OF TENANT'S LIABILITY. Tenant's liability to pay the Real Property Taxes shall be prorated on the basis of a three hundred sixty five (365) day year to account for any fractional portion of a tax fiscal year included in the Term at its commencement or expiration. 3.2.3 TRANSFER TAXES ON LEASE. If any governmental authority levies, assesses and/or imposes on Landlord a transfer tax as a result of this Lease, Landlord shall pay such tax directly to the governmental authority. 3.3 UTILITIES AND OTHER CHARGES. 3.3.1 PAYMENT OF UTILITIES AND SERVICES. Tenant shall promptly pay all charges for heat, water, gas, electricity, telephone, sewage, air conditioning, ventilating, refuse and any other utilities, services and materials used or consumed by Tenant on the Premises. 3.3.2 INTERRUPTION OF UTILITY SERVICES. Landlord shall not be liable to Tenant in damages or otherwise (a) if any utility becomes unavailable from any public utility company, public authority or any other person or entity supplying or distributing such utility unless due to Landlord's negligence or willful misconduct; or (b) for any disruption in any utility services caused by the making of any repairs or improvements or by any other cause unless due to Landlord's negligence or willful misconduct, and such interruption (subject to such exemption) shall not constitute a termination of this Lease or an eviction of Tenant, and/or give Tenant the right to reduce or abate Rent or other sums payable hereunder. In the event of any interruption in utility services or other interference in Tenant's full use of the Premises for a period of more than one hundred and eighty (180) days resulting from Landlord's negligence or willful misconduct, in addition to and without limiting Tenant's other legal or equitable remedies, the rent payable by Tenant hereunder shall be abated until such utilities are fully reinstated or such other interference or breach is cured. 3.3.3 POSSIBLE RATIONING. Tenant acknowledges that the Premises may become subject to the rationing of utility services or restrictions on use by utility providers and/or governmental agencies. Notwithstanding any such rationing or restrictions on use of any such utility services, Tenant acknowledges and agrees that its tenancy and occupancy hereunder shall be subject to such rationing restrictions as are now or which may be imposed upon Landlord, Tenant or the Premises, and Tenant shall in no event be excused or relieved from any covenant or obligation to be kept or performed by Tenant by reason of any such rationing or restrictions. Tenant shall comply with any restrictions reasonably imposed by any empowered utility provider or governmental authority that directly arise from any such rationing. - 6 - Notwithstanding the foregoing, Landlord represents that it does not know of any currently applicable or pending rationing of utility services or similar restrictions. 3.4 LATE CHARGES; INTEREST. 3.4.1 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of Rent due from Tenant shall not be received by Landlord within three (3) days after receipt by Tenant of a notice of non-payment from Landlord, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount, and Tenant hereby agrees that such late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of its other rights and remedies. 3.4.2 INTEREST. In addition to the late charges provided in SECTION 3.4.1, any Rent not paid on the date such Rent is due as provided in this Lease shall bear interest from the due date until it is paid at a rate equal to the lower of the highest legal rate then permissible or eighteen percent (18%) per annum. Payment of any late charges and/or interest as called for herein shall not, however, excuse or cure any breach or default in payment of Monthly Rent or other Rent amounts, or any other performance by Tenant hereunder, and Landlord shall remain entitled to availability of all other remedies at law or under equity, including, if applicable, termination of this Lease and eviction. 3.5 RENT. Except as otherwise specifically provided "Rent" refers not only to Monthly Rent but also to all other sums payable by Tenant under this Lease. 3.6 SECURITY DEPOSIT. Concurrently with the execution of this Lease, Tenant has paid to Landlord the aggregate sum of One Hundred Eighty Nine Thousand Seven Hundred Fifty Dollars ($189,750) as a security deposit (the "Security Deposit") for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the Term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of Monthly Rent and any of the monetary sums due hereunder, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Security Deposit. Within a reasonable time following the expiration or earlier termination of this Lease and after Tenant has vacated the Premises, the Security Deposit or any unapplied balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder); provided, however, that Landlord may withhold therefrom the amount necessary to cure any then uncured default by Tenant under - 7 - this Lease. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer the Security Deposit to Landlord's successor in interest, whereupon Tenant agrees to release Landlord from liability for the return of the Security Deposit or the accounting therefor. Tenant hereby waives the protection of Section 1950.7 of the California Civil Code. 4. USE. 4.1 AUTHORIZED USE. Tenant shall use each Care Center solely for the purpose of the operation of a skilled nursing facility, including without limitation all uses incidental to the operation of such skilled nursing facility, and the Office Building solely for business offices, and for no other purpose or use. Tenant shall actively and continuously operate the Premises for such purposes throughout the Term in keeping with prudent industry practices and all applicable Laws (as defined below). Landlord agrees, at no cost or expense to itself, to assist and cooperate with Tenant in Tenant's obtaining any required permits for such use. 4.2 ADDITIONAL COVENANTS OF TENANT. 4.2.1 LAWS, STATUTES. Tenant shall, at Tenant's sole cost, promptly comply with all laws, statutes, ordinances, regulations, guidelines or requirements (collectively "Laws") now in force or hereafter enacted, whether or not foreseen and/or anticipated as of the date when this Lease is executed, of any governmental authority having jurisdiction over the Premises, boards of insurance underwriters, utility companies serving the Premises, boards or agencies regulating health care and business operations at the Premises; other similar bodies now or hereafter constituted, relating to or affecting Tenant's business at the Premises and/or the condition, use or occupancy of the Premises by Tenant. It is the specific intention of the parties that Tenant shall, except as otherwise provided herein, be obligated to make, at Tenant's cost, all alterations, improvements and/or repairs to the Premises required by any such Laws when during the Term such alterations, improvements and/or repairs are required to be made, which do not exceed an aggregate of One Hundred Thousand Dollars ($100,000) in any individual Lease Year. All alterations, improvements and/or repairs to the Premises required by any such Laws that exceed One Hundred Thousand Dollars ($100,000) in any Lease Year shall be made by Landlord, at Landlord's cost. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any of the foregoing shall be conclusive of that fact between Landlord and Tenant. Tenant shall immediately furnish Landlord with a copy of any notices received from any governmental agency, insurance company, regulatory board or agency or inspection bureau in connection with the Premises. Notwithstanding the foregoing, Landlord represents that it does not know of any conditions of the Premises that are not in current legal compliance under the Laws. 4.2.2 FIRE HAZARDS. Tenant shall not cause, maintain or permit anything to be done in the Premises nor keep or permit to be kept anything in the Premises which is prohibited by any insurance company providing coverage for the Premises or which will, in the opinion of Landlord, increase the possibility of fire or other casualty or increase the then existing premiums for or void the coverage of any insurance upon the Premises or contents of the Premises. - 8 - 4.2.3 PROHIBITED USES. Tenant shall not use the Premises for or carry on or permit in or upon the Premises, or any part thereof, any offensive, noisy or dangerous trade, business, manufacture or occupation, or any nuisance, or anything against public policy. Tenant agrees to use best efforts not to cause, permit or suffer any waste, damage, disfigurement or injury to the Premises or to the fixtures or equipment thereon, and Tenant shall not permit or suffer any overloading of the floor and/or other parts of the Premises. 4.2.4 ELECTRICAL EQUIPMENT. Tenant shall not install, operate or maintain in the Premises any electrical equipment which does not bear the Underwriters Laboratory approval, or which equipment would overload any portion of the electrical system of the Premises. 4.3 SIGNS. Tenant, at Tenant's cost, shall erect and maintain on the exterior of the Premises only such sign or signs of the type, color, style, size and location permitted and approved by the City of Eureka and County of Humboldt. 4.4 ACCESS BY LANDLORD. Landlord reserves the right for Landlord and Landlord's Authorized Representatives or any of Landlord's lenders or their Authorized Representatives to enter the Premises at any reasonable time during business hours upon at least twenty-four (24) hours' prior advance notice (except that in the event of an emergency no notice shall be necessary) (a) to inspect the Premises; (b) to show the Premises to prospective lenders, purchasers or, during the last one hundred eighty (180) days of the then existing Term (unless Tenant has elected to renew the Term as permitted herein) tenants; (c) to install, maintain, repair, replace or relocate any pipe, duct, conduit, wire or equipment serving the Premises as long as same does not materially interfere with Tenant's business at the Premises (but only after first notifying Tenant and, if due to a failure by Tenant to maintain, replace or repair, only after first providing to Tenant a description of any repairs which Landlord intends to perform, along with a copy of any plans and specifications for such repairs); (d) to determine whether Tenant is complying with Tenant's obligations hereunder; (e) to perform any other obligation of Tenant after Tenant's failure to perform same within the period provided therefor, including any applicable cure period; or (f) upon default by Tenant under this Lease which is not cured within any applicable cure period. In addition, Landlord and Landlord's Authorized Representatives shall have the right from time to time to reasonably request Tenant to deliver to Landlord documentation and other evidence verifying such compliance with the Laws. If Landlord enters the Premises for the purposes set forth in items (c) or (e) of the first sentence of this SECTION 4.4, Landlord may erect scaffolding and store tools, material and equipment in the Premises when required by the character of the work to be performed. Notwithstanding the foregoing, Landlord shall not unreasonably interfere with Tenant's business at the Premises in exercising its rights under this SECTION 4.4, unless an emergency situation exists, and in all cases, Landlord's right of access to the Premises and requests for evidence verifying compliance with all applicable Laws shall be subject to any and all restrictions protecting the privacy of patients and confidential patient records and information, including without limitation the execution of any confidentiality or other agreements as may be required by law. 5. REPAIRS AND MAINTENANCE. - 9 - 5.1 LANDLORD'S REPAIR OBLIGATIONS. Landlord shall have no obligations to repair and/or maintain the Premises; notwithstanding the foregoing or any other term in this Lease to the contrary, Landlord shall repair any damage or injury to the Premises caused by the negligent acts or omissions of Landlord or Landlord's Authorized Representatives. If during the Term Landlord is required to repair any Care Center(s) and/or the Office Building pursuant to this SECTION 5.1, and such repairs interfere with the intended use of such Care Center(s) and/or the Office Building for a period of more than ninety (90) days, Tenant shall have the option to (a) terminate the Lease or (b) terminate Tenant's rights and responsibilities under this Lease relating only to the particular Care Center and/or Office Building affected by such repair without terminating the Lease. 5.2 TENANT'S REPAIR OBLIGATIONS. Subject to the casualty provisions of SECTION 7 and Landlord's obligations pursuant to SECTION 5.1, Tenant, at Tenant's cost, shall maintain (including making necessary repairs and replacement) the Premises in as good order, condition and repair as on the Commencement Date including, without limitation, the following: interior surfaces of walls and ceilings; exterior walls and roof; floors; wall and floor coverings; interior and exterior windows and plate glass; window coverings; doors; locks on closing devices; window casements and frames; storefronts; signs; awnings, canopies and display windows; plumbing and electrical systems serving the Premises (including replacement of light bulbs and tubes); exterior entrances; and all switches, fixtures and equipment in the Premises. Tenant shall, at Tenant's expense, immediately replace all broken or damaged glass with like-kind glass. Tenant shall at all times during the Term maintain (including making repairs and replacements) the parking areas within the Premises in good condition including, without limitation, sweeping, removal of litter and debris and restriping when necessary. In addition, Tenant shall repair (including making of required replacements) any damage or injury to other parts of the Premises caused by the acts or omission of Tenant or Tenant's Authorized Representatives. Notwithstanding the foregoing, Tenant shall not be responsible for the maintenance or repair of any Care Center(s) and/or Office Building Tenant has elected to terminate its rights and obligations relating to pursuant to the terms of this Lease. 5.3 SURRENDER. Upon the expiration or earlier termination of this Lease, or upon the exercise by Landlord of Landlord's right to reenter the Premises without terminating this Lease following a default by Tenant, Tenant shall surrender the Premises in as good condition and repair as on the Commencement Date, except for (a) ordinary wear and tear, and (b) casualty covered by SECTION 7. So long as Tenant is not in default under this Lease, Tenant shall have the right to remove from the Premises, and Landlord shall have the right to compel Tenant to remove exterior signs placed thereon or erected by Tenant, Tenant's Trade Fixtures placed on the Premises and/or other items of Tenant's personal property, as well as any or all non-structural improvements constructed thereon by Tenant. Tenant agrees to repair, at Tenant's cost, any damage or injury to the Premises resulting from the removal of any such items, including, without limitation, repairing the floor and patching and painting the walls where reasonably required by Landlord. 5.4 IMPROVEMENTS AND ALTERATIONS BY TENANT. 5.4.1 LANDLORD'S CONSENT REQUIRED. Subject to the exceptions and qualifications set forth in SECTION 5.4.4, Tenant shall not construct any improvements and/or - 10 - alterations to the Premises which include or affect any structural component of the Premises without Landlord's consent in accordance with the provisions of this section. If Tenant intends to construct any improvements and/or alterations ("Tenant's Improvements") to the Premises which require Landlord's consent hereunder, Tenant shall provide Landlord with complete plans and specifications covering the improvements and alterations ("Tenant's Plans"). Landlord shall approve or disapprove of Tenant's Plans within thirty (30) days of receipt thereof. If Landlord disapproves of Tenant's Plans, Landlord shall state with specificity the reason(s) for Landlord's disapproval. 5.4.2 CONDITIONS APPLICABLE TO TENANT'S WORK. The following provisions apply to the conduct of Tenant's work in connection with improvements and/or alterations to the Premises: (a) Prior to the commencement of Tenant's work, Tenant shall obtain all permits, approvals and authorization from governmental agencies having jurisdiction over Tenant's work, and Tenant shall deliver copies thereof to Landlord. (b) Tenant's contractors (which term includes all subcontractors) shall diligently perform Tenant's work in a first class, workmanlike manner. (c) Tenant's contractors shall be responsible for the repair, replacement and/or clean-up of any damage and/or injury to the Premises done by them. (d) All trash and surplus construction materials shall be properly stored and shall be promptly removed on a regular basis so as to avoid such material from accumulating. (e) Tenant and Tenant's contractors shall be responsible for compliance with all Laws (as defined in SECTION 4.2.1) applicable to the performance of Tenant's work. (f) Tenant shall notify Landlord of Tenant's intention to commence Tenant's work at least ten (10) days before commencement thereof, or delivery of any materials. Landlord shall have the right to post and maintain at the Premises notices of nonresponsibility provided for under applicable law. (g) If Tenant's work involves aggregate construction expense on a particular improvement or alteration project of One Hundred Thousand Dollars ($100,000) or more, Landlord shall have the right to require a performance and completion bond covering Tenant's work. The form, substance and amount of the bond, and the surety company issuing the bond, shall be subject to Landlord's approval. 5.4.3 TENANT'S CONTRACTORS. Tenant shall furnish Landlord with a true copy of Tenant's contract(s) with its general contractor(s) together with evidence of such contractors' financial condition and Tenant's ability to pay for the anticipated construction costs, and where the aggregate construction expense on a particular improvement or alteration project equals or exceeds One Hundred Thousand Dollars ($100,000), Tenant shall obtain Landlord's approval thereof, which approval shall not be unreasonably withheld or delayed. The contract(s) - 11 - shall give Landlord the right, but not the obligation, to assume Tenant's obligations and rights under the contract(s) with the general contractors if Tenant should default. The provisions of the preceding sentence shall be incorporated into the contract(s). 5.4.4 EXCEPTIONS. The preceding provisions of SECTION 5.4.1 and SECTION 5.4.3 to the contrary notwithstanding, Landlord's consent shall not be required for any interior nonstructural alterations at a particular Care Center or the Office Building that Tenant may make so long as the aggregate cost of such alterations does not exceed One Hundred Thousand Dollars ($100,000) during any Lease Year. The provisions of SECTION 5.4.2 shall be applicable to such alterations regardless of cost. 5.5 MECHANICS' LIENS. Tenant shall keep the Premises free from any liens arising out of work performed, materials furnished or obligations incurred at Tenant's cost by or on behalf of Tenant; provided, however, that Tenant shall have the right to contest the validity of any such lien if Tenant posts for the benefit of Landlord the statutory bond applicable to Tenant's contest of the lien issued by a company acceptable to Landlord. 6. INSURANCE. 6.1 INSURANCE REQUIRED OF TENANT. Tenant shall, at Tenant's cost, maintain in full force and effect at all times during the Term, and during any period of occupancy prior to the commencement of the Term, insurance coverages identical to those required of Landlord in the provisions (in which Landlord is referred to as "Trustee") attached as EXHIBIT B hereto, which Landlord represents and warrants are the insurance requirements to which it is subject under its outstanding loan from LTC Properties, Inc. ("LTC"). 6.2 CERTIFICATES OF INSURANCE. Tenant shall deliver to Landlord, at least three (3) business days before the Commencement Date and thereafter at least ten (10) days prior to the expiration of such policy, a Certificate of Insurance clearly showing compliance by Tenant with Tenant's obligations under this Lease for at least the succeeding twelve (12) months. Should Tenant fail to deliver such Certificate in a timely manner, Landlord may obtain insurance coverage required of Tenant under this Lease and Tenant shall promptly, on demand, reimburse Landlord for the cost thereof as additional Rent. 6.3 WAIVER OF SUBROGATION. The parties hereby release each other, and their respective Authorized Representatives, from any claims for damage and/or injury to the Premises, Tenant's Trade Fixtures, personal property, Tenant's Improvements and alterations of either Landlord or Tenant in or on the Premises that are caused by or result from risks insured against under any insurance policies required to be or actually carried by the parties and in force at the time of any such damage to the extent of the available insurance proceeds. Each party shall cause each casualty or property damage insurance policy carried by it to be written to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. 7. DESTRUCTION OF PREMISES. 7.1 HANDLING OF INSURANCE PROCEEDS. Subject to SECTION 7.4 hereof, all proceeds from any policy of insurance required by SECTION 6 of this Lease shall be paid to - 12 - Landlord and held in trust by Landlord (subject to the provisions of SECTION 7.6) and shall be made available for reconstruction, repair or replacement, as the case may be, of any damage to or destruction of all or any portion of the Premises to which such proceeds relate, and shall be paid out by Landlord from time to time subject to the provisions hereof for the cost of such reconstruction, repair or replacement. Any unused portion shall be retained by Landlord free and clear upon completion of such repair and restoration but shall be applied by Landlord against Tenant's obligations for Monthly Rent next coming due under this Lease. If neither Landlord nor Tenant is required or elects to repair and restore, then all such insurance proceeds shall be retained by Landlord. All salvage resulting form any risk covered by insurance shall belong to Landlord, except that any salvage relating to Tenant's personal property or Tenant's Trade Fixtures shall be the property of Tenant. 7.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY INSURANCE. 7.2.1 TOTAL OR SUBSTANTIALLY TOTAL DESTRUCTION. Except a provided in SECTION 7.5, if during the Term a portion or all of any of the Care Centers and/or the Office Building is totally or substantially destroyed by a risk covered by the insurance described in SECTION 6 so that such Care Center(s) and/or Office Building is thereby rendered unsuitable for its primary intended use under this Lease (taking into account all relevant factors, including but not limited to the number of useable beds, the amount of square footage reasonably available for use by Tenant and the type and amount of gross revenues lost) (the "Impacted Premises"), Tenant shall at its option (a) restore the Impacted Premises to substantially the same condition as existed immediately before the damage or destruction pursuant to the terms and conditions herein, (b) offer to purchase the Premises or the Impacted Premises (which will upon such purchase terminate Tenant's rights and responsibilities under this Lease relating to such Impacted Premises) at the then fair market value therefor, (c) terminate the Lease with respect to the Premises, or (d) terminate Tenant's rights and responsibilities under this Lease relating only to the Impacted Premises without terminating the Lease, effective upon Landlord's receipt of the insurance proceeds and any Shortfall (as hereinafter defined); and in such event Landlord shall be entitled to retain or collect for its own benefit the insurance proceeds; provided that, in the event the amount of the insurance proceeds received by Landlord is less than the amounts which would be payable in the aggregate under the insurance policies specified in SECTION 6, such termination shall not be effective until Tenant pays Landlord the amount of such shortfall ("Shortfall") in cash. 7.2.2 RESTORATION. If Tenant restores the Impacted Premises, the insurance proceeds shall be paid out by Landlord to tenant or its designee from time to time as reasonably requested by Tenant to pay for the reasonable costs of such restoration and any excess proceeds remaining after such restoration shall be retained by Tenant. 7.2.3 PARTIAL DESTRUCTION. Except as provided in SECTION 7.5, if during the Term, the Tenant's Improvements or Tenant's Trade Fixtures are partially destroyed due to a risk covered by the insurance described in SECTION 6 but the Impacted Premises are not thereby rendered unsuitable for their primary intended use (taking into account all relevant factors, including but not limited to the number of useable beds, the amount of square footage reasonably available for use by Tenant and the amount of gross revenues lost), Tenant shall be entitled to - 13 - restore the Impacted Premises to substantially the same condition as existed immediately before the damage or destruction and be reimbursed from the insurance proceeds. Such damage or destruction shall not terminate this Lease; provided, however, that if Tenant cannot, with reasonable diligence and within ninety (90) days, obtain all government approvals, including building permits, licenses, conditional use permits and any certificates of need, necessary to perform all required repair and restoration work and to operate the Impacted Premises in substantially the same manner and for the primary intended use, Tenant shall either (a) offer to purchase the Premises for the then fair market value thereof, (b) continue to operate under the Lease, which shall remain in full force and effect and Landlord shall be entitled to retain the insurance proceeds, less the amount needed to restore the Premises so that the portion of the Premises unaffected by the casualty can be used as a complete architectural unit; or (c) terminate the Lease. If Tenant shall make such offer and Landlord does not accept the same within one hundred twenty (120) days of Landlord's receipt of such offer, Tenant may either (a) withdraw such offer, in which case this Lease shall remain in full force and effect and Tenant shall proceed to restore the Impacted Premises as soon as reasonably practicable to substantially the same condition as existed immediately before such damage or destruction, or (b) terminate this Lease after recovery by Landlord of all insurance proceeds and the payment by Tenant of any Shortfall in cash. If Tenant so restores the Impacted Premises, insurance proceeds shall be paid out by Landlord form time to time as reasonably requested by Tenant to pay for the reasonable costs of such restoration, and any excess proceeds remaining after such restoration shall be retained by Tenant. 7.2.4 DETERMINATION OF FAIR MARKET VALUE. If Tenant offers to purchase the Premises, and the parties are unable to agree on the fair market value therefor, it shall be determined by arbitration in the same manner as Fair Market Value is to be determined as provided in the Option Agreement. 7.2.5 PAYMENT OF COSTS OF RESTORATION IN EXCESS OF INSURANCE PROCEEDS. If Tenant elects to repair or restore any damage or destruction to the Premises and the cost of any such repair or restoration exceeds the amount of proceeds received by Landlord from the insurance required under SECTION 6, Tenant shall contribute any and all excess amounts necessary to repair or restore the Premises so long as such amount does not exceed One Hundred Thousand Dollars ($100,000). In the event the excess amount necessary to repair or retire the Premises exceeds One Hundred Thousand Dollars ($100,000), Tenant shall have the option to (a) terminate the Lease, or (b) terminate its rights and responsibilities under this Lease relating only to the particular Care Center(s) and/or Office Building affected by such damage or destruction without terminating the Lease.. 7.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED BY INSURANCE. Except as provided in SECTION 7.5 below, if during the Term any or all of the Care Centers and/or the Office Building is totally destroyed or materially damaged (a) from a risk not covered by insurance described in SECTION 6 but that would have been covered if Tenant carried the insurance customarily maintained by, and generally available to, the operators of reputable facilities which are used for the primary intended use in the region in which the Premises are located (other than a risk of an earthquake), or (b) from a risk for which insurance coverage is voided due to any act or omission by Tenant, whether or not such damage or destruction renders the Impacted Premises unsuitable for their primary intended use (taking into - 14 - account all relevant factors, including but not limited to the number of useable beds, the amount of square footage reasonably available for use by Tenant and the amount of gross revenues lost), Tenant shall restore the Impacted Premises to substantially the same condition as existed immediately before such damage or destruction and not terminate this Lease. Otherwise, if any or all of the Care Centers and/or the Office Building is totally destroyed or materially damaged by a risk not covered by insurance such that the Care Center(s) and/or the Office Building shall be unusable for their primary intended use, except as provided below, this Lease shall terminate at the option of Tenant or Landlord within ninety (90) days of such destruction or damage; provided that Tenant may elect to (a) terminate its rights and responsibilities under this Lease relating only to the particular Care Center(s) and/or Office Building affected by such destruction or damage without terminating the Lease otherwise, or (b) restore the Impacted Premises, in which event this Lease shall continue in full force and effect. Upon Tenant's election under clause (a) of the preceding sentence, Landlord shall not have the right to terminate the entire Lease If such damage or destruction does not render the Impacted Premises unusable for its primary intended use, Tenant shall also restore the Impacted Premises to substantially the same condition as existed immediately before the damage or destruction. 7.4 PAYMENT OF PROCEEDS ON TENANT'S TRADE FIXTURES AND TENANT'S IMPROVEMENTS. Notwithstanding any provision herein, all insurance proceeds payable by reason of any loss or damage to any of Tenant's Trade Fixtures or Tenant's Improvements shall be paid to Tenant and Tenant shall hold such insurance in trust to pay the cost of repairing or replacing damaged Tenant's Trade Fixtures or Tenant's Improvements; provided, however, that if the damaged Tenant's Trade Fixtures or Tenant's Improvements were no longer necessary to Tenant's operations prior to their destruction, Tenant shall not be obligated to repair or replace them. 7.5 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of this section to the contrary, if damage to or destruction of any or all Care Centers and/or the Office Building occurs during the last twelve (12) months of the then applicable Term (whether the Initial Term, the First Extended Term, the Second Extended Term or the Third Extended Term), if Tenant has not elected or has no right to extend such Term, and if such damage or destruction cannot be fully repaired and restored within six (6) months immediately following the date of loss, then Tenant shall have the right to terminate this Lease by giving written Notice thereof to Landlord within thirty (30) days after the date of such damage or destruction, or terminate its rights and responsibilities under this Lease relating only to the particular Care Center(s) and/or Office Building affected by such damage or destruction without terminating the Lease. In either event, Landlord shall collect any insurance proceeds to which it is entitled, and Tenant shall assign Tenant's rights in any additional insurance proceeds. In the event that any or all Care Centers and/or the Office Building is totally destroyed or damaged (a) from a risk not covered by insurance described in SECTION 6 but that would have been covered if Tenant carried the insurance customarily maintained by and generally available to the operators of reputable facilities which are used for the primary intended use in the region in which the Premises are located (other than a risk of an earthquake), or (b) from a risk for which insurance coverage is voided due to any act or omission by Tenant, whether or not such damage or destruction renders such Care Center(s) and/or the Office Building unsuitable for its primary intended use (taking into account all relevant factors, including but not limited to the number of useable beds, the amount of square footage reasonably available for use by Tenant and the amount of gross - 15 - revenues lost), then Tenant shall pay to Landlord a sum equal to the amount reasonably necessary to repair such damage or destruction. 7.6 TERMINATION OF OPTION TO PURCHASE. Any termination of this Lease pursuant to this section shall cause any option to purchase the Premises granted to Tenant under the Option Agreement to terminate, and thereafter to be null and void. 7.7 NO ABATEMENT OR REDUCTION OF RENT. There shall be no abatement or reduction of Rent as a result of any damage or destruction of the Premises, except if due to Landlord's negligence or willful misconduct, in which case Rent shall be abated proportionately to the degree to which such damage or destruction impairs Tenant's use of the Premises, commencing with the date of such damage or destruction and continuing during the period of repair, reconstruction and restoration. 7.8 INAPPLICABILITY OF CIVIL CODE SECTIONS. The provisions of California Civil Code Sections 1932(2) and 1933(4), and any successor statutes, are inapplicable with respect to any destruction of the Premises, such sections providing that a lease terminates upon the destruction of the Premises unless otherwise agreed between the parties to the contrary. 8. CONDEMNATION. 8.1 DEFINITIONS. "Condemnation" means (a) the exercise of any governmental power of eminent domain, whether by legal proceedings or otherwise, by a condemnor; and (b) a voluntary sale or transfer by Landlord to any condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. The word "taking" as used herein shall be synonymous with the word "condemnation" as defined herein. "Date of taking" means the date the condemnor has the right to possession of the property being condemned. "Award" means all compensation, sums, or anything of value awarded, paid, or received on a total or partial condemnation. "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of condemnation. 8.2 EFFECT ON LEASE. If there is a taking of all the Premises, or part of the Premises so that the remaining part of the Premises is rendered unsuitable for Tenant's continued use of the Premises, either party shall have the election to terminate this Lease upon the date of taking. The election to terminate this Lease as provided herein shall be exercised, if at all, within sixty (60) days after the taking; otherwise, this Lease shall remain in full force and effect. Notwithstanding the foregoing, if the taking does not affect all Care Centers and the Office Building, then Tenant shall have the option to terminate it's rights and responsibilities under this Lease relating only to the particular Care Center(s) and/or Office Building affected by such taking without terminating the Lease. 8.3 AWARD; DISTRIBUTION. The award shall belong to and be paid to Landlord; however, Tenant shall receive from the award a sum attributable to the then unamortized cost of Tenant's Trade Fixtures and Tenant's Improvements which have become part of the realty and which Tenant has a right to remove as provided in this Lease but elects not to remove, if a separate award is made for Tenant's Trade Fixtures and Tenant's Improvements. In addition, Tenant shall have the right to seek from the condemnor an independent award for the value of - 16 - the loss of Tenant's business at the Premises (including, without limitation, relocation assistance) provided such award for loss of Tenant's business does not diminish the award that Landlord is entitled to receive under this section. The parties agree that under no circumstances shall Tenant be entitled to any award based upon so-called bonus value in this Lease, either directly and/or indirectly as an element of goodwill, and Tenant assigns to Landlord any right Tenant has to such bonus value. The phrase "bonus value" refers to the excess, if any, of the fair rental value of the Premises over the actual Rent and other sums payable by Tenant under this Lease. Landlord agrees to utilize so much of the remainder of the award as may be necessary to restore the remaining Premises and render them usable by Tenant in the event of a partial taking. 8.4 INAPPLICABILITY OF CODE SECTION. The provisions of California Code of Civil Procedure Section 1265.130, and any successor statute, are inapplicable, which section allows either party to petition the Superior Court to terminate this Lease in the event of condemnation. 9. ASSIGNMENT AND SUBLETTING. 9.1 DEFINITION OF ASSIGNMENT. The use of the words "assignment," "assign," "assigned," "subletting" or "sublet" and any derivations thereof in this SECTION 9 shall include, without limitation (a) the pledging, mortgaging or encumbering of Tenant's interest in this Lease or the Premises or any part thereof; (b) the total or partial occupation of all or any part of the Premises by any person, firm, partnership or corporation or any groups of persons, firms, partnerships or corporations, or any combination thereof, other than Tenant and the residents of the Care Centers; (c) an assignment or transfer by operation of law; and (d) a transfer by sale, assignment, bequest, inheritance, operation of law or other disposition, or by subscription, of any part or all of the equity ownership of Tenant so as to result in any change in the present effective voting control of Tenant (i.e., fifty percent (50%) or more) by the party or parties holding such voting control on the date of this Lease. 9.2 LANDLORD'S CONSENT. Subject to the provisions of this SECTION 9, Tenant shall not assign this Lease or sublet all or any portion of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld provided the requirements of this SECTION 9 are satisfied in full. If consent to any assignment or subletting is given by Landlord, such consent shall not relieve Tenant or any guarantor of this Lease from any obligation or liability under this Lease, nor shall such consent constitute a waiver of the provisions of this SECTION 9 with respect to any future assignment or subletting. Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any one or more of the following situations exist or may exist: 9.2.1 In Landlord's reasonable business judgment, the proposed assignee or subtenant lacks sufficient business experience to operate a successful business at the Premises. 9.2.2 In Landlord's reasonable business judgment, the present net worth of the proposed assignee or subtenant is inadequate. 9.2.3 The proposed assignment or subletting would breach any covenant of Landlord in any other lease, financing agreement, or other agreement relating to the Premises. - 17 - 9.2.4 The assignee or subtenant requires any material change or changes to the provisions of this Lease. 9.3 PROCEDURES. Should Tenant desire to enter into an assignment of this Lease or to sublease all or part of the Premises, Tenant shall give notice thereof to Landlord by requesting in writing Landlord's consent to such transaction at least thirty (30) days before the proposed effective date of any such transaction and shall provide Landlord with each of the following: 9.3.1 The full particulars of the proposed transaction, including its nature, effective date, terms and conditions, and copies of any offers, draft agreements, subleases, letters of commitment or intent, and other documents pertaining to such proposed transaction. 9.3.2 A description of the identity, net worth and previous business experience of the proposed assignee or subtenant, including, without limitation, copies of the latest income, balance sheet and change of financial position statements (with accompanying notes and disclosures of all material changes thereto) in audited form, if available, and certified as accurate by the proposed assignee or subtenant. 9.3.3 Any further information relevant to the transaction that Landlord shall have reasonably requested within fifteen (15) days following receipt of Tenant's request for consent. 9.3.4 Within ten (10) days after receipt of Tenant's request for consent and the materials required by this SECTION 9.3, Landlord shall have the election to (a) consent to the assignment or subletting; or (b) refuse to consent to the assignment or subletting as allowed herein and stating the reasons therefore. If Landlord fails or refuses to consent or refuse its consent within such ten- (10-) day period, Landlord shall be deemed to have consented to such assignment or subletting. 9.4 EXCEPTIONS. Notwithstanding the foregoing, Tenant shall be entitled, without Landlord's approval and subject only to providing written notice and verification to Landlord, to assign or sublease the Premises to any Affiliate of Tenant or to any party which acquires substantially all of the business or assets of Tenant, it being understand that any such assignment or sublease shall not release Tenant of its obligations hereunder. 9.5 SCOPE. If this Lease is assigned, or the Premises or any part thereof is sublet or occupied by anyone other than Tenant (or residents of the Care Centers), Landlord may collect Rent and other sums payable from the assignee, subtenant or occupant and apply the net amount collected to the Rent and other sums payable under this Lease. 9.6 DOCUMENTATION AND EXPENSES. Any assignment or sublease to which Landlord has consented or for which consent is not required shall be evidenced by an instrument made in such written form as is reasonably satisfactory to Landlord and executed by Tenant and the assignee or subtenant. By such instrument, in the event of an assignment, the assignee shall assume for the direct benefit of Landlord the terms, covenants and conditions of this Lease that are the obligations of Tenant. Notwithstanding any permitted assignment or subletting, Tenant - 18 - and any guarantors shall remain fully liable for the performance of the Tenant's obligations under this Lease. Tenant shall, on demand of Landlord, pay to Landlord the amount of Eight Hundred Fifty Dollars ($850) (adjusted by a percentage equal to the percentage increase in the Cost of Living Index from the Commencement Date) to reimburse the reasonable legal fees incurred by Landlord in obtaining advice and preparing documentation in connection with any proposed assignment or subletting, whether or not Landlord's consent is given. 10. DEFAULT; REMEDIES. 10.1 DEFAULTS BY TENANT. The occurrence of any of the following shall constitute an event of default under this Lease by Tenant: 10.1.1 Any failure by Tenant to pay Rent and other sums payable hereunder when due, if the failure continues for five (5) business days after notice has been given by Landlord to Tenant. 10.1.2 Any failure by Tenant to observe and perform any other provisions of this Lease to be observed and performed by Tenant, where such failure is curable and continues uncured for thirty (30) days after notice by Landlord to Tenant, provided that, if the nature of the failure is such that it cannot be reasonably cured within thirty (30) days, Tenant shall not be deemed in default if it shall commence curing the failure within such thirty- (30-) day period and diligently prosecutes same to completion. 10.1.3 The abandonment or vacating of any of the Care Centers or the Office Building (absence from the Care Center or Office Building or Tenant's ceasing to do business from any of the Care Centers for ten (10) consecutive days or more) shall conclusively be deemed an abandonment or vacating of the Premises). 10.1.4 Tenant's interest in this Lease or in all or a part of the Premises is taken by process of law directed against Tenant (other than condemnation or other governmental taking), or becomes subject to any attachment at the instance of any creditor of or claimant against Tenant, and such attachment is not discharged within ninety (90) days. 10.1.5 Tenant or any guarantor of Tenant's obligations under this Lease (a) is unable to pay such party's debts generally as they become due; (b) makes an assignment of all or a substantial part of such party's property for the benefit of creditors; (c) convenes or attends a meeting of such party's creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or consolidation of such party's debts; (d) applies for or consents to or acquiesces to the appointment of a receiver, trustee, liquidator or custodian of such party or of all or a substantial part of such party's property or of the Premises or of Tenant's interest in this Lease; or (e) files a voluntary petition in bankruptcy or a petition or an answer seeking reorganization under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors or an arrangement with creditors, or takes advantage of any insolvency law or files an answer admitting the material allegations of a petition filed against such party in any bankruptcy, relief, reorganization or insolvency proceedings. 10.1.6 The entry of a court order, judgment or decree against Tenant or the guarantor of Tenant's obligations under this Lease without the application, approval or - 19 - consent of such party, approving a petition seeking reorganization of such party or relief of debtors under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors or granting an order for relief against it as debtor or appointing a receiver, trustee, liquidator or custodian of such party or of all or a substantial part of such party's property or of the Premises or of Tenant's interest in this Lease, or adjudicating such party bankrupt or insolvent, and such order, judgment or decree will not be vacated, set aside or dismissed within thirty (30) days from the date of entry. 10.1.7 Failure by Tenant to observe and perform any material provisions of this Lease to be observed and performed by Tenant, where such failure is not curable. 10.1.8 The occurrence of an event of default or breach by Tenant under any other agreement or lease between Landlord and Tenant, or between Tenant and THOMAS E. SUTTON, SANDRA A. SUTTON and/or the SUTTON FAMILY LIVING TRUST, where under the terms of such agreement or lease there is no period provided for the cure of such default or breach, or if a cure period is provided thereunder, then the expiration of such cure period without Tenant's having effected such cure. 10.1.9 The occurrence of an event of default or breach by Tenant under any instrument evidencing the subordination of this Lease to any deed of trust in favor of LTC or any default by Tenant under any other agreement or instrument required by LTC as a condition to LTC's consenting to the terms of this Lease, where under the terms of such agreement or instrument there is no period provided for the cure of such default or breach, or if a cure period is provided thereunder, then the expiration of such cure period without Tenant's having effected such cure. The notices required under this SECTION 10.1 are the only notices required to be given by Landlord to Tenant in the event of Tenant's default and are not in addition to any statutory notices otherwise required by the unlawful detainer statutes of California. 10.2 TERMINATION OF LEASE AND REMEDIES. If an event of default by Tenant occurs, then, in addition to any and all other rights and remedies available to Landlord at law or in equity, Landlord shall have the right to immediately terminate this Lease and all rights of Tenant hereunder by giving written notice to Tenant of such election by Landlord. If Landlord shall elect to terminate this Lease, then it may recover all of the following from Tenant as provided by California law: 10.2.1 The worth at the time of the award of any unpaid Rent that had been earned at the time of termination. 10.2.2 The worth at the time of the award of the amount by which the unpaid Rent that would have been earned after termination until the time of the award exceeds the amount of the loss of such Rent that Tenant proves could have been reasonably avoided. 10.2.3 The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of the award exceeds the amount of the loss of such Rent that Tenant proves could have been reasonably avoided. - 20 - 10.2.4 Any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's default or which in the ordinary course of things would be likely to result therefrom. 10.2.5 At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. As used in SECTION 10.2.1 and SECTION 10.2.2 above, the "worth at the time of the award" is computed by allowing interest at the rate of interest as provided in SECTION 3.6.2. As used in SECTION 10.2.3 above, the "worth at the time of the award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). 10.3 RIGHT OF REENTRY. In the event of any default by Tenant, Landlord shall also have the right to the extent consistent with applicable Laws and available protections for the residents of the Care Centers, with or without terminating this Lease, to reenter the Premises and remove all property and persons therefrom, and any such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant. 10.4 LEASE NOT TERMINATED. If Landlord has not elected to terminate this Lease upon Tenant's default as permitted by SECTION 10.2, Landlord may either recover all Rent and other sums payable hereunder as it becomes due or relet the Premises or any part or parts thereof for such term or terms and upon such provisions as Landlord, in its sole judgment, may deem advisable, and Landlord shall have the right to make repairs and alterations to the Premises. No re-entry or taking possession of the Premises by Landlord under SECTION 10.3 shall be construed as an election to terminate this Lease unless a written notice of such termination is given to Tenant or unless the termination thereof be adjudged by a court of competent jurisdiction. 10.5 ELECTION TO RELET. If Landlord shall elect to relet the Premises as provided in SECTION 10.4, the rentals received by Landlord from such reletting shall be applied as follows: 10.5.1 To the payment of any indebtedness other than Rent due under this Lease from Tenant. 10.5.2 To the payment of all costs and expenses incurred by Landlord in connection with such reletting. 10.5.3 To the payment of the costs of any alterations or any repairs to the Premises. 10.5.4 To the payment of Rent and other sums due and unpaid under this Lease, and the residue, if any, shall be held by Landlord and applied in payment of future Rent as the same may become due and payable hereunder. In no event shall Tenant be entitled to any excess Rent received by Landlord over and above that which Tenant is obligated to pay under this Lease. Should that portion of such rentals received from such reletting during any month which is applied to the payment of Rent and other sums payable hereunder be less than the Rent payable under this Lease during that month by Tenant, then Tenant shall pay such deficiency to - 21 - Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay Landlord, as soon as ascertained and upon demand, all costs and expenses incurred by Landlord in connection with such reletting efforts and in making any such alterations and repairs that are not covered by the Rents received from reletting. Notwithstanding any reletting without termination by Landlord because of Tenant's default, Landlord may at any time after such reletting elect to terminate this Lease because of such default. 10.6 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS. Landlord, at any time after Tenant commits an act of default and any applicable cure period therefor as provided herein has expired, upon ten (10) days' notice, or a shorter period in an emergency situation, may cure the act of default for the account and at the expense of Tenant (but only after first notifying Tenant and, if the default concerns a failure by Tenant to maintain, replace or repair, only after first providing to Tenant a description of any repairs which Landlord intends to perform, along with a copy of any plans and specifications for such repairs). Except in an emergency, Landlord shall provide Tenant with a full description of Landlord's planned action, for Tenant's prompt comments. If Landlord at any time, by reason of an act of Tenant's default, is compelled to pay, or elects to pay, any sum of money or to do any act that will incur the payment of any sum of money, or is compelled to incur any expense, including reasonable attorneys' fees in instituting, prosecuting or defending any actions or proceedings to enforce Landlord's rights under this Lease, the sum or sums paid by Landlord (together with interest accruing until paid at the rate of interest as provided in SECTION 3.6.2(A), in addition to all other costs and damages and shall be due from Tenant to Landlord immediately upon receipt of written demand as additional Rent. 10.7 REMEDIES CUMULATIVE. All rights and remedies of Landlord under this Lease shall be nonexclusive of and in addition to any other remedy available to Landlord at law or in equity. 10.8 ATTORNEYS' FEES. In the event of any legal action arising out of this Lease, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to other relief to which such party is entitled. 10.9 WAIVER. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed and any waiver of the breach of any covenant, term or condition shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant, term or condition. Acceptance by Landlord of any performance by Tenant after the time the same was due shall not constitute a waiver by Landlord of the breach or default of any covenant, term or condition unless otherwise expressly agreed to by Landlord in writing. 11. ESTOPPEL CERTIFICATES. Either party shall, from time to time, within ten (10) days after receipt of a request from the other party or any lender of the other party, execute, acknowledge and deliver to the other party or such lender either a statement in writing or a three party agreement among the requesting party, the responding party and such lender, in reasonable and customary form, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which Rent and other sums are paid in advance, if any; (b) acknowledging that there are not, to the responding party's knowledge, any uncured defaults - 22 - on the part of the other party under this Lease, or specifying such defaults if any are claimed; and (c) specifying any further information and agreeing to such notice provisions and other matters reasonably requested by the requesting party or such lender. Any such statement may be conclusively relied upon by a prospective purchaser or lender of the Premises. A party's failure to deliver such statement within ten (10) days will constitute a default under this Lease. 12. SUBORDINATION AND ATTORNMENT. Subject to and on the condition that the mortgagee, deed of trust beneficiary, trustee or ground lessor consents to honor and refrain from disturbing Tenant's tenancy in the absence of a breach or default (which, if curable hereunder, is not cured within the applicable period therefore) (a "covenant of nondisturbance"), this Lease is and shall be subject and subordinate to all ground or underlying leases which may hereafter be executed affecting the Premises and to the lien and provisions of any mortgages or deeds of trust hereafter placed against the Premises or against Landlord's interest or estate in the Premises or on or against any ground or underlying lease, and any renewals, modifications, consolidations and extensions of such lease, without the necessity of the execution and delivery of any further instruments on the part of Tenant to effect such subordination. If any mortgagee, deed of trust, beneficiary, trustee or ground lessor elects to have this Lease prior to the lien of such mortgagee's, beneficiary's, trustee's or ground lessor's mortgage or deed of trust or ground lease, and gives notice of such election to Tenant, this Lease shall be deemed prior to the lien of such mortgage or deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of such mortgage, deed of trust, or ground lease, or the date of the recording thereof. Tenant shall execute and deliver, within ten (10) days of request from Landlord, such further instruments evidencing the subordination of this Lease to any ground or underlying lease, and to any mortgage or deed of trust, provided such instrument shall provide that as long as Tenant is not in default of this Lease, Tenant's possession of the Premises shall not be affected by any foreclosure proceedings or ground lease termination. In the event any proceedings are brought for default under any ground or underlying lease or in the event of foreclosure or the exercise of the power of sale under any mortgage or deed of trust against the Premises, Tenant shall, upon request of any person or party succeeding to the interest of Landlord as a result of such proceedings, attorn to such successor in interest and recognize such successor in interest as Landlord under this Lease on the condition that such successor-in-interest enters into a covenant of nondisturbance. 13. LANDLORD'S INTEREST. 13.1 NOTICE TO LENDER. If Landlord defaults under this Lease, (a) Tenant shall give notice of such default (specifying the exact nature of such default and how such default may be cured) to Landlord and to any lessor under a ground lease or any lender of the Premises who has notified Tenant prior to such time of default of such lessor's or lender's interest in the Premises and mailing address, and (b) Landlord and/or such lessor and/or lender shall have the right to cure, or to cause to be cured, such default within thirty (30) days after Landlord's or such lessor's or lender's, as the case may be, receipt of notice; provided, if the nature of the default is such that it cannot reasonably be cured within such thirty (30) day period, Landlord shall not be deemed to be in default if Landlord and/or such lessor and/or lender shall within the thirty (30) day period commence curing the default and thereafter diligently prosecute the same to completion. However, if such default cannot reasonably be cured within or is not cured within - 23 - one hundred eighty (180) days after Landlord's or such lessor's or lender's receipt of notice, then Tenant, by written notice to Landlord, may terminate this Lease. 13.2 SALE OF THE PREMISES. The term "Landlord" shall mean only the owner at the time in question of the fee title or a tenant's interest in a ground lease of the Premises. The obligations contained in this Lease to be performed by Landlord shall be binding on Landlord and Landlord's successors and assigns only during their respective periods of ownership. In the event of a sale of the Premises or assignment of this Lease by Landlord, Landlord shall be released from any liability thereafter accruing under this Lease. Tenant shall, upon the written request of any person or party succeeding to the interest of Landlord, attorn to such successor in interest and recognize such successor in interest as Landlord under this Lease, provided that such successor assumes Landlord's obligations under this Lease and agrees to respect Tenant's rights to occupancy and nondisturbance in the absence of a breach or default by Tenant (which, if subject to a cure period, is not cured within the applicable period therefor) and agrees to abide by all of the terms of this Lease as successor Landlord. 14. NOTICES. Wherever in this Lease it is required or permitted that a request, notice or demand be given or served or consent be obtained by either party to, on or from the other, such request, notice, demand or consent shall be in writing and delivered by personal delivery, certified United States mail (postage prepaid, first class, return receipt requested), recognized commercial delivery firm with a computer tracking system or facsimile transmission, to the addresses or facsimile numbers of the parties specified in the Introductory Paragraph of this Lease. Either party may change such address by notice to the other. Rent shall be paid to Landlord at Landlord's address as set forth in the Introductory Paragraph of this Lease, or as changed pursuant to a notice delivered to Tenant in the manner specified above. Notice shall be deemed given when personally delivered, one (1) business day after deposited with a commercial carrier for overnight delivery or sent by facsimile with machine confirmation of transmission, or three (3) business days after the date of the United States Postal Service postmark. 15. BROKERS. Each of the parties represents and warrants that it has had no dealings with any real estate broker, agent, or finder in connection with the negotiation or execution of this Lease. Each of the parties shall indemnify, protect, defend and hold harmless the other party from commissions or other compensation or charges claimed by any broker, agent and/or finder, in connection with this Lease. 16. MUTUAL INDEMNITIES. 16.1 LANDLORD'S INDEMNITY. Except as covered under the provisions of SECTION 16.2, Landlord shall indemnify, protect, defend and hold Tenant and its Authorized Representatives harmless from and against all claims, losses or damages and from liability to any person on account of any damage to person or property to the extent caused by the negligent or willful misconduct of Landlord or its Authorized Representatives or any third party action, claim or suit regarding the Premises or this Lease to the extent such third party action, claim or suit arises as a result of an act or failure to act on the part of Landlord. Landlord shall not be responsible or liable at any time for damage to Tenant's equipment, fixtures or other personal property or to Tenant's business, and Landlord shall not be responsible or liable to Tenant or to those claiming by, through or under Tenant for any damage to person or property that may be - 24 - occasioned by the acts or omissions of third parties and Landlord shall not be responsible or liable for any defect in the Premises or any of the equipment, machinery, utilities, appliances or apparatus therein, nor shall it be responsible or liable for any damage to any person or to any property of Tenant or other person caused by bursting, breakage or leakage, including roof leaks, steam or the running, seepage or overflow of water or sewage in any part of the Premises or for any damage caused by or resulting from acts of God or the elements or for any damage caused by or resulting from any defect or negligence in the occupancy, construction, operation or use of any of the Premises, building, machinery, apparatus or equipment by any other person or by or from the acts or negligence of any occupant of the Premises, except to the extent such defect, damage or loss is caused by the negligent or willful misconduct of Landlord or its Authorized Representatives. In the event Tenant, without fault on Tenant's part, is made a party to any litigation commenced by or against Landlord, then Landlord shall protect, defend, indemnify, and hold Tenant harmless and shall pay all costs, expenses and attorneys' fees incurred or paid by Tenant in connection with such litigation. 16.2 TENANT'S INDEMNITY. Except as covered under the provisions of SECTION 16.1, Tenant shall indemnify, protect, defend and hold Landlord and its Authorized Representatives harmless from all claims arising from or in connection with (a) the conduct or management of the Premises or of any business therein, or any work or thing whatsoever done, or any condition created in or about the Premises during the Term; (b) any act, omission or negligence of Tenant or any of Tenant's Authorized Representatives, invitees, subtenants, licensees and/or contractors of Tenant or of Tenant's subtenants or licensees during the Term and any holding over; (c) any accident, injury or damage whatsoever occurring in or at the Premises during the Term and any holding over; (d) any breach or default by Tenant in the full and prompt payment of any amount due Landlord under this Lease and for any breach, violation or nonperformance of any term, condition, covenant or other obligation of Tenant under this Lease or any representation made by Tenant or any guarantor of Tenant's obligations in connection with this Lease; (e) all damages sustained by Landlord as a result of any holdover by Tenant in the Premises including, but not limited to, any claims by another tenant resulting from a delay by Landlord in delivering possession of the Premises to such tenant; (f) the contesting of any taxes by Tenant; and (g) any liens or encumbrances arising out of any work performed or materials furnished by or for Tenant, unless such claim is caused by the negligent or willful misconduct of Landlord or its Authorized Representatives. In the event Landlord, without fault on Landlord's part, is made a party to any litigation commenced by or against Tenant, then Tenant shall protect, defend, indemnify, and hold Landlord harmless and shall pay all costs, expenses and attorneys' fees incurred or paid by Landlord in connection with such litigation. 17. ENVIRONMENTAL PROVISIONS. 17.1 NOTICE OF HAZARDOUS MATERIALS. Landlord has no knowledge, nor has reasonable cause to believe, that a release of Hazardous Materials has occurred at the Premises prior to the Commencement Date except if and as disclosed on the Phase I report heretofore furnished by or on behalf of Landlord to Tenant with respect to the Premises. - 25 - 17.2 USE OF HAZARDOUS MATERIALS. 17.2.1 CERTAIN DEFINITIONS. For purposes of this Lease, the following terms shall have the following meanings: (a) ENVIRONMENTAL LAWS. All present and future statutes, ordinances, orders, rules and regulations of all federal, state or local governmental agencies relating to the use, generation, manufacture, installation, release, discharge, storage or disposal of Hazardous Materials, including the Federal Water Pollution Act, as amended (33 U.S.C. Section 1251 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), or comparable provisions of the laws of the State of California. (b) HAZARDOUS MATERIALS. Petroleum, asbestos, polychlorinated biphenyls, radioactive materials, radon gas or any chemical, materials or substance now or hereafter defined as or included in the definition of "hazardous substances, hazardous wastes, hazardous materials, extremely hazardous waste, restricted hazardous waste," or "toxic substances," or words of similar import, under any Environmental Laws. 17.2.2 REGULATION OF USE. Landlord, for itself and/or all prior owners, occupants, tenants, licensees or invitees up to the Commencement Date, and Tenant from and after the Commencement Date, shall refrain from using or allowing the use of Hazardous Materials on, about, under or in the Premises, except as part of its business operation conducted therein in the ordinary course in accordance with Environmental Laws, prudent industry practice and the standards of this Lease. In the event of a release in, about, under or on the Premises, or any portion thereof, of any Hazardous Materials, Landlord (if such occurred prior to the Commencement Date) or Tenant if such occurred on or after the Commencement Date) shall immediately take such remedial actions as may be necessary to clean up the same in accordance with the requirements of Environmental Laws. Tenant shall use, handle and store any Hazardous Materials hereunder in accordance with the applicable requirements of Environmental Laws. Each party shall promptly notify the other party of any such release of Hazardous Materials of which it gains knowledge or receives notice, and of any violation of Environmental Laws of which it receives notice from any governmental agency having jurisdiction. 17.2.3 INDEMNITY. Each party shall indemnify, defend, protect and hold the other party harmless from and against any and all claims, actions, suits, proceedings, loss, liabilities, damages, deficiencies, fines, penalties, costs or expense (including sums paid in settlement of claims, reasonable attorneys' fees, consultants' fees, investigation and laboratory fees, court costs and litigation expenses), which arise out of or in connection with the indemnifying party's breach of the provisions of SECTION 17.2.2 (with regard to the parties' use and/or release of Hazardous Materials). 18. RIGHT OF FIRST REFUSAL. At the expiration of the Third Extended Term, if Tenant shall have exercised its option rights to extend the Term for a full twenty (20) Lease Years and if Tenant shall not have committed any uncured act of material breach or default under this Lease - 26 - beforehand, Tenant shall be entitled to exercise a right of first refusal (the "Right of First Refusal") if Landlord, at any time prior to the expiration of the Lease or within the first thirty (30) days following the expiration of the Lease, wishes to enter into a new lease for the Care Centers and/or the Office Building, to commence upon or after the expiration of the Term. In any such case, Landlord agrees to furnish written notice of its intention to enter into one or more new leases, describing in such notice the portion of the Premises to be leased and all material terms of the proposed new lease (the "New Lease Notice"). Tenant shall have the period of ten (10) business days from the date of its receipt of the New Lease Notice to notify Landlord in writing that Tenant accepts the terms of the new lease as set forth in the New Lease Notice. If Tenant fails or declines to accept such terms within such ten- (10-) day period, then Landlord shall be free to enter into a new lease with any one or more third parties on terms no less favorable to Landlord than as set forth in the New Lease Notice. If, however, Landlord wishes, during the period while Tenant's Right of First Refusal remains in effect, to accept any terms for a new lease that are less favorable to Landlord than as described in the New Lease Notice, such proposed new terms shall be deemed a new proposal, requiring that Landlord first provide Tenant de novo with a separate New Lease Notice and a new ten (10) day period in which to accept such new terms before Landlord shall be free to commit to or conclude a new lease with any one or more third parties on such terms. 19. LEASEHOLD MORTGAGEE. Notwithstanding anything to the contrary in this Lease, Tenant may mortgage its interest in this Lease or any part thereof under any first or other leasehold mortgage and upon Landlord being notified of the making of any such mortgage Landlord agrees that (a) as a result of any default there shall be no cancellation, amendment or termination of this Lease by joint action of Landlord and Tenant without first providing the leasehold mortgage lender a reasonable opportunity, not to exceed a period of ten (10) days to cure any monetary default or thirty (30) days to cure any non-monetary default, to satisfy said default; (b) Landlord shall give any leasehold mortgage lender simultaneous notice of any default and such party shall have the same period after service of such notice to remedy the default and Landlord shall accept such performance as if the same had been done by Tenant; and (c) Landlord will execute any agreement acknowledging the above rights of any leasehold mortgage lender and granting to such lender reasonable notice of any default hereunder and an opportunity to cure the same as may be requested by Tenant. Such agreement may also include the option right of the leasehold mortgage lender, upon written notice to Landlord within thirty (30) days following any rejection in bankruptcy or other early termination of this Lease, to enter into a new lease with Landlord upon the same terms and conditions of this Lease for the balance of the unexpired Term hereof. 20. INTERPRETATION. 20.1 CAPTIONS. The captions of the sections and subsections of this Lease are for convenience only and shall not affect the interpretation or construction of any provision of this Lease. 20.2 ATTACHMENTS. Exhibits attached hereto and referred to in this Lease are deemed to constitute part of this Lease and are incorporated into this Lease. - 27 - 20.3 NUMBER; GENDER. The words "Landlord" and "Tenant", as used in this Lease, shall include the plural as well as the singular. Words used in the neuter gender include the masculine and feminine and words in the masculine or feminine gender include the other and the neuter. 20.4 DEFINED TERMS. As used in this Lease, the following words and phrases shall have the following meanings: 20.4.1 AFFILIATE. Any entity which controls, is controlled by or is under common control with Tenant, where "control" means the ability to elect a majority of the Directors or otherwise direct the business of the entity. 20.4.2 AUTHORIZED REPRESENTATIVES. Any officer, director, partner, agent, contractor or employee of a party. 20.4.3 COST OF LIVING INDEX. The Cost of Living Index for all urban workers, all items, published by the Department of Labor, Bureau of Industrial Statistics, for the region of which Humboldt County, California is a part (1992-94 = 100), or any successor index. 20.4.4 TENANT'S IMPROVEMENTS. Any addition to or modification of the Premises made by Tenant during the Term including, without limitation, fixtures (including Tenant's Trade Fixtures, as defined herein). 20.4.5 TENANT'S TRADE FIXTURES. Any property installed in or on the Premises by Tenant for purposes of trade, manufacture, ornament, or related use. 20.5 ENTIRE AGREEMENT; COUNTERPARTS; DELIVERY. This Lease, including any exhibits, together with the Option Agreement, constitute the entire agreement between Landlord and Tenant relative to the Premises. Landlord and Tenant agree hereby that all prior or contemporaneous oral or written agreements, or letters of intent, between them or their Authorized Representatives, including any leasing agents, relative to the leasing of the Premises are superseded in or revoked by this Lease. This Lease may be executed in counterparts. Delivery of this Lease may be made by facsimile transmission of a signed counterpart, with machine confirmation of transmission. 20.6 AMENDMENT; WAIVER. This Lease may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant, and not orally nor by any course of conduct. 20.7 SEVERABILITY. If any term or provision of this Lease is, to any extent, determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each remaining term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 20.8 TIME OF ESSENCE. Time is of the essence of this Lease and each and every provision of this Lease. - 28 - 20.9 RELATIONSHIP OF PARTIES. Landlord is not and shall not, in any way or for any purpose, become an agent or partner of Tenant in its business or otherwise, or a joint venturer or a member of any joint enterprise with Tenant solely as a result of this Lease. 20.10 BINDING EFFECT. Subject to any provisions of this Lease restricting assignment or subletting by Tenant or releasing Landlord upon sale of all or part of the Premises, all of the provisions of this Lease shall bind and inure to the benefit of the parties to this Lease and their respective heirs, legal representatives, successors and assigns. 20.11 SUBTENANCIES. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger of estates and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subleases or subtenancies. 20.12 NO RESERVATION. Submission by Landlord of this instrument to Tenant for examination or signature does not constitute a reservation of or option for lease. This Lease shall be effective as a lease or otherwise only upon execution and delivery by both Landlord and Tenant. 20.13 CONSENTS AND APPROVALS. Any consent or approval that a party is obligated to give to the other party shall not be unreasonably withheld or delayed, subject to any specific provision to the contrary contained in this Lease. 20.14 LEGAL AUTHORITY. Each individual executing or attesting this Lease on behalf of Tenant, as well as Tenant, hereby covenants, warrants and represents (a) that he is duly authorized to execute or attest and deliver this Lease on behalf of Tenant in accordance with a duly adopted resolution of Tenant's Board of Directors and in accordance with Tenant's Articles of Incorporation and Bylaws; (b) that this Lease is binding upon Tenant; (c) that Tenant is a duly organized and legally existing corporation under the laws of the State of California; and (d) the execution and delivery of this Lease by Tenant shall not result in any breach of, or constitute a default under any mortgage, deed of trust, lease, loan, credit agreement, partnership agreement or other contract or instrument to which Tenant is a party or by which Tenant may be bound. 20.15 CHOICE OF LAW. This Lease will be construed under, governed by and enforced in accordance with the laws of the State of California without regard to conflicts of laws principals. 20.16 SURVIVAL OF OBLIGATIONS. Any obligations and liabilities that arise during the Term shall survive expiration or earlier termination of the Term, unless specifically provided to the contrary. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) - 29 - IN WITNESS WHEREOF, the parties have executed this Lease as of the date first written above. LANDLORD: TENANT: MATMEL ENTERPRISES, INC. FOUNTAIN VIEW, INC. By /s/ Thomas E. Sutton By /s/ Jose Lynch ------------------------------- ---------------------------- THOMAS E. SUTTON, President JOSE LYNCH, President - 30 - EXHIBIT A DESCRIPTION OF PREMISES EXHIBIT B INSURANCE PROVISIONS EX-31.1 35 a94359exv31w1.htm EXHIBIT 31.1 Exhibit 31.1

~~1. I have reviewed this quarterly report on Form 10-Q of Skilled Healthcare Group, Inc.;~~

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

~~(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.~~


Delaware		95-4644784
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


		Page

Part I—Financial Information			1
Item 1. Financial Statements			1
	Condensed consolidated balance sheets as of September 30, 2003 (unaudited) and December 31, 2002		1
	Condensed consolidated statements of operations for the three and nine months ended September 30, 2003 and 2002 (unaudited)		2
	Condensed consolidated statements of cash flows for the nine months ended September 30, 2002 and 2003 (unaudited)		3
	Notes to condensed consolidated financial statements (unaudited)		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
Part II—Other Information			29
Item 1. Legal Proceedings			29
Item 2. Changes in Securities and Use of Proceeds			29
Item 4. Submission of Matters to a Vote of Security Holders			29
Item 6. Exhibits and Reports on Form 8-K			31
Signatures			33
Certifications


			September 30, 2003			December 31, 2002

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	20,498
	Accounts receivable, net of allowance for doubtful accounts of $13,419 in 2003 and $17,315 in 2002			37,597			43,821
	Current portion of notes receivable			1,106			2,126
	Other current assets			7,952			9,211

		Total current assets		46,655			75,656
Property and equipment, net				156,198			147,801
Other assets:
	Notes receivable, net of allowance for doubtful accounts of $1,983 in 2003 and $2,035 in 2002			5,178			2,049
	Deferred financing costs			4,255			5,411
	Goodwill and other Intangible assets, net			20,507			20,312
	Other assets			21,650			6,526

		Total other assets		51,590			34,298

		Total assets	$	254,443		$	257,755

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable and accrued liabilities		$	24,290		$	8,715
	Borrowings payable under line of credit			4,389			—
	Employee compensation and benefits			12,513			11,922
	Current portion of long-term debt and capital leases			19,926			92,959
	Current liabilities subject to compromise			—			170,481

		Total current liabilities		61,118			284,077
Long-term liabilities:
	General and Professional liability			22,167			16,167
	Long-term liabilities and capital leases, net of current portion			227,325			9,867
	Preferred Stock, Series A, mandatorily redeemable			28,055			—

		Total liabilities		338,665			310,111
Preferred Stock Series A, mandatorily redeemable				—			15,000
Shareholders’ equity (deficit):
	Common stock — 1,500,000 shares authorized with no par value; 1,193,586 shares issued and outstanding at September 30, 2003			11			—
	Common stock (Series A, B & C)— An aggregate of 3,000,000 shares authorized with $0.01 par value; 1,134,944 shares issued and outstanding at December 31, 2002			—			11
	Additional paid-in-capital			106,488			106,488
	Accumulated deficit			(188,181	)		(171,315	)
	Due from shareholder			(2,540	)		(2,540	)

		Total shareholders’ equity (deficit)		(84,222	)		(67,356	)

		Total liabilities and shareholders’ equity (deficit)	$	254,443		$	257,755


		Three Months Ended September 30,					Nine Months Ended September 30,

		2003			2002		2003			2002

Net revenues		$	90,584		$	87,249	$	261,924		$	254,822
Expenses:
	Salaries and benefits		47,449			44,473		138,050			130,431
	Supplies		12,334			11,437		36,176			30,817
	Purchased services		7,820			8,046		22,260			24,838
	Provision for doubtful accounts		1,122			1,155		3,280			3,249
	Other expenses		7,714			7,874		22,502			25,308
	Rent		1,778			1,835		5,457			5,419
	Depreciation and amortization		2,311			2,644		7,343			7,431
	Interest expense, net of interest income		7,948			5,750		18,324			17,156

Total expense before reorganization items			88,476			83,214		253,392			244,649

Income from operations			2,108			4,035		8,532			10,173
Other income and expenses:
	Change in fair value of interest rate hedge		1,108			—		1,108			—
	Reversal of charge related to decertification of facility		—			—		(2,734	)		—
	Write-off of deferred financing costs of extinguished debt		4,111			—		4,111			—
	Reorganization expenses		4,439			2,548		10,652			8,846

Total other income and expenses			9,658			2,548		13,137			8,846

(Loss) income before income taxes and the cumulative effect of a change in accounting principle			(7,550	)		1,487		(4,605	)		1,327
	Cumulative effect of change in accounting principle		12,261			—		12,261			—
Provision for income taxes			—			676		—			603

Net (loss) income		$	(19,811	)	$	811	$	(16,866	)	$	724


			Nine months ended September 30,

			2003			2002

Cash Flows From Operating Activities
Net (loss) income			$	(16,866	)	$	724
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
	Depreciation and amortization			7,343			7,431
	Reorganization costs, net			10,652			8,846
	Provision for doubtful accounts			3,280			3,249
	Gain (loss) on disposal of property and equipment			(233	)
	Write-off deferred financing costs of extinguished debt			4,111			(37	)
	Change in fair value of interest rate hedge			1,108			—
	Changes in operating assets and liabilities:
		Accounts receivable		2,944			(2,519	)
		Other current assets		1,152			(10,446	)
		Accounts payable and accrued liabilities		(3,491	)		3,176
		Accrued interest payable		(24,646	)		9,343
		Employee compensation and benefits		590			(3,521	)
		Deferred income taxes		—			585

Net adjustments				2,810			16,107

Net cash (used in) provided by operating activities before reorganization costs				(14,056	)		16,831
Net cash paid for reorganization costs				(10,547	)		(11,780	)

Net cash (used in) provided by operating activities				(24,603	)		5,051

Cash Flows From Investing Activities
Principal payments and (additions) on notes receivable				(2,109	)		(682	)
Proceeds from disposal of property and equipment				2,310			—
Additions to property and equipment				(5,341	)		(3,928	)
Changes in other assets				(11,960	)		489

Net cash used in investing activities				(17,100	)		(4,121	)

Cash Flows From Financing Activities
Borrowings under line of credit				4,389			—
Repayments on long-term debt				(10,000	)		—
Repayments on long-term debt through refinancing				(89,063	)		—
Proceeds from issuance of long-term debt				134,637			—
Purchase interest rate hedge				(2,901	)		—
Additions to deferred financing costs				(4,288	)		(240	)
Payment and exercise of capital lease obligation				(11,569	)		—

Net cash provided by (used in) financing activities				21,205			(240	)

Increase (decrease) in cash and cash equivalents				(20,498	)		690
Cash and cash equivalents at beginning of period				20,498			10,948

Cash and cash equivalents at end of period			$	—		$	11,638

Supplemental disclosure of cash flow information:
Cash paid for:
Interest expense			$	17,230		$	17,156

Income taxes			$	500		$	305

Non-cash item:
Capitalize lease transactions			$	11,054		$	—


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements.
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II—OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 3.1.1
EXHIBIT 3.1.2
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4.1
EXHIBIT 4.4.2
EXHIBIT 4.5
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32


	2003			2002

Professional fees	$	4,659		$	6,731
Court-related services		609			583
Refinancing Costs		2,501			368
Other fees		2,998			1,266
Less interest earned on accumulated cash		(115	)		(102	)

Total	$	10,652		$	8,846


Buildings and improvements		15-40 years
Leasehold improvements		Shorter of lease term or estimated useful life, generally 5-10 years
Furniture and equipment		3-10 years

	•		nursing services;

	•		therapy services; and

	•		pharmacy services.


	Nursing		Therapy		Pharmacy
	Services		Services		Services		All Other			Totals

Three months ended September 30, 2003
Revenues from external customers	$	75,347	$	4,169	$	10,837	$	231		$	90,584
Intersegment revenues		—		6,081		2,116		4,295			12,492

Total revenues	$	75,347	$	10,250	$	12,953	$	4,526		$	103,076

Income (loss) from operations	$	9,995	$	1,412	$	1,152	$	(10,451	)	$	2,108
Segment assets		61,752		32,449		5,373		154,756			254,330
Capital expenditures		3,431		57		57		331			3,876


	September 30, 2003		December 31, 2002

Senior Subordinated Notes, interest rate initially 9.25%, with annual increases to 15.00%, due 2008.	$	106,762	$	—
First Mortgage adjustable rate multi-property loan, interest based on the one-month LIBOR plus 4.50%, collateralized by real property		85,000		—
First Mortgage adjustable rate multi-property loan, interest based on the one-month LIBOR plus 18.875%, collateralized by real property		10,000		—


	September 30, 2003			December 31, 2002

Mezzanine Loans, interest based on the one-month LIBOR plus 18.875%, collateralized by all tangible and intangible assets		23,000			—
$32 million Accounts Receivable Revolving Credit Facility, interest based on the WSJ Prime rate plus 2.5%, collateralized by accounts receivable		4,389			—
Mortgage and other notes payable, fixed interest rates from 6.0% to 9.0%, due in various monthly installments through August 2010, collateralized by property and equipment with a book value of approximately $5.7 million at September 30, 2003.		11,473			—
Present value of capital lease obligations at effective interest rates from 6.5%, collateralized by property and equipment with a book value of approximately $10,312 at September 30, 2003.		11,016			—
Senior Subordinated Notes, fixed interest rate of 11.25%, interest only payable semiannually, principal due 2008, unsecured.		—			120,000
$90 million Term Loan Facility, interest based on LIBOR plus the applicable margin, principal due in quarterly installments through December 2003, remaining unpaid principal due March 2004, collateralized by all tangible and intangible assets.		—			63,796
$30 million Revolving Credit Facility, interest based on LIBOR plus the applicable margin, principal due April 2004, collateralized by all tangible and intangible assets.		—			22,847
Present value of capital lease obligations at effective interest rates from 8.4% to 9.0%, secured by property and equipment with a book value of approximately $14,616 at December 31, 2002.		—			11,528
Mortgage and other notes payable, fixed interest rates from 7.75% to 9.0%, due in various monthly installments through January 2026, collateralized by property and equipment with a book value of approximately $7,242 at December 31, 2002.		—			5,412
Mortgage note payable, interest based on LIBOR plus the applicable margin, originally due in March 2001 (negotiations to extend terms were not completed prior to the Filing Date), collateralized by property and equipment with a book value of approximately $5,221 at December 31, 2002.		—			823

Long-term debt		251,640			224,406
Less current portion of long-term debt subject to compromise		—			(121,580	)
Less remaining amounts due within one year		(24,315	)		(92,959	)

Long-term debt and capital leases, net of current portion	$	227,325		$	9,867


	September 30, 2003		December 31, 2002

Equity investment in Pharmacy Joint Venture	$	3,958	$	3,373
Debt service reserves (amounts on deposit with a lender)		5,588		—
Restricted cash		4,000		—
Deposits		8,104		3,153

	$	21,650	$	6,526


		September 30, 2003			December 31, 2002

Property and equipment, at cost:
	Land and land improvements	$	18,329		$	17,558
	Buildings and leasehold improvements		167,932			156,220
	Furniture and equipment		29,466			27,924
	Construction in progress		609			587

			216,336			202,289
Less accumulated depreciation and amortization			(60,138	)		(54,488	)

		$	156,198		$	147,801


	Related
	Party		Other		Total

2003	$	509	$	1,264	$	1,773
2004		2,034		4,458		6,492
2005		2,034		3,253		5,287
2006		2,034		2,852		4,886
2007		2,034		2,486		4,520
Thereafter		19,491		9,540		29,031

Total	$	28,136	$	23,853	$	51,989


Title of Class	Amount Authorized		Amount Outstanding

Series A Common Stock		1,500,000		1,000,000
Series B Common Stock		200,000		114,202
Series C Common Stock		1,200,000		20,742
Series A Preferred Stock		200,000		15,000


	Affirmative Votes		Votes Not Cast
	Series A Common Stock and Series C		Series A Common Stock and Series C
	Common Stock, voting together as a single		Common Stock, voting together as a single
Nominee	class		class

William Scott		556,990		463,752

Robert Snukal		556,990		463,752

Sheila Snukal		556,990		463,752

Peter Hermann		556,990		463,752

Michael Gilligan		556,990		463,752

Mark Jrolf		556,990		463,752

Michel Reichert		556,990		463,752

Scott Gross		556,990		463,752

Tim Parris		556,990		463,752

Keith Abrahams		556,990		463,752


	Affirmative Votes		Votes Not Cast
	Common Stock and Series A Preferred		Common Stock and Series A Preferred
Nominee	Stock, voting together as a single class		Stock, voting together as a single class

Boyd Hendrickson		623,254		585,333


Exhibit
Number		Description

2.1		Debtors’ Third Amended Joint Plan of Reorganization (1)

2.2		Debtors’ Disclosure Statement (1)

3.1.1		Restated Certificate of Incorporation

3.1.2		Certificate of Amendment of Restated Certificate of Incorporation

3.2		Bylaws (2)

4.1		Indenture dated as of August 19, 2003 among the Company, the Guarantors (as defined therein) and U.S. Bank National Association

4.2		Amended and Restated Stockholders Agreement

4.3		Amendment No. 1 to Amended and Restated Stockholders Agreement

4.4.1		Form of New Common Stock Certificate

4.4.2		Form of New Series A Preferred Stock Certificate

4.5		Form of Warrant to Purchase Common Stock

10.1		Revolving Credit and Security Agreement among the Subsidiary Borrowers listed on Schedule 1 annexed thereto and the Company, as borrowers, and CapitalSource Finance LLC, as administrative agent and collateral agent

10.2		$20,000,000 Revolving Note dated as of August 19, 2003 made by the Company and the companies listed on the signature page thereto in favor of CapitalSource Finance LLC, as administrative agent and collateral agent

10.3		$1,000,000 Revolving Note dated as of August 19, 2003 ,made by the Company and the companies listed on the signature page thereto in favor of CapitalSource Finance LLC, as administrative agent and collateral agent

10.4		Revolving Credit and Security Agreement among the Borrowers listed on Schedule 1 annexed thereto, as borrowers, and CapitalSource Finance LLC, as administrative agent and collateral agent for Lenders, and Lenders party thereto

10.5		$11,000,000 Revolving Note dated as of August 19, 2003 made by the companies listed on the signature
		page thereto in favor of CapitalSource Finance LLC, as administrative agent and collateral agent

10.6		Loan Agreement dated as of August 19, 2003 between the entities listed on Schedule I annexed thereto, as Borrower, and Column Financial, Inc., as Lender

10.7		$85,000,000 Promissory Note A dated August 19, 2003 made by each of the entities set forth on Schedule A annexed thereto in favor of Column Financial, Inc.

10.8		$5,000,000 Promissory Note B-1 dated August 19, 2003 made by each of the entities set forth on Schedule A annexed thereto in favor of Column Financial, Inc.

10.9		$2,500,000 Promissory Note B-2 dated August 19, 2003 made by each of the entities set forth on Schedule A annexed thereto in favor of Column Financial, Inc.

10.10		$2,500,000 Promissory Note B-3 dated August 19, 2003 made by each of the entities set forth on Schedule A annexed thereto in favor of Column Financial, Inc.

10.11		Guaranty Agreement dated August 19, 2003 by the Company for the benefit of Column Financial, Inc.

10.12		Mezzanine Loan Agreement dated as of August 19, 2003 between SHG Property Resources, LLC and SHG Investments, LLC, collectively, as Borrower, and CapitalSource Finance LLC, Fortress Credit Opportunities I, L.P. and Highbridge/Zwirn Special Opportunities Fund, L.P., collectively, as Lender, and CapitalSource Finance LLC, as administrative agent and collateral agent for Lender

10.13		$11,500,000 Promissory Note dated as of August 19, 2003 made by SHG Property Resources, LLC and SHG Investments, LLC in favor of CapitalSource Finance LLC

10.14		$5,750,000 Promissory Note dated as of August 19, 2003 made by SHG Property Resources, LLC and SHG Investments, LLC in favor of Highbridge/Zwirn Special Opportunities Fund, L.P.


	SKILLED HEALTHCARE GROUP, INC.

Date: November 14, 2003	By:	/s/ BOYD HENDRICKSON

		Boyd Hendrickson Chief Executive Officer (Authorized Signatory, Principal Executive Officer)

Date: November 14, 2003	By:	/s/ JOHN H. HARRISON

		John H. Harrison Chief Financial Officer (Principal Financial Officer)

Date: November 14, 2003	By:	/s/ SCOTT A. PETTERSON

		Scott A. Petterson Vice President-Finance and Controller (Principal Accounting Officer)


	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: November 14, 2003

		/s/ BOYD HENDRICKSON

		Boyd Hendrickson Chief Executive Officer


Dated: November 14, 2003

		/s/ JOHN H. HARRISON

		John Harrison Chief Financial Officer


	(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and


	(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: November 14, 2003

		/s/ JOHN HARRISON

		John Harrison Chief Financial Officer