10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number 333-57279

Skilled Healthcare Group, Inc.

(Exact name of registrant as specified in its charter)

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

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

(949) 282-5800
(Registrant’s telephone number, including area code)

     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 March 31, 2004, the issuer had 1,193,587 shares of class A common stock, $0.01 par value per share and 70,661 shares of class B non-voting common stock, $0.01 par value per share outstanding. The Company’s common stock is not registered on any national exchange and there is currently no public market for the Company’s stock.

SKILLED HEALTHCARE GROUP, INC.

Form 10-Q
For the Period Ended March 31, 2004

Index

		Page
Part I—Financial Information		1
Item 1.	Financial Statements	1
	Condensed consolidated balance sheets as of March 31, 2004 (unaudited) and December 31, 2003	1
	Condensed consolidated statements of operations for the three months ended March 31, 2004 and 2003 (unaudited)	2
	Condensed consolidated statements of cash flows for the three months ended March 31, 2004 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	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II—Other Information		30
Item 1.	Legal Proceedings	30
Item 2.	Changes in Securities and Use of Proceeds	30
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 6.	Exhibits and Reports on Form 8-K	32
Signatures		33
Exhibit Index		34
Certifications
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
Ex-10.33
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

SKILLED HEALTHCARE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

	March 31, 2004			December 31, 2003
	(Unaudited)
Current assets:
Cash and cash equivalents	$	—		$	2,670
Accounts receivable, net of allowance for doubtful accounts of $9,102 in 2004 and $10,033 in 2003		42,423			42,592
Other current assets		14,550			15,277
Total current assets		56,973			60,539
Property and equipment, net		157,241			157,580
Other assets:
Notes receivable, net of allowance for doubtful accounts of $1,847 in 2004 and 2003		4,925			5,221
Deferred financing costs		3,707			4,064
Goodwill and other intangible assets, net		20,552			20,519
Other assets		15,022			12,918
Total other assets		44,206			42,722
Total assets	$	258,420		$	260,841
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	19,713		$	20,283
Borrowings payable under line of credit		11,973			16,124
Employee compensation and benefits		15,979			13,913
Current portion of long-term debt and capital leases		19,375			19,486
Total current liabilities		67,040			69,806
Long-term liabilities:
General and professional liability		26,317			23,717
Long-term debt and capital leases, net of current portion		211,914			218,430
Preferred Stock, Series A, mandatorily redeemable 15,000 shares issued and outstanding		29,643			28,849
Total liabilities		334,914			340,802
Stockholders’ equity (deficit):
Common stock — Class A, 2,125,000 shares authorized, $0.01 par value per share; 1,193,587 shares issued and outstanding at March 31, 2004		12			—
Common stock — Class B, 375,000 shares authorized, $0.01 par value per share; 70,661 shares issued and outstanding at March 31, 2004		1			—
Additional paid-in-capital		107,563			107,572
Accumulated deficit		(181,530	)		(184,993	)
Due from shareholder		(2,540	)		(2,540	)
Total stockholders’ equity (deficit)		(76,494	)		(79,961	)
Total liabilities and stockholders’ equity	$	258,420		$	260,841

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

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SKILLED HEALTHCARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

(Unaudited)

	Three Months Ended March 31,
	2004		2003
Net revenues	$	100,729	$	85,101
Expenses:
Salaries and benefits		52,680		45,797
Supplies		13,041		13,086
Purchased services		8,695		6,012
Provision for doubtful accounts		998		1,034
Other expenses		8,335		7,090
Rent		1,970		1,708
Depreciation and amortization		2,072		2,480
Interest expense, net of interest income (includes interest expense of $0.8 million related to the mandatorily redeemable preferred stock in 2004)		7,329		5,104
Total expense before reorganization expenses		95,120		82,311
Income from continuing operations		5,609		2,790
Other income and expenses:
Change in fair value of interest rate hedge		703		—
Reorganization expenses		445		2,404
Total other income and expenses		1,148		2,404
Income before income taxes		4,461		386
Provision for income taxes		1,004		—
Net income	$	3,457	$	386

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

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SKILLED HEALTHCARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

(Unaudited)

	Three months ended March 31,
	2004			2003
Cash Flows From Operating Activities
Net income	$	3,457		$	386
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,072			2,480
Reorganization expenses, net		445			2,404
Provision for doubtful accounts		998			1,034
Change in fair value of interest rate hedge		703			—
Changes in operating assets and liabilities:
Accounts receivable		(830	)		(1,085	)
Other current assets		84			1,584
Accounts payable and accrued liabilities		3,812			(279	)
Accrued interest payable		(947	)		3,172
Employee compensation and benefits		2,066			579
Total adjustments		8,403			9,889
Net cash provided by operating activities before reorganization expenses		11,860			10,275
Net cash paid for reorganization expenses		(597	)		(2,270	)
Net cash provided by operating activities		11,263			8,005
Cash Flows From Investing Activities
Principal payments on notes receivable		299			199
Additions to property and equipment		(1,410	)		(893	)
Changes in other assets		(2,048	)		(713	)
Net cash used in investing activities		(3,159	)		(1,407	)
Cash Flows From Financing Activities
Repayments of borrowings under line of credit		(4,151	)		—
Repayments on long-term debt		(6,627	)		(5,100	)
Additions to deferred financing costs of new debt		—			(1,500	)
Proceeds from Class B restricted stock grants		4			—
Net cash used in financing activities		(10,774	)		(6,600	)
Decrease in cash and cash equivalents		(2,670	)		(2	)
Cash and cash equivalents at beginning of period		2,670			20,498
Cash and cash equivalents at end of period	$	—		$	20,496
Supplemental disclosure of cash flow information:
Cash paid for:
Interest expense	$	8,278		$	1,932
Income taxes	$	—		$	305

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

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SKILLED HEALTHCARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2004 (Unaudited)

1. Description of Business

Current Business

     Skilled Healthcare Group, Inc., formerly known as Fountain View, Inc., through its subsidiaries (collectively the “Company”), 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 subsidiaries operate long term care facilities in California and Texas, including 49 skilled nursing facilities (SNFs) that offer sub-acute, rehabilitative and skilled nursing care, as well as five assisted living facilities (ALFs) that provide room and board and assistance with daily living. 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), that serve acute care hospitals as well as SNFs and ALFs, both affiliated and unaffiliated with the Company.

     The Company was originally incorporated in Delaware in 1997 as Fountain View, Inc. and changed its name to Skilled Healthcare Group, Inc. in 2003.

Reorganization under Chapter 11

     On October 2, 2001, the Company 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”).

     The Company’s financial difficulties were attributable to a number of factors. The federal government had fundamentally changed reimbursement rates and procedures for healthcare 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 healthcare 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 March 31, 2004, the Company incurred reorganization expenses totaling approximately $30.5 million.

     The principal components of reorganization expenses incurred during the three months ended March 31, 2004 and 2003 are as follows (in thousands):

	2004		2003
Professional fees	$	193	$	1,574
Court-related services		35		136
Refinancing costs		7		13
Other fees		210		709
Less interest earned on accumulated cash		—		(28	)
Total	$	445	$	2,404

     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 $23.0 million under a new Secured Mezzanine Term Loan; and (iii) approximately $95.0 million under a new Senior Mortgage Term Loan;

4

• the satisfaction of the Company’s 11 1/4% 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”) that accrue interest at 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, par value $0.01 per share (the “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 warrants 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 businesses and legal structure to conform to the Company’s exit financing requirements whereby business enterprises were assumed by new subsidiary limited liability companies and existing corporations such that: (1) day to day operations are performed by each operating subsidiary, and (2) administrative services, such as accounting and cash management, are provided through a new subsidiary administrative services company under contracts at market rates with each of the operating subsidiaries, and (iii) payroll processing services are provided through a new subsidiary employment services company under contracts at market rates with each of the operating subsidiary employers.

     In March 2004 the Company reclassified the new common stock authorized pursuant to the Plan into Class A common stock, $0.01 par value per share (the “Class A common stock”). The Company also designated and issued a new class of common stock as class B Non-Voting common stock, $0.01 par value per share (the “Class B Non-Voting common stock”).

2. Summary of Significant Accounting Policies

Basis of Presentation

     While operating under the jurisdiction of the United States Bankruptcy Court as a debtor-in-possession through August 19, 2003, the Company continued to operate and control its business enterprises. Therefore, the consolidated financial statements of the Company include the accounts of Skilled Healthcare Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

     The condensed consolidated interim financial statements as of March 31, 2004 and for the three months ended March 31, 2004 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 month period ended March 31, 2004 are not necessarily indicative of the operations 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 accounting principles generally accepted in the United States 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 financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2003.

5

Estimates and Assumptions

     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.

Revenue Recognition

     The Company derives revenues from nursing services, therapy services and pharmacy services. Revenues are recorded on an accrual basis as services are performed at their estimated net realizable value, based upon estimated amounts due from patients and third-party payors. The Company derived approximately 77 % and 76 % of its revenues in the three months ended March 31, 2004 and 2003, respectively, 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.

     The Company’s net revenue is derived from services provided to patients in the following payer classes for the three months ended March 31, 2004 and 2003 as follows (in thousands):

	2004		2003
Medicare	$	36,542	$	28,595
Medicaid		40,517		36,253
Private		9,599		8,827
Managed care and other		14,071		11,426
	$	100,729	$	85,101

Cash and Cash Equivalents

     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

     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

     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:

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.

     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.

6

Intangible Assets

     Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations 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 March 31, 2004, the carrying value of goodwill was approximately $20.5 million and no impairment was identified in 2004 or 2003.

     Deferred financing costs substantially relate to the Company’s Senior Mortgage Term Loan and Increasing Rate Notes (see Note 5) and are being amortized over the maturity periods using an effective-interest method. At March 31, 2004, deferred financing costs, net of accumulated amortization were approximately $3.7 million.

Income Taxes

     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 tax expense for the first quarter was below the statutory rate primarily due to the reversal of the valuation allowance attributable to the utilization of the Company’s net operating loss carryforwards.

Impairment of Long-Lived Assets

     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 superseded 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.

Recent Accounting Pronouncements

     FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) became effective beginning January 1, 2004. 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 the 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 implementation of FIN 46 had no material impact on the Company’s consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 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. SFAS 150 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 Company adopted SFAS 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.

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     Effective July 1, 2003, the Company recognized interest expense of $12.3 million related to the adoption of SFAS 150. In accordance with the underlying provisions of SFAS 150, such charge was recorded in the consolidated financial statements as a cumulative effect of a change in accounting principle during the third quarter of 2003.

3. Fair Value of Financial Instruments

     The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments for which it is practicable to estimate this value.

Cash and Cash Equivalents

     The carrying amount approximates fair value because of the short maturity of these instruments.

Interest Rate Derivative Hedge

     Fair value for the Company’s interest rate derivative hedge is based on an estimate obtained from a broker.

Long-Term Debt

     The Company’s Increasing Rate Notes are currently trading at par, however, there has not been a significant amount of trading in the notes since the Company emerged from bankruptcy in August 2003. Consequently, the Company considers the carrying value of the Increasing Rate Notes to approximate their fair value. The carrying value of the Company’s remaining long-term debt, and its accounts receivable revolving credit facility is considered to approximate the fair value of such debt because the interest rates and terms approximate the interest rates and terms of similar debt the Company believes that it currently can obtain.

4. Business Segments

     The Company has three reportable segments:

• nursing services;

• therapy services; and

• pharmacy services.

     Nursing services are provided by 49 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 and unaffiliated facilities. 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 profitability and the quality of care provided across the Company’s entire facility network. 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 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.

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Selected Financial Data

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

	Nursing Services		Therapy Services			Pharmacy Services			All Other			Totals
Three months ended March 31, 2004
Revenues from external customers	$	84,318	$	6,308		$	10,051		$	52		$	100,729
Intersegment revenues		–		6,590			2,390			1,614			10,594
Total revenues	$	84,318	$	12,898		$	12,441		$	1,666		$	111,323
Segment profit (loss)	$	17,911	$	2,405		$	1,230		$	(4,566	)	$	16,980
Segment assets		207,998		39,815			23,081			(12,474	)		258,420
Capital expenditures		1,018		355			(2	)		39			1,410
Three months ended March 31, 2003
Revenues from external customers	$	70,309	$	4,767		$	10,022		$	3		$	85,101
Intersegment revenues		–		6,008			2,281			–			8,289
Total revenues	$	70,309	$	10,775		$	12,303		$	3		$	93,390
Segment profit (loss)	$	13,535	$	1,460		$	840		$	(3,753	)	$	12,082
Segment assets		197,709		(5,977	)		12,021			52,943			256,696
Capital expenditures		451		35			121			286			893

5. Debt

     As a result of the Company’s 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, Financial Reporting by Entities in Reorganization under the Bankruptcy Code. 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.

     On August 19, 2003, the Company successfully consummated the Plan of Reorganization and emerged from Chapter 11 protection. To effectuate the Plan, the Company incurred new debt in an aggregate amount of approximately $250 million. The proceeds of the new debt, along with $30 million of the Company’s cash were used to restructure its previous existing debt.

     Long-term debt consists of the following (in thousands):

	March 31, 2004			December 31, 2003
Increasing Rate Notes, interest rate currently 9.25%, with annual increases to up 15.00% in 2008	$	106,762		$	106,762
Senior Mortgage Term Loan, adjustable rate multi-property loan, interest based on the one-month LIBOR plus 4.50 %, collateralized by real property		83,300			84,150
Secured Mezzanine Term Loans, interest based on LIBOR plus 15.0% and 18.875%, at March 31, 2004 and December 31, 2003 respectively, collateralized by all tangible and intangible assets		17,750			22,375
Revolving Credit Facilities, interest based on the WSJ Prime rate plus 2.5%, collateralized by accounts receivable		11,973			16,124
Mortgage and other notes payable, fixed interest rates from 6.0% to 9.5%, due in various monthly installments through August 2010, collateralized by property and equipment with a book value of approximately $5.7 million at March 31, 2004		10,424			11,458
Present value of capital lease obligations at effective interest rates from 6.25%, collateralized by property and equipment with a book value of approximately $10,312 at March 31, 2004		13,053			13,171
Long-term debt		243,262			254,040
Less remaining amounts due within one year		(31,348	)		(35,610	)
Long-term debt and capital leases, net of current portion	$	211,914		$	218,430

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Increasing Rate Notes

     On August 19, 2003, pursuant to the Plan, the Company satisfied the terms of its then outstanding Senior Subordinated Notes with a payment to the holders on a pro rata basis of $50.0 million, consisting of approximately $36.0 million in outstanding interest and approximately $14.0 million of principal. At that time, the holders of the Senior Subordinated Notes received on a pro rata basis new Increasing Rate Notes, due in August 2008, that accrue interest at an initial rate of 9.25% and provide for annual rate increases. The Company accrues interest on the new Increasing Rate Notes using the effective interest rate method which straight lines the interest costs over the term. At March 31, 2004, the Company had accrued approximately $2.2 million in excess of the pay rate for the semi-annual interest payments. The Company is required to make principle payments under the loan terms of the indenture agreement based on excess cash flow as defined in the loan agreement after the Secured Mezzanine Term Loan is paid off in full.

Senior Mortgage Term Loan

     The Senior Mortgage Term Loan facility in the aggregate original principal amount of $85 million payable in monthly installments with a final maturity in August 2008. The loan bears interest at LIBOR plus 4.5%.

Revolving Credit Facility

     The $32.0 million Revolving Credit Facility is available for general borrowing purposes, including working capital and permitted capital expenditures. The Revolving Credit Facility, which matures on August 19, 2008, is subject to a borrowing base calculation based upon a percentage of the Company’s eligible accounts receivable. Borrowings bear interest at the WSJ Prime rate plus 2.5%.

Secured Mezzanine Term Loans

     The Mezzanine Loans consists of a Second Mortgage note for $10 million and a collateralized note for $23 million. The Second Mortgage note is an interest only loan for 30 months. Beginning on the 31st month the Company will be obligated to repay equal monthly installments of $333,333. The collateralized note requires monthly principal payments of $208,333 for two years plus interest. Therefore, the collateralized note requires interest only payments for the remaining three years. The interest rate of each note is LIBOR plus a margin of 15.0%. The Company is required to make additional principal payments under the loan terms of the Mezzanine Loans of up to $10 million annually based on excess cash flow as defined in the loan agreement.

Scheduled Maturities of Long-Term Debt

     The scheduled maturities of long-term debt and capital lease obligations are as follows (in thousands):

	Capital Leases		Long-Term Debt		Total
2004 (1)	$	11,170	$	18,032	$	29,202
2005		156		6,987		7,143
2006		156		6,641		6,797
2007		156		7,618		7,774
2008		156		184,546		184,702
Thereafter		2,184		6,385		8,569
		13,978		230,209		244,187
Less amount representing interest		925		–		925
	$	13,053	$	230,209	$	243,262

(1) Includes a debt obligation related to a capital lease that becomes first exercisable in April 2004, and continues for an 18 month period.

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6. Other assets

     Other assets are comprised of the following at March 31, 2004 and December 31, 2003 (in thousands):

	March 31, 2004			December 31, 2003
Equity investment in Pharmacy Joint Venture	$	3,731		$	3,636
Debt service reserves (amounts on deposit with a lender).		8,554			8,610
Restricted cash		6,471			4,512
Deposits		2,745			2,695
		21,501			19,453
Less current portion of other assets		(6,479	)		(6,535	)
	$	15,022		$	12,918

Equity investment in Pharmacy Joint Venture

     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 1995, 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 Services, Inc. such that each of the joint venture partners retained a 50% equity interest in the partnership after the distribution. The joint venture operates a pharmacy in Austin, Texas. The Company pays market value for prescription drugs and receives a 50% share of the net income related to this joint-venture. Based on the Company’s lack of any controlling influence, its investment in the joint-venture is accounted for under the equity method of accounting.

Debt service reserves

     The terms of the Senior Mortgage Term Loan require the Company to maintain reserves on deposit with the lender. At March 31, 2004 the following amounts were on reserve: $2.0 million for general insurance, $1.4 million for property insurance and taxes, $1.2 million for professional liability reserves, $1.0 million for deferred maintenance and improvements, $0.6 million for workers’ compensation costs, and $2.4 million for debt service coverage in the event of default.

Restricted cash

     In August 2003, the Company formed Fountain View Reinsurance, Ltd., (the “captive”) a wholly owned off-shore captive for the purposes primarily of insuring its workers’ compensation liability in California. As of March 31, 2004,the restricted cash balance in the captive is approximately $6.5 million and the cash is restricted due to Reinsurance Agreements related to the payment of future claims.

Deposits

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

7. Property and Equipment

     Property and equipment is comprised of the following at March 31, 2004 and December 31, 2003 (in thousands):

	March 31, 2004			December 31, 2003
Property and equipment, at cost:
Land and land improvements	$	18,501		$	18,501
Buildings and leasehold improvements		170,147			170,052
Furniture and equipment		30,772			30,202
Construction in progress		1,955			1,210
		221,375			219,965
Less accumulated depreciation and amortization		(64,134	)		(62,385	)
	$	157,241		$	157,580

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Capital Leases

     Property and equipment includes $13.3 million related to land and building for the lease of five facilities that have been capitalized as of March 31 2004.

8. Stockholders’ Equity

     As of March 31, 2004, the authorized capital stock of the company consists of 2,500,000 shares of common stock, of which 2,125,000 shares have been designated Class A common stock, and 375,000 shares have been designated Class B Non-Voting common stock, and 1,000,000 shares of preferred stock, of which 15,000 shares have been designated Series A preferred stock.

Mandatorily Redeemable Preferred Stock

     The Company’s Series A preferred stock is subject to mandatory redemption by the Company 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 therefore, at the option of the Company at any time by payment of the per share Base Amount (as defined) 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 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 March 31, 2004, the aggregate Base Amount of the Series A preferred stock was $15.0 million and there was approximately $14.6 million of undeclared and unpaid dividends on the Series A preferred stock, which has been accrued as interest expense under SFAS 150.

     Pursuant to the Company Plan, in 2003 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 common stockholders on all matters put before our stockholders.

Common Stock

     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 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.

     Pursuant to an amended and restated certificate of incorporation filed with the Secretary of State of the State of Delaware on March 5, 2004 (the “Amended and Restated Certificate of Incorporation”), the Company reclassified the new common stock issued pursuant to the Plan. Each share of new common stock was cancelled and replaced with one share of Class A common stock. The Amended and Restated Certificate of Incorporation also designated a new class of common stock, Class B Non-Voting common stock.

     On March 8, 2004, the Company issued an aggregate of 70,661 shares of Class B Non-Voting common stock to four executives of the Company pursuant to restricted stock agreements between each of the executives and the Company for a purchase price of $0.05 per share, for which the Company received an aggregate of $3,533 for such shares. These shares of Class B Non-Voting common stock are restricted by certain vesting requirements, rights of the Company to repurchase the shares, and restrictions on the sale or transfer of such shares. All such restrictions will lapse in full upon the occurrence of certain trigger events. The Company’s board of directors may also elect at any time to remove any or all of these restrictions.

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Warrants

     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 none of these warrants were exercised.

     Pursuant to the Company’s Plan, the Company’s outstanding warrants to purchase 50,377 shares of series C common stock were cancelled and replaced with an equivalent number of new warrants to purchase 50,377 shares of common stock. Other than the security for which the warrant could be exercised, the terms of the new warrants are substantially similar to the terms of the cancelled warrants.

     In connection with the reclassification of the Company’s common stock into Class A common stock in March 2004, the warrants issued pursuant to the Plan were cancelled and replaced with warrants to purchase 50,377 shares of Class A common stock. Other than the security for which the warrant may be exercised, the terms of the warrants for Class A common stock are substantially similar to the terms of the cancelled warrants.

Stock Options

     In March 2004, the Company’s board of directors adopted the Company’s 2004 equity incentive plan (the “2004 Plan”). The Company’s stockholders approved the Plan on March 4, 2004. The 2004 Plan provides for grants of incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, to the Company’s employees, as well as non-qualified stock options and restricted stock to the Company’s employees, directors and consultants. The aggregate number of shares of the Company’s common stock issuable under the equity incentive plan is 20,000. As of March 31, 2004, the Company had granted options to acquire 6,225 shares of Class A common stock at an exercise price of $18.30 per share.

The following table summarizes activity in the stock option plan during the three months ended March 31, 2004:

			Weighted
	Number		Average
	of		Exercise
	Shares		Price
Options at beginning of period		–		–
Changes during period
Granted		6,225		18.30
Exercised		–		–
Canceled		–		–
Options outstanding at end of period		6,225	$	18.30
Options exercisable at end of period		1,913	$	18.30
Options available for grant at end of period		13,775

     The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, “Accounting and Disclosure of Stock-Based Compensation” (SFAS 123), requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25 which uses an intrinsic-value method and, because the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

     In December 2002, Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation” (SFAS 148) was issued. SFAS 148 amends SFAS 123 to provide alterative methods of transition to SFAS1 123’s fair value method of accounting for stock-based employee compensation. It also amends and expands the disclosure provisions of SFAS 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” to requires disclosure in the summary of significant accounting policies of the effect of an entities accounting policy with respect to stock-based employee compensation on reported net income in annual and interim financial statements. While SFAS 148 does not require companies to account for employee stock options using the fair-value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair-value method of SFAS 123 or the intrinsic-value method of APB 25. SFAS 148’s amendment of the transition and annual disclosure requirements for SFAS 123 is effective for fiscal years ending after December 15, 2002. The Company has adopted the disclosure requirement under SFAS 148.

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     The following table illustrates the effect on net income if the Company had applied the fair value recognition provision for the three months ended March 31, 2004 and 2003 (in thousands):

	March 31, 2004		March 31, 2003
Net income, as reported	$	3,457	$	386
Add stock based compensation under the intrinsic value method, included in net income		–		–
Less stock-based compensation under the fair-value method		–		–
Pro forma net income	$	3,457	$	386

     However, pro forma information regarding net income is required by, and, in the following disclosure, has been determined as if the Company had accounted for its stock options under the fair value method of SFAS 123. The fair value for options granted during the year was estimated at the date of grant using a minimum value option-pricing model with the following weighted average assumptions: expected market price of the Company’s common stock of $18.30 on the date of grant, risk-free interest rates of 2.5%, dividend yield of 0%, and weighted average expected life of five years.

     The Minimum Value option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation model require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those options used in the minimum value option pricing model, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

9. Commitments and Contingencies

Leases

     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 March 31, 2003, are as follows (in thousands):

	Related
	Party		Other		Total
2004	$	1,578	$	3,813	$	5,391
2005		2,077		4,076		6,153
2006		2,077		3,903		5,980
2007		2,077		3,742		5,819
2008		2,077		3,562		5,639
Thereafter		17,824		18,915		36,739
	$	27,710	$	38,011	$	65,721

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Litigation

     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.

     The Company follows the provision of Statement of Financial Accounting Standards No. 5 (SFAS 5), Accounting for Contingencies. SFAS 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.

Insurance

     The Company maintains insurance for general and professional liability, workers’ compensation and employers’ liability, employee benefits liability, property, casualty, directors and officers, inland marine, crime, boiler and machinery, automobile, employment practices liability, earthquake and flood. The Company believes that its insurance programs are adequate and where there has been a direct transfer of risk to the insurance carrier, it does not recognize a liability in its consolidated financial statements.

Workers’ Compensation

     The Company’s Texas operations have medical only workers’ compensation coverage and an excess employer’s liability policy with a $1,000,000 per occurrence self-insured retention. The Company’s California operations have a fully insured high-deductible workers’ compensation policy with a $500,000 per occurrence deductible.

General and Professional Liability

     The Company’s skilled nursing services subject it to certain liability risks. Malpractice claims may be asserted against the Company if its services are alleged to have resulted in patient injury or other adverse effects, the risk of which is greater for higher-acuity patients, such as those receiving specialty and sub-acute services, than for traditional long-term care patients. The Company has from time to time been subject to malpractice claims and other litigation in the ordinary course of business.

     The Company has obtained a claims-made policy with a self-insured retention of $250,000 for its California and Arizona facilities and $1,000,000 for its Texas facilities. Each facility has an occurrence and aggregate coverage limit of $4,000,000 and $5,000,000, respectively, and its overall company-wide aggregate coverage limit is $5,000,000. The Company does not carry any excess general and professional liability insurance coverage.

Hallmark Indemnification

     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 consolidated financial statements do not include an estimate of these potential disallowances as management has concluded that they are not determinable.

10. Material Transactions with Related Entities

Leased Facilities

     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 consolidated financial statements for any of the periods presented herein. Lease payments to these related parties under operating leases for these facilities for the three-month period ended March 31, 2004 and 2003 were $0.5 million and $0.5 million, respectively.

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Notes Receivable

     The Company has a limited recourse promissory note receivable from the 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 Class A common stock pledged as collateral for the note. The Company has recourse for payment up to $1.0 million of the principal amount of the note.

11. Defined Contribution Plan

     As of March 31, 2004, the Company sponsored a defined contribution plan covering substantially all employees who meet certain eligibility requirements. The Company does not contribute to this plan.

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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.).

General

     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 a network of skilled nursing facilities in California and Texas that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as assisted living facilities that provide room and board and assistance with daily living. 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 March 31, 2004, we operate 54 facilities, consisting of 49 skilled nursing facilities with 6,487 licensed beds and 5 assisted living facilities with 700 licensed beds. We own 36 nursing homes, 5 of which are currently capital leases with purchase options, lease 17 others and manage the operations at one skilled nursing facility.

     In addition to long-term care, we provide a variety of high-quality ancillary services such as physical, occupational and speech therapy in facilities we operate in and unaffiliated facilities. We also operate three institutional pharmacies (one of which is a joint venture), that serve acute care hospitals as well as skilled nursing facilities and assisted living facilities both affiliated and unaffiliated with us.

Reorganization under Chapter 11

     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 March 31, 2004, we incurred restructuring charges totaling approximately $30.5 million.

     The principal components of reorganization expenses incurred during the three months ended March 31, 2004 and 2003 are as follows (in thousands):

	2004		2003
Professional fees	$	193	$	1,574
Court-related services		35		136
Refinancing Costs		7		13
Other fees		210		709
Less interest earned on accumulated cash		—		(28	)
Total	$	445	$	2,404

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

• 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 111/4% 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) 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 satisfaction of our $90 million Term Loan Facility and $30 million Revolving Credit Facility by the payment in full;

• the issuance of one share of new series A preferred stock, par value $0.01 per share (the “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 warrants 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 businesses and legal structure to conform to our exit financing requirements whereby business enterprises were assumed by new subsidiary limited liability companies and existing corporations such that: (1) day to day operations are performed by each operating subsidiary, and (2) administrative services, such as accounting and cash management, are provided through a new subsidiary administrative services company under contracts at market rates with each of the operating subsidiaries, and (iii) payroll processing services are provided through a new subsidiary employment services company under contracts at market rates with each of the operating subsidiary employers.

     In March 2004 we reclassified the new common stock authorized pursuant to the Plan into new Class A common stock, $0.01 par value per share (the “Class A common stock”). We also designated a new class of common stock as our class B non-voting common stock, $0.01 par value per share (the “Class B Non-Voting common stock”).

Critical Accounting Policies and Estimates

     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 consolidated 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 consolidated 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. For three months ended March 31, 2004, approximately 77% of our net revenues are received from funds provided under federal 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 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 federal Medicare and state Medicaid assistance programs, our estimates may potentially change by a material amount.

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• 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, and notes receivable from customers. 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 March 31, 2004, we were to recognize an increase of 10% in the allowance for our doubtful accounts, our total current assets would be decreased by $1.0 million, or 1.7%.

• 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 actuaries 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 assure you that this liability will not require a material adjustment in the future. If, at March 31, 2004, we were to recognize an increase of 10% in the reserve for general and professional liabilities our total liabilities would be increased by $2.9 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 is not amortized, but instead is 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 in our balance 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.

Recent Accounting Pronouncements

     FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) became applicable in our fiscal first quarter of 2004. 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. We evaluate VIEs 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 implementation of FIN46 had no material impact on our consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 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. SFAS 150 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

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specified or determinable date or upon an event that is certain to occur. We adopted SFAS 150 on July 1, 2003. At that time, our 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 interest expense of $12.3 million related to the adoption of SFAS 150. In accordance with the underlying provisions of SFAS 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.

Results of Operations

     The following table sets forth the amounts of our consolidated revenues derived from the various sources of payment and certain operating data for our skilled nursing facilities and assisted living facilities for the three months ended March 31, 2004 and 2003 are as follows:

	2004			2003
Medicare	$	36,542		$	28,595
Medicaid		40,517			36,253
Private		9,599			8,827
Managed Care and other		14,071			11,426
	$	100,729		$	85,101
Occupancy
Skilled nursing occupancy		86.6	%		84.6	%
Assisted living occupancy		56.0	%		59.4	%
Total occupancy		83.6	%		82.0	%

Three months ended March 31, 2004 compared to three months ended March 31, 2003

     Net revenues increased $15.6 million or 18.4% to $100.7 million for the three months ended March 31, 2004 from $85.1 million for the three months ended March 31, 2003. Net revenues increased due to a rise of 1.6 percentage points in total average occupancy to 83.6% for the three months ended March 31, 2004 from 82.0% for the three months ended March 31, 2003 and increased Medicare rates which were effective October 1, 2003. Additionally, we acquired five facilities in northern California in the third and fourth quarters of 2003, which contributed $5.9 million of the additional revenue. The $1.5 million or 32.3% increase in revenue for the therapy operations, net of intercompany eliminations, was primarily due to new contracts and volume within existing contracts. Net revenue for nursing services accounted for $84.3 million, or 83.7% of total net revenues, for the three months ended March 31, 2004 as compared to $70.3, or 82.6% of total net revenues, for the three months ended March 31, 2003. Net revenue for therapy services accounted for $6.3 million, or 6.3% of total net revenues, for the three months ended March 31, 2004 as compared to $4.8 million, or 5.6% of total net revenues, for the three months ended March 31, 2003. Net revenues from pharmacy services accounted for $10.1 million, or 10.0% of total net revenues, for the three months ended March 31, 2004 as compared to $10.0 million, or 11.8% of total net revenues, for the three months ended March 31, 2003.

     Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues decreased 2.7 percentage points to 83.1% of net revenue for the three months ended March 31, 2004 from 85.8% for the three months ended March 31, 2003. Expenses increased $10.7 million or 14.7% to $83.7 million for the three months ended March 31, 2004 from $73.0 million for the three months ended March 31, 2003. Salaries and benefits decreased to 52.3% of net revenues in the three months ended March 31, 2004 compared to 53.8% for the three months ended March 31, 2003. The decrease in salaries and benefits as a percentage of revenue was largely due to the significant increase in census which resulted in the revenue growing faster than the salary and benefit expense.

     Income from continuing operations before rent, depreciation and amortization, and interest expense increased by $4.9 million or 40.5% to $17.0 million for the three months ended March 31, 2004 from $12.1 million for the three months ended March 31, 2003 and was 16.9% of net revenues for the three months ended March 31, 2004 compared to 14.2% for the three months ended March 31, 2003.

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     Rent, depreciation and amortization and interest expense increased to $11.4 million in the three months ended March 31, 2004 from $9.3 million for the three months ended March 31, 2003. The increase is primarily due to interest expense related to higher interest rates associated with the new debt and interest recorded related to our Series A preferred stock.

     Reorganization expenses decreased to $0.4 million for the three months ended March 31, 2004 from $2.4 million for the three months ended March 31, 2003. This decrease is due to our exit from bankruptcy in August 2003. The change in the fair value in the interest rate hedge was $0.7 million for the three months ended March 31, 2004, compared to no charges for the three months ended March 31, 2003.

     The provision for income taxes increased to $1.0 million for the three months ended March 31, 2004 from $0 million for the three months ended March 31, 2003 due to an expected increase in net income not fully offset by net operating losses in 2004.

     Our net income increased $3.1 million to $3.5 million for the three months ended March 31, 2004 from a net income of $0.4 million for the three months ended March 31, 2003. The improvement in net income was primarily due to the census growth in the long term care division reflecting an increase in revenue and the incremental expenses growing at a lower rate.

Liquidity and Capital Resources

     As of March 31, 2004, cash and cash equivalents were zero compared to $2.7 million at December 31, 2003. Our principal sources of liquidity to fund ongoing operations for the three months ended March 31, 2004 were cash provided by operations and existing cash and cash equivalents.

     Cash flow provided by operations before reorganization expenses for the three months ended March 31, 2004 was $11.9 million, an increase of $1.6 million compared with cash provided in operations for the three months ended March 31, 2003 of $10.3 million. Cash was provided primarily by net income of $3.5 million, an increase in accounts payable and accrued liabilities of $3.8 million and an increase in employee compensation and benefits of $2.1 million, depreciation and amortization of $2.1 million, change in the fair value of interest rate hedge of $0.7 million and provision for doubtful accounts of $1.0 million. Cash used in operations consisted of increase in the gross accounts receivable of $0.8 million, and a decrease in accrued interest expenses of $0.9 million.

     Cash flow used in investing activities for the three months ended March 31, 2004 was $3.2 million, an increase of $1.8 million compared with cash used for the three months ended March 31, 2003 of $1.4 million. The principal elements of this increase are due to our capital improvements to property and equipment of $1.4 million and payments to our workers’ compensation captive of $2.0 million.

     Cash flow used in financing activities for the three months ended March 31, 2004 totaled $10.8 million, an increase of $4.2 million compared with cash used for the three months ended March 31, 2003 of $6.6 million. The principal elements of cash used in financing activities were repayments of borrowings under our Revolving Credit Facility of $4.2 million and repayments of our long-term debt of $6.6 million. Included in our repayment of long-term debt were payments of mandatory amortization of $1.0 million on our unsecured creditor’s debt related to pre-bankruptcy trade debt, $0.9 million on Secured Mortgage Term Loan and $0.6 million on the Mezzanine Loans. In addition, the Company made a voluntary principal payment of $4.0 million on the Mezzanine Loan.

     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 $2.7 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.

     On August 19, 2003, pursuant to the Plan, we satisfied the terms of our Senior Subordinated Notes by, among other things making a payment to the holders on a pro rata basis of $50.0 million, consisting of approximately $36.0 million in outstanding interest and approximately $14.0 million of principal. At that time, the holders of the Senior Subordinated Notes received on a pro rata basis new Senior Subordinated Secured Increasing Rate Notes due in August 2008, that accrue interest at an initial rate of 9.25% and provide for annual rate increases. We accrue interest on the new Senior Subordinated Notes using the effective interest rate method which straight lines the interest costs over the term. In February 2004, we paid $4.9 million representing the semi-annual interest payment due to the holders of the notes. At March 31, 2004, we had accrued approximately $2.2 million in excess of the pay rate for the semi-annual interest payments.

     Our general and professional liability reserve is estimated based on our independent actuaries quarterly using the most recent trends of claims, settlements and other relevant data from our companies and industry loss history. General and professional liability costs for the long-term care industry have become increasingly more difficult to estimate. Based on the information provided by our independent actuaries at March 31, 2004, we have reserved $29.4 million for these costs. We have estimated approximately $3.1 million of the total to be payable in the coming year, however there are no set payment schedules and there can be no assurances that amount will not be significantly larger.

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     Our ability to make acquisitions of new businesses and capital expenditures is restricted by the terms of the new refinancing credit agreement. Under these restrictions we are limited to $5.0 million per year on acquisitions and $7.0 million on capital expenditures. Permitted capital expenditures to renovate or improve our facilities will be funded by our 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 lines will be sufficient to meet our capital requirements and working capital needs for at least the next year. 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.

Transactions with Related Parties

Leased Facilities

     Our former Chief Executive Officer and current director, and his wife, a former Executive Vice President of our company, own the real estate for four of our leased facilities. Such real estate has not been included in the financial statements for any of the periods presented herein. Lease payments to these related parties under operating leases for these facilities for the three months ended March 31, 2004 and 2003 were $0.5 million and $0.5 million, respectively.

Notes Receivable

     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 Class A common stock pledged as collateral for the note. We have recourse for payment up to $1.0 million of the principal amount of the note.

Factors That May Affect Future Results

FORWARD-LOOKING INFORMATION

     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.

RISK FACTORS

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

     We derive a substantial portion of our revenue from third-party payors, including the Medicare and Medicaid programs. For the three-month period ended March 31, 2004, we derived approximately 36%, 40% and 24% of our total revenue from the Medicare program, the Medicaid program and private third party payor programs, respectively.

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     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.

     Medicare and Medicaid have implemented numerous initiatives to contain healthcare costs by limiting reimbursement rates and coverage policies, providing for more restrictive reimbursement regulations, increasing case management review and operational requirements and negotiating reduced contract pricing. Private third-party payors, which are parties responsible for the payment for medical services received by others, other than the Medicare and Medicaid programs, 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.

     There are also numerous initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services, including a number of proposals that would significantly limit reimbursement under the Medicare an Medicaid programs. It is not clear at this time what proposals, if any, will be adopted or, if adopted, what effect these proposals would have on our business. Aspects of certain of these healthcare proposals, such as reductions in Medicare and Medicaid program expenditures, containment of healthcare costs on an interim basis by means that could include a short-term freeze on prices charged by healthcare providers, and permitting greater state flexibility in the administration of Medicaid, could potentially affect our revenues and financial condition.

     Since the federal Medicare program restricts coverage to patients who require skilled care and state-administered Medicaid programs generally provide more restricted coverage and lower reimbursement rates than private pay sources, 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.

     We cannot assure you that reimbursement payments and coverage policies under third-party payor programs will remain at levels comparable to present levels or 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.

     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 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.

     Our substantial leverage could adversely affect our financial condition.

     Our business is highly leveraged. As of March 31, 2004, we have long-term debt of approximately $243.3 million. We also have a stockholders’ equity deficit of approximately $75.5 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;

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• 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 an 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.

     Skilled Nursing Facility and Assisted Living Facility Regulation. Long-term care facilities must comply with certain regulatory requirements to participate either as a skilled nursing facility under Medicare or a nursing facility under Medicaid. Failure to substantially 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.

     Pharmacy Regulation. Our pharmacies are subject to a variety of state licensing and other laws governing the storage, handling, selling or dispensing of drugs, in addition to federal regulation 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, and to comply with requirements imposed by that agency with respect to security and reporting of inventories and transactions. Medicare pays for the costs of prescription drugs furnished in a number of different settings. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Medicare Modernization Act”) contains a number of reforms that revise payment methodologies for outpatient settings, beginning January 1, 2004. Medicaid Programs reimburse pharmacies for drugs supplied to patients based on the cost of the drug plus a mark-up that varies depending on the type of drugs supplied.

     The Medicare Modernization Act also establishes a new Medicare outpatient prescription drug benefit, effective in 2006. The drug benefit will be provided through risk-bearing private plans contracting with the government (including plans offering only the drug benefit as well as integrated plans offering other Medicare benefits). The standard outpatient drug benefit will have a $250 annual deductible, and a 25% coinsurance requirement between $250 and an initial benefit cap of $2,250 in drug spending. The Medicare Modernization Act will not provide coverage above $2,250 for catastrophic coverage with a 5% copayment beginning at $3,600 in out-of-pocket costs ($5,100 in drug spending).

     The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) established uniform standards governing the conduct of certain electronic health care transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by health care providers, health plans and health care clearinghouses. Two standards have been promulgated under HIPAA with which we currently are required to comply. We must comply with the Standards for Privacy of Individually Identifiable Health Information, which restrict our use and disclosure of certain individually identifiable health information. We have been required to comply with the Privacy Standards since April 14, 2003. We must also comply with the Standards for Electronic Transactions, which establish standards for common health care transactions, such as claims information, plan eligibility, referral certification and authorization, claims status, plan enrollment and disenrollment and payment and remittance advice. We have been required to comply with these Standards since October 16, 2003. While we believe that we were HIPAA compliant by such date, there is a significant risk that many of the state Medicaid programs from which we receive Medicaid reimbursement are not and will not be

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compliant in the near term, particularly in light of the budget deficits many of them are facing. In the event that a state is unable to process our HIPAA compliant requests for payment, our liquidity could be adversely affected. Two other standards relevant to our use of medical information have been promulgated under HIPAA, although our compliance with these standards is not yet required. The Security Standards will require us to implement certain security measures to safeguard specified electronic health information by April 21, 2005. In addition, CMS recently published a final rule, which will require us to adopt unique health identifiers for use in filing and processing health care claims and other transactions by May 23, 2007. While the government intended this legislation to reduce administrative expenses and burdens for the health care industry, our compliance with this law may entail significant and costly changes for us. If we fail to comply with these standards, we could be subject to criminal penalties and civil sanctions.

     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 Department of Health and Human Services and the U.S. Department of Justice and provided enhanced resources to support the activities and responsibilities of the Office of Inspector General and Department of Justice by authorizing large increases in funding for investigating fraud and abuse violations relating to healthcare delivery and payment.

     Various laws including antikickback, antifraud and abuse amendments codified under the Social Security Act prohibit certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare and Medicaid, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other governmental programs. Sanctions for violating the antikickback, antifraud and abuse amendments under the Social Security Act include criminal penalties, civil sanctions, fines and possible exclusion from government programs such as Medicare and Medicaid.

     In addition, the Social Security Act broadly defines the scope of prohibited physician referrals under the Medicare and Medicaid programs to providers with which they have ownership or certain other financial arrangements. Many states have adopted or are considering similar legislative proposals, some of which extend beyond the Medicaid program, to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of the source of the payment for the 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 expand 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 aggressive 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.

     Recent legislation establishing a competitive bidding process under Medicare could negatively affect our business.

     Recently, CMS conducted competitive bidding demonstrations for certain Medicare services. Under the Medicare Modernization Act, starting in 2007, Medicare will begin a nationwide competitive bidding program in ten high-population metropolitan services areas for certain high cost and high utilization items. The program will expand to cover 80 metropolitan services areas in 2009 and additional areas thereafter. Competitive bidding will require suppliers to compete for the exclusive or limited rights to provide items to beneficiaries in a defined region. Only a limited number of suppliers will be selected in any given metropolitan services area, resulting in restricted supplier choices for beneficiaries.

     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, skilled nursing facilities, assisted living facilities, pharmacies and therapy services.

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     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, skilled nursing facilities. This includes investigations of:

• cost reporting and billing practices;

• quality of care;

• financial relationships with referral sources; and

• the medical necessity of services provided.

     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

• 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 designed to combat fraud and abuse in the health care industry. These lawsuits can involve significant monetary awards to private plaintiffs who successfully bring these suits.

     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 indebtedness.

     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 skilled nursing facilities and assisted living facilities 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 skilled nursing facilities and assisted living facilities 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

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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 skilled nursing facilities and assisted living facilities 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 third 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 skilled nursing facilities, 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

27

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 quarterly results are subject to seasonal fluctuations.

     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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates and equity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows.

     For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our results of operations or cash flows. We do not have an obligation to prepay any of our fixed rate debt prior to maturity, and therefore, interest rate risk and changes in the fair market value of our fixed rate debt will not have an impact on our results of operations or cash flows until we decide, or are required, to refinance such debt.

     For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect our future results of operations and cash flows. We had variable rate debt of $113.0 million outstanding at March 31, 2004 with a weighted average interest rate of 8.0%. All of our variable rate debt is based upon a spread above LIBOR or Prime Rate. Assuming that our balance of variable rate debt remains constant, each one-percent increase in interest rates would result in an annual increase in interest expense, and a corresponding decrease in net cash flows, of $1.1 million. Conversely, each one-percent decrease in interest rates would result in an annual decrease in interest expense, and a corresponding increase in net cash flows, of $1.1 million.

     We are also exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on market values of our cash equivalents and short-term investments. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned and cash flow from these investments.

     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 three months ended March 31, 2004.

Item 4. Controls and Procedures.

     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 recognizes 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 is 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 March 31, 2004, 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.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

     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.

Item 2. Changes in Securities

     On March 5, 2004 (the “Filing Date”), we filed with the Secretary of State of the State of Delaware an amended and restated certificate of incorporation for the purpose of reclassifying our common stock, creating a new class of non-voting common stock, and increasing our authorized number of shares of common stock by 1,000,000 shares. The following table sets forth information with respect to each class of our equity securities prior to the Filing Date:

Title of Class	Amount Authorized		Amount Outstanding
Common stock		1,500,000		1,193,587	(1)
Preferred stock		1,000,000
Series A preferred stock		15,000		15,000

(1) Excludes warrants to purchase 50,377 shares of our common stock.

     The total authorized number of shares of each class of capital stock after the Filing Date is (i) 2,500,000 shares of common stock, $0.01 par value per share, of which 2,125,000 shares were designated as Class A common stock and 375,000 shares were designated as Class B Non-Voting common stock and (ii) 1,000,000 shares of preferred stock, $0.01 par value per share, of which 15,000 shares were designated as Series A preferred stock and 985,000 shares were undesignated. Pursuant to the amended and restated certificate of incorporation, (i) each holder of common stock received one share of new Class A common stock for each share of common stock held by them immediately prior to the Filing Date and (ii) each holder of a warrant to purchase common stock received a warrant to purchase a number of shares of Class A common stock that was equal to the number of shares of common stock issuable upon the exercise of warrants held by them immediately prior to the Filing Date. Holders of the Class A common stock are entitled to generally the same rights and preferences after the reclassification as such holders had as holders of common stock prior to the reclassification.

     We did not receive any cash proceeds from the reclassification of our equity securities pursuant to the amended and restated certificate of incorporation. This transaction was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as an exchange of securities by the Company with its existing security holders not involving any commission or other remuneration.

     On March 8, 2004, we issued an aggregate of 70,661 shares of Class B Non-Voting common stock, $0.01 par value per share, to four of our executive officers pursuant to restricted stock agreements between each of the executive officers and us, for a purchase price of $0.05 per share. We received an aggregate of $3,533 cash proceeds from the issuance of the Class B Non-Voting common stock pursuant to the restricted stock agreements. This transaction was exempt from registration pursuant to Rule 701 promulgated under the Securities Act of 1933 as a transaction pursuant to a compensatory benefit plan.

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     The following table sets forth information with respect to each class of our equity securities after giving effect to the foregoing transactions:

Title of Class	Amount Authorized		Amount Outstanding
Common Stock		2,500,000
Class A common stock		2,125,000		1,193,587	(1)
Class B non-voting common stock		375,000		70,661
Preferred Stock		1,000,000
Series A preferred stock		15,000		15,000

(1) Excludes warrants to purchase 50,377 shares of our common stock.

     On March 8, 2004, we granted options to purchase an aggregate of 6,225 shares of Class A common stock to our employees with the exercise price of $18.30 per share under our Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan. These issuances were exempt from registration pursuant to Rule 701 promulgated under the Securities Act of 1933 as transactions pursuant to a compensatory benefit plan.

Item 4. Submission of Matters to a Vote of Security Holders

     On March 4, 2004, 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 approving a second amended and restated certificate of incorporation for the purpose of increasing the authorized number of common stock and reclassifying the Company’s capital stock, among other things, and approving the Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan. Such action by written consent was taken by holders of 623,256 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 a special meeting were voted on as follows:

     1. Approval of the amended and restated certificate of incorporation for the purposes of increasing the authorized number of common stock and reclassifying the Company’s capital stock, among other things. The proposal was approved by 623,256 votes representing 51.6% of the total outstanding eligible votes with 585,331 votes not cast.

     2. Approval of the Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan. The proposal was approved by 623,256 votes representing 51.6% of the total outstanding eligible votes with 585,331 votes not cast.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

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

Exhibit
Number	Description
2.1	Debtors’ Third Amended Joint Plan of Reorganization (1)
2.2	Debtors’ Disclosure Statement (1)
3.1	Restated Certificate of Incorporation (2)
3.2	Bylaws (3)
4.1	Indenture dated as of August 19, 2003 among the Company, the Guarantors (as defined therein) and U.S. Bank National Association (4)
4.2	Amended and Restated Stockholders Agreement (4)
4.3	Amendment No. 1 to Amended and Restated Stockholders Agreement (4)
4.4.1	Form of New Common Stock Certificate (4)
4.4.2	Form of New Series A Preferred Stock Certificate (4)
4.5	Form of Warrant to Purchase Common Stock (4)
10.25	Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan (4)
10.26	Amended and Restated Employment Agreement dated March 8, 2004 between Boyd Hendrickson and the Company
10.27	Amended and Restated Employment Agreement dated March 8, 2004 between Jose Lynch and the Company
10.28	Amended and Restated Employment Agreement dated March 8, 2004 between John Harrison and the Company
10.29	Amended and Restated Employment Agreement dated March 8, 2004 between Roland Rapp and the Company
10.30	Form of Restricted Stock Agreement dated March 8, 2004
10.31	Amendment No. 1 to Mezzanine Loan Agreement dated March 8, 2004 among the SHG Property Resources, LLC and SHG Investments, LLC, collectively, as the Borrower, and CapitaSource Financial, LLC, the other financial institutions from time to time party thereto, collectively, as the Lender and CapitalSource Financial LLC, as administrative agent and collateral agent for Lender.
10.32	Amendment No. 1 to Loan Agreement dated March 8, 2004 among the Entities listed on the signature page hereto, collectively, as the Borrower, and Column Financial, Inc., CapitaSource Financial, LLC, as successor-in-interest with respect to a portion of the Debt referred to herein.
10.33	Form of Stock Option Agreement.
31.1	Certification of Chief Executive Officer of Skilled Healthcare Group, Inc., Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer of Skilled Healthcare Group, Inc., Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer of Skilled Healthcare Group, Inc., Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Each of these exhibits is incorporated by reference herein to the Company’s Form T-3 filed with the Securities and Exchange Commission on July 16, 2003.
(2)	Each of these exhibits is incorporated by reference to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2004.
(3)	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.
(4)	Each of these exhibits is incorporated by reference to the Company’s Report on Form 10-Q for the Quarter ended September 30, 2003.

(b) Reports on Form 8-K.

The following Current Reports on Form 8-K were filed during the three-month period ended March 31, 2004:

     (i) None

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SIGNATURES

     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.

	SKILLED HEALTHCARE GROUP, INC.
Date: May 14, 2004	By:	/s/ Boyd Hendrickson
		Boyd Hendrickson
		Chief Executive Officer (Authorized Signatory, Principal Executive Officer)

Date: May 14, 2004	By:	/s/ John Harrison
		John H. Harrison
		Chief Financial Officer (Principal Financial Officer)

Date: May 14, 2004	By:	/s/ Scott A. Petterson
		Scott A. Petterson
		Vice President-Finance and Controller (Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit
Number	Description
2.1	Debtors’ Third Amended Joint Plan of Reorganization (1)
2.2	Debtors’ Disclosure Statement (1)
3.1	Restated Certificate of Incorporation (2)
3.2	Bylaws (3)
4.1	Indenture dated as of August 19, 2003 among the Company, the Guarantors (as defined therein) and U.S. Bank National Association (4)
4.2	Amended and Restated Stockholders Agreement (4)
4.3	Amendment No. 1 to Amended and Restated Stockholders Agreement (4)
4.4.1	Form of New Common Stock Certificate (4)
4.4.2	Form of New Series A Preferred Stock Certificate (4)
4.5	Form of Warrant to Purchase Common Stock (4)
10.25	Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan (4)
10.26	Amended and Restated Employment Agreement dated March 8, 2004 between Boyd Hendrickson and the Company
10.27	Amended and Restated Employment Agreement dated March 8, 2004 between Jose Lynch and the Company
10.28	Amended and Restated Employment Agreement dated March 8, 2004 between John Harrison and the Company
10.29	Amended and Restated Employment Agreement dated March 8, 2004 between Roland Rapp and the Company
10.30	Form of Restricted Stock Agreement dated March 8, 2004
10.31	Amendment No. 1 to Mezzanine Loan Agreement dated March 8, 2004 among the SHG Property Resources, LLC and SHG Investments, LLC, collectively, as the Borrower, and CapitaSource Financial, LLC, the other financial institutions from time to time party thereto, collectively, as the Lender and CapitalSource Financial LLC, as administrative agent and collateral agent for Lender.
10.32	Amendment No. 1 to Loan Agreement dated March 8, 2004 among the Entities listed on the signature page hereto, collectively, as the Borrower, and Column Financial, Inc., CapitaSource Financial, LLC, as successor-in-interest with respect to a portion of the Debt referred to herein.
10.33	Form of Stock Option Agreement.
31.1	Certification of Chief Executive Officer of Skilled Healthcare Group, Inc., Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer of Skilled Healthcare Group, Inc., Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer of Skilled Healthcare Group, Inc., Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Each of these exhibits is incorporated by reference herein to the Company’s Form T-3 filed with the Securities and Exchange Commission on July 16, 2003.
(2)	Each of these exhibits is incorporated by reference to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2004.
(3)	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.
(4)	Each of these exhibits is incorporated by reference to the Company’s Report on Form 10-Q for the Quarter ended September 30, 2003.

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EX-10.26

                                                                   EXHIBIT 10.26

                                                                           Final

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         This Amended and Restated Employment Agreement (this "Amended
Agreement") is made and entered into as of March 8, 2004 (the "Amendment Date")
by and between Boyd Hendrickson ("Executive") and Skilled Healthcare Group Inc.,
formerly known as Fountain View, Inc., a Delaware corporation (the "Company").

                                    RECITALS

         The Company and Executive are parties to that certain Employment
Agreement dated March 2002 ("Original Agreement"), which sets forth certain
terms of employment including provisions concerning an Alternative Equity Bonus
Program.

         Pursuant to the Original Agreement, the Company may elect to institute
the Alternative Equity Bonus Program, and the Company and Executive desire to
implement an amended Alternative Equity Bonus Program.

         The Company and Executive desire to amend and restate the Original
Agreement to set forth, in full, the understanding of the parties concerning
employment and the amended Alternative Equity Bonus Program to be implemented.

         This Amended Agreement shall govern the employment relationship between
the parties from and after the Amendment Date and supersedes and negates all
previous agreements made between the parties, whether written or oral relating
to the Executive's employment relationship with the Company. The Original
Agreement governs the relationship between the parties prior to the Amendment
Date.

                                    AGREEMENT

         The Executive and the Company agree as follows:

1.       DUTIES.

1.1      RETENTION. The Company shall employ the Executive for the Period of
         Employment and the Executive agrees to such employment on the terms and
         conditions set forth in this Amended Agreement. The "Period of
         Employment" commenced on April 1, 2002 (the "Effective Date") and shall
         continue until March 31, 2007, unless earlier terminated pursuant to
         Section 4.

1.2      DUTIES, REPORTING. During the Period of Employment, the Executive shall
         be employed by the Company as the Company's Chief Executive Officer and
         shall have the duties and responsibilities typical of the position of
         chief executive officer of a corporation, subject to the legal
         directives of the Company's Board of Directors (the "Board"). During
         the Period of Employment, the Executive shall report to the Board and
         also may be employed by one or more of the Affiliated Entities (as
         defined in Section 4.5) as determined by the Board. During the Period
         of Employment, the Executive shall use the Executive's best efforts to
         promote the interests of the Company and the direct and indirect
         subsidiaries of

                                                                           Final



         the Company (collectively, the "Companies"), and to maximize the value
         of the Company, and shall devote the Executive's full business time,
         attention and best efforts to their business and affairs. The Company
         acknowledges that, as of the Effective Date, the Executive owns (but
         does not operate) the long-term care facilities identified on Schedule
         1 hereto. The Company agrees that such ownership interests shall not
         constitute a breach of this Section 1.2 or Section 5(vi) of this
         Amended Agreement by the Executive; provided that (1) the Executive
         does not acquire any additional ownership interests in long-term care
         facilities, (2) the Executive is not actively involved in the operation
         of any of such long-term care facilities, and (3) such ownership
         interests do not otherwise materially interfere with the Executive's
         duties to the Company hereunder.

1.3      NO BREACH OF CONTRACT. The Executive hereby represents and warrants
         that the execution and delivery of this Amended Agreement by the
         Executive and the Company and the performance by the Executive of the
         Executive's duties hereunder shall not constitute a breach of, or
         otherwise contravene, the terms of any employment or other agreement or
         policy to which the Executive is a party or otherwise bound.

1.4      LOCATION. The Executive acknowledges that the Company's principal
         executive offices are currently located in Foothill Ranch, California.
         The Executive shall operate principally out of such executive offices,
         as they may be moved from time to time within Southern California. The
         Company expects, and the Executive agrees, that the Executive shall be
         required to travel from time to time to Company facilities, suppliers
         and customers in order to fulfill his duties to the Company.

1.5      BOARD MEMBERSHIP. The Company shall use its reasonable best efforts to
         cause the Executive to be elected to the Board. If Bill Scott is no
         longer Chairman of the Board, the Company shall also use its reasonable
         best efforts to cause Executive to be named the Chairman of the Board.
         The Executive agrees to resign his directorship and positions with the
         Company when his employment by the Company terminates (regardless of
         the reason for such termination).

2.       COMPENSATION.

2.1      BASE SALARY. During the Period of Employment, the Executive will
         receive a salary at the rate of $450,000 annually (the "Base Salary"),
         payable in accordance with the Company's regular payroll practices in
         effect from time to time, but not less frequently than in monthly
         installments.

2.2      ANNUAL PERFORMANCE BONUS. Executive will be eligible to receive an
         annual performance bonus ("Annual Performance Bonus") for each fiscal
         year of the Company that ends during the Period of Employment if he is
         employed by the Company at the end of that fiscal year. The Annual
         Performance Bonus for a fiscal year will be based on a target EBITDA
         and patient care/quality goals determined annually by the Company and
         other factors identified below. Subject to the following paragraphs of
         this Section 2.2, the Executive shall receive an Annual Performance
         Bonus for the Company's 2004 fiscal year of $50,000 for each $1 million
         that the Company's consolidated EBITDA for that

                                                                           Final

                                        2



         fiscal year exceeds $47 million. The Annual Performance Bonus formula,
         EBITDA targets, and other bonus factors for subsequent years shall be
         determined by the Board.

         The Annual Performance Bonus shall not be pro rated for consolidated
         EBITDA increments of less than $1 million. Notwithstanding anything
         else contained herein to the contrary, the Annual Performance Bonus
         shall not exceed $300,000 for any one fiscal year.

         For this purpose, "EBITDA" means, for the applicable fiscal year, net
         income (or loss) of the Company (after eliminating (x) all
         extraordinary items of income or loss and (y) all income or loss
         related to non-cash change in interest rate hedge), as reflected in the
         Company's financial statements for such fiscal year, plus to the extent
         deducted in computing such net income (or loss), without duplication,
         (i) all interest and other similar expense in respect of indebtedness
         for borrowed money and similar expense in respect of capitalized leases
         and preferred stock, plus (ii) all expenses for income taxes (whether
         paid, accrued or deferred), plus (iii) depreciation and amortization
         expenses, less (iv) interest and other similar income in respect of
         money loaned by the Company and deposits of the Company, all of the
         foregoing as determined on a consolidated basis for Company and its
         Affiliated Entities. EBITDA shall be determined after all compensation
         accruals, including all compensation payable to Executive but before
         giving effect to any Annual Performance Bonuses payable to Executive or
         any other executive officers.

         The Annual Performance Bonus for any given year will be paid after the
         Company's annual audit for that year is completed and in no event later
         than the April 15th of the following year. Executive shall have earned
         and will receive the appropriate Annual Performance Bonus if he is
         employed by the Company on December 31st of the applicable fiscal year,
         regardless of whether he is employed between January 1st and the
         payment date in the following year.

         The Executive's Annual Performance Bonus opportunity for each fiscal
         year (including, without limitation, the 2004 fiscal year) shall be
         subject to patient care/quality goals to be established by the Company
         for that year and such other performance goals and targets (which may
         include, without limitation, cash generation goals and targets) as may
         be established by the Company for that year; provided, however, that
         any such goals and targets established with respect to the Executive's
         Annual Performance Bonus opportunity for a year shall be consistent
         with the goals and targets established under the Company's general
         employee incentive program for that year.

         The Company may make reasonable adjustments to performance goals and
         targets (including, without limitation, the EBITDA targets set forth
         above) and the Annual Performance Bonus formula with respect to a year
         to account for any mergers, reorganizations, acquisitions,
         dispositions, recapitalizations, changes in accounting principles or
         practices or similar events.

2.3      SALE BONUS. If during the Period of Employment or, if the Period of
         Employment terminates before March 31, 2007 as a result of a
         termination by the Company without Cause (as defined

                                                                           Final

                                        3



         in Section 4.5) or due to the Executive's death or Disability (as
         defined in Section 4.5), within nine (9) months following such
         termination, either (i) all or substantially all of the Company's
         assets are sold ("Asset Sale"), (ii) the Company closes a public
         offering pursuant to an effective registration statement under the
         Securities Act of 1933, as amended, covering the offer and sale of
         Common Stock for the account of the Company to the public and the
         Common Stock becomes listed or quoted on a national security exchange
         or in the Nasdaq National Market Quotation System (an "IPO"), or (iii)
         at least a majority of the Company's then outstanding common stock is
         sold in a single transaction or series of substantially related
         transactions, and unless otherwise approved by the Company's Board, for
         cash or marketable securities ("Stock Sale")(any of an Asset Sale, IPO
         or Stock Sale is referred to as a "Trigger Event"), and the Terminal
         Equity Value (defined below) of the Company at such Trigger Event is
         less than [the minimum Terminal Equity Value], the Company will pay the
         Executive a $1,000,000 cash bonus (the "Sale Bonus") at the time of the
         consummation of the transaction.

         As used in this Amended Agreement, "Terminal Equity Value" shall mean
         (i) in the case of an IPO, the equity value of the Company's
         outstanding common stock determined based on the public offering price
         of the Company's common stock in the IPO and the number of shares of
         common stock outstanding immediately prior to the IPO; (ii) in the case
         of a Stock Sale, the equity value of the Company's outstanding common
         stock determined based on the net proceeds distributable in respect of
         the common stock of the Company that is sold in the Stock Sale and the
         number of shares of common stock outstanding; and (iii) in the case of
         an Asset Sale, the aggregate net proceeds that are or would be
         distributable in respect of all outstanding common stock of the Company
         assuming that the Company paid off its debt and preferred stock and
         debt securities, and liquidated on the Asset Sale, and assuming that
         any right, warrant or option to acquire any common stock of the Company
         entitled to be exercised is converted immediately prior to the
         distribution.

         Once a Sale Bonus becomes payable pursuant to this Section 2.3,
         Executive shall have no right to any other bonus under this Section 2.3
         with respect to any subsequent event or occurrence and no right with
         respect to the Restricted Shares granted pursuant to Section 2.4, which
         Restricted Shares shall be deemed automatically forfeited and
         cancelled.

2.4      RESTRICTED SHARES. The Executive shall be issued, concurrently with the
         execution of this Amended Agreement, 39,439 shares of Class B
         Non-Voting Common Stock, subject to all of the restrictions set forth
         in the Restricted Stock Agreement attached hereto as Exhibit A
         ("Restricted Stock Agreement"), the terms of which are incorporated
         herein by reference. Executive understands and agrees that the
         Restricted Shares shall not vest and shall have no value unless and
         until certain trigger events occur, including trigger events requiring
         a liquidity transaction wherein the Terminal Equity Value of the
         Company is equal to or in excess of [the minimum Terminal Equity
         Value]. The Restricted Shares are issued in satisfaction of the equity
         incentive program contemplated by Section 2.4 of the Original
         Agreement.

                                                                           Final

                                        4



3.       BENEFITS.

3.1      HEALTH, WELFARE AND FRINGE BENEFITS. During the Period of Employment,
         the Executive shall be entitled to participate in all pension, welfare
         and fringe benefit plans and programs made available by the Company to
         its executive and managerial employees generally, as such plans or
         programs may be in effect from time to time. Without limiting the
         foregoing, the Executive shall be entitled to participate in a
         Company-paid disability plan or program pursuant to which the Executive
         shall be entitled to no less than $225,000 if his employment by the
         Company terminates due to his Disability during the Period of
         Employment.

3.2      EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive for
         the reasonable expenses and disbursements incurred by the Executive in
         the performance of the Executive's duties for the Company during the
         Period of Employment, subject to the Company's employee expense
         reimbursement policies in effect from time to time.

3.3      VACATION. During the Period of Employment, the Executive shall receive
         four (4) weeks paid vacation per year; provided that the maximum unused
         vacation time that the Executive may accrue is eight (8) weeks.

3.4      CAR ALLOWANCE. The Executive shall be entitled to a car allowance of
         $750 per month for the Period of Employment.

4.       TERMINATION.

4.1      TERMINATION BY THE COMPANY. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Company with Cause (as defined below) or without Cause or in the event
         of the death or Disability of the Executive.

4.2      TERMINATION BY THE EXECUTIVE. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Executive.

4.3      BENEFITS UPON TERMINATION. If the Executive's employment by the Company
         is terminated during the Period of Employment for any reason by the
         Company or by the Executive, the Company shall have no further
         obligation to make any payments or provide any benefits to the
         Executive except (a) the Company shall pay the Executive any Accrued
         Obligations (as defined below), and (b) the Company shall continue for
         three months following the termination (one month following the
         termination if the Executive resigns) (but in no event after Executive
         becomes employed by a new employer) the Executive's medical insurance
         as in effect immediately prior to the termination or similar coverage
         or reimburse the Executive for similar coverage. Those rights that are
         expressly contemplated pursuant to Section 2.3 or pursuant to the
         Restricted Stock Agreement to continue following a termination of
         employment are outside of the scope of the preceding sentence. If the
         Executive resigns on any day other than the last day of a fiscal year
         of the Company or if the Executive's employment is terminated by the
         Company with Cause, the Executive shall not be entitled to any Annual
         Performance Bonus (or pro rated Annual Performance Bonus) for the year
         in which his employment terminates.

                                                                           Final

                                        5



         If, during the Period of Employment, the Executive's employment is
         terminated by the Company without Cause (and other than due to the
         Executive's Disability or death), the Executive shall make himself
         reasonably available to the Company following such termination for such
         transition and other consulting services as the Company may reasonably
         request from time to time. If the termination of the Executive's
         employment by the Company occurs on or after December 31, 2002, the
         Executive's obligation to perform such services, and the Company's
         obligation to retain the Executive to perform such services, shall
         terminate on the earlier of (1) the second anniversary of the date that
         the Executive's employment is terminated by the Company, or (2) March
         31, 2007. Notwithstanding the preceding sentence, the Company shall
         have no obligation to retain or to continue to retain, as the case
         maybe, the Executive as a consultant if the Executive has previously
         breached any provision of Section 1.5 or Section 5 hereof. For the
         period of such consulting services, the Company shall have the
         exclusive right to the Executive's services that relate to any of the
         following businesses in any county in which the Company at such time
         has any operations: stalled nursing facilities, assisted living
         facilities, inpatient or outpatient therapy services, pharmacies,
         urological supplies, enteral feeding supplies, and orthodics. For the
         period of such consulting services, the Company shall pay the Executive
         a monthly consulting fee of $37,500 (pro rated for any partial month of
         service). The Company shall initially deposit the full consulting fee
         for the entire scheduled consulting period with a third-party escrow
         agent reasonably selected by the Company, which escrow agent shall pay
         (on behalf of the Company) the monthly consulting fee to the Executive;
         provided that the escrow agent shall cease paying the Executive and
         shall return any unpaid balance to the Company in the event that the
         Company terminates the consulting services due to a breach of Section
         1.5 of Section 5 by the Executive. The Company shall be entitled to any
         earnings on the escrowed amounts.

         If, during the Period of Employment, the Executive's employment is
         terminated by the Company without Cause (and other than due to the
         Executive's Disability or death), the Company shall, but only as long
         as the Executive remains in compliance with the provisions of Sections
         1.5 and 5:

                  (a)      pay the Executive a pro-rated Annual Performance
                           Bonus (based on the Company's consolidated EBITDA for
                           the fiscal year up until the termination of
                           employment and a pro-rated EBITDA target) for the
                           year in which the termination occurs, and

                  (b)      continue for twelve months (as opposed to three
                           months) following the termination (but in no event
                           after Executive becomes employed by a new employer)
                           the Executive's medical insurance as in effect
                           immediately prior to the termination or similar
                           coverage or reimburse the Executive for similar
                           coverage.

4.4      CHANGE OF CONTROL. The Executive shall be deemed to have been
         terminated by the Company without Cause for purposes of this Section 4
         if the Executive resigns from the Company within six (6) months after a
         Change of Control (as defined below) as a result of a diminution of his
         Base Salary, the Company's termination of his status as an

                                                                           Final

                                        6



         executive officer of the Company, and/or a material diminution in his
         duties and/or responsibilities from their level in effect immediately
         prior to the Change of Control.

4.5      CERTAIN DEFINED TERMS.

         As used herein, "Accrued Obligations" means Base Salary that had
         accrued but had not been paid prior to the date of termination, and any
         Annual Performance Bonus previously earned but unpaid.

         As used herein, "Affiliated Entities" shall mean Skilled Healthcare LLC
         and any entity that is controlled by and consolidated with in the
         financial statements of either the Company or Skilled Healthcare LLC.

         As used herein, "Cause" shall mean the reasonable and good faith
         determination by a majority of the Board, that, during the Period of
         Employment, any of the following events or contingencies exists or has
         occurred:

         -        the Executive has breached a fiduciary duty to the Company or
                  any of its Affiliated Entities or breached of any of the
                  Executive's obligations under Section 5;

         -        the Executive has been convicted of a felony or misdemeanor
                  that involves fraud, dishonesty, theft, embezzlement, and/or
                  an act of violence or moral turpitude, or the Executive has
                  plead guilty or no contest (or a similar plea) to any such
                  felony or misdemeanor; or

         -        the Executed has committed an act or an omission that
                  constitutes fraud, gross negligence, or willful misconduct in
                  connection with Executive's employment by the Company or any
                  of its Affiliated Entities.

         As used herein, "Disability" shall mean an illness (mental or physical)
         or injury that, in the good faith and reasonable determination of a
         majority of the Board, based on the report of a reputable physician
         selected jointly by the parties, renders the Executive unable to
         perform the Executive's duties for six (6) months during any twelve
         (12) month period.

         As used herein, "Change of Control" shall mean (i) any time at which
         the current holders of Company stock (common and preferred) and their
         affiliates do not continue to own, in the aggregate, at least a
         majority of the outstanding shares of the Company's common stock and at
         which Heritage partners and its affiliates do not collectively
         constitute the single largest holder of Company common stock, or (ii)
         any sale of all or substantially all of the assets of the Company.

5.       CONFIDENTIALITY, NON-SOLICITATION, ETC.

         In consideration of the mutual promises contained herein, and to
         preserve the goodwill of the Companies, the Executive agrees as
         follows:

                                                                           Final

                                        7



         (i)      The Executive will not at any time, directly or indirectly,
                  disclose or divulge, except as reasonably required in
                  connection with the performance of the Executive's duties for
                  the Company, any Confidential Information (as hereinafter
                  defined) acquired by the executive during the Executive's
                  affiliation with or employment by the Companies. As used
                  herein, "Confidential Information" means all trade secrets and
                  all other proprietary or non-public information of a business,
                  financial, marketing, technical or other nature pertaining to
                  any of the Companies or their affairs and all information of
                  others that any of the Companies have agreed not to disclose;
                  provided, that Confidential Information shall not include any
                  information which has entered or enters the public domain
                  through no fault of the Executive or which the Executive is
                  required to disclose by law or legal process.

         (ii)     The Executive shall make no use whatsoever, directly or
                  indirectly, of any Confidential Information, except as
                  reasonably required in connection with the performance of the
                  Executive's duties for the Company.

         (iii)    Upon any of the Companies' request at any time and for any
                  reason, the Executive shall immediately deliver to the Company
                  all materials (including all copies) in the Executive's
                  possession which contain or relate to Confidential
                  Information.

         (iv)     All inventions, developments or improvements made by the
                  Executive, either alone or in conjunction with others, at any
                  time or at any place during the term of the Executive's
                  employment by the Company, whether or not reduced to writing
                  or practice during such term, which relate to the Business (as
                  defined below), or which were developed or made in whole or in
                  part using any of the Companies' facilities, shall be the
                  exclusive property of the Companies. The Executive shall
                  promptly disclose any such invention, development or
                  improvement to the Company, and, at the request and expense of
                  any of the Companies, shall assign a all of the Executive's
                  rights to the same to the Companies. The Executive shall sign
                  all instruments necessary for the filing and prosecution of
                  any applications for or extension or renewals of letters
                  patent of the United States or any foreign country which any
                  of the Companies desire to file. "Business" shall mean any
                  long-term care facility business, assisted living facility
                  business, pharmacy business and/or therapy business of any of
                  the Companies.

         (v)      All copyrightable work by the Executive during the term of the
                  Executive's employment by the Company which relates to the
                  Business is intended to be "work made for hire" as defined in
                  Section 101 of the Copyright Act of 1976, and shall be the
                  property of the Companies. If the copyright to any such
                  copyrightable work is not the property of the Companies by
                  operation of law, the Executive will, without further
                  consideration, assign to the Companies all right, title and
                  interest in such copyrightable work and will assist the
                  Companies and their nominees in every way, at the Companies'
                  expense, to secure, maintain and defend for the Companies'
                  benefit copyrights and any extensions and renewals thereof on
                  any and all such work including translations thereof in any
                  and all countries, such

                                                                           Final

                                        8



                  work to be and to remain the property of the Companies whether
                  copyrighted or not.

         (vi)     The Executive will not directly or indirectly, individually or
                  as a consultant to, or executive, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity, engage in or assist any other person to
                  engage in the businesses of skilled nursing facilities,
                  assisted living facilities, inpatient or outpatient therapy
                  services, pharmacies, urological supplies, enteral feeding
                  supplies and orthodics, in each instance in any county in
                  which the Company at such time has any operations; provided,
                  however, that the Executive may own not more than a 5% equity
                  interest in any publicly-traded company.

         (vii)    The Executive will not directly or indirectly, individually or
                  as a consultant to, or as employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, (a) solicit or
                  endeavor to entice away from any of the Companies, or
                  otherwise materially interfere with the business relationship
                  of any of the Companies with, any person who is, or was within
                  the six-month period immediately prior to the termination of
                  the Executive's employment with the Company, employed by, a
                  consultant to or associated with any of the Companies, or (b)
                  materially interfere with the business relationship of any of
                  the Companies with any person or entity who is, or was within
                  the two-year period immediately prior to the termination of
                  the Executive's employment with the Company, a supplier to any
                  of the Companies.

         (viii)   The Executive agrees that if the Executive, individually or as
                  a consultant to, or as an employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, is directly involved
                  in the hiring or employing of any person who is or was
                  employed by, a consultant to or associated with any of the
                  Companies within one year prior to the employ or hiring of
                  such person, then for each such person the Executive shall pay
                  to the Company a lump sum equal to nine (9) months of that
                  person's most recent salary from the Companies, payable on the
                  first date of that person's employ or hiring, whichever is
                  first, plus the Company's reasonable attorneys' fees incurred
                  to enforce this paragraph. Nothing within this paragraph shall
                  be construed to limit or modify in any way the Executive's
                  non-solicitation covenants contained in clause (vii) above.

         (ix)     Without limiting the remedies available to the Companies and
                  notwithstanding Section 2.3, the Executive acknowledges that a
                  breach of any of the covenants contained in this Section 5
                  could result in irreparable injury to the Companies for which
                  there might be no adequate remedy at law, and that, in the
                  event of such a breach or threat thereof, the Companies shall
                  be entitled to obtain a temporary restraining order and/or a
                  preliminary injunction and a permanent injunction restraining
                  the Executive from engaging in any activities prohibited by
                  this Section 5 or such other equitable relief as may be
                  required to enforce specifically any of the covenants of this
                  Section 5.

                                                                           Final

                                        9



         (x)      The Executive shall at no time make any derogatory or
                  disparaging remarks about any of the Companies, or any of
                  their respective officers, directors or principal
                  stockholders.

         (xi)     The provisions of this Section 5 shall continue in full force
                  and effect during the course of the Executive's employment by
                  the Company and shall further continue in full force and
                  effect after the Executive's employment by the Company
                  terminates; provided that (a) the restrictions set forth in
                  Section 5(vi) shall terminate upon the earlier to occur of (i)
                  the date that is two years after the Executive's employment by
                  the Company terminates, or (ii) the last day of the remaining
                  scheduled portion of the Period of Employment, and (b) the
                  provisions set forth in Sections 5(vii) and 5(viii) shall
                  terminate two years after the Executive's employment by the
                  Company terminates.

6.       ASSIGNMENT.

         This Amended Agreement is personal in its nature and neither of the
         parties hereto shall, without the consent of the other, assign or
         transfer this Amended Agreement or any rights or obligations hereunder;
         provided, however, that, in the event of a merger, consolidation, or
         transfer or sale of all or substantially all of the assets of the
         Company with or to any other individual(s) or entity, This Amended
         Agreement shall be binding upon and inure to the benefit of such
         successor and such successor shall discharge and perform all the
         promises, covenants, duties, and obligations of the Company hereunder.

7.       GOVERNING LAW.

         This Amended Agreement and the legal relations hereby created between
         the parties hereto shall be governed by and construed under and in
         accordance with the laws of the State of California, without regard to
         choice of law provisions thereof.

8.       ENTIRE AGREEMENT.

         This Amended Agreement embodies the entire agreement of the parties
         hereto respecting the matters within its scope. Effective as of the
         Amendment Date, this Amended Agreement supersedes and replaces all
         prior agreements of the parties hereto on the subject matter hereof,
         including without limitation the Original Agreement. The Original
         Agreement governs the relationship of the parties prior to the
         Amendment Date. Any prior negotiations, correspondence, agreements,
         proposals or understandings relating to the subject matter hereof shall
         be deemed to be merged into this Amended Agreement and to the extent
         inconsistent herewith, such negotiations, correspondence, agreements,
         proposals, or understandings shall be deemed to be of no force or
         effect. There are no representations, warranties, or agreements,
         whether express or implied, or oral or written, with respect to the
         subject matter hereof, except as set forth herein.

9.       AMENDMENT; WAIVER.

         No amendment or waiver of this Amended Agreement or any term, covenant,
         or condition hereof shall be binding upon the party against whom
         enforcement of such

                                                                           Final

                                       10



         amendment or waiver is sought unless it is made in writing and signed
         by or on behalf of such party. Failure to insist upon strict compliance
         with any of the terms, covenants, or conditions hereof shall not be
         deemed a waiver of such term, covenant, or condition, nor shall any
         waiver or relinquishment of, or failure to insist upon strict
         compliance with, any right or power hereunder at any one or more times
         be deemed a waiver or relinquishment of such right or power at any
         other time or times.

10.      NUMBER AND GENDER.

         Where the context requires, the singular shall include the plural, the
         plural shall include the singular, and any gender shall include all
         other genders.

11.      SECTION HEADINGS.

         The section headings in this Amended Agreement are for the purpose of
         convenience only and shall not limit or otherwise affect any of the
         terms hereof.

12.      SEVERABILITY.

         In the event that a court of competent jurisdiction determines that any
         portion of this Amended Agreement is in violation of any statute or
         public policy, then only the portions of this Amended Agreement which
         violate such statute or public policy shall be stricken, and all
         portions of this Amended Agreement which do not violate any statute or
         public policy shall continue in full force and effect. Furthermore, if
         any one or more of the provisions contained in this Amended Agreement
         are for any reason held to be excessively broad as to duration,
         geographical scope, activity or subject, such provisions shall be
         construed by limiting and reducing them so as to be enforceable to the
         maximum extent permitted under applicable law.

13.      NOTICES.

         Any notice or other communication given pursuant to this Amended
         Agreement shall be in writing and shall be personally delivered, sent
         by overnight courier or express mail, or mailed by first class
         certified or registered mail, postage prepaid, return receipt requested
         as follows:

         (i)      if to the Company:

                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                  With copies to:

                  Independent Subcommittee of the Board
                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,

                                                                           Final

                                       11



                  Suite 200
                  Foothill Ranch, California 92610

                           and

                  Heritage Partners, Inc.
                  30 Rowes Wharf, Suite 300
                  Boston, MA 02110
                  Attn: Mark J. Jrolf

         (ii)     if to Executive:

                  Boyd Hendrickson
                  Most current address of record

         Either party may change its address set forth above by written notice
         given to the other party in accordance with the foregoing. Any notice
         shall be effective when personally delivered, two (2) business days
         after being delivered to overnight courier or express mail, or five (5)
         business days after by first class certified or registered mail,
         postage prepaid, return receipt requested.

14.      COUNTERPARTS.

         This Amended Agreement may be executed in any number of counterparts,
         and with counterpart signature pages, each of which shall be deemed an
         original and all of which together shall constitute one and the same
         instrument.

15.      WITHHOLDING TAXES.

         The Company may withhold from any amounts payable under this Amended
         Agreement such federal, state and local income, employment, or other
         taxes as may be required to be withhold pursuant to any applicable law
         or regulation.

16.      MUTUAL DRAFTING.

         Each party has cooperated in the drafting and preparation of this
         Amended Agreement. Hence, in any construction to be made of this
         Amended Agreement, the same shall not be construed against any party on
         the basis that the party was the drafter.

17.      RETURN OF PROPERTY.

         The Executive agrees to truthfully and faithfully account for and
         deliver to the Company all property belonging to the Company or any of
         its affiliates which the Executive may receive from or on account of
         the Company or its affiliates, and upon the termination of the Period
         of Employment, or the Company's demand, the Executive shall immediately
         deliver to the Company all such property belonging to the Company or
         any of its affiliates.

                                                                           Final

                                       12



18.      PROVISIONS THAT SURVIVE TERMINATION.

         Except as otherwise provided herein, the provisions of Sections 2.3,
         2.4, 4 through 17, 19, 20 and this Section 18 shall survive any
         termination of the Period of Employment.

19.      INDEMNIFICATION.

         The Company agrees that (a) if the Executive is made a party, or is
         threatened to be made a party, to any threatened or actual action, suit
         or proceeding whether civil, criminal, administrative, investigative,
         appellate or other (a "Proceeding") by reason of the fact that he is or
         was a director, officer, employee, agent, manager, consultant or
         representative of the Company or (b) if any claim, demand, request,
         investigation, controversy, threat, discovery request or request for
         testimony or information (a "Claim") is made, or threatened to be made,
         that arises out of or relates to the Executive's service in any of the
         foregoing capacities, then the Executive shall promptly be indemnified
         and held harmless by the Company to the fullest extent permitted by the
         laws of the state of incorporation of the Company, against any and all
         costs, expenses, liabilities and losses incurred or suffered by the
         Executive in connection therewith, and such indemnification shall
         continue as to the Executive even if he has ceased to be a director,
         member, employee, agent, manager, consultant or representative of the
         Company and shall inure to the benefit of the Executive's heirs,
         executors and administrators.

         Neither the failure of the Company (including its Board of Directors,
         independent legal counsel or stockholders) to have made a determination
         in connection with any request for indemnification that the Executive
         has satisfied any applicable standard of conduct, nor a determination
         by the Company (including its Board of Directors, independent legal
         counsel or stockholders) that the Executive has not met any applicable
         standard of conduct, shall create a presumption that the Executive has
         not met an applicable standard of conduct.

         During the period of Employment and for a period of time thereafter
         determined as provided below, the Company shall keep in place a
         directors and officers' liability insurance policy (or policies)
         providing comprehensive coverage to the Executive to the extent that
         the Company provides such coverage to its directors and such coverage
         shall continue after the termination of the Period of Employment for
         the period of time that such coverage is extended (or to be extended,
         as the case may be) to the Company's former directors.

20.      RESOLUTION OF DISPUTES.

         Any controversy arising out of or relating to this Amended Agreement,
         its enforcement or interpretation, or because of an alleged breach,
         default, or misrepresentation in connection with any of its provisions,
         or any other controversy arising out of the Executive's employment by
         the Company, including, but not limited to, any state or federal
         statutory claims, shall be submitted to arbitration in Los Angeles
         County, California, before a sole neutral arbitrator (the
         "Arbitrator"), mutually selected and agreeable to both parties and
         selected from Judicial Arbitration and Mediation Services,

                                                                           Final

                                       13



         Inc., Los Angeles County, California, or its successor ("JAMS"), or if
         JAMS is no longer able to supply the Arbitrator, such Arbitrator shall
         be selected from the American Arbitration Association, and shall be
         conducted in accordance with the provisions of California Code of Civil
         Procedure Sections 1280 et seq. as the exclusive forum for the
         resolution of such dispute; provided, however, that provisional
         injunctive relief may, but need not, be sought by either party to this
         Amended Agreement in a court of law while arbitration proceedings are
         pending, and any provisional injunctive relief granted by such court
         shall remain effective until the matter is finally determined by the
         Arbitrator.

         Final resolution of any dispute through arbitration may include any
         remedy or relief that the Arbitrator deems just and equitable,
         including any and all remedies provided by applicable state or federal
         statutes. At the conclusion of the arbitration, the Arbitrator shall
         issue a written decision that sets forth the essential findings and
         conclusions upon which the Arbitrator's award or decision is based. Any
         award or relief granted by the Arbitrator hereunder shall be final and
         binding on the parties hereto and may be enforced by any court of
         competent jurisdiction.

         The parties acknowledge and agree that they are hereby waiving any
         rights to trial by jury in any action, proceeding or counterclaim
         brought by either of the parties against the other in connection with
         any matter whatsoever arising out of or in any way connected with this
         Amended Agreement or the services rendered hereunder. The parties agree
         that the Company Shall be responsible for payment of the forum costs of
         any arbitration hereunder, including the Arbitrator's fee. The
         Executive and the Company further agree that in any proceeding to
         enforce the terms of this Amended Agreement, the prevailing party shall
         be entitled to its or her reasonable attorneys' fees and costs (other
         than forum costs associated with the arbitration) incurred by it or him
         in connection with resolution of the dispute up to a maximum of Fifty
         Thousand Dollars ($50,000.00) in addition to any other relief granted.

                  [Remainder of Page Intentionally Left Blank]

                                                                           Final

                                       14



         IN WITNESS WHEREOF, the Company and the Executive have executed this
Amended Agreement as of the Amendment Date.

                                        THE COMPANY

                                        Skilled Healthcare Group, Inc.,
                                        a Delaware corporation

                                        By: /s/ BOYD HENDRICKSON
                                            ------------------------------------
                                        Print Name: Boyd Hendrickson

                                        Title:
                                               ---------------------------------
                                        THE EXECUTIVE

                                        ----------------------------------------
                                        Boyd Hendrickson

                                                                           Final

                                       15



                                    EXHIBIT A

                           RESTRICTED STOCK AGREEMENT

                                                                           Final

                                       17

EX-10.27

                                                                   EXHIBIT 10.27

                                                                           Final

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         This Amended and Restated Employment Agreement (this "Amended
Agreement") is made and entered into as of March 8, 2004 (the "Amendment Date")
by and between Jose Lynch ("Executive") and Skilled Healthcare Group Inc.,
formerly known as Fountain View, Inc., a Delaware corporation (the "Company").

                                    RECITALS

         The Company and Executive are parties to that certain Employment
Agreement dated January 14, 2002 ("Original Agreement"), which sets forth
certain terms of employment including provisions concerning an Alternative
Equity Bonus Program.

         Pursuant to the Original Agreement, the Company may elect to institute
the Alternative Equity Bonus Program, and the Company and Executive desire to
implement an amended Alternative Equity Bonus Program.

         The Company and Executive desire to amend and restate the Original
Agreement to set forth, in full, the understanding of the parties concerning
employment and the amended Alternative Equity Bonus Program to be implemented.

         This Amended Agreement shall govern the employment relationship between
the parties from and after the Amendment Date and supersedes and negates all
previous agreements made between the parties, whether written or oral relating
to the Executive's employment relationship with the Company. The Original
Agreement governs the relationship between the parties prior to the Amendment
Date.

                                    AGREEMENT

         The Executive and the Company agree as follows:

1.       DUTIES.

1.1      RETENTION. The Company shall employ the Executive for the Period of
         Employment and the Executive agrees to such employment on the terms and
         conditions set forth in this Amended Agreement. The "Period of
         Employment" commenced on February 18, 2002 (the "Effective Date") and
         shall continue until February 17, 2007, unless earlier terminated
         pursuant to Section 4.

1.2      DUTIES, REPORTING. During the Period of Employment, the Executive shall
         be employed by the Company as its President and shall have the duties
         and responsibilities typical of the position of president of a
         corporation, subject to the legal directives of the officer or entity
         of the Company that the Executive reports to (determined in accordance
         with the following sentence). During the Period of Employment, the
         Executive shall report to the Chief Executive Officer ("CEO"), the
         Board of Directors (the "Board") or any independent subcommittee of the
         Board. The Executive also may be employed by one or more of the
         Affiliated Entities (as defined) (as determined by the Board or the
         CEO).

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         During the Period of Employment, the Executive shall use the
         Executive's best efforts to promote the interests of the Company and
         the direct and indirect subsidiaries of the Company (collectively, the
         "Companies"), and to maximize the value of the Company, and shall
         devote the Executive's full business time, attention and best efforts
         to their business and affairs.

1.3      NO BREACH OF CONTRACT. The Executive hereby represents and warrants
         that the execution and delivery of this Amended Agreement by the
         Executive and the Company and the performance by the Executive of the
         Executive's duties hereunder shall not constitute a breach of, or
         otherwise contravene, the terms of any employment or other agreement or
         policy to which the Executive is a party or otherwise bound.

1.4      LOCATION. The Executive acknowledges that the Company's principal
         executive offices are currently located in Foothill Ranch, California.
         The Executive shall operate principally out of such executive offices,
         as they may be moved from time to time within Southern California. The
         Company expects, and the Executive agrees, that the Executive shall be
         required to travel from time to time to Company facilities, suppliers
         and customers in order to fulfill his duties to the Company.

2.       COMPENSATION.

2.1      BASE SALARY. During the Period of Employment, the Executive will
         receive a salary at the rate of $350,000 annually (the "Base Salary"),
         payable in accordance with the Company's regular payroll practices in
         effect from time to time, but not less frequently than in monthly
         installments.

         ANNUAL PERFORMANCE BONUS. Executive will be eligible to receive an
         annual performance bonus ("Annual Performance Bonus") for each fiscal
         year of the Company that ends during the Period of Employment if he is
         employed by the Company at the end of that fiscal year. The Annual
         Performance Bonus for a fiscal year will be based on a target EBITDA
         determined annually by the Company. The Executive shall receive an
         Annual Performance Bonus of $33,000 for each $2 million that the
         Company's consolidated EBITDA for that fiscal year exceeds the target
         EBITDA established by the Company for that year (without proration for
         increments of less than $2 million); provided, however, that the Annual
         Performance Bonus shall not exceed $264,000 for any one fiscal year.

         For this purpose, "EBITDA" means, for the applicable fiscal year, the
         net income (or loss) of the Company (after eliminating (x) all
         extraordinary items of income or loss and (y) all income or loss
         related to non-cash change in interest rate hedge), as reflected in the
         Company's financial statements for such fiscal year, plus to the extent
         deducted in computing such net income (or loss), without duplication,
         (i) all interest and other similar expense in respect of indebtedness
         for borrowed money and similar expense in respect of capitalized leases
         and preferred stock, plus (ii) all expenses for income taxes (whether
         paid, accrued or deferred), plus (iii) depreciation and amortization
         expenses, less (iv) interest and other similar income in respect of
         money loaned by the Company and deposits of the Company, all of the
         foregoing as determined on a consolidated basis for Company and its
         Affiliated Entities. EBITDA shall be determined after all compensation

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                                        2



         accruals, including all compensation payable to Executive but before
         giving effect to any Annual Performance Bonuses payable to Executive or
         any other executive officers.

         The Annual Performance Bonus for any given year will be paid after the
         Company's annual audit for that year is completed and in no event later
         than the April 15th of the following year. Executive shall have earned
         and will receive the appropriate Annual Performance Bonus if he is
         employed by the Company on December 31st of the applicable fiscal year,
         regardless of whether he is employed between January 1st and the
         payment date in the following year.

         Target EBITDA for 2004 will be $47 million.

         The Company may, however, make reasonable adjustments to the above
         EBITDA targets, any EBITDA targets it establishes and the Annual
         Performance Bonus formula with respect to a year to account for any
         mergers, reorganizations, acquisitions, dispositions,
         recapitalizations, changes in accounting principles or practices or
         similar events.

2.2      SALE BONUS. If during the Period of Employment or, if the Period of
         Employment terminates before February 17, 2007 as a result of a
         termination by the Company without Cause (as defined in Section 5.5) or
         due to the Executive's death or Disability (as defined in Section 5.5),
         within nine (9) months following such termination, either (i) all or
         substantially all of the Company's assets are sold ("Asset Sale"), (ii)
         the Company closes a public offering pursuant to an effective
         registration statement under the Securities Act of 1933, as amended,
         covering the offer and sale of Common Stock for the account of the
         Company to the public and the Common Stock becomes listed or quoted on
         a national security exchange or in the Nasdaq National Market Quotation
         System (an "IPO"), or (iii) at least a majority of the Company's then
         outstanding common stock is sold in a single transaction or series of
         substantially related transactions, and unless otherwise approved by
         the Company's Board, for cash or marketable securities ("Stock Sale")(
         any of an Asset Sale, IPO or Stock Sale is referred to as a "Trigger
         Event"), and the Terminal Equity Value (defined below) of the Company
         at the Trigger Event is less than [the minimum Terminal Equity Value],
         the Company will pay the Executive a $500,000 cash bonus (the "Sale
         Bonus") at the time of the consummation of the transaction.

         As used in this Amended Agreement, "Terminal Equity Value" shall mean
         (i) in the case of an IPO, the equity value of the Company's
         outstanding common stock determined based on the public offering price
         of the Company's common stock in the IPO and the number of shares of
         common stock outstanding immediately prior to the IPO; (ii) in the case
         of a Stock Sale, the equity value of the Company's outstanding common
         stock determined based on the net proceeds distributable in respect of
         the common stock of the Company that is sold in the Stock Sale and the
         number of shares of common stock outstanding; and (iii) in the case of
         an Asset Sale, the aggregate net proceeds that are or would be
         distributable in respect of all outstanding common stock of the Company
         assuming that the Company paid off its debt and preferred stock and
         debt securities, and liquidated on the Asset Sale, and assuming that
         any right, warrant or option to acquire

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                                        3



         any common stock of the Company entitled to be exercised is converted
         immediately prior to the distribution.

         Once a Sale Bonus becomes payable pursuant to this Section 2.3,
         Executive shall have no right to any other bonus under this Section 2.3
         with respect to any subsequent event or occurrence and no right with
         respect to the Restricted Shares granted pursuant to Section 2.4, which
         Restricted Shares shall be deemed automatically forfeited and
         cancelled.

2.3      RESTRICTED SHARES. The Executive shall be issued, concurrently with the
         execution of this Amended Agreement, 19,719 shares of Class B
         Non-Voting Common Stock, subject to all of the restrictions set forth
         in the Restricted Stock Agreement attached hereto as Exhibit A
         ("Restricted Stock Agreement"), the terms of which are incorporated
         herein by reference. Executive understands and agrees that the
         Restricted Shares shall not vest and shall have no value unless and
         until certain trigger events occur, including trigger events requiring
         a liquidity transaction wherein the Terminal Equity Value of the
         Company is equal to or in excess of [the minimum Terminal Equity
         Value]. The Restricted Shares are issued in satisfaction of the equity
         incentive program contemplated by Section 2.4 of the Original
         Agreement.

3.       BENEFITS.

3.1      HEALTH, WELFARE AND FRINGE BENEFITS. During the Period of Employment,
         the Executive shall be entitled to participate in all pension, welfare
         and fringe benefit plans and programs made available by the Company to
         its executive and managerial employees generally, as such plans or
         programs may be in effect from time to time.

3.2      EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive for
         the reasonable expenses and disbursements incurred by the Executive in
         the performance of the Executive's duties for the Company during the
         Period of Employment, subject to the Company's employee expense
         reimbursement policies in effect from time to time.

3.3      VACATION. During the Period of Employment, the Executive shall receive
         four (4) weeks paid vacation per year; provided that the maximum unused
         vacation time that the Executive may accrue is eight (8) weeks.

3.4      CAR ALLOWANCE. The Executive shall be entitled to a car allowance of
         $750 per month for the Period of Employment.

4.       ANNUAL REVIEW. Approximately every 12 months during the Period of
Employment, the Executive and either the Company's CEO or the Board shall meet
to discuss the performance and terms of the Executive's employment by the
Company.

5.       TERMINATION.

5.1      TERMINATION BY THE COMPANY. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Company with Cause (as defined below) or without Cause or in the event
         of the death or Disability of the Executive.

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                                        4



5.2      TERMINATION BY THE EXECUTIVE. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Executive.

5.3      BENEFITS UPON TERMINATION. If the Executive's employment by the Company
         is terminated during the Period of Employment for any reason by the
         Company or by the Executive, the Company shall have no further
         obligation to make any payments or provide any benefits to the
         Executive except (a) the Company shall pay the Executive any Accrued
         Obligations (as defined below), and (b) the Company shall continue for
         three months following the termination (one month following the
         termination if the Executive resigns) (but in no event after Executive
         becomes employed by a new employer) the Executive's medical insurance
         as in effect immediately prior to the termination or similar coverage
         or reimburse the Executive for similar coverage. Those rights that are
         expressly contemplated pursuant to Section 2.3 or pursuant to the
         Restricted Stock Agreement to continue following a termination of
         employment are outside of the scope of the preceding sentence. If the
         Executive resigns on any day other than the last day of a fiscal year
         of the Company or if the Executive's employment is terminated by the
         Company with Cause, the Executive shall not be entitled to any Annual
         Performance Bonus (or pro rated Annual Performance Bonus) for the year
         in which his employment terminates.

         If the Executive's employment is terminated by the Company without
         Cause (including termination (other than for Cause) by the Company upon
         or following a Change of Control), or if the Executive's employment by
         the Company terminates due to the Executive's death during the Period
         of Employment, or if the Executive's employment is terminated by the
         Company during the Period of Employment due to the Executive's
         Disability, the Company shall also, but only as long as the Executive
         remains in compliance with the provisions of Section 6:

                  (a)      pay the Executive a lump sum severance payment in an
                           amount equal to 2.0 times Executive's Base Salary;
                           provided, however, that the lump sum severance
                           payment shall equal 2.0 times Executive's Base Salary
                           in the case of any termination (other than for Cause)
                           by the Company upon or following a Change of Control;

                  (b)      pay the Executive a pro-rated bonus under the Annual
                           Performance Bonus Program (based on the Company's
                           performance for the fiscal year up until the
                           termination of employment and prorated performance
                           targets) for the year in which the termination
                           occurs; and

                  (c)      continue for twelve months (as opposed to three
                           months) following the termination (but in no event
                           after Executive becomes employed by a new employer)
                           the Executive's medical insurance as in effect
                           immediately prior to the termination or similar
                           coverage or reimburse the Executive for similar
                           coverage.

5.4      CHANGE OF CONTROL. The Executive shall be deemed to have been
         terminated by the Company without Cause for purposes of this Section 5
         if the Executive resigns from the Company within six (6) months after a
         Change of Control (as defined below) as a result

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                                        5



         of a diminution of his Base Salary, the Company's termination of his
         status as an executive officer of the Company, and/or a material
         diminution in his duties and/or responsibilities from their level in
         effect immediately prior to the Change of Control.

5.5      CERTAIN DEFINED TERMS.

         As used herein, "Accrued Obligations" means Base Salary that had
         accrued but had not been paid prior to the date of termination, and any
         Annual Performance Bonus previously earned but unpaid.

         As used herein, "Affiliated Entities" shall mean Skilled Healthcare LLC
         and any entity that is controlled by and consolidated with in the
         financial statements of either the Company or Skilled Healthcare LLC.

         As used herein, "Cause" shall mean the reasonable and good faith
         determination by a majority of the Board, that, during the Period of
         Employment, any of the following events or contingencies exists or has
         occurred:

         -        the Executive has breached a fiduciary duty to the Company or
                  any of its Affiliated Entities or breached of any of the
                  Executive's obligations under Section 6;

         -        the Executive has been convicted of a felony or misdemeanor
                  that involves fraud, dishonesty, theft, embezzlement, and/or
                  an act of violence or moral turpitude, or the Executive has
                  plead guilty or no contest (or a similar plea) to any such
                  felony or misdemeanor; or

         -        the Executed has committed an act or an omission that
                  constitutes fraud, gross negligence, or willful misconduct in
                  connection with Executive's employment by the Company or any
                  of its Affiliated Entities.

         As used herein, "Disability" shall mean an illness (mental or physical)
         or injury that, in the good faith and reasonable determination of a
         majority of the Board, based on the report of a reputable physician
         selected jointly by the parties, renders the Executive unable to
         perform the Executive's duties for six (6) months during any twelve
         (12) month period.

         As used herein, "Change of Control" shall mean (i) any time at which
         the current holders of Company stock (common and preferred) and their
         affiliates do not continue to own, in the aggregate, at least a
         majority of the outstanding shares of the Company's common stock and at
         which Heritage Partners and its affiliates do not collectively
         constitute the single largest holder of Company common stock, or (ii)
         any sale of all or substantially all of the assets of the Company.

6.       CONFIDENTIALITY, NON-SOLICITATION, ETC.

         In consideration of the mutual promises contained herein, and to
         preserve the goodwill of the Companies, the Executive agrees as
         follows:

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                                        6



         (i)      The Executive will not at any time, directly or indirectly,
                  disclose or divulge, except as reasonably required in
                  connection with the performance of the Executive's duties for
                  the Company, any Confidential Information (as hereinafter
                  defined) acquired by the executive during the Executive's
                  affiliation with or employment by the Companies. As used
                  herein, "Confidential Information" means all trade secrets and
                  all other proprietary or non-public information of a business,
                  financial, marketing, technical or other nature pertaining to
                  any of the Companies or their affairs and all information of
                  others that any of the Companies have agreed not to disclose;
                  provided, that Confidential Information shall not include any
                  information which has entered or enters the public domain
                  through no fault of the Executive or which the Executive is
                  required to disclose by law or legal process.

         (ii)     The Executive shall make no use whatsoever, directly or
                  indirectly, of any Confidential Information, except as
                  reasonably required in connection with the performance of the
                  Executive's duties for the Company.

         (iii)    Upon any of the Companies' request at any time and for any
                  reason, the Executive shall immediately deliver to the Company
                  all materials (including all copies) in the Executive's
                  possession which contain or relate to Confidential
                  Information.

         (iv)     All inventions, developments or improvements made by the
                  Executive, either alone or in conjunction with others, at any
                  time or at any place during the term of the Executive's
                  employment by the Company, whether or not reduced to writing
                  or practice during such term, which relate to the Business (as
                  defined below), or which were developed or made in whole or in
                  part using any of the Companies' facilities, shall be the
                  exclusive property of the Companies. The Executive shall
                  promptly disclose any such invention, development or
                  improvement to the Company, and, at the request and expense of
                  any of the Companies, shall assign a all of the Executive's
                  rights to the same to the Companies. The Executive shall sign
                  all instruments necessary for the filing and prosecution of
                  any applications for or extension or renewals of letters
                  patent of the United States or any foreign country which any
                  of the Companies desire to file. "Business" shall mean any
                  long-term care facility business, assisted living facility
                  business, pharmacy business and/or therapy business of any of
                  the Companies.

         (v)      All copyrightable work by the Executive during the term of the
                  Executive's employment by the Company which relates to the
                  Business is intended to be "work made for hire" as defined in
                  Section 101 of the Copyright Act of 1976, and shall be the
                  property of the Companies. If the copyright to any such
                  copyrightable work is not the property of the Companies by
                  operation of law, the Executive will, without further
                  consideration, assign to the Companies all right, title and
                  interest in such copyrightable work and will assist the
                  Companies and their nominees in every way, at the Companies'
                  expense, to secure, maintain and defend for the Companies'
                  benefit copyrights and any extensions and renewals thereof on
                  any and all such work including translations thereof in any
                  and all countries, such

                                                                           Final

                                        7



                  work to be and to remain the property of the Companies whether
                  copyrighted or not.

         (vi)     The Executive will not directly or indirectly, individually or
                  as a consultant to, or executive, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity, engage in or assist any other person to
                  engage in the businesses of skilled nursing facilities,
                  assisted living facilities, inpatient or outpatient therapy
                  services, pharmacies, urological supplies, enteral feeding
                  supplies and orthodics, in each instance in any county in
                  which the Company at such time has any operations; provided,
                  however, that the Executive may own not more than a 5% equity
                  interest in any publicly-traded company.

         (vii)    The Executive will not directly or indirectly, individually or
                  as a consultant to, or as employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, (a) solicit or
                  endeavor to entice away from any of the Companies, or
                  otherwise materially interfere with the business relationship
                  of any of the Companies with, any person who is, or was within
                  the one-year period immediately prior to the termination of
                  the Executive's employment with the Company, employed by, a
                  consultant to or associated with any of the Companies, or (b)
                  materially interfere with the business relationship of any of
                  the Companies with any person or entity who is, or was within
                  the two-year period immediately prior to the termination of
                  the Executive's employment with the Company, a supplier to any
                  of the Companies.

         (viii)   The Executive agrees that if the Executive, individually or as
                  a consultant to, or as an employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, is directly involved
                  in the hiring or employing of any person who is or was
                  employed by, a consultant to or associated with any of the
                  Companies within one year prior to the employ or hiring of
                  such person, then for each such person the Executive shall pay
                  to the Company a lump sum equal to nine (9) months of that
                  person's most recent salary from the Companies, payable on the
                  first date of that person's employ or hiring, whichever is
                  first, plus the Company's reasonable attorneys' fees incurred
                  to enforce this paragraph. Nothing within this paragraph shall
                  be construed to limit or modify in any way the Executive's
                  non-solicitation covenants contained in clause (vii) above.

         (ix)     Without limiting the remedies available to the Companies and
                  notwithstanding Section 2.3, the Executive acknowledges that a
                  breach of any of the covenants contained in this Section 6
                  could result in irreparable injury to the Companies for which
                  there might be no adequate remedy at law, and that, in the
                  event of such a breach or threat thereof, the Companies shall
                  be entitled to obtain a temporary restraining order and/or a
                  preliminary injunction and a permanent injunction restraining
                  the Executive from engaging in any activities prohibited by
                  this Section 6 or such other equitable relief as may be
                  required to enforce specifically any of the covenants of this
                  Section 6.

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                                        8



         (x)      The Executive shall at no time make any derogatory or
                  disparaging remarks about any of the Companies, or any of
                  their respective officers, directors or principal
                  stockholders.

         (xi)     The provisions of this Section 6 shall continue in full force
                  and effect during the course of the Executive's employment by
                  the Company and shall further continue in full force and
                  effect after the Executive's employment by the Company
                  terminates; provided that the restrictions set forth in
                  Section 6(vi) shall terminate when the Executive's employment
                  by the Company terminates, and the provisions set forth in
                  Sections 6(vii) and 6(viii) shall terminate one year after the
                  Executive's employment by the Company terminates.

7.       ASSIGNMENT.

         This Amended Agreement is personal in its nature and neither of the
         parties hereto shall, without the consent of the other, assign or
         transfer this Amended Agreement or any rights or obligations hereunder;
         provided, however, that, in the event of a merger, consolidation, or
         transfer or sale of all or substantially all of the assets of the
         Company with or to any other individual(s) or entity, This Amended
         Agreement shall be binding upon and inure to the benefit of such
         successor and such successor shall discharge and perform all the
         promises, covenants, duties, and obligations of the Company hereunder.

8.       GOVERNING LAW.

         This Amended Agreement and the legal relations hereby created between
         the parties hereto shall be governed by and construed under and in
         accordance with the laws of the State of California, without regard to
         choice of law provisions thereof.

9.       ENTIRE AGREEMENT.

         This Amended Agreement embodies the entire agreement of the parties
         hereto respecting the matters within its scope. Effective as of the
         Amendment Date, this Amended Agreement supersedes and replaces all
         prior agreements of the parties hereto on the subject matter hereof,
         including without limitation the Original Agreement. The Original
         Agreement governs the relationship of the parties prior to the
         Amendment Date. Any prior negotiations, correspondence, agreements,
         proposals or understandings relating to the subject matter hereof shall
         be deemed to be merged into this Amended Agreement and to the extent
         inconsistent herewith, such negotiations, correspondence, agreements,
         proposals, or understandings shall be deemed to be of no force or
         effect. There are no representations, warranties, or agreements,
         whether express or implied, or oral or written, with respect to the
         subject matter hereof, except as set forth herein.

10.      AMENDMENT; WAIVER.

         No amendment or waiver of this Amended Agreement or any term, covenant,
         or condition hereof shall be binding upon the party against whom
         enforcement of such amendment or waiver is sought unless it is made in
         writing and signed by or on behalf of such party. Failure to insist
         upon strict compliance with any of the terms, covenants, or

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                                        9



         conditions hereof shall not be deemed a waiver of such term, covenant,
         or condition, nor shall any waiver or relinquishment of, or failure to
         insist upon strict compliance with, any right or power hereunder at any
         one or more times be deemed a waiver or relinquishment of such right or
         power at any other time or times.

11.      NUMBER AND GENDER.

         Where the context requires, the singular shall include the plural, the
         plural shall include the singular, and any gender shall include all
         other genders.

12.      SECTION HEADINGS.

         The section headings in this Amended Agreement are for the purpose of
         convenience only and shall not limit or otherwise affect any of the
         terms hereof.

13.      SEVERABILITY.

         In the event that a court of competent jurisdiction determines that any
         portion of this Amended Agreement is in violation of any statute or
         public policy, then only the portions of this Amended Agreement which
         violate such statute or public policy shall be stricken, and all
         portions of this Amended Agreement which do not violate any statute or
         public policy shall continue in full force and effect. Furthermore, if
         any one or more of the provisions contained in this Amended Agreement
         are for any reason held to be excessively broad as to duration,
         geographical scope, activity or subject, such provisions shall be
         construed by limiting and reducing them so as to be enforceable to the
         maximum extent permitted under applicable law.

14.      NOTICES.

         Any notice or other communication given pursuant to this Amended
         Agreement shall be in writing and shall be personally delivered, sent
         by overnight courier or express mail, or mailed by first class
         certified or registered mail, postage prepaid, return receipt requested
         as follows:

         (i)      if to the Company:

                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                  With copies to:

                  Independent Subcommittee of the Board
                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

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                                       10



                           and

                  Heritage Partners, Inc.
                  30 Rowes Wharf, Suite 300
                  Boston, MA 02110
                  Attn: Mark J. Jrolf

         (ii)     if to Executive:

                  Jose Lynch
                  Most current address of record

         Either party may change its address set forth above by written notice
         given to the other party in accordance with the foregoing. Any notice
         shall be effective when personally delivered, two (2) business days
         after being delivered to overnight courier or express mail, or five (5)
         business days after by first class certified or registered mail,
         postage prepaid, return receipt requested.

15.      COUNTERPARTS.

         This Amended Agreement may be executed in any number of counterparts,
         and with counterpart signature pages, each of which shall be deemed an
         original and all of which together shall constitute one and the same
         instrument.

16.      WITHHOLDING TAXES.

         The Company may withhold from any amounts payable under this Amended
         Agreement such federal, state and local income, employment, or other
         taxes as may be required to be withhold pursuant to any applicable law
         or regulation.

17.      MUTUAL DRAFTING.

         Each party has cooperated in the drafting and preparation of this
         Amended Agreement. Hence, in any construction to be made of this
         Amended Agreement, the same shall not be construed against any party on
         the basis that the party was the drafter.

18.      RETURN OF PROPERTY.

         The Executive agrees to truthfully and faithfully account for and
         deliver to the Company all property belonging to the Company or any of
         its affiliates which the Executive may receive from or on account of
         the Company or its affiliates, and upon the termination of the Period
         of Employment, or the Company's demand, the Executive shall immediately
         deliver to the Company all such property belonging to the Company or
         any of its affiliates.

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                                       11



19.      PROVISIONS THAT SURVIVE TERMINATION.

         Except as otherwise provided herein, the provisions of Sections 2.3,
         2.4, 4 through 18, 20, 21 and this Section 19 shall survive any
         termination of the Period of Employment.

20.      INDEMNIFICATION.

         The Company agrees that (a) if the Executive is made a party, or is
         threatened to be made a party, to any threatened or actual action, suit
         or proceeding whether civil, criminal, administrative, investigative,
         appellate or other (a "Proceeding") by reason of the fact that he is or
         was a director, officer, employee, agent, manager, consultant or
         representative of the Company or (b) if any claim, demand, request,
         investigation, controversy, threat, discovery request or request for
         testimony or information (a "Claim") is made, or threatened to be made,
         that arises out of or relates to the Executive's service in any of the
         foregoing capacities, then the Executive shall promptly be indemnified
         and held harmless by the Company to the fullest extent permitted by the
         laws of the state of incorporation of the Company, against any and all
         costs, expenses, liabilities and losses incurred or suffered by the
         Executive in connection therewith, and such indemnification shall
         continue as to the Executive even if he has ceased to be a director,
         member, employee, agent, manager, consultant or representative of the
         Company and shall inure to the benefit of the Executive's heirs,
         executors and administrators.

         Neither the failure of the Company (including its Board of Directors,
         independent legal counsel or stockholders) to have made a determination
         in connection with any request for indemnification that the Executive
         has satisfied any applicable standard of conduct, nor a determination
         by the Company (including its Board of Directors, independent legal
         counsel or stockholders) that the Executive has not met any applicable
         standard of conduct, shall create a presumption that the Executive has
         not met an applicable standard of conduct.

         During the period of Employment and for a period of time thereafter
         determined as provided below, the Company shall keep in place a
         directors and officers' liability insurance policy (or policies)
         providing comprehensive coverage to the Executive to the extent that
         the Company provides such coverage to its directors and such coverage
         shall continue after the termination of the Period of Employment for
         the period of time that such coverage is extended (or to be extended,
         as the case may be) to the Company's former directors.

21.      RESOLUTION OF DISPUTES.

         Any controversy arising out of or relating to this Amended Agreement,
         its enforcement or interpretation, or because of an alleged breach,
         default, or misrepresentation in connection with any of its provisions,
         or any other controversy arising out of the Executive's employment by
         the Company, including, but not limited to, any state or federal
         statutory claims, shall be submitted to arbitration in Los Angeles
         County, California, before a sole neutral arbitrator (the
         "Arbitrator"), mutually selected and agreeable to both parties and
         selected from Judicial Arbitration and Mediation Services,

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                                       12



         Inc., Los Angeles County, California, or its successor ("JAMS"), or if
         JAMS is no longer able to supply the Arbitrator, such Arbitrator shall
         be selected from the American Arbitration Association, and shall be
         conducted in accordance with the provisions of California Code of Civil
         Procedure Sections 1280 et seq. as the exclusive forum for the
         resolution of such dispute; provided, however, that provisional
         injunctive relief may, but need not, be sought by either party to this
         Amended Agreement in a court of law while arbitration proceedings are
         pending, and any provisional injunctive relief granted by such court
         shall remain effective until the matter is finally determined by the
         Arbitrator.

         Final resolution of any dispute through arbitration may include any
         remedy or relief that the Arbitrator deems just and equitable,
         including any and all remedies provided by applicable state or federal
         statutes. At the conclusion of the arbitration, the Arbitrator shall
         issue a written decision that sets forth the essential findings and
         conclusions upon which the Arbitrator's award or decision is based. Any
         award or relief granted by the Arbitrator hereunder shall be final and
         binding on the parties hereto and may be enforced by any court of
         competent jurisdiction.

         The parties acknowledge and agree that they are hereby waiving any
         rights to trial by jury in any action, proceeding or counterclaim
         brought by either of the parties against the other in connection with
         any matter whatsoever arising out of or in any way connected with this
         Amended Agreement or the services rendered hereunder. The parties agree
         that the Company Shall be responsible for payment of the forum costs of
         any arbitration hereunder, including the Arbitrator's fee. The
         Executive and the Company further agree that in any proceeding to
         enforce the terms of this Amended Agreement, the prevailing party shall
         be entitled to its or her reasonable attorneys' fees and costs (other
         than forum costs associated with the arbitration) incurred by it or him
         in connection with resolution of the dispute up to a maximum of Fifty
         Thousand Dollars ($50,000.00) in addition to any other relief granted.

                  [Remainder of Page Intentionally Left Blank]

                                                                           Final

                                       13



         IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the Amendment Date.

                                          THE COMPANY

                                          Skilled Healthcare Group, Inc.,
                                          a Delaware corporation

                                          By: /s/ JOSE LYNCH
                                              ----------------------------------
                                          Print Name: Jose Lynch

                                          Title:
                                                 -------------------------------
                                          THE EXECUTIVE

                                          --------------------------------------
                                          Jose Lynch

                                                                           Final

                                       14



                                                                           Final

                                    EXHIBIT A

                           RESTRICTED STOCK AGREEMENT

                                                                           Final

                                       15

EX-10.28

                                                                   EXHIBIT 10.28

                                                                           Final

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         This Amended and Restated Employment Agreement (this "Amended
Agreement") is made and entered into as of March 8, 2004 (the "Amendment Date")
by and between John Harrison ("Executive") and Skilled Healthcare Group Inc.,
formerly known as Fountain View, Inc., a Delaware corporation (the "Company").

                                    RECITALS

         The Company and Executive are parties to that certain Employment
Agreement dated June 3, 2002 ("Original Agreement"), which sets forth certain
terms of employment including provisions concerning an Alternative Equity Bonus
Program.

         Pursuant to the Original Agreement, the Company may elect to institute
the Alternative Equity Bonus Program, and the Company and Executive desire to
implement an amended Alternative Equity Bonus Program.

         The Company and Executive desire to amend and restate the Original
Agreement to set forth, in full, the understanding of the parties concerning
employment and the amended Alternative Equity Bonus Program to be implemented.

         This Amended Agreement shall govern the employment relationship between
the parties from and after the Amendment Date and supersedes and negates all
previous agreements made between the parties, whether written or oral relating
to the Executive's employment relationship with the Company. The Original
Agreement governs the relationship between the parties prior to the Amendment
Date.

                                    AGREEMENT

         The Executive and the Company agree as follows:

1.       DUTIES.

1.1      RETENTION. The Company shall employ the Executive for the Period of
         Employment and the Executive agrees to such employment on the terms and
         conditions set forth in this Amended Agreement. The "Period of
         Employment" commenced on July 1, 2002 (the "Effective Date") and shall
         continue until June 30, 2007, unless earlier terminated pursuant to
         Section 4.

1.2      DUTIES, REPORTING. During the Period of Employment, the Executive shall
         be employed by the Company as its Chief Financial Officer and shall
         have the duties and responsibilities typical of the position of chief
         financial officer of a corporation (including, without limitation,
         general oversight of the Company's financial reporting, accounting,
         cash management, accounts receivable, accounts payable, MIS,
         reimbursement and payroll functions), subject to the legal directives
         of the officer or entity of the Company that the Executive reports to
         (determined in accordance with the following sentence). During the
         Period of Employment, the Executive shall report to the

                                                                           Final



         Chief Executive Officer (the "CEO"), or, if the Company does not have a
         CEO, to the Company's Board of Directors (the "Board"). The Executive
         also may be employed by one or more of the Affiliated Entities (as
         defined in Section 4.5) (as determined by the CEO or the Board). During
         the Period of Employment, the Executive shall use the Executive's best
         efforts to promote the interests of the Company and the direct and
         indirect subsidiaries of the Company (collectively, the "Companies"),
         and to maximize the value of the Company, and shall devote the
         Executive's full business time, attention and best efforts to their
         business and affairs.

1.3      NO BREACH OF CONTRACT. The Executive hereby represents and warrants
         that the execution and delivery of this Amended Agreement by the
         Executive and the Company and the performance by the Executive of the
         Executive's duties hereunder shall not constitute a breach of, or
         otherwise contravene, the terms of any employment or other agreement or
         policy to which the Executive is a party or otherwise bound.

1.4      LOCATION. The Executive acknowledges that the Company's principal
         executive offices are currently located in Foothill Ranch, California.
         The Executive shall operate principally out of such executive offices,
         as they may be moved from time to time within Southern California. The
         Company expects, and the Executive agrees, that the Executive shall be
         required to travel from time to time to Company facilities, suppliers
         and customers in order to fulfill his duties to the Company.

2.       COMPENSATION.

2.1      BASE SALARY. During the Period of Employment, the Executive will
         receive a salary at the rate of $235,000 annually (the "Base Salary"),
         payable in accordance with the Company's regular payroll practices in
         effect from time to time, but not less frequently than in monthly
         installments.

2.2      ANNUAL PERFORMANCE BONUS. The Executive will be eligible to participate
         in an annual performance bonus program (the "Annual Performance Bonus
         Program") to the extent, if any, determined by the Board and/or the
         CEO.

2.3      SALE BONUS. If during the Period of Employment or, if the Period of
         Employment terminates before June 30, 2007 as a result of a termination
         by the Company without Cause (as defined in Section 5.5) or due to the
         Executive's death or Disability (as defined in Section 5.5), within
         nine (9) months following such termination, either (i) all or
         substantially all of the Company's assets are sold ("Asset Sale"), (ii)
         the Company closes a public offering pursuant to an effective
         registration statement under the Securities Act of 1933, as amended,
         covering the offer and sale of Common Stock for the account of the
         Company to the public and the Common Stock becomes listed or quoted on
         a national security exchange or in the Nasdaq National Market Quotation
         System (an "IPO"), or (iii) at least a majority of the Company's then
         outstanding common stock is sold in a single transaction or series of
         substantially related transactions, and unless otherwise approved by
         the Company's Board, in cash or marketable securities ("Stock Sale")
         (any of an Asset Sale, IPO or Stock Sale is referred to as a "Trigger
         Event"), and the Terminal Equity Value (defined below) of the Company
         at such Trigger Event is less than [the minimum

                                                                           Final

                                        2



         Terminal Equity Value], the Company will pay the Executive a $200,000
         cash bonus (the "Sale Bonus") at the time of the consummation of the
         transaction.

         As used in this Amended Agreement, "Terminal Equity Value" shall mean
         (i) in the case of an IPO, the equity value of the Company's
         outstanding common stock determined based on the public offering price
         of the Company's common stock in the IPO and the number of shares of
         common stock outstanding immediately prior to the IPO; (ii) in the case
         of a Stock Sale, the equity value of the Company's outstanding common
         stock determined based on the net proceeds distributable in respect of
         the common stock of the Company that is sold in the Stock Sale and the
         number of shares of common stock outstanding; and (iii) in the case of
         an Asset Sale, the aggregate net proceeds that are or would be
         distributable in respect of all outstanding common stock of the Company
         assuming that the Company paid off its debt and preferred stock and
         debt securities, and liquidated on the Asset Sale, and assuming that
         any right, warrant or option to acquire any common stock of the Company
         entitled to be exercised is converted immediately prior to the
         distribution.

         Once a Sales Bonus becomes payable pursuant to this Section 2.3,
         Executive shall have no right to any other bonus under this Section 2.3
         with respect to any subsequent event or occurrence and no right with
         respect to the Restricted Shares granted pursuant to Section 2.4, which
         Restricted Shares shall be deemed automatically forfeited and
         cancelled.

2.4      RESTRICTED SHARES. The Executive shall be issued, concurrently with the
         execution of this Amended Agreement, 4,930 shares of Class B Non-Voting
         Common Stock, subject to all of the restrictions set forth in the
         Restricted Stock Agreement attached hereto as Exhibit A ("Restricted
         Stock Agreement"), the terms of which are incorporated herein by
         reference. Executive understands and agrees that the Restricted Shares
         shall not vest and shall have no value unless and until certain trigger
         events occur, including trigger events requiring a liquidity
         transaction wherein the Terminal Equity Value of the Company is equal
         to or in excess of [the minimum Terminal Equity Value]. The Restricted
         Shares are issued in satisfaction of the equity incentive program
         contemplated by Section 2.4 of the Original Agreement.

3.       BENEFITS.

3.1      HEALTH, WELFARE AND FRINGE BENEFITS. During the Period of Employment,
         the Executive shall be entitled to participate in all pension, welfare
         and fringe benefit plans and programs made available by the Company to
         its executive and managerial employees generally, as such plans or
         programs may be in effect from time to time.

3.2      EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive for
         the reasonable expenses and disbursements incurred by the Executive in
         the performance of the Executive's duties for the Company during the
         Period of Employment, subject to the Company's employee expense
         reimbursement policies in effect from time to time.

                                                                           Final

                                        3



3.3      VACATION. During the Period of Employment, the Executive shall receive
         four (4) weeks paid vacation per year; provided that the maximum unused
         vacation time that the Executive may accrue is eight (8) weeks.

3.4      CAR ALLOWANCE. The Executive shall be entitled to a car allowance of
         $750 per month for the Period of Employment.

4.       ANNUAL REVIEW.

         Approximately every 12 months during the Period of Employment, the
         Executive and either the Company's CEO or the Board shall meet to
         discuss the performance and terms of the Executive's employment by the
         Company.

5.       TERMINATION.

5.1      TERMINATION BY THE COMPANY. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Company with Cause (as defined below) or without Cause or in the event
         of the death or Disability of the Executive.

5.2      TERMINATION BY THE EXECUTIVE. The Executive's employment by the Company
         and the Period of Employment may be terminated at any time by the
         Executive.

5.3      BENEFITS UPON TERMINATION. If the Executive's employment by the Company
         is terminated during the Period of Employment for any reason by the
         Company or by the Executive, the Company shall have no further
         obligation to make any payments or provide any benefits to the
         Executive except the Company shall pay the Executive any Accrued
         Obligations (as defined below). Those rights that are expressly
         contemplated pursuant to Section 2.3 or pursuant to the Restricted
         Stock Agreement to continue following a termination of employment are
         outside of the scope of the preceding sentence. If the Executive
         resigns on any day other than the last day of a fiscal year of the
         Company or if the Executive's employment is terminated by the Company
         with Cause, the Executive shall not be entitled to any Annual
         Performance Bonus (or pro rated Annual Performance Bonus) for the year
         in which his employment terminates. If the Executive's employment is
         terminated by the Company without Cause (and other than due to the
         Executive's Disability or death) during the Period of Employment, the
         Company shall also, but only as long as the Executive remains in
         compliance with the provisions of Section 6:

                  (a)      pay the Executive severance (in a lump sum or a
                           series of installments no less frequently than
                           monthly over not longer than a period of six months,
                           whichever the company may elect in its sole
                           discretion) in an aggregate amount of $112,500; and

                  (b)      to the extent that the Board and/or the CEO has
                           previously determined that Executive is eligible to
                           participate in the Annual Performance Bonus Program,
                           pay the Executive a pro-rated bonus under the Annual
                           Performance Bonus Program (based on the Company's
                           performance for

                                                                           Final

                                       4



                           the fiscal year up until the termination of
                           employment and prorated performance targets, if any,
                           established by the Board and/or the CEO) for the year
                           in which the termination occurs.

5.4      CHANGE OF CONTROL. The Executive shall be deemed to have been
         terminated by the Company without Cause for purposes of this Section 5
         if the Executive resigns from the Company within six (6) months after a
         Change of Control (as defined below) as a result of a diminution of his
         Base Salary, the Company's termination of his status as an executive
         officer of the Company, and/or a material diminution in his duties
         and/or responsibilities from their level in effect immediately prior to
         the Change of Control.

5.5      CERTAIN DEFINED TERMS.

         As used herein, "Accrued Obligations" means Base Salary that had
         accrued but had not been paid prior to the date of termination, and any
         bonus under the Annual Performance Bonus Program previously earned but
         unpaid.

         As used herein, "Affiliated Entities" shall mean Skilled Healthcare LLC
         and any entity that is controlled by and consolidated with in the
         financial statements of either the Company or Skilled Healthcare LLC.

         As used herein, "Cause" shall mean the reasonable and good faith
         determination by a majority of the Board, that, during the Period of
         Employment, any of the following events or contingencies exists or has
         occurred:

         -        the Executive has breached a fiduciary duty to the Company or
                  any of its Affiliated Entities or breached of any of the
                  Executive's obligations under Section 6;

         -        the Executive has been convicted of a felony or misdemeanor
                  that involves fraud, dishonesty, theft, embezzlement, and/or
                  an act of violence or moral turpitude, or the Executive has
                  plead guilty or no contest (or a similar plea) to any such
                  felony or misdemeanor; or

         -        the Executed has committed an act or an omission that
                  constitutes fraud, gross negligence, or willful misconduct in
                  connection with Executive's employment by the Company of any
                  of its Affiliated Entities.

         As used herein, "Disability" shall mean an illness (mental or physical)
         or injury that, in the good faith and reasonable determination of a
         majority of the Board, based on the report of a reputable physician
         selected jointly by the parties, renders the Executive unable to
         perform the Executive's duties for six (6) months during any twelve
         (12) month period.

         As used herein, "Change of Control" shall mean (i) any time at which
         the current holders of Company stock (common and preferred) and their
         affiliates do not continue to own, in the aggregate, at least a
         majority of the outstanding shares of the Company's common stock and at
         which Heritage Partners and its affiliates do not collectively
         constitute the

                                                                           Final

                                        5



         single largest holder of Company common stock, or (ii) any sale of all
         or substantially all of the assets of the Company.

6.       CONFIDENTIALITY, NON-SOLICITATION, ETC.

         In consideration of the mutual promises contained herein, and to
         preserve the goodwill of the Companies, the Executive agrees as
         follows:

         (i)      The Executive will not at any time, directly or indirectly,
                  disclose or divulge, except as reasonably required in
                  connection with the performance of the Executive's duties for
                  the Company, any Confidential Information (as hereinafter
                  defined) acquired by the executive during the Executive's
                  affiliation with or employment by the Companies. As used
                  herein, "Confidential Information" means all trade secrets and
                  all other proprietary or non-public information of a business,
                  financial, marketing, technical or other nature pertaining to
                  any of the Companies or their affairs and all information of
                  others that any of the Companies have agreed not to disclose;
                  provided, that Confidential Information shall not include any
                  information which has entered or enters the public domain
                  through no fault of the Executive or which the Executive is
                  required to disclose by law or legal process.

         (ii)     The Executive shall make no use whatsoever, directly or
                  indirectly, of any Confidential Information, except as
                  reasonably required in connection with the performance of the
                  Executive's duties for the Company.

         (iii)    Upon any of the Companies' request at any time and for any
                  reason, the Executive shall immediately deliver to the Company
                  all materials (including all copies) in the Executive's
                  possession which contain or relate to Confidential
                  Information.

         (iv)     All inventions, developments or improvements made by the
                  Executive, either alone or in conjunction with others, at any
                  time or at any place during the term of the Executive's
                  employment by the Company, whether or not reduced to writing
                  or practice during such term, which relate to the Business (as
                  defined below), or which were developed or made in whole or in
                  part using any of the Companies' facilities, shall be the
                  exclusive property of the Companies. The Executive shall
                  promptly disclose any such invention, development or
                  improvement to the Company, and, at the request and expense of
                  any of the Companies, shall assign a all of the Executive's
                  rights to the same to the Companies. The Executive shall sign
                  all instruments necessary for the filing and prosecution of
                  any applications for or extension or renewals of letters
                  patent of the United States or any foreign country which any
                  of the Companies desire to file. "Business" shall mean any
                  long-term care facility business, assisted living facility
                  business, pharmacy business and/or therapy business of any of
                  the Companies.

         (v)      All copyrightable work by the Executive during the term of the
                  Executive's employment by the Company which relates to the
                  Business is intended to be

                                                                           Final

                                       6



                  "work made for hire" as defined in Section 101 of the
                  Copyright Act of 1976, and shall be the property of the
                  Companies. If the copyright to any such copyrightable work is
                  not the property of the Companies by operation of law, the
                  Executive will, without further consideration, assign to the
                  Companies all right, title and interest in such copyrightable
                  work and will assist the Companies and their nominees in every
                  way, at the Companies' expense, to secure, maintain and defend
                  for the Companies' benefit copyrights and any extensions and
                  renewals thereof on any and all such work including
                  translations thereof in any and all countries, such work to be
                  and to remain the property of the Companies whether
                  copyrighted or not.

         (vi)     The Executive will not directly or indirectly, individually or
                  as a consultant to, or executive, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity, engage in or assist any other person to
                  engage in the businesses of skilled nursing facilities,
                  assisted living facilities, inpatient or outpatient therapy
                  services, pharmacies, urological supplies, enteral feeding
                  supplies and orthodics; provided, however, that the Executive
                  may own not more than a 5% equity interest in any
                  publicly-traded company.

         (vii)    The Executive will not directly or indirectly, individually or
                  as a consultant to, or as employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, (a) solicit or
                  endeavor to entice away from any of the Companies, or
                  otherwise materially interfere with the business relationship
                  of any of the Companies with, any person who is, or was within
                  the one-year period immediately prior to the termination of
                  the Executive's employment with the Company, employed by, a
                  consultant to or associated with any of the Companies, or (b)
                  materially interfere with the business relationship of any of
                  the Companies with any person or entity who is, or was within
                  the two-year period immediately prior to the termination of
                  the Executive's employment with the Company, a supplier to any
                  of the Companies.

         (viii)   The Executive agrees that if the Executive, individually or as
                  a consultant to, or as an employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, is directly involved
                  in the hiring or employing of any person who is or was
                  employed by, a consultant to or associated with any of the
                  Companies within one year prior to the employ or hiring of
                  such person, then for each such person the Executive shall pay
                  to the Company a lump sum equal to nine (9) months of that
                  person's most recent salary from the Companies, payable on the
                  first date of that person's employ or hiring, whichever is
                  first, plus the Company's reasonable attorneys' fees incurred
                  to enforce this paragraph. Nothing within this paragraph shall
                  be construed to limit or modify in any way the Executive's
                  non-solicitation covenants contained in clause (vii) above.

         (ix)     Without limiting the remedies available to the Companies and
                  notwithstanding Section 2.3, the Executive acknowledges that a
                  breach of any of the covenants contained in this Section 6
                  could result in irreparable injury to the Companies for

                                                                           Final

                                        7



                  which there might be no adequate remedy at law, and that, in
                  the event of such a breach or threat thereof, the Companies
                  shall be entitled to obtain a temporary restraining order
                  and/or a preliminary injunction and a permanent injunction
                  restraining the Executive from engaging in any activities
                  prohibited by this Section 6 or such other equitable relief as
                  may be required to enforce specifically any of the covenants
                  of this Section 6.

         (x)      The Executive shall at no time make any derogatory or
                  disparaging remarks about any of the Companies, or any of
                  their respective officers, directors or principal
                  stockholders.

         (xi)     The provisions of this Section 6 shall continue in full force
                  and effect during the course of the Executive's employment by
                  the Company and shall further continue in full force and
                  effect after the Executive's employment by the Company
                  terminates; provided that the restrictions set forth in
                  Section 6(vi) shall terminate when the Executive's employment
                  by the Company terminates (or, if longer, for any period in
                  which the Company is making severance payments to Executive
                  pursuant to Section 5.3(a)), and the restrictions set forth in
                  Sections 6(vii) and 6(viii) shall terminate one year after the
                  Executive's employment by the Company terminates.

7.       ASSIGNMENT.

         This Amended Agreement is personal in its nature and neither of the
         parties hereto shall, without the consent of the other, assign or
         transfer this Amended Agreement or any rights or obligations hereunder;
         provided, however, that, in the event of a merger, consolidation, or
         transfer or sale of all or substantially all of the assets of the
         Company with or to any other individual(s) or entity, This Amended
         Agreement shall be binding upon and inure to the benefit of such
         successor and such successor shall discharge and perform all the
         promises, covenants, duties, and obligations of the Company hereunder.

8.       GOVERNING LAW.

         This Amended Agreement and the legal relations hereby created between
         the parties hereto shall be governed by and construed under and in
         accordance with the laws of the State of California, without regard to
         choice of law provisions thereof.

9.       ENTIRE AGREEMENT.

         This Amended Agreement embodies the entire agreement of the parties
         hereto respecting the matters within its scope. Effective as of the
         Amendment Date, this Amended Agreement supersedes and replaces all
         prior agreements of the parties hereto on the subject matter hereof,
         including without limitation the Original Agreement. The Original
         Agreement governs the relationship of the parties prior to the
         Amendment Date. Any prior negotiations, correspondence, agreements,
         proposals or understandings relating to the subject matter hereof shall
         be deemed to be merged into this Amended Agreement and to the extent
         inconsistent herewith, such negotiations, correspondence, agreements,
         proposals, or understandings shall be deemed to be of no force or
         effect. There are no

                                                                           Final

                                        8



         representations, warranties, or agreements, whether express or implied,
         or oral or written, with respect to the subject matter hereof, except
         as set forth herein.

10.      AMENDMENT; WAIVER.

         No amendment or waiver of this Amended Agreement or any term, covenant,
         or condition hereof shall be binding upon the party against whom
         enforcement of such amendment or waiver is sought unless it is made in
         writing and signed by or on behalf of such party. Failure to insist
         upon strict compliance with any of the terms, covenants, or conditions
         hereof shall not be deemed a waiver of such term, covenant, or
         condition, nor shall any waiver or relinquishment of, or failure to
         insist upon strict compliance with, any right or power hereunder at any
         one or more times be deemed a waiver or relinquishment of such right or
         power at any other time or times.

11.      NUMBER AND GENDER.

         Where the context requires, the singular shall include the plural, the
         plural shall include the singular, and any gender shall include all
         other genders.

12.      SECTION HEADINGS.

         The section headings in this Amended Agreement are for the purpose of
         convenience only and shall not limit or otherwise affect any of the
         terms hereof.

13.      SEVERABILITY.

         In the event that a court of competent jurisdiction determines that any
         portion of this Amended Agreement is in violation of any statute or
         public policy, then only the portions of this Amended Agreement which
         violate such statute or public policy shall be stricken, and all
         portions of this Amended Agreement which do not violate any statute or
         public policy shall continue in full force and effect. Furthermore, if
         any one or more of the provisions contained in this Amended Agreement
         are for any reason held to be excessively broad as to duration,
         geographical scope, activity or subject, such provisions shall be
         construed by limiting and reducing them so as to be enforceable to the
         maximum extent permitted under applicable law.

14.      NOTICES.

         Any notice or other communication given pursuant to this Amended
         Agreement shall be in writing and shall be personally delivered, sent
         by overnight courier or express mail, or mailed by first class
         certified or registered mail, postage prepaid, return receipt requested
         as follows:

         (i)      if to the Company:

                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,

                                                                           Final

                                        9



                  Suite 200
                  Foothill Ranch, California 92610

                  With copies to:

                  Independent Subcommittee of the Board
                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                           and

                  Heritage Partners, Inc.
                  30 Rowes Wharf, Suite 300
                  Boston, MA 02110
                  Attn: Mark J. Jrolf

         (ii)     if to Executive:

                  John Harrison
                  Most current address of record

         Either party may change its address set forth above by written notice
         given to the other party in accordance with the foregoing. Any notice
         shall be effective when personally delivered, two (2) business days
         after being delivered to overnight courier or express mail, or five (5)
         business days after by first class certified or registered mail,
         postage prepaid, return receipt requested.

15.      COUNTERPARTS.

         This Amended Agreement may be executed in any number of counterparts,
         and with counterpart signature pages, each of which shall be deemed an
         original and all of which together shall constitute one and the same
         instrument.

16.      WITHHOLDING TAXES.

         The Company may withhold from any amounts payable under this Amended
         Agreement such federal, state and local income, employment, or other
         taxes as may be required to be withhold pursuant to any applicable law
         or regulation.

17.      MUTUAL DRAFTING.

         Each party has cooperated in the drafting and preparation of this
         Amended Agreement. Hence, in any construction to be made of this
         Amended Agreement, the same shall not be construed against any party on
         the basis that the party was the drafter.

                                                                           Final

                                       10



18.      RETURN OF PROPERTY.

         The Executive agrees to truthfully and faithfully account for and
         deliver to the Company all property belonging to the Company or any of
         its affiliates which the Executive may receive from or on account of
         the Company or its affiliates, and upon the termination of the Period
         of Employment, or the Company's demand, the Executive shall immediately
         deliver to the Company all such property belonging to the Company or
         any of its affiliates.

19.      PROVISIONS THAT SURVIVE TERMINATION.

         Except as otherwise provided herein, the provisions of Sections 2.3,
         2.4, 4 through 18, 20, 21 and this Section 19 shall survive any
         termination of the Period of Employment.

20.      INDEMNIFICATION.

         The Company agrees that (a) if the Executive is made a party, or is
         threatened to be made a party, to any threatened or actual action, suit
         or proceeding whether civil, criminal, administrative, investigative,
         appellate or other (a "Proceeding") by reason of the fact that he is or
         was a director, officer, employee, agent, manager, consultant or
         representative of the Company or (b) if any claim, demand, request,
         investigation, controversy, threat, discovery request or request for
         testimony or information (a "Claim") is made, or threatened to be made,
         that arises out of or relates to the Executive's service in any of the
         foregoing capacities, then the Executive shall promptly be indemnified
         and held harmless by the Company to the fullest extent permitted by the
         laws of the state of incorporation of the Company, against any and all
         costs, expenses, liabilities and losses incurred or suffered by the
         Executive in connection therewith, and such indemnification shall
         continue as to the Executive even if he has ceased to be a director,
         member, employee, agent, manager, consultant or representative of the
         Company and shall inure to the benefit of the Executive's heirs,
         executors and administrators.

         Neither the failure of the Company (including its Board of Directors,
         independent legal counsel or stockholders) to have made a determination
         in connection with any request for indemnification that the Executive
         has satisfied any applicable standard of conduct, nor a determination
         by the Company (including its Board of Directors, independent legal
         counsel or stockholders) that the Executive has not met any applicable
         standard of conduct, shall create a presumption that the Executive has
         not met an applicable standard of conduct.

         During the period of Employment and for a period of time thereafter
         determined as provided below, the Company shall keep in place a
         directors and officers' liability insurance policy (or policies)
         providing comprehensive coverage to the Executive to the extent that
         the Company provides such coverage to its directors and such coverage
         shall continue after the termination of the Period of Employment for
         the period of time that such coverage is extended (or to be extended,
         as the case may be) to the Company's former directors.

                                                                           Final

                                       11



21.      RESOLUTION OF DISPUTES.

         Any controversy arising out of or relating to this Amended Agreement,
         its enforcement or interpretation, or because of an alleged breach,
         default, or misrepresentation in connection with any of its provisions,
         or any other controversy arising out of the Executive's employment by
         the Company, including, but not limited to, any state or federal
         statutory claims, shall be submitted to arbitration in Los Angeles
         County, California, before a sole neutral arbitrator (the
         "Arbitrator"), mutually selected and agreeable to both parties and
         selected from Judicial Arbitration and Mediation Services, Inc., Los
         Angeles County, California, or its successor ("JAMS"), or if JAMS is no
         longer able to supply the Arbitrator, such Arbitrator shall be selected
         from the American Arbitration Association, and shall be conducted in
         accordance with the provisions of California Code of Civil Procedure
         Sections 1280 et seq. as the exclusive forum for the resolution of such
         dispute; provided, however, that provisional injunctive relief may, but
         need not, be sought by either party to this Amended Agreement in a
         court of law while arbitration proceedings are pending, and any
         provisional injunctive relief granted by such court shall remain
         effective until the matter is finally determined by the Arbitrator.

         Final resolution of any dispute through arbitration may include any
         remedy or relief that the Arbitrator deems just and equitable,
         including any and all remedies provided by applicable state or federal
         statutes. At the conclusion of the arbitration, the Arbitrator shall
         issue a written decision that sets forth the essential findings and
         conclusions upon which the Arbitrator's award or decision is based. Any
         award or relief granted by the Arbitrator hereunder shall be final and
         binding on the parties hereto and may be enforced by any court of
         competent jurisdiction.

         The parties acknowledge and agree that they are hereby waiving any
         rights to trial by jury in any action, proceeding or counterclaim
         brought by either of the parties against the other in connection with
         any matter whatsoever arising out of or in any way connected with this
         Amended Agreement or the services rendered hereunder. The parties agree
         that the Company Shall be responsible for payment of the forum costs of
         any arbitration hereunder, including the Arbitrator's fee. The
         Executive and the Company further agree that in any proceeding to
         enforce the terms of this Amended Agreement, the prevailing party shall
         be entitled to its or her reasonable attorneys' fees and costs (other
         than forum costs associated with the arbitration) incurred by it or him
         in connection with resolution of the dispute up to a maximum of Fifty
         Thousand Dollars ($50,000.00) in addition to any other relief granted.

                  [Remainder of Page Intentionally Left Blank]

                                                                           Final

                                       12



         IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the Amendment Date.

                                            THE COMPANY

                                            Skilled Healthcare Group, Inc.,
                                            a Delaware corporation

                                            By: /s/ JOHN HARRISON
                                                --------------------------------
                                            Print Name: John Harrison

                                            Title:
                                                   -----------------------------
                                            THE EXECUTIVE

                                            ------------------------------------
                                            John Harrison

                                                                           Final

                                       13



                                                                           Final

                                    EXHIBIT A

                           RESTRICTED STOCK AGREEMENT

                                                                           Final

EX-10.29

                                                                   EXHIBIT 10.29

                                                                           Final

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         This Amended and Restated Employment Agreement (this "Amended
Agreement") is made and entered into as of March 8, 2004 (the "Amendment Date")
by and between Roland Rapp ("Executive") and Skilled Healthcare Group Inc.,
formerly known as Fountain View, Inc., a Delaware corporation (the "Company").

                                    RECITALS

         The Company and Executive are parties to that certain Employment
Agreement dated March 27, 2002, which was subsequently amended by that certain
First Amendment to Employment Agreement dated May 2002 (as amended, the
"Original Agreement"), which sets forth certain terms of employment including
provisions concerning an Alternative Equity Bonus Program.

         Pursuant to the Original Agreement, the Company may elect to institute
the Alternative Equity Bonus Program, and the Company and Executive desire to
implement an amended Alternative Equity Bonus Program.

         The Company and Executive desire to amend and restate the Original
Agreement to set forth, in full, the understanding of the parties concerning
employment and the amended Alternative Equity Bonus Program to be implemented.

         This Amended Agreement shall govern the employment relationship between
the parties from and after the Amendment Date and supersedes and negates all
previous agreements made between the parties, whether written or oral relating
to the Executive's employment relationship with the Company. The Original
Agreement governs the relationship between the parties prior to the Amendment
Date.

                                    AGREEMENT

         The Executive and the Company agree as follows:

1.       DUTIES.

1.1      RETENTION. The Company shall employ the Executive for the Period of
Employment and the Executive agrees to such employment on the terms and
conditions set forth in this Amended Agreement. The "Period of Employment"
commenced on March 27, 2002 (the "Effective Date") and shall continue until
March 26, 2007, unless earlier terminated pursuant to Section 4.

1.2      DUTIES, REPORTING. During the Period of Employment, the Executive shall
be employed by the Company as its General Counsel and shall have the duties and
responsibilities typical of the position of general counsel of a corporation,
subject to the legal directives of the officer or entity of the Company that the
Executive reports to (determined in accordance with the following sentence). The
Executive also may be employed by one or more of the Affiliated Entities (as
defined in Section 4.5) as determined by the Board. During the Period of
Employment, the Executive shall report to the CEO and/or the Company's President
(the "President"), determined

                                                                           Final



from time to time by the Company, or, if the Company does not have a CEO or a
President, to the Board. During the Period of Employment, the Executive shall
use the Executive's best efforts to promote the interests of the Company and the
direct and indirect subsidiaries of the Company (collectively, the "Companies"),
and to maximize the value of the Company, and shall devote the Executive's full
business time, attention and best efforts to their business and affairs. The
Company acknowledges that, as of the Effective Date, the Executive has an
ownership interest in, and the Executive's spouse has an ownership interest in
and operates, the long-term care facilities identified on Schedule 1 hereto. The
Company agrees that such ownership interests held by the Executive shall not
constitute a breach of this Section 1.2 or Section 6(vi) of this Amended
Agreement by the Executive; provided that (1) the Executive does not acquire any
additional ownership interests in long-term care facilities, (2) the Executive
is not actively involved in the operation of any of such long-term care
facilities, and (3) such ownership interests do not otherwise materially
interfere with the Executive's duties to the Company hereunder.

1.3      NO BREACH OF CONTRACT. The Executive hereby represents and warrants
that the execution and delivery of this Amended Agreement by the Executive and
the Company and the performance by the Executive of the Executive's duties
hereunder shall not constitute a breach of, or otherwise contravene, the terms
of any employment or other agreement or policy to which the Executive is a party
or otherwise bound. The Executive further represents and warrants that he is an
active member in good standing of the State Bar of California.

1.4      LOCATION. The Executive acknowledges that the Company's principal
executive offices are currently located in Foothill Ranch, California. The
Executive shall operate principally out of such executive offices, as they may
be moved from time to time within Southern California. The Company expects, and
the Executive agrees, that the Executive shall be required to travel from time
to time to Company facilities, suppliers and customers in order to fulfill his
duties to the Company.

2.       COMPENSATION.

2.1      BASE SALARY. During the Period of Employment, the Executive will
receive a salary at the rate of $235,000 annually (the "Base Salary"), payable
in accordance with the Company's regular payroll practices in effect from time
to time, but not less frequently than in monthly installments.

2.2      ANNUAL PERFORMANCE BONUS. Executive will be eligible to participate in
an annual performance bonus program developed by the Company for its employees
("Annual Performance Bonus Program") for each fiscal year of the Company that
ends during the Period of Employment if he is employed by the Company at the end
of that fiscal year. The terms and conditions of the Executive's bonus
opportunity for each such year under the Annual Performance Bonus Program, and
the amount of the bonus opportunity applicable to the Executive for each such
year, shall not be materially less favorable to the Executive than the terms,
conditions and/or amount applicable to any other top-level management employee
of the company (other than the CEO and the President) for that year.

                                                                           Final

                                        2



2.3      SALE BONUS. If during the Period of Employment or, if the Period of
Employment terminates before March 26, 2007 as a result of a termination by the
Company without Cause (as defined in Section 5.5) or due to the Executive's
death or Disability (as defined in Section 5.5), within nine (9) months
following such termination, either (i) all or substantially all of the Company's
assets are sold ("Asset Sale"), (ii) the Company closes a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of
the Company to the public and the Common Stock becomes listed or quoted on a
national security exchange or in the Nasdaq National Market Quotation System (an
"IPO"), or (iii) at least a majority of the Company's then outstanding common
stock is sold in a single transaction or series of substantially related
transactions, and unless otherwise approved by the Company's Board, for cash or
marketable securities ("Stock Sale") (any of an Asset Sale, IPO or Stock Sale is
referred to as a "Trigger Event"), and the Terminal Equity Value (defined below)
of the Company at the Trigger Event is less than [the minimum Terminal Equity
Value], the Company will pay the Executive a bonus (the "Sale Bonus") of
$200,000 at the time of the consummation of the transaction; provided, however,
that a conversion of debt to equity by the Company's creditors shall not, in and
of itself, constitute a Trigger Event.

As used in this Amended Agreement, "Terminal Equity Value" shall mean (i) in the
case of an IPO, the equity value of the Company's outstanding common stock
determined based on the public offering price of the Company's common stock in
the IPO and the number of shares of common stock outstanding immediately prior
to the IPO; (ii) in the case of a Stock Sale, the equity value of the Company's
outstanding common stock determined based on the net proceeds distributable in
respect of the common stock of the Company that is sold in the Stock Sale and
the number of shares of common stock outstanding; and (iii) in the case of an
Asset Sale, the aggregate net proceeds that are or would be distributable in
respect of all outstanding common stock of the Company assuming that the Company
paid off its debt and preferred stock and debt securities, and liquidated on the
Asset Sale, and assuming that any right, warrant or option to acquire any common
stock of the Company entitled to be exercised is converted immediately prior to
the distribution.

Once a Sale Bonus becomes payable pursuant to this Section 2.3, Executive shall
have no right to any other bonus under this Section 2.3 with respect to any
subsequent event or occurrence and no right with respect to the Restricted
Shares granted pursuant to Section 2.4, which Restricted Shares shall be deemed
automatically forfeited and cancelled.

2.4      RESTRICTED SHARES. The Executive shall be issued, concurrently with the
execution of this Amended Agreement, 6,573 shares of Class B Non-Voting Common
Stock, subject to all of the restrictions set forth in the Restricted Stock
Agreement attached hereto as Exhibit A ("Restricted Stock Agreement"), the terms
of which are incorporated herein by reference. Executive understands and agrees
that the Restricted Shares shall not vest and shall have no value unless and
until certain trigger events occur, including trigger events requiring a
liquidity transaction wherein the Terminal Equity Value of the Company is equal
to or in excess of [the minimum Terminal Equity Value]. The Restricted Shares
are issued in satisfaction of the equity incentive program contemplated by
Section 2.4 of the Original Agreement.

                                                                           Final

                                        3



3.       BENEFITS.

3.1      HEALTH, WELFARE AND FRINGE BENEFITS. During the Period of Employment,
the Executive shall be entitled to participate in all pension, welfare and
fringe benefit plans and programs made available by the Company to its executive
and managerial employees generally, as such plans or programs may be in effect
from time to time.

3.2      EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive for
the reasonable expenses and disbursements incurred by the Executive in the
performance of the Executive's duties for the Company during the Period of
Employment, subject to the Company's employee expense reimbursement policies in
effect from time to time.

3.3      VACATION. During the Period of Employment, the Executive shall receive
four (4) weeks paid vacation per year, provided that the maximum unused vacation
time that the Executive may accrue is eight (8) weeks.

3.4      CAR ALLOWANCE. The Executive shall be entitled to a car allowance of
$754 per month for the Period of Employment.

4.       ANNUAL REVIEW. Approximately every 12 months during the Period of
Employment, the Executive and either the Company's CEO or the Board shall meet
to discuss the performance and terms of the Executive's employment by the
Company.

5.       TERMINATION.

5.1      TERMINATION BY THE COMPANY. The Executive's employment by the Company
and the Period of Employment may be terminated at any time by the Company with
Cause (as defined below) or without Cause or in the event of the death or
Disability of the Executive.

5.2      TERMINATION BY THE EXECUTIVE. The Executive's employment by the Company
and the Period of Employment may be terminated at any time by the Executive.

5.3      BENEFITS UPON TERMINATION. If the Executive's employment by the Company
is terminated during the Period of Employment for any reason by the Company or
by the Executive, the Company shall have no further obligation to make any
payments or provide any benefits to the Executive except (a) the Company shall
pay the Executive any Accrued Obligations (as defined below), and (b) the
Company shall continue for three months following the termination (one month
following the termination if the Executive resigns) (but in no event after
Executive becomes employed by a new employer) the Executive's medical insurance
as in effect immediately prior to the termination or similar coverage or
reimburse the Executive for similar coverage. Those rights that are expressly
contemplated pursuant to Section 2.3 or pursuant to the Restricted Stock
Agreement to continue following a termination of employment are outside of the
scope of the preceding sentence. If the Executive resigns on any day other than
the last day of a fiscal year of the Company or if the Executive's employment is
terminated by the Company with Cause, the Executive shall not be entitled to any
bonus under the Annual Performance Bonus Program (or pro rated bonus under the
Annual Performance Bonus Program) for the year in which his employment
terminates.

                                                                           Final

                                        4



If the Executive's employment is terminated by the Company without Cause
(including a termination (other than for Cause) by the Company upon or following
a Change of Control), or if the Executive's employment by the Company terminates
due to the Executive's death during the Period of Employment, or if the
Executive's employment is terminated by the Company during the Period of
Employment due to the Executive's Disability, the Company shall also, but only
as long as the Executive remains in compliance with the provisions of Section 6:

                  (a)      pay the Executive a lump sum severance payment in an
amount equal to 1.5 times Executive's Base Salary; provided, however, that the
lump sum severance payment shall equal 1.5 times Executive's Base Salary in the
case of any termination (other than for Cause) by the Company upon or following
a Change of Control;

                  (b)      pay the Executive a pro-rated bonus under the Annual
Performance Bonus Program (based on the Company's performance for the fiscal
year up until the termination of employment and pro-rated performance targets)
for the year in which the termination occurs; and

                  (c)      continue for twelve months (as opposed to three
months) following the termination (but in no event after Executive becomes
employed by a new employer) the Executive's medical insurance as in effect
immediately prior to the termination or similar coverage or reimburse the
Executive for similar coverage.

5.4      CHANGE OF CONTROL. The Executive shall be deemed to have been
terminated by the Company without Cause for purposes of this Section 5 if the
Executive resigns from the Company within six (6) months after a Change of
Control (as defined below) as a result of a diminution of his Base Salary, the
Company's termination of his status as an executive officer of the Company,
and/or a material diminution in his duties and/or responsibilities from their
level in effect immediately prior to the Change of Control.

5.5      CERTAIN DEFINED TERMS.

         As used herein, "Accrued Obligations" means Base Salary that had
         accrued but had not been paid prior to the date of termination, and any
         bonus under the Annual Performance Bonus Program previously earned but
         unpaid.

         As used herein, "Affiliated Entities" shall mean Skilled Healthcare LLC
         and any entity that is controlled by and consolidated with in the
         financial statements of either the Company or Skilled Healthcare LLC.

         As used herein, "Cause" shall mean the reasonable and good faith
         determination by a majority of the Board, that, during the Period of
         Employment, any of the following events or contingencies exists or has
         occurred:

         -        the Executive has breached a fiduciary duty to the Company or
                  any of its Affiliated Entities or breached of any of the
                  Executive's obligations under Section 6;

         -        the Executive is no longer, regardless of the reason, an
                  active member in good standing of the State Bar of California;

                                                                           Final

                                        5



         -        the Executive has been convicted of a felony or misdemeanor
                  that involves fraud, dishonesty, theft, embezzlement, and/or
                  an act of violence or moral turpitude, or the Executive has
                  plead guilty or no contest (or a similar plea) to any such
                  felony or misdemeanor; or

         -        the Executed has committed an act or an omission that
                  constitutes fraud, gross negligence, or willful misconduct in
                  connection with Executive's employment by the Company or any
                  of its Affiliated Entities.

         As used herein, "Disability" shall mean an illness (mental or physical)
         or injury that, in the good faith and reasonable determination of a
         majority of the Board, based on the report of a reputable physician
         selected jointly by the parties, renders the Executive unable to
         perform the Executive's duties for six (6) months during any twelve
         (12) month period.

         As used herein, "Change of Control" shall mean (i) any time at which
         the current holders of Company stock (common and preferred) and their
         affiliates do not continue to own, in the aggregate, at least a
         majority of the outstanding shares of the Company's common stock and at
         which Heritage Partners and its affiliates do not collectively
         constitute the single largest holder of Company common stock, or (ii)
         any sale of all or substantially all of the assets of the Company.

6.       CONFIDENTIALITY, NON-SOLICITATION, ETC.

         In consideration of the mutual promises contained herein, and to
         preserve the goodwill of the Companies, the Executive agrees as
         follows:

         (i)      The Executive will not at any time, directly or indirectly,
                  disclose or divulge, except as reasonably required in
                  connection with the performance of the Executive's duties for
                  the Company, any Confidential Information (as hereinafter
                  defined) acquired by the executive during the Executive's
                  affiliation with or employment by the Companies. As used
                  herein, "Confidential Information" means all trade secrets and
                  all other proprietary or non-public information of a business,
                  financial, marketing, technical or other nature pertaining to
                  any of the Companies or their affairs and all information of
                  others that any of the Companies have agreed not to disclose;
                  provided, that Confidential Information shall not include any
                  information which has entered or enters the public domain
                  through no fault of the Executive or which the Executive is
                  required to disclose by law or legal process.

         (ii)     The Executive shall make no use whatsoever, directly or
                  indirectly, of any Confidential Information, except as
                  reasonably required in connection with the performance of the
                  Executive's duties for the Company.

         (iii)    Upon any of the Companies' request at any time and for any
                  reason, the Executive shall immediately deliver to the Company
                  all materials (including all

                                                                           Final

                                        6



                  copies) in the Executive's possession which contain or relate
                  to Confidential Information.

         (iv)     All inventions, developments or improvements made by the
                  Executive, either alone or in conjunction with others, at any
                  time or at any place during the term of the Executive's
                  employment by the Company, whether or not reduced to writing
                  or practice during such term, which relate to the Business (as
                  defined below), or which were developed or made in whole or in
                  part using any of the Companies' facilities, shall be the
                  exclusive property of the Companies. The Executive shall
                  promptly disclose any such invention, development or
                  improvement to the Company, and, at the request and expense of
                  any of the Companies, shall assign a all of the Executive's
                  rights to the same to the Companies. The Executive shall sign
                  all instruments necessary for the filing and prosecution of
                  any applications for or extension or renewals of letters
                  patent of the United States or any foreign country which any
                  of the Companies desire to file. "Business" shall mean any
                  long-term care facility business, assisted living facility
                  business, pharmacy business and/or therapy business of any of
                  the Companies.

         (v)      All copyrightable work by the Executive during the term of the
                  Executive's employment by the Company which relates to the
                  Business is intended to be "work made for hire" as defined in
                  Section 101 of the Copyright Act of 1976, and shall be the
                  property of the Companies. If the copyright to any such
                  copyrightable work is not the property of the Companies by
                  operation of law, the Executive will, without further
                  consideration, assign to the Companies all right, title and
                  interest in such copyrightable work and will assist the
                  Companies and their nominees in every way, at the Companies'
                  expense, to secure, maintain and defend for the Companies'
                  benefit copyrights and any extensions and renewals thereof on
                  any and all such work including translations thereof in any
                  and all countries, such work to be and to remain the property
                  of the Companies whether copyrighted or not.

         (vi)     The Executive will not directly or indirectly, individually or
                  as a consultant to, or executive, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity, engage in or assist any other person to
                  engage in the businesses of skilled nursing facilities,
                  assisted living facilities, inpatient or outpatient therapy
                  services, pharmacies, urological supplies, enteral feeding
                  supplies and orthodics; provided, however, that the Executive
                  may own not more than a 5% equity interest in any
                  publicly-traded company.

         (vii)    The Executive will not directly or indirectly, individually or
                  as a consultant to, or as employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, (a) solicit or
                  endeavor to entice away from any of the Companies, or
                  otherwise materially interfere with the business relationship
                  of any of the Companies with, any person who is, or was within
                  the one-year period immediately prior to the termination of
                  the Executive's employment with the Company, employed by, a
                  consultant to or associated with any of the Companies, or (b)
                  materially interfere with the business relationship of

                                                                           Final

                                        7



                  any of the Companies with any person or entity who is, or was
                  within the two-year period immediately prior to the
                  termination of the Executive's employment with the Company, a
                  supplier to any of the Companies.

         (viii)   The Executive agrees that if the Executive, individually or as
                  a consultant to, or as an employee, officer, director,
                  stockholder, partner or other owner or participant in any
                  business entity other than the Companies, is directly involved
                  in the hiring or employing of any person who is or was
                  employed by, a consultant to or associated with any of the
                  Companies within one year prior to the employ or hiring of
                  such person, then for each such person the Executive shall pay
                  to the Company a lump sum equal to nine (9) months of that
                  person's most recent salary from the Companies, payable on the
                  first date of that person's employ or hiring, whichever is
                  first, plus the Company's reasonable attorneys' fees incurred
                  to enforce this paragraph. Nothing within this paragraph shall
                  be construed to limit or modify in any way the Executive's
                  non-solicitation covenants contained in clause (vii) above.

         (ix)     Without limiting the remedies available to the Companies and
                  notwithstanding Section 2.3, the Executive acknowledges that a
                  breach of any of the covenants contained in this Section 6
                  could result in irreparable injury to the Companies for which
                  there might be no adequate remedy at law, and that, in the
                  event of such a breach or threat thereof, the Companies shall
                  be entitled to obtain a temporary restraining order and/or a
                  preliminary injunction and a permanent injunction restraining
                  the Executive from engaging in any activities prohibited by
                  this Section 6 or such other equitable relief as may be
                  required to enforce specifically any of the covenants of this
                  Section 6.

         (x)      The Executive shall at no time make any derogatory or
                  disparaging remarks about any of the Companies, or any of
                  their respective officers, directors or principal
                  stockholders.

         (xi)     The provisions of this Section 6 shall continue in full force
                  and effect during the course of the Executive's employment by
                  the Company and shall further continue in full force and
                  effect after the Executive's employment by the Company
                  terminates; provided that the restrictions set forth in
                  Section 6(vi) shall terminate when Executive's employment by
                  the Company terminates, and the restrictions set forth in
                  Sections 6(vii) and 6(viii) shall terminate one year after the
                  Executive's employment by the Company terminates.

7.       ASSIGNMENT.

         This Amended Agreement is personal in its nature and neither of the
         parties hereto shall, without the consent of the other, assign or
         transfer this Amended Agreement or any rights or obligations hereunder;
         provided, however, that, in the event of a merger, consolidation, or
         transfer or sale of all or substantially all of the assets of the
         Company with or to any other individual(s) or entity, This Amended
         Agreement shall be binding upon and inure

                                                                           Final

                                        8



         to the benefit of such successor and such successor shall discharge and
         perform all the promises, covenants, duties, and obligations of the
         Company hereunder.

8.       GOVERNING LAW.

         This Amended Agreement and the legal relations hereby created between
         the parties hereto shall be governed by and construed under and in
         accordance with the laws of the State of California, without regard to
         choice of law provisions thereof.

9.       ENTIRE AGREEMENT.

         This Amended Agreement embodies the entire agreement of the parties
         hereto respecting the matters within its scope. Effective as of the
         Amendment Date, this Amended Agreement supersedes and replaces all
         prior agreements of the parties hereto on the subject matter hereof,
         including without limitation the Original Agreement. The Original
         Agreement governs the relationship of the parties prior to the
         Amendment Date. Any prior negotiations, correspondence, agreements,
         proposals or understandings relating to the subject matter hereof shall
         be deemed to be merged into this Amended Agreement and to the extent
         inconsistent herewith, such negotiations, correspondence, agreements,
         proposals, or understandings shall be deemed to be of no force or
         effect. There are no representations, warranties, or agreements,
         whether express or implied, or oral or written, with respect to the
         subject matter hereof, except as set forth herein.

10.      AMENDMENT; WAIVER.

         No amendment or waiver of this Amended Agreement or any term, covenant,
         or condition hereof shall be binding upon the party against whom
         enforcement of such amendment or waiver is sought unless it is made in
         writing and signed by or on behalf of such party. Failure to insist
         upon strict compliance with any of the terms, covenants, or conditions
         hereof shall not be deemed a waiver of such term, covenant, or
         condition, nor shall any waiver or relinquishment of, or failure to
         insist upon strict compliance with, any right or power hereunder at any
         one or more times be deemed a waiver or relinquishment of such right or
         power at any other time or times.

11.      NUMBER AND GENDER.

         Where the context requires, the singular shall include the plural, the
         plural shall include the singular, and any gender shall include all
         other genders.

12.      SECTION HEADINGS.

         The section headings in this Amended Agreement are for the purpose of
         convenience only and shall not limit or otherwise affect any of the
         terms hereof.

13.      SEVERABILITY.

         In the event that a court of competent jurisdiction determines that any
         portion of this Amended Agreement is in violation of any statute or
         public policy, then only the portions

                                                                           Final

                                        9



         of this Amended Agreement which violate such statute or public policy
         shall be stricken, and all portions of this Amended Agreement which do
         not violate any statute or public policy shall continue in full force
         and effect. Furthermore, if any one or more of the provisions contained
         in this Amended Agreement are for any reason held to be excessively
         broad as to duration, geographical scope, activity or subject, such
         provisions shall be construed by limiting and reducing them so as to be
         enforceable to the maximum extent permitted under applicable law.

14.      NOTICES.

         Any notice or other communication given pursuant to this Amended
         Agreement shall be in writing and shall be personally delivered, sent
         by overnight courier or express mail, or mailed by first class
         certified or registered mail, postage prepaid, return receipt requested
         as follows:

         (i)      if to the Company:

                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                  With copies to:

                  Independent Subcommittee of the Board
                  Skilled Healthcare Group, Inc.
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                           and

                  Heritage Partners, Inc.
                  30 Rowes Wharf, Suite 300
                  Boston, MA 02110
                  Attn: Mark J. Jrolf

         (ii)     if to Executive:

                  Roland Rapp
                  Most current address of record

         Either party may change its address set forth above by written notice
         given to the other party in accordance with the foregoing. Any notice
         shall be effective when personally delivered, two (2) business days
         after being delivered to overnight courier or express mail, or five (5)
         business days after by first class certified or registered mail,
         postage prepaid, return receipt requested.

                                                                           Final

                                       10



15.      COUNTERPARTS.

         This Amended Agreement may be executed in any number of counterparts,
         and with counterpart signature pages, each of which shall be deemed an
         original and all of which together shall constitute one and the same
         instrument.

16.      WITHHOLDING TAXES.

         The Company may withhold from any amounts payable under this Amended
         Agreement such federal, state and local income, employment, or other
         taxes as may be required to be withhold pursuant to any applicable law
         or regulation.

17.      MUTUAL DRAFTING.

         Each party has cooperated in the drafting and preparation of this
         Amended Agreement. Hence, in any construction to be made of this
         Amended Agreement, the same shall not be construed against any party on
         the basis that the party was the drafter.

18.      RETURN OF PROPERTY.

         The Executive agrees to truthfully and faithfully account for and
         deliver to the Company all property belonging to the Company or any of
         its affiliates which the Executive may receive from or on account of
         the Company or its affiliates, and upon the termination of the Period
         of Employment, or the Company's demand, the Executive shall immediately
         deliver to the Company all such property belonging to the Company or
         any of its affiliates.

19.      PROVISIONS THAT SURVIVE TERMINATION.

         Except as otherwise provided herein, the provisions of Sections 2.3,
         2.4, 5 through 18, 20, 21 and this Section 19 shall survive any
         termination of the Period of Employment.

20.      INDEMNIFICATION.

         The Company agrees that (a) if the Executive is made a party, or is
         threatened to be made a party, to any threatened or actual action, suit
         or proceeding whether civil, criminal, administrative, investigative,
         appellate or other (a "Proceeding") by reason of the fact that he is or
         was a director, officer, employee, agent, manager, consultant or
         representative of the Company or (b) if any claim, demand, request,
         investigation, controversy, threat, discovery request or request for
         testimony or information (a "Claim") is made, or threatened to be made,
         that arises out of or relates to the Executive's service in any of the
         foregoing capacities, then the Executive shall promptly be indemnified
         and held harmless by the Company to the fullest extent permitted by the
         laws of the state of incorporation of the Company, against any and all
         costs, expenses, liabilities and losses incurred or suffered by the
         Executive in connection therewith, and such indemnification shall
         continue as to the Executive even if he has ceased to be a director,
         member, employee, agent, manager, consultant or representative of the
         Company and shall inure to the benefit of the Executive's heirs,
         executors and administrators.

                                                                           Final

                                       11



         Neither the failure of the Company (including its Board of Directors,
         independent legal counsel or stockholders) to have made a determination
         in connection with any request for indemnification that the Executive
         has satisfied any applicable standard of conduct, nor a determination
         by the Company (including its Board of Directors, independent legal
         counsel or stockholders) that the Executive has not met any applicable
         standard of conduct, shall create a presumption that the Executive has
         not met an applicable standard of conduct.

         During the period of Employment and for a period of time thereafter
         determined as provided below, the Company shall keep in place a
         directors and officers' liability insurance policy (or policies)
         providing comprehensive coverage to the Executive to the extent that
         the Company provides such coverage to its directors and such coverage
         shall continue after the termination of the Period of Employment for
         the period of time that such coverage is extended (or to be extended,
         as the case may be) to the Company's former directors.

21.      RESOLUTION OF DISPUTES.

         Any controversy arising out of or relating to this Amended Agreement,
         its enforcement or interpretation, or because of an alleged breach,
         default, or misrepresentation in connection with any of its provisions,
         or any other controversy arising out of the Executive's employment by
         the Company, including, but not limited to, any state or federal
         statutory claims, shall be submitted to arbitration in Los Angeles
         County, California, before a sole neutral arbitrator (the
         "Arbitrator"), mutually selected and agreeable to both parties and
         selected from Judicial Arbitration and Mediation Services, Inc., Los
         Angeles County, California, or its successor ("JAMS"), or if JAMS is no
         longer able to supply the Arbitrator, such Arbitrator shall be selected
         from the American Arbitration Association, and shall be conducted in
         accordance with the provisions of California Code of Civil Procedure
         Sections 1280 et seq. as the exclusive forum for the resolution of such
         dispute; provided, however, that provisional injunctive relief may, but
         need not, be sought by either party to this Amended Agreement in a
         court of law while arbitration proceedings are pending, and any
         provisional injunctive relief granted by such court shall remain
         effective until the matter is finally determined by the Arbitrator.

         Final resolution of any dispute through arbitration may include any
         remedy or relief that the Arbitrator deems just and equitable,
         including any and all remedies provided by applicable state or federal
         statutes. At the conclusion of the arbitration, the Arbitrator shall
         issue a written decision that sets forth the essential findings and
         conclusions upon which the Arbitrator's award or decision is based. Any
         award or relief granted by the Arbitrator hereunder shall be final and
         binding on the parties hereto and may be enforced by any court of
         competent jurisdiction.

         The parties acknowledge and agree that they are hereby waiving any
         rights to trial by jury in any action, proceeding or counterclaim
         brought by either of the parties against the other in connection with
         any matter whatsoever arising out of or in any way connected with this
         Amended Agreement or the services rendered hereunder. The parties agree
         that the Company Shall be responsible for payment of the forum costs of
         any arbitration

                                                                           Final

                                       12



         hereunder, including the Arbitrator's fee. The Executive and the
         Company further agree that in any proceeding to enforce the terms of
         this Amended Agreement, the prevailing party shall be entitled to its
         or her reasonable attorneys' fees and costs (other than forum costs
         associated with the arbitration) incurred by it or him in connection
         with resolution of the dispute up to a maximum of Fifty Thousand
         Dollars ($50,000.00) in addition to any other relief granted.

22.      COOPERATION IN LITIGATION.

         The Executive promises and agrees that, following the date his
         employment by the Company terminates, he will reasonably cooperate with
         the Company in any litigation in which the Company is a party or
         otherwise involved which arises out of events occurring prior to the
         termination of his employment, including but not limited to, serving as
         a consultant (at a reasonable hourly rate) or witness and producing
         documents and information relevant to the case or helpful to the
         Company.

                  [Remainder of Page Intentionally Left Blank]

                                                                           Final

                                       13



         IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the Amendment Date.

                                        THE COMPANY

                                        Skilled Healthcare Group, Inc.,
                                        a Delaware corporation

                                        By: /s/ ROLAND RAPP
                                            ------------------------------------
                                        Print Name: Roland Rapp

                                        Title:
                                               ---------------------------------

                                        THE EXECUTIVE

                                        ----------------------------------------
                                        Roland Rapp

                                                                           Final

                                       14



                                    EXHIBIT A

                           RESTRICTED STOCK AGREEMENT

                                                                           Final

                                       16

EX-10.30

                                                                   EXHIBIT 10.30

                       FORM OF RESTRICTED STOCK AGREEMENT

                  THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), is made by
and between Skilled Healthcare Group Inc., a Delaware corporation (the
"Company"), and [______________](1) ("Executive"), effective as of March 8, 2004
("Grant Date").

                  WHEREAS, the Company and Executive are parties to the Amended
and Restated Employment Agreement between Company and Executive dated as of the
Grant Date (the "Amended Employment Agreement"), which agreement provides, in
part, for the grant to Executive of shares of Class B Non-Voting Common Stock,
subject to certain Restrictions (as defined below); and

                  WHEREAS, the Company's Board of Directors has determined that
it would be to the advantage and best interest of the Company and its
stockholders to issue the Restricted Shares provided for herein to Executive as
an inducement to remain in the service of the Company and as an incentive for
increased efforts during such service, and for other good and valuable
consideration provided for herein;

                  NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

                  Whenever the following terms are used in this Agreement they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.

Section 1.1 "Adjustment Factor" shall have the meaning set forth in Section
3.1(c) and Schedule A hereof.

Section 1.2 "Affiliated Entities" shall mean Skilled Healthcare LLC and any
entity that is controlled by and consolidated with in the financial statements
of either the Company or Skilled Healthcare LLC.

Section 1.3 "Asset Sale" shall mean the date of closing for the sale of all or
substantially all of the assets of the Company and its Affiliated Entities.

Section 1.4 "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.

- -------------------------
(1)      Each of Messrs. Hendrickson, Lynch, Rapp and Harrison are a party to a
         Restricted Stock Agreement, substantially in this form.



Section 1.5 "Cause" shall mean the reasonable and good faith determination by a
majority of the Board, that, during the Period of Employment, any of the
following events or contingencies exists or has occurred:

                  (a) Executive has breached a fiduciary duty to the Company or
         any of its Affiliated Entities or breached of any of Executive's
         obligations under Section 5 of the Amended Employment Agreement;

                  (b) Executive has been convicted of a felony or misdemeanor
         that involves fraud, dishonesty, theft, embezzlement, and/or an act of
         violence or moral turpitude, or Executive has plead guilty or no
         contest (or a similar plea) to any such felony or misdemeanor; or

                  (c) Executed has committed an act or an omission that
         constitutes fraud, gross negligence, or willful misconduct in
         connection with Executive's employment by the Company or any of its
         Affiliated Entities.

Section 1.6 "Conversion Rates" shall have the meaning set forth in Section
3.1(c) and Schedule A hereof.

Section 1.7 "Class B Common Stock" shall mean the Company's Class B Non-Voting
Common Stock , par value $0.01 per share, that is non-voting and junior to the
Company's Class A Common Stock, par value $0.01 per share ("Class A Common
Stock").

Section 1.8 "Disability" shall mean an illness (mental or physical) or injury
that, in the good faith and reasonable determination of a majority of the Board,
based on the report of a reputable physician selected jointly by the Board and
Executive, renders Executive unable to perform Executive's duties for six (6)
months during any twelve (12) month period.

Section 1.9 "EBITDA" shall mean for the applicable fiscal year the net income
(or loss) of the Company (after eliminating (x) all extraordinary items of
income or loss and (y) all income or loss related to non-cash change in interest
rate hedge), as reflected in the Company's financial statements for such fiscal
year, plus to the extent deducted in computing such net income (or loss),
without duplication, (i) all interest and other similar expense in respect of
indebtedness for borrowed money and similar expense in respect of capitalized
leases and preferred stock, plus (ii) all expenses for income taxes (whether
paid, accrued or deferred), plus (iii) depreciation and amortization expenses,
less (iv) interest and other similar income in respect of money loaned by the
Company and deposits of the Company, all of the foregoing as determined on a
consolidated basis for Company and its Affiliated Entities. EBITDA shall be
determined after all compensation accruals, including all compensation payable
to Executive but before giving effect to any Annual Performance Bonuses (as
defined in the Amended Employment Agreement) payable to Executive or any other
executive officers.

                                        2



Section 1.10 "IPO" shall mean the date that the closing of a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of
the Company to the public occurs and the Common Stock becomes listed or quoted
on a national security exchange or in the NASDAQ National Market Quotation
System.

Section 1.11 "Period of Employment" shall mean [________________] through and
including [_______________](2).

Section 1.12 "Qualifying Termination of Service" shall mean termination of
Executive's employment with the Company and its Affiliated Entities by reason of
Executive's death or Disability or any termination of the Executive by the
Company without Cause. In addition to the terminations of Executive by the
Company without Cause, as defined in Section 1.5, Executive shall be deemed to
have been terminated by the Company without Cause if Executive resigns from the
Company within six (6) months after a Change of Control as a result of a
diminution of his Base Salary, the Company's termination of his status as an
executive officer of the Company, and/or a material diminution in his duties
and/or responsibilities from their level in effect immediately prior to the
Change of Control. For purposes of the preceding sentence "Change of Control"
and "Base Salary" shall have the meanings ascribed to them in the Amended
Employment Agreement. The Board, in its discretion, shall determine the effect
of all matters and questions relating to a Termination of Service, including
without limitation whether a Termination of Service is a Qualifying Termination
of Service.

Section 1.13 "Restated Certificate of Incorporation" shall mean the Second
Amended and Restated Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on or about March 5, 2004, as the same may be
amended or restated from time to time.

Section 1.14 "Restricted Shares" shall mean the shares of Class B Common Stock
granted under this Agreement that are subject to Restrictions.

Section 1.15 "Restrictions" shall mean the vesting requirements set forth in
Sections 3.1, 3.2, 3.3 and 3.4, the Company's repurchase rights set forth in
Section 3.5, and the restrictions on sale or other transfer set forth in Section
3.6.

Section 1.16 "Stock Sale" shall mean the date as of which at least a majority of
the Company's then outstanding common stock is sold in a single transaction or
series of substantially related transactions and, unless otherwise approved by
the Board, the consideration paid is cash or marketable securities.

Section 1.17 "Termination of Service" shall mean termination of Executive's
employment with the Company and its Affiliated Entities for any reason. The
Board, in its discretion, shall determine the effect of all matters and
questions relating to a Termination of Service, including, without limitation,
whether a Qualifying Termination of Service has occurred.

- --------------------------
(2)      April 1, 2002 through March 31, 2007 for Mr. Hendrickson; February 18,
         2002 through February 17, 2007 for Mr. Lynch; April 1, 2002 through
         March 26, 2007 for Mr. Rapp; and July 1, 2002 through June 30, 2007 for
         Mr. Harrison.

                                        3



Section 1.18 "Terminal Equity Value" shall mean: (i) in the case of an IPO, the
equity value of the Company's outstanding common stock determined based on the
public offering price of the Company's common stock in the IPO and the number of
shares of common stock outstanding immediately prior to the IPO; (ii) in the
case of a Stock Sale, the equity value of the Company's outstanding common stock
determined based on the net proceeds distributable in respect of the common
stock of the Company that is sold in the Stock Sale and the number of shares of
common stock outstanding; and (iii) in the case of an Asset Sale, the aggregate
net proceeds that are or would be distributable in respect of all outstanding
common stock of the Company assuming that the Company paid off its debt and
preferred stock and debt securities, and liquidated on the Asset Sale, and
assuming that any right, warrant or option to acquire any common stock of the
Company entitled to be exercised is converted immediately prior to the
distribution.

Section 1.19 "Trigger Event" shall mean any of (i) an Asset Sale, (ii) an IPO,
or (iii) a Stock Sale, in each case with a Terminal Equity Value equal to [the
minimum Terminal Equity Value] or more.

                                   ARTICLE II.
                          ISSUANCE OF RESTRICTED SHARES

Section 2.1 Issuance of Restricted Shares

                  In consideration of the recitals and for other good and
valuable consideration, on the Grant Date the Company agrees to and does hereby
issue to Executive [____________________________________________ (________)](3)
Restricted Shares (i.e., shares of Class B Common Stock subject to the
Restrictions and other conditions set forth in this Agreement). As a condition
to the Company's obligations and Executive's rights under this Agreement, the
spouse of Executive, if any, shall execute and deliver to the Company the
Consent of Spouse attached as Exhibit "A" hereto.

Section 2.2 Purchase Price

                  The purchase price of the Restricted Shares shall be $0.05 per
share, without commission or other charge, payable in cash or by check. The
Company hereby acknowledges receipt of payment of $[_________], in full payment
for the Restricted Shares.

Section 2.3 Consideration to Company

                  As partial consideration for the issuance of Restricted Shares
by the Company, Executive agrees to render faithful and efficient services to
the Company or any of its Affiliate Entities, as applicable for a period of at
least one (1) year from the Grant Date. Nothing in this Agreement shall confer
upon Executive any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge Executive at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided
otherwise in the Amended Employment Agreement.

- -----------------------------
(3)      39,439, 19,719, 6,573 and 4,930, respectively, for Messrs. Hendrickson,
         Lynch, Rapp and Harrison.

                                        4



Section 2.4 Adjustments in Restricted Shares

                  In the event that the outstanding shares of Class A Common
Stock or Class B Common Stock are changed into or exchanged for a different
number or kind of capital stock or other securities of the Company by reason of
merger, consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Board shall make an appropriate and
equitable adjustment in the number and kind of Restricted Shares. Any such
adjustment made by the Board shall be final and binding upon Executive, the
Company and all other interested persons.

                                  ARTICLE III.
                                  RESTRICTIONS

Section 3.1 Full Vesting and Lapse of Restrictions in Connection with a Trigger
Event

                  (a) Vesting and Lapse of Restrictions. The Restricted Shares
shall vest in full and the Restrictions with respect to all Restricted Share
shall lapse in full upon the happening of a Trigger Event that occurs during the
Period of Employment, subject only to Executive's continued employment with the
Company through the Trigger Event.

                  (b) No Company Repurchase Rights. The Company shall have no
right to repurchase any Restricted Shares that so vest in connection with a
Trigger Event.

                  (c) Adjustment Factors and Conversion Ratios. For purposes of
determining the Per Share Class B Common Stock Preference (as defined in the
Restated Certificate of Incorporation) or other distribution that is payable on
the Class B Common Stock as a result of an Asset Sale or otherwise, an
adjustment factor shall be applied, based on the applicable Terminal Equity
Value of the Company, as determined by the Board pursuant to Section 3.13
hereof. The adjustment factors, as they correlate to the applicable Terminal
Equity Values, are set forth on Schedule A attached hereto and made a part
hereof (the "Adjustment Factors"). Upon or promptly following an Asset Sale with
a Terminal Equity Value of [the minimum Terminal Equity Value] or more, the
Company shall either cause the Company to liquidate and wind up its affairs, or
it shall pay to Executive the aggregate amount that would be distributable to
Executive as a holder of Class B Common Stock had the Company immediately
liquidated and dissolved. In the event of an IPO or Stock Sale, the Class B
Common Stock shall convert to Class A Common Stock, as provided in the Restated
Certificate of Incorporation, based on the conversion ratios set forth on
Schedule A attached hereto and made a part hereof ("Conversion Ratios"). The
Conversion Ratios are based on the Terminal Equity Value of the Company, as
determined by the Board pursuant to Section 3.13 and Schedule A.

Section 3.2 Vesting in Connection with a Qualifying Termination of Service

                  (a) Vesting. On the date of a Qualifying Termination of
Service, a certain number of Restricted Shares (the "Termination Vesting
Number") shall be and become vested. The Termination Vesting Number shall be
equal to (1) [approximately 40-50% of grant amount] shares plus (2) an
additional [approximately 2% of grant amount] shares for each full calendar
month (except for the last calendar month, which shall be for [____] shares)
elapsed from the

                                        5



Grant Date (e.g., commencing with March 2004) and ending with the last full
calendar month prior to the month in which the Qualifying Termination occurs. In
no event shall the Terminal Vesting Number exceed the number of Restricted
Shares granted to Executive pursuant to Section 2.1 hereof.

                  (b) Vesting of Additional Shares. Notwithstanding the
foregoing, if a Trigger Event occurs within the nine (9) month period following
such Qualifying Termination of Service, then Executive shall vest as of such
Trigger Event in such additional number of Restricted Shares (if any) as would
have vested pursuant to Section 3.1(a) above in connection with such Trigger
Event, less the total number of Restricted Shares that Executive actually vested
in pursuant to Section 3.2(a). The Company shall have no right to purchase any
such Restricted Shares that vest as a result of a Trigger Event.

                  (c) Company Repurchase Rights. The Company shall have the
limited right to repurchase the Restricted Shares that so vest as provided in
Section 3.5.

Section 3.3 Vesting in Connection with Certain EBITDA Performance

                  (a) Vesting. Effective as [the last day of the Period of
Employment], the Restricted Shares shall vest 50% in the event: (i) a Trigger
Event has not previously occurred; and (ii) the Company has had EBITDA of over
$60 million in any of its fiscal years during the Period of Employment; and
(iii) Executive has complied with Section 5 of the Amended Employment Agreement;
and (iv) Executive is employed by the Company as of [the last day of the Period
of Employment]. Executive and Company understand and agree that subsequent
acquisitions, mergers, dispositions or similar corporate transactions may affect
EBITDA and Executive and Company agree to negotiate, in good faith, a revised
EBITDA threshold in such event.

                  (b) Executive's Put Right. In the event that (i) 50% of the
Restricted Shares vest pursuant to Section 3.3(a) and (ii) there is a
Termination of Service (including a Qualifying Termination of Service) that
occurs on or after [the last day of the Period of Employment] Executive has the
right to require the Company to repurchase the Restricted Shares that vested
pursuant to Section 3.3(a), provided Executive makes a valid election to
exercise this right (determined as provided below). The repurchase price of the
shares will equal their fair market value, as reasonably determined by the
Board, as of the date that Executive makes such valid election. If Executive
objects to the Board's determination of fair market value for this purpose, the
valuation process set forth in Section 3.13 shall be followed to determine the
fair market value of the shares. Subject to Section 3.6, any payment by the
Company to Executive under this paragraph will be made in a lump sum (without
interest) as soon as practical following the determination of the purchase price
for the shares to be repurchased. Executive's put right under this paragraph
shall terminate if Executive breaches any of the provisions of Section 5 of the
Amended Employment Agreement. Executive's election to exercise his put right
under this paragraph shall be valid only if it is made in writing to the Company
within twelve (12) months after the date of Executive's Termination of Service.
Executive's put right provided for in this paragraph shall terminate, to the
extent not exercised, immediately prior to an IPO.

                                        6



                  (c) Vesting of Additional Shares. If a Trigger Event occurs
within the nine (9) month period following [the last day of the Period of
Employment] and Executive is employed by the Company as of [the last day of the
Period of Employment], then Executive shall be deemed to have vested as of such
Trigger Event in such additional number of Restricted Shares (if any) as would
have vested pursuant to Section 3.1(a) above in connection with such Trigger
Event, less the total number of Restricted Shares, if any, that Executive
actually vested in pursuant to Section 3.3(a). Executive shall not have any put
rights under Section 3.3(b) with respect to such additional vested shares. The
Company shall have no right to purchase any such Restricted Shares that vest as
a result of a Trigger Event.

                  (d) Company Repurchase Rights. The Company shall have the
limited right to repurchase the Restricted Shares that vest pursuant to Section
3.3(a) as provided in Section 3.5.

Section 3.4 Board Discretion

                  By resolution, the Board may, on such terms and conditions as
it deems appropriate, remove any or all of the Restrictions (including, without
limitation, accelerating vesting) at any time or from time to time.

Section 3.5 Repurchase Rights

                  (a) Qualifying Termination of Service; Purchase Right for
Vested Restricted Shares. If there is a Qualifying Termination of Service during
the Period of Employment, or a Termination of Service for any reason on or after
[the last day of the Period of Employment], then the Company shall have the
right to purchase all vested Restricted Shares then held by Executive, at a cash
price per share equal to the then fair market value of the shares as reasonably
determined by the Board. The repurchase right provided in this paragraph shall
terminate, to the extent not exercised, immediately prior to an IPO.

                  In the event additional Restricted Shares vest pursuant to
Section 3.2(b) or 3.3(c) and a repurchase of shares pursuant to this Section 3.5
has previously occurred, the Company shall promptly pay to Executive (without
interest) the additional amount due to Executive (if any) to (i) repurchase the
additional shares that vested pursuant to Section 3.2(b) or 3.3(c), as
applicable and (ii) to reflect that such shares would have been repurchased by
the Company for their fair market value as opposed to the price paid by
Executive to acquire such shares.

                  (b) Termination of Service; Repurchase Right for Unvested
Restricted Shares. Without limiting the foregoing paragraph, any Restricted
Shares that are unvested as of (and after giving effect to) a Termination of
Service of Executive (including any Qualifying Termination of Service) may be
repurchased by the Company for the price initially paid by Executive to purchase
such Restricted Shares from the Company (without interest or any other
adjustments) or, if less, the then fair market value of the shares as reasonably
determined by the Board effective as of such payment date. By way of example, in
the event that Executive resigns or is terminated by the Company for Cause, then
the Restricted Shares shall in no event vest and the Company shall have the
right to repurchase such Restricted Shares pursuant to this paragraph (b).

                                        7



                  (c) Repurchase in the Event of a Stock Sale, IPO or Asset Sale
with a Terminal Equity Value less than [the minimum Terminal Equity Value].
Notwithstanding the provisions of paragraph (a) or (b) of this Section 3.5, in
the event of a Stock Sale, IPO or Asset Sale with a Terminal Equity Value of
less than [the minimum Terminal Equity Value], the Company shall have the right
to purchase all Restricted Shares (vested and unvested) for the price initially
paid by Executive to purchase such Restricted Shares from the Company (without
interest or any other adjustments) or, if less, the then fair market value of
the shares as reasonably determined by the Board effective as of such payment
date.

                  (d) Exercise and Termination of Repurchase Rights. If
Executive objects to the Board's determination of fair market value for the
purpose of any of the Company's repurchase rights set forth in this Section 3.5,
the valuation process set forth in Section 3.13 shall be followed to determine
the fair market value of the shares. The Company shall exercise its repurchase
rights pursuant to this Section 3.5 by delivering notice of election to
repurchase such shares within 90 days following (i) the date of Termination of
Services for repurchases pursuant to paragraphs (a) and (b), and (ii) the date
of closing of such Stock Sale, IPO or Asset Sale for repurchases pursuant to
paragraph (c), which notice shall set forth a date for closing not later than 60
days following the mailing of such notice. The closing shall take place at the
Company's office on or before the date specified in the notice, unless the
purchase price for such shares is determined pursuant to the valuation process
set forth in Section 3.13, in which event the closing shall take place not later
than 60 days following the determination of the purchase price pursuant to
Section 3.13. At the closing, the Company shall deliver the purchase price
therefore and the stock certificates representing the shares so purchased shall
be cancelled. If the Company does not so send such notice within such required
90 day period, the Company's repurchase rights shall automatically terminate.

                  (e) No Repurchase Rights For Class A Common Stock. Nothing
herein shall be deemed to grant the Company any repurchase rights with respect
to the Class A Common Stock that is issued upon conversion of the Class B Common
Stock.

Section 3.6 Insufficient Funds

                  In the event Executive exercises his put right pursuant to
Section 3.3(b) or the Company exercises any of its repurchase rights pursuant to
Section 3.5 and the Company does not have sufficient funds to pay the repurchase
price for the shares or such repurchase would violate any of the provisions of
any of the Company's existing or future credit facilities or indentures
(including the Indenture concerning the Senior Subordinated Secured Increasing
Rate Notes due 2008) (collectively, the " Credit Facilities") then in effect, or
the rights and preferences of preferred stock then outstanding, or any
applicable law, then to the extent necessary to comply with the Credit
Facilities, the preferred stock or applicable law, the Company shall issue a
subordinated promissory note to Executive representing the unpaid balance of the
purchase price and bearing interest at the then-current Applicable Federal Rate,
which note shall be payable (in installments or in whole) as soon as permitted
under the Credit Facilities, the preferred stock preference or applicable law,
and no later than the date of any IPO, Stock Sale or Asset Sale.

                                        8



Section 3.7 Restriction on Transfer of Restricted Shares

                  Executive shall not sell, exchange, transfer, alienate,
hypothecate, pledge, encumber or assign any Restricted Shares, or any rights
with respect thereto, until such shares have vested and the Company's repurchase
rights with respect to such shares have terminated. Neither the Restricted
Shares nor any interest or right therein or part thereof shall be liable for the
debts, contracts, or engagements of Executive or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy) and any
attempted disposition thereof shall be null and void and of no effect.

Section 3.8 Assignment of Repurchase Rights

                  The Company may assign any of its repurchase rights under
Section 3.5 to any Company stockholder.

Section 3.9 Escrow

                  (a) The Corporate Secretary of the Company or any other person
designated by the Board as escrow agent shall retain physical custody of any
certificates representing the Restricted Shares until and to the extent (i) such
Restricted Shares have vested and all Restrictions have been removed or lapsed
as to such shares under this Agreement, or (ii) the Company exercises its
repurchase right under Section 3.5 as to such shares, or (iii) such shares have
been forfeited or cancelled. To ensure the delivery of Executive's Restricted
Shares upon repurchase by the Company pursuant to Section 3.5, Executive hereby
appoints the Corporate Secretary of the Company or any other designated escrow
agent as Executive's attorney-in-fact to sell, assign and transfer unto the
Company (or such designee), such Restricted Shares, if any.

                  (b) The Corporate Secretary of the Company, or other escrow
agent, shall not be liable for any act he or she may do or omit to do with
respect to holding the Restricted Shares in escrow and while acting in good
faith and in the exercise of his or her judgment.

Section 3.10 Legend

                  The share certificate evidencing the Restricted Shares issued
hereunder may at the discretion of the Company be endorsed with the following
legend (in addition to any legend required under applicable state securities
laws):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS ON TRANSFER AND REPURCHASE RIGHTS HELD BY THE ISSUER AS
         SET FORTH IN A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE
         STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE CORPORATE SECRETARY OF
         THE ISSUER, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY,
         OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR

                                        9



         OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE
         PROVISIONS OF SUCH AGREEMENT.

Section 3.11 Vested Shares without Restrictions

                  (a) As and to the extent the Restricted Shares vest in
accordance with the terms of this Agreement and all the Restrictions on such
shares have lapsed, certificates representing such shares of Class B Common
Stock shall be delivered to Executive or for the benefit of his or her account
without the legend referenced in Section 3.10. Such shares shall cease to be
considered Restricted Shares subject to the terms and conditions of this
Agreement, and shall be shares of Class B Common Stock of the Company free of
all Restrictions.

                  (b) Notwithstanding the foregoing, certificates representing
vested shares of Class B Common Stock (as to which all Restrictions have lapsed)
shall not be delivered to Executive or for the benefit of or to his account
unless and until Executive shall have paid to the Company in cash or made
provisions for payment through withholding against income, the full amount of
all federal and state (or applicable foreign) withholding or other employment
taxes applicable to the taxable income of Executive resulting from the grant of
the Restricted Shares, vesting of the Restricted Shares, or the lapse or removal
of the Restrictions.

Section 3.12 Restrictions on New Shares and Distributions

                  In the event of any dividend or other distribution (including
ordinary cash dividends, and whether in the form of Class A Common Stock or
Class B Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-off, spin-off, combination, purchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, or issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
transaction or event, is paid, issued, exchanged or distributed in respect of
Restricted Shares, such new or additional or different shares or securities or
property (including cash) which are attributable to Executive in his capacity as
the owner of the Restricted Shares, shall be considered to be Restricted Shares
and shall be subject to all of the Restrictions, unless the Board shall, in its
discretion, otherwise provide.

Section 3.13 Determination of Terminal Equity Value and Fair Market Value

                  For purposes of determining the fair market value of a share
of Class B Common Stock or vested Restricted Shares, the Board shall determine
the Terminal Equity Value for an Asset Sale, assuming that the Company was
willing and sold its assets to a willing purchaser. For purposes of the
conversion features of the Class B Common Stock, the Board shall determine the
Terminal Equity Value for an IPO or Stock Sale, as applicable. For purposes of
the liquidation payments for the Class B Common Stock upon an Asset Sale, the
Board shall determine the Terminal Equity Value for an Asset Sale, assuming that
the Company was willing and sold its assets to a willing purchaser. The Board
shall provide prompt written notice to Executive of such valuation.

                                       10



                  If Executive disagrees with such valuation by the Board,
Executive may, by written notice to the Board no later than 10 days after
Executive is notified of the Board's determination of Terminal Equity Value,
elect to have a nationally recognized valuation firm conduct a separate
determination of such Terminal Equity Value. Any valuation firm selected must
complete its determination within 75 days of its engagement and must base its
determination upon the applicable factor(s) identified in the definition of
Terminal Equity Value. Executive shall initially select a nationally recognized
valuation firm to conduct the determination. The Company must approve or deny
the valuation firm selected by Executive within 15 business days, which approval
shall not be unreasonably withheld. If the Company denies Executive's proposed
valuation firm, Executive can select an alternate firm and the Company will have
10 business days to reasonably approve or deny such selection. If the Company
denies Executive's second proposed valuation firm, Executive can select a third
firm and the Company will have 5 business days to reasonably approve or deny
such selection provided, however, that if the Company denies 3 nationally
recognized valuation firms selected by Executive, Executive can require the
Company to choose one of the 3 nominated firms within 5 business days, and if
the Company does not select a firm Executive may select one of such firms. The
Company shall be deemed to have approved any selection by Executive if it does
not provide an approve or deny response within the specified time period.

                  Following the determination of Terminal Equity Value by the
valuation firm, the Company and Executive will have a 3 week period to mutually
agree that the Terminal Equity Value will be the average or some other
permutation of the Board's determination and the valuation firm's determination.
If the Company and Executive do not agree to a Terminal Equity Value based on
those two determinations within 3 weeks, the valuation firm and the Company will
choose a second nationally recognized valuation firm by each proposing 3
candidates to the Company and Executive simultaneously within two weeks, and any
candidate appearing on both lists will be selected (if more than one candidate
appears on both lists the final selection will be determined by chance (i.e.,
flipping a coin)). If no candidate appears on both lists, the process will be
repeated until a common candidate is found or the Company, in its sole
discretion, can select any firm previously submitted by Executive. The second
valuation firm will have 75 days to complete its determination of Terminal
Equity Value (and if not completed the average of the Company's and the fast
valuation firm's determinations will be used). After the second valuation firm
completes its determination, the Terminal Equity Value used will be the average
of the two determinations that are closest in value from among the three
determinations (the Board's, the first valuation firm's, and the second
valuation firm's).

                  The Company will pay the costs of the first valuation firm,
except that the Company shall be entitled to reimbursement from Executive for
such costs if the first valuation firm's valuation is within 5% of the Board's
valuation. The Company and Executive will equally share the costs of the second
valuation firm, if needed. If the Company is entitled to reimbursement from
Executive for any costs in accordance with the preceding two sentences, the
Company may offset all or a portion of the amount owing to the Company by
Executive against any amount (including, without limitation, any amount of
compensation) otherwise payable to Executive. The Company and Executive shall be
bound by the final determination of Termination Value pursuant to this Section
3.13.

                                       11



Section 3.14 Revisions to Adjustment Factors, Conversion Rates and Terminal
             Equity Value Thresholds

                  The Company and Executive shall negotiate in good faith
revisions to Adjustment Factors, Conversion Rates, and the Terminal Equity Value
thresholds, as applicable, in the event of any acquisitions, dispositions,
combinations, mergers, consolidation, reorganization or similar corporate
transaction that is reasonably expected to materially affect the Terminal Equity
Value of the Company.

                                   ARTICLE IV.
                                  MISCELLANEOUS

Section 4.1 Administration

                  The Board shall have the power to interpret this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon Executive, the Company and
all other interested persons. No member of the Board shall be personally liable
for any action, determination, or interpretation made in good faith with respect
to the Restricted Shares.

Section 4.2 Conditions to Issuance of Stock Certificates

                  The Restricted Shares may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the Company.
Such shares shall be fully paid and nonassessable. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
pursuant to this Agreement prior to fulfillment of all of the following
conditions:

                           (i) The admission of such shares to listing on all
                  stock exchanges on which such class of stock is then listed,
                  if applicable; and

                           (ii) The completion of any registration or other
                  qualification of such shares under any state or federal law or
                  under rulings or regulations of the Securities and Exchange
                  Commission or of any other governmental regulatory body, if
                  applicable, or the receipt of further representations from
                  Executive as to investment intent or completion of other
                  actions necessary to perfect exemptions, as the Board shall,
                  in its absolute discretion, deem necessary or advisable; and

                           (iii) The obtaining of any approval or other
                  clearance from any state or federal governmental agency which
                  the Board shall, in its absolute discretion, determine to be
                  necessary or advisable; and

                           (iv) The lapse of such reasonable period of time as
                  the Board may from time to time establish for reasons of
                  administrative convenience; and

                                       12



                           (v) The receipt by the Company of payment of any
                  applicable withholding tax.

Section 4.3 Rights as Stockholder

                  Except as otherwise provided herein, upon issuance of the
Restricted Shares upon the Grant Date, Executive shall have all the rights of a
stockholder with respect to said shares, subject to the Restrictions herein,
including the right to receive all dividends or other distributions paid or made
with respect to the Class B Common Stock; provided, however, that any and all
shares received by Executive with respect to such Restricted Shares as a result
of stock dividends, stock splits or any other form of recapitalization shall
also be subject to the Restrictions until the Restrictions on the underlying
Restricted Shares lapse or are removed pursuant to this Agreement.

Section 4.4 Section 83(b) Election

                  If Executive makes an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") to be taxed with respect
to all or any portion of the Restricted Shares as of the date of issuance of the
Restricted Shares rather than as of the date or dates upon which Executive would
otherwise be taxable under Section 83(a) of the Code, Executive shall deliver a
copy of such election to the Company promptly after filing such election with
the Internal Revenue Service. Section 83(b) elections must be filed with the
Internal Revenue Service within 30 days following the Grant Date.

Section 4.5 Notices

                  Any notice or other communication given pursuant to this
Agreement shall be in writing and shall be personally delivered, sent by
overnight courier or express mail, or mailed by first class certified or
registered mail, postage prepaid, return receipt requested as follows:

                  (a) if to the Company:

                  Skilled Healthcare Group, Inc.
                  Attention: Board of Directors
                  27442 Portola Parkway,
                  Suite 200
                  Foothill Ranch, California 92610

                  With copy to:

                  Heritage Partners, Inc.
                  30 Rowes Wharf, Suite 300
                  Boston, MA 02110
                  Attn: Mark J. Jrolf

                  (b) if to Executive:

                                       13



                  [_________________]
                  [_________________]
                  [_________________]

                  Either party may change its address set forth above by written
notice given to the other party in accordance with the foregoing. Any notice
shall be effective when personally delivered, 2 business days after being
delivered to overnight courier or express mail, or 5 business days after by
first class certified or registered mail, postage prepaid, return receipt
requested.

Section 4.6 Titles

                  Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

Section 4.7 Governing Law

                  This Agreement and the legal relations hereby created between
the parties hereto shall be governed by and construed under and in accordance
with the laws of the State of California, without regard to choice of law
provisions thereof.

Section 4.8 Conformity to Securities Laws

                  Executive acknowledges that this Agreement is intended to
conform to the extent necessary with all provisions of all applicable federal
and state laws, rules and regulations and to such approvals by any listing,
regulatory or other governmental authority as may, in the opinion of counsel for
the Company, be necessary or advisable in connection therewith. Notwithstanding
anything herein to the contrary, the Restricted Shares are granted only in such
a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement and the Restricted Shares shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.

Section 4.9 Amendments

                  No amendment or waiver of this Agreement or any term,
covenant, or condition hereof shall be binding upon the party against whom
enforcement of such amendment or waiver is sought unless it is made in writing
and signed by or on behalf of such party. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or relinquishment
of such right or power at any other time or times.

Section 4.10 Assignment

                  This Agreement is personal in its nature and neither of the
parties hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations

                                       14



hereunder; provided, however, that, in the event of a merger, consolidation, or
transfer or sale of all or substantially all of the assets or stock of the
Company with or to any other individual(s) or entity, this Agreement shall be
binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.

Section 4.11 Limitation on Amendments of the Restated Certificate of
             Incorporation

                  The Company shall not amend, modify or restate the Restated
Certificate of Incorporation in any way that adversely affects any rights,
preferences or privileges of Executive as a holder of Class B Common Stock.

                  IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.

                                         SKILLED HEALTHCARE GROUP, INC.
                                         a Delaware corporation

                                         By_____________________________________

                                         Title__________________________________

EXECUTIVE

____________________________
[_______________]

                                       15



                                                                       EXHIBIT A

                                CONSENT OF SPOUSE

                  I, [_____________], spouse of [_____________] have read and
approve the foregoing Restricted Stock Agreement, dated as of March 8, 2004, by
and between my spouse and Skilled Healthcare Group, Inc., a Delaware corporation
("Skilled"). In consideration of granting to my spouse shares of Skilled, as set
forth in the Restricted Stock Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Restricted
Stock Agreement and agree to be bound by the provisions of the Restricted Stock
Agreement insofar as I may have any rights in said Restricted Stock Agreement or
any shares issued pursuant thereto under the community property laws or similar
laws relating to marital property in effect in the state of our residence as of
the date of the signing of the foregoing Restricted Stock Agreement.

                                                ________________________________

                                                Name: [_____________]

                                                Date: March 8, 2004

                                       16

EX-10.31

                                                                   EXHIBIT 10.31

                                 AMENDMENT NO. 1

                                       TO

                            MEZZANINE LOAN AGREEMENT

      THIS AMENDMENT NO. 1 (this "Amendment") is entered into as of March 8,
2004, by and among SHG PROPERTY RESOURCES, LLC And SHG INVESTMENTS, LLC
(collectively as "BORROWER"), CAPITALSOURCE FINANCE LLC, ("CAPITALSOURCE"), The
other financial institutions from time to time party thereto (CapitalSource and
such other financial institutions, collectively, as "LENDER"), SKILLED
HEALTHCARE GROUP, INC. (formerly known as Fountain View, Inc.) (as "GUARANTOR")
and CapitalSource as administrative agent and collateral agent for Lender (in
such capacity, "AGENT").

                                   BACKGROUND

      Borrower, CapitalSource as Lender, other institutions then also comprising
Lender ("Former Lenders"), Guarantor and Agent entered into a Loan 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
Lender provided Borrower with certain financial accommodations.

      Pursuant to the terms of the Loan Agreement, Borrower, upon ten days prior
notice to Agent, prepaid a portion of the Debt, consisting of the outstanding
principal amount (together with all interest due thereon) of those certain
Promissory Notes made by Borrower in favor of each of the Former Lenders (the
"Prepaid Notes") which, together with the outstanding Promissory Note made by
Borrower in favor of CapitalSource, comprised the defined term "Note". Financing
for the Prepaid Notes was provided by CapitalSource. Contemporaneous with the
financing of the Prepaid Notes, Borrower issued and delivered to CapitalSource
an Amended and Restated Promissory Note in the form annexed hereto as Exhibit A
(the "Restated Note"). The parties hereto have agreed to amend the Loan
Agreement to, inter alia, (a) clarify that the Restated Note hereafter
constitutes the "Note" as defined therein, (b) remove references to the Former
Lenders and (c) reduce the interest rate payable thereunder.

      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.    Amendments 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)   References to each of the Former Lenders appearing in the
first introductory paragraph of the Loan Agreement are deleted in their
entireties.



            (b)   The definitions of "Guarantor", "Loan", "Note" and "Spread"
appearing in Section 1.1 of the Loan Agreement are amended and restated in their
entireties to read as follows:

                  "Guarantor shall mean skilled care Group, Inc., formerly
                  Known as Fountain View, Inc., a Delaware corporation."

                  "Loan shall mean the loan in the principal amount of seven
                  Million Nine Hundred and Fifty Eight Thousand Three Hundred
                  and Thirty Three and 38/100 Dollars ($7,958,333.38) made by
                  Lender to Borrower pursuant to this Agreement."

                  "'Note'" shall mean that certain Amended and Restated
                  Promissory Note, dated as of March 8, 2004, in the principal
                  amount of Seven Million Nine Hundred and Fifty Eight Thousand
                  Three Hundred and Thirty Three and 38/100 Dollars
                  ($7,958,333.38) in favor of CapitalSource Finance LLC, as the
                  same may be amended, restated, replaced, supplement or
                  otherwise modified from time to time."

                  "'Spread'" shall mean 15%."

            (c)   The names, addresses and other notice information for each of
the Former Lenders appearing in Section 10.6 of the Loan Agreement are deleted
in their entireties.

     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 Borrower, Guarantor
and Lender and (ii) and such other certificates, instruments, documents,
agreements and opinions of counsel as may be required by Agent or its counsel,
each of which shall be in form and substance 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 Borrower and are enforceable
against Borrower 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 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 10 the Loan Agreement.

                                        2



      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 Lender,
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.    Reaffirmation of Guaranty. By its signature below, Guarantor hereby
reaffirms its guaranty of the Guaranteed Obligations, as such term is defined in
that certain Mezzanine Guaranty of Payment dated as of August 19,2003, which
Guaranty remains in full force and effect.

      7.    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.

      8.    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.

      9.    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.

                                        3



      IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.

                                       SHG PROPERTY RESOURCES, LLC

                                       By: /s/ JOHN HARRISON
                                           -------------------------------------
                                       Name: JOHN HARRISON
                                       Title: CFO

                                       SHG INVESTMENTS, LLC

                                       By: /s/ JOHN HARRISON
                                           -------------------------------------
                                       Name: JOHN HARRISON
                                       Title: CFO

                                       CAPITALSOURCE FINANCE LLC

                                       By: _____________________________________
                                       Name: James J. Pieczynski
                                       Title: Director

ACKNOWLEDGED AND AGREED:

SKILLED HEALTHCARE GROUP, INC.

By: /s/ JOHN HARRISON
    -------------------------------------
Name: JOHN HARRISON
Title: CFO



      IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.

                                       SHG PROPERTY RESOURCES, LLC

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       SHG INVESTMENTS, LLC

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       CAPITALSOURCE FINANCE LLC

                                       By: /s/ James J.piececzynski
                                           -------------------------------------
                                       Name: James J. Pieczynski
                                       Title: Director

ACKNOWLEDGED AND AGREED:

SKILLED HEALTHCARE GROUP, INC.

By: _____________________________________
Name: ___________________________________
Title: __________________________________

EX-10.32

                                                                   EXHIBIT 10.32

                                 AMENDMENT NO. 1

                                       TO

                                 LOAN AGREEMENT

      THIS AMENDMENT NO. 1 (this "Amendment") is entered into as of March 8,
2004, by and among THE ENTITIES LISTED ON THE SIGNATURE PAGE HERETO
(collectively as "BORROWER"), COLUMN FINANCIAL, INC. ("COLUMN"), CAPITALSOURCE
FINANCE LLC, as successor-in-interest with respect to a portion of the Debt
referred to herein ("CAPITALSOURCE") (Column and CapitalSource hereafter,
"LENDER"), SKILLED HEALTHCARE GROUP, INC. (formerly known as Fountain View,
Inc.) (as "GUARANTOR").

                                   BACKGROUND

      Borrower and Column entered into a Loan Agreement dated as of August 19,
2003 (as amended, restated, supplemented or otherwise modified from time to
time, the "LOAN AGREEMENT") pursuant to which Lender provided Borrower with
certain financial accommodations. The obligations of Borrower to repay the Debt
incurred under the Loan Agreement are evidenced by Promissory Note A and
Promissory Note B, as such terms are defined in the Loan Agreement.

      Column, as the initial holder of both Promissory Note A and Promissory
Note B under the Loan Agreement, entered into an Agreement Among Noteholders
(the "NOTEHOLDERS AGREEMENT"), with CapitalSource, as agent on behalf of the
"Initial Note B Holders" and with each of CapitalSource and other lenders (such
other lenders, the "FORMER LENDERS"), pursuant to which CapitalSource and the
Former Lenders purchased from Column Promissory Note B-1, Promissory Note B-2
and Promissory Note B-3, which collectively comprised Promissory Note B.

      The Loan Agreement provides, in Section 2.4.1 thereof, that Borrower has
the right to prepay Promissory Note B, in whole or in part, at any time without
premium or penalty. Paragraph 4 of the Noteholders Agreement provides that any
payments made by Guarantor on the "NOTE B GUARANTY" shall be applied exclusively
towards payment of amounts due and payable on Promissory Note B. In order to
reduce its liability under its Guaranty of the Debt, Guarantor has tendered to
Former Lenders an amount equal to the outstanding obligations of Borrower with
respect to that portion of the Debt held by the Former Lenders and evidenced by
Promissory Note B-2 and Promissory Note B-3 (hereafter, the "PREPAID NOTES").

      Financing for the Prepaid Notes was provided by CapitalSource to Borrower.
Contemporaneous with the financing of the Prepaid Notes, Borrower issued and
delivered to CapitalSource an Amended and Restated Promissory Note B in the form
annexed hereto as Exhibit A (the "RESTATED NOTE"). The parties hereto have
agreed to amend the Loan Agreement to, inter alia, (a) clarify that the Restated
Note hereafter constitutes the "PROMISSORY NOTE B" as defined therein and (b)
reduce the interest rate payable thereunder with respect to Promissory Note B.



      NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lender, 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.    Amendments 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)   References to each of the Former Lenders appearing in the
first introductory paragraph of the Loan Agreement are deleted in their
entireties.

            (b)   The definitions of "Promissory Note B" and "Spread" appearing
in Section 1.1 of the Loan Agreement are amended and restated in their
entireties to read as follows:

                  "Promissory Note B" shall mean that certain Amended and
                  Restated Promissory Note B, dated as of March 8,2004, in the
                  principal amount of Ten Million Dollars ($10,000,000) 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."

                  "Spread" shall mean four and one-half percent (4.50%) with
                  respect to Promissory Note A and fifteen percent (15%) with
                  respect to Promissory Note B.

            (c)   The definitions of "Promissory Note B-1", "Promissory Note
B-2" and "Promissory Note B-3" appearing in Section 1.1 of the Loan Agreement
are deleted in their entireties.

      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 Borrower, Guarantor,
CapitalSource and Column and (ii) and such other certificates, instruments,
documents, agreements and opinions of counsel as may be required by Agent or its
counsel, each of which shall be in form and substance 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 Borrower and are enforceable
against Borrower 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

                                        2



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 Lender,
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.    Certification Regarding Prepaid Notes. Each of Borrower, Guarantor
and CapitalSource hereby certifies to Column that all of the obligations of
Borrower with respect to the Prepaid Notes have been satisfied in full and that
the Former Lenders have no further rights under the Loan Agreement or the Loan
Documents.

      7.    Reaffirmation of Guaranty. By its signature below, Guarantor hereby
reaffirms its guaranty of the Guaranteed Obligations, as such term is defined in
that certain B Note Guaranty Agreement dated as of August 19, 2003, which
Guaranty remains in full force and effect in accordance with its original terms,
except that all references therein to "Note B-1", "Note B-2" and/or "Note B-3"
shall hereafter be deemed to refer to "Promissory Note B", as defined herein.

      8.    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.

      9.    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.

      10.   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.

                                        3



      IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.

                                       BRIAFCLIFF 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 Beaumont 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/ JOHN HARRISON
                                           -------------------------------------
                                       Name: JOHN HARRISON
                                       Title: CFO of each of the foregoing
                                              entities

                                       COLUMN FINANCIAL, INC.

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       CAPITALSOURCE FINANCE LLC

                                       By: _____________________________________
                                       Name: James J. Pieczynski
                                       Title: Director

ACKNOWLEDGED AND AGREED:

SKILLED HEALTHCARE GROUP, INC.

By: /s/ JOHN HARRISON
    -------------------------------------
Name: JOHN HARRISON
Title: CFO



                                       WILLOW CREEK HEALTHCARE CENTER, LLC

                                       By: _____________________________________

                                       Name: ___________________________________

                                       Title: _______________ of each of the
                                              foregoing entities

                                       COLUMN FINANCIAL, INC.

                                       BY: /s/ EDMUND TAYLOR
                                           -------------------------------------
                                       Name: EDMUND TAYLOR
                                       Title: Vice President

                                       CAPITALSOURCE FINANCE LLC

                                       By: _____________________________________
                                       Name: James J. Pieczynski
                                       Title: Director

ACKNOWLEDGED AND AGREED:

SKILLED HEALTHCARE GROUP, INC.

By: _____________________________________
Name: ___________________________________
Title: __________________________________



                                       WILLOW CREEK HEALTHCARE CENTER, LLC

                                       By: _____________________________________

                                       Name: ___________________________________

                                       Title: _______________ of each of the
                                              foregoing entities

                                       COLUMN FINANCIAL, INC.

                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________

                                       CAPITALSOURCE FINANCE LLC

                                       BY: /s/ James J. Pieczynski
                                           -------------------------------------
                                       Names: James J. Pieczynski
                                       Title: Director

ACKNOWLEDGED AND AGREED:

SKILLED HEALTHCARE GROUP, INC.

By: _____________________________________
Name: ___________________________________
Title: __________________________________

EX-10.33

                                                                   EXHIBIT 10.33


                         SKILLED HEALTHCARE GROUP, INC.

                           2004 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT

         Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Stock Option Agreement.

I.       NOTICE OF STOCK OPTION GRANT

         [Optionee]

         [Address]

         You ("Optionee") have been granted an option to purchase Common Stock
of the Company, subject to the terms and conditions of the Plan and this Stock
Option Agreement. The terms of your grant are set forth below:

          Date of Grant:

          Vesting Commencement Date:

          Exercise Price per Share:           $______ per share

          Total Number of Shares Granted:

          Total Exercise Price:               $______

          Type of Option:               _____ Incentive Stock Option

                                        _____ Non-Qualified Stock Option

          Term/Expiration Date:


         Exercise and Vesting Schedule:
         -----------------------------

         The Shares subject to this Option shall vest according to the following
schedule:

         [Insert Vesting Schedule]

         Termination Period:
         ------------------

         This Option may be exercised, to the extent vested, for three (3)
months after Optionee ceases to be a Service Provider, or such longer period as
may be applicable upon the death or disability of Optionee as provided herein
(or, if not provided herein, then as provided in the Plan), but in no event
later than the Term/Expiration Date as provided above.



II.      AGREEMENT

         1. Grant of Option. The Company hereby grants to the Optionee an Option
to purchase the Common Stock (the "Shares") set forth in the Notice of Grant, at
the exercise price per share set forth in the Notice of Grant (the "Exercise
Price"). Notwithstanding anything to the contrary anywhere else in this Option
Agreement, this grant of an Option is subject to the terms, definitions and
provisions of the Skilled Healthcare Group, Inc. 2004 Equity Incentive Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.

                  If designated in the Notice of Grant as an Incentive Stock
Option, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code; provided, however, that to the extent that
the aggregate Fair Market Value of stock with respect to which Incentive Stock
Options (within the meaning of Code Section 422, but without regard to Code
Section 422(d)), including the Option, are exercisable for the first time by the
Optionee during any calendar year (under the Plan and all other incentive stock
option plans of the Company or any Subsidiary) exceeds $100,000, such options
shall be treated as not qualifying under Code Section 422, but rather shall be
treated as Non-Qualified Stock Options to the extent required by Code Section
422. The rule set forth in the preceding sentence shall be applied by taking
options into account in the order in which they were granted. For purposes of
these rules, the Fair Market Value of stock shall be determined as of the time
the option with respect to such stock is granted.

         2. Exercise of Option. This Option is exercisable as follows:

                  (a) Right to Exercise.

                           (i) This Option shall be exercisable cumulatively
according to the vesting schedule set out in the Notice of Grant. For purposes
of this Stock Option Agreement, Shares subject to this Option shall vest based
on Optionee's continued status as a Service Provider.

                           (ii) This Option may not be exercised for a fraction
of a Share.

                           (iii) In the event of Optionee's death, disability or
other termination of the Optionee's status as a Service Provider, the
exercisability of the Option is governed by Sections 7, 8 and 9 below.

                           (iv) In no event may this Option be exercised after
the date of expiration of the term of this Option as set forth in the Notice of
Grant.

                  (b) Method of Exercise. This Option shall be exercisable by
written Notice (in the form attached as Exhibit A). The Notice must state the
number of Shares for which the Option is being exercised, and such other
representations and agreements with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. The
Notice must be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The Notice must be accompanied
by payment of the Exercise Price, including payment of any applicable
withholding tax. This Option shall be


                                       2


deemed to be exercised upon receipt by the Company of such written Notice
accompanied by the Exercise Price and payment of any applicable withholding tax.

                  No Shares shall be issued pursuant to the exercise of an
Option unless such issuance and such exercise comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such Shares.

         3. Optionee's Representations. If the Shares purchasable pursuant to
the exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.

         4. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.

         5. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:

                  (a) cash;

                  (b) check;

                  (c) with the consent of the Administrator, surrender of other
shares of Common Stock of the Company which (A) in the case of Shares acquired
from the Company, have been owned by the Optionee for more than six (6) months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the Exercise Price of the Shares as to which the Option is
being exercised;

                  (d) with the consent of the Administrator, property of any
kind which constitutes good and valuable consideration;

                  (e) with the consent of the Administrator, through the
delivery of a notice that the Holder has placed a market sell order with a
broker with respect to Shares then issuable upon


                                       3


exercise of the Option, and the broker pays a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise
price; or

                  (f) with the consent of the Administrator, any combination of
the foregoing methods of payment.

         6. Restrictions on Exercise. This Option may not be exercised until the
Plan has been approved by the stockholders of the Company. If the issuance of
Shares upon such exercise or if the method of payment for such shares would
constitute a violation of any applicable federal or state securities or other
law or regulation, then the Option may also not be exercised. The Company may
require Optionee to make any representation and warranty to the Company as may
be required by any applicable law or regulation before allowing the Option to be
exercised.

         7. Termination of Relationship. If Optionee ceases to be a Service
Provider (other than by reason of the Optionee's death or the total and
permanent disability of the Optionee as defined in Code Section 22(e)(3)),
Optionee may exercise this Option during the Termination Period set out in the
Notice of Grant, to the extent the Option was vested at the date of such
termination. To the extent that Optionee was not vested in this Option at the
date on which Optionee ceases to be a Service Provider, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.

         8. Disability of Optionee. If Optionee ceases to be a Service Provider
as a result of his or her total and permanent disability as defined in Code
Section 22(e)(3), Optionee may exercise the Option to the extent the Option was
vested at the date on which Optionee ceases to be a Service Provider, but only
within twelve (12) months from such date (and in no event later than the
expiration date of the term of this Option as set forth in the Notice of Grant).
To the extent that the Option is not vested at the date on which Optionee ceases
to be a Service Provider, or if Optionee does not exercise such Option within
the time specified herein, the Option shall terminate.

         9. Death of Optionee. If Optionee ceases to be a Service Provider as a
result of the death of Optionee, the vested portion of the Option may be
exercised at any time within twelve (12) months following the date of death (and
in no event later than the expiration date of the term of this Option as set
forth in the Notice of Grant) by Optionee's estate or by a person who acquires
the right to exercise the Option by bequest or inheritance. To the extent that
the Option is not vested at the date of death, or if the Option is not exercised
within the time specified herein, the Option shall terminate.

         10. Non-Transferability of Option. This Option may not be transferred
in any manner except by will or by the laws of descent or distribution . It may
be exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.


                                       4


         11. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant.

                  This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
document.

                                       SKILLED HEALTHCARE GROUP, INC.

                                       By:________________________________

                                       Name:______________________________

                                       Title:_______________________________

         OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
         THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR
         EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING
         HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).
         OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
         AGREEMENT, NOR IN THE COMPANY'S 2004 EQUITY INCENTIVE PLAN WHICH IS
         INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT
         WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE
         COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
         COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT
         ANY TIME, WITH OR WITHOUT CAUSE.

         Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof. Optionee hereby accepts
this Option subject to all of the terms and provisions hereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.

Dated: __________________          ____________________________________________
                                   [OPTIONEE]


                                   Residence Address:

                                   _____________________________________________


                                   _____________________________________________


                                       5


                                    EXHIBIT A

                         SKILLED HEALTHCARE GROUP, INC.

                           2004 EQUITY INCENTIVE PLAN

                                 EXERCISE NOTICE


Skilled Healthcare Group, Inc.

Attention: Secretary

         1. Exercise of Option. Effective as of today, ___________, _____, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Skilled Healthcare Group,
Inc., a Delaware corporation (the "Company") under and pursuant to the Skilled
Healthcare Group, Inc. 2004 Equity Incentive Plan (the "Plan") and the [ ]
Incentive [ ] Non-Qualified Stock Option Agreement dated _____________, _____,
(the "Option Agreement").

         2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement. Optionee agrees
to abide by and be bound by their terms and conditions.

         3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to Shares subject to the Option, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued.

                  Optionee shall enjoy rights as a stockholder until such time
as Optionee disposes of the Shares or the Company and/or its assignee(s)
exercises the Right of First Refusal or Call Right hereunder. Upon such
exercise, Optionee shall have no further rights as a holder of the Shares so
purchased except the right to receive payment for the Shares so purchased in
accordance with the provisions of this Agreement, and Optionee shall forthwith
cause the certificate(s) evidencing the Shares so purchased to be surrendered to
the Company for transfer or cancellation.

         4. Optionee's Rights to Transfer Shares.

                  (a) Company's Right of First Refusal. Before any Shares held
by Optionee or any permitted transferee (each, a "Holder") may be sold, pledged,
assigned, hypothecated, transferred, or otherwise disposed of (including
transfer by gift or operation of law and, collectively, "Transfer" or
"Transferred"), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").



                           (i) Notice of Proposed Transfer. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide intention to sell or otherwise Transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be Transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to Transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).

                           (ii) Exercise of Right of First Refusal. Within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may elect in writing to purchase all, but not less than all, of the Shares
proposed to be Transferred to any one or more of the Proposed Transferees. The
purchase price will be determined in accordance with subsection (iii) below.

                           (iii) Purchase Price. The purchase price ("Purchase
Price") for the Shares repurchased under this Section shall be the Offered
Price. If the Offered Price includes consideration other than cash, the cash
equivalent value of the non-cash consideration shall be determined by the Board
of Directors of the Company in good faith.

                           (iv) Payment. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within thirty (30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.

                           (v) Holder's Right to Transfer. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise Transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other Transfer is consummated within one hundred twenty (120) days after the
date of the Notice and provided further that any such sale or other Transfer is
effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section shall continue
to apply to the Shares in the hands of such Proposed Transferee. If the Shares
described in the Notice are not Transferred to the Proposed Transferee within
such period, a new Notice shall be given to the Company, and the Company and/or
its assignees shall again be offered the Right of First Refusal as provided
herein before any Shares held by the Holder may be sold or otherwise
Transferred.

                  (b) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the Transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's Immediate Family or a trust for the benefit of
the Optionee's Immediate Family shall be exempt from the Right of First Refusal.
As used herein, "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister or stepchild
(whether or not adopted). In such case, the transferee or other recipient shall
receive and hold the Shares so Transferred subject to the provisions of this
Section (including the Right of First Refusal) and there shall be no further
Transfer of such Shares except in accordance with the terms of this Section.


                                       2


                  (c) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to all Shares upon a sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.

                  (d) Company Call Right.

                           (i) If Optionee ceases to be a Service Provider (as
defined in the Plan) for any reason, including for cause, death, and disability,
the Company shall have the right to purchase from Optionee, or Optionee's
personal representative, as the case may be, any or all of the Shares then owned
by the Optionee at a price equal to the [FAIR MARKET VALUE (AS DEFINED IN THE
PLAN)] of the Shares on the date on which the Optionee ceases to be a Service
Provider (the "Company Call Right").

                           (ii) The Company may exercise the Company Call Right
by delivering personally or by registered mail to Optionee (or his transferee or
legal representative, as the case may be), within ninety (90) days of the date
on which Optionee ceases to be a Service Provider, a notice in writing
indicating the Company's intention to exercise the Company Call Right and
setting forth a date for closing not later than thirty (30) days from the
mailing of such notice. The closing shall take place at the Company's office. At
the closing, the holder of the certificates for the Shares being transferred
shall deliver the stock certificate or certificates evidencing the Shares, and
the Company shall deliver the purchase price therefor.

                           (iii) If the Company does not elect to exercise the
Company Call Right conferred above by giving the requisite notice within ninety
(90) days following the date on which Optionee ceases to be a Service Provider,
the Company Call Right shall terminate.

                           (iv) The Company Call Right shall terminate as to all
Shares upon the first to occur of (i) a Public Offering, or (ii) [A SALE OF THE
COMPANY (WHETHER BY MERGER, CONSOLIDATION, SALE OF ALL OR SUBSTANTIALLY ALL OF
THE COMPANY'S ASSETS OR SALE OF ALL OF THE COMPANY'S CAPITAL STOCK) WHICH IS
APPROVED BY THE HOLDERS OF THE COMPANY'S SECURITIES REPRESENTING AT LEAST
[FIFTY-ONE (51%)] OF THE COMBINED VOTING POWER OF ALL OUTSTANDING SECURITIES OF
THE COMPANY].]

         5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

         6. Restrictive Legends and Stop-Transfer Orders.

                  (a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares

                                       3


together with any other legends that may be required by state or federal
securities laws:

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
                  OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
                  HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
                  THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
                  THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
                  PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

                  THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
                  CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL
                  AND CALL RIGHT OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S)
                  AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE
                  ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
                  OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
                  RESTRICTIONS AND RIGHT OF FIRST REFUSAL AND CALL RIGHT ARE
                  BINDING ON TRANSFEREES OF THESE SHARES.

                  (b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

                  (c) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.

         7. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.

         8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan
(the "Administrator"), which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.


                                       4


         9. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.

         10. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

         11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

         12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares, as well as any applicable withholding tax.

         13. Entire Agreement. The Plan and Stock Option Agreement are
incorporated herein by reference. This Agreement, the Plan, the Stock Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof.

Submitted by:                        Accepted by:

OPTIONEE:                            SKILLED HEALTHCARE GROUP, INC.
                                     a Delaware Corporation

__________________________________   By: _______________________________________

                                     Its:  _____________________________________


Address:


_______________________________________

_______________________________________

_______________________________________


                                       5


                                    EXHIBIT B

                       INVESTMENT REPRESENTATION STATEMENT


OPTIONEE :

COMPANY  :        SKILLED HEALTHCARE GROUP, INC.

SECURITY :        COMMON STOCK

AMOUNT   :

DATE     :


In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

                  (a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

                  (b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.

                  (c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at



the time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three (3)
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.

                  In the event that the Company does not qualify under Rule 701
at the time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two (2) years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.

                  (d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.

                                           Signature of Optionee:


                                           _____________________________________


Date: _______________________, 2004


                                       2

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

     I, Boyd Hendrickson, certify that:

     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.

     Dated: May 14, 2004

/s/ BOYD HENDRICKSON  

Boyd Hendrickson 

Chief Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

     I, John Harrison, certify that:

     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.

     Dated: May 14, 2004

/s/ JOHN H. HARRISON  

John Harrison 

Chief Financial Officer 

EX-32.1

EXHIBIT 32

     The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Certification of Chief Executive Officer

     Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Skilled Healthcare Group, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

     (i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2004 (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.

     Date: May 14, 2004

/s/ BOYD HENDRICKSON  

Boyd Hendrickson 

Chief Executive Officer 

     A signed original of this written statement required by Section 906 has been provided to Skilled Healthcare Group, Inc. and will be retained by Skilled Healthcare Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Certification of Chief Financial Officer

     Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Skilled Healthcare Group, Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

     (i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2004 (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.

     Date: May 14, 2004

/s/ JOHN HARRISON  

John Harrison 

Chief Financial Officer 

     A signed original of this written statement required by Section 906 has been provided to Skilled Healthcare Group, Inc. and will be retained by Skilled Healthcare Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.