T-3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM T-3

FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES

UNDER THE TRUST INDENTURE ACT OF 1939

FOUNTAIN VIEW, INC.

(Name of Applicant)

27442 Portola Parkway, Suite 200

Foothill Ranch, California 92610

(Address of principal executive offices)

Securities to be Issued under the Indenture to be Qualified:

Title of class	Amount
Senior Secured Increasing Rate Notes Due 2008	Up to a maximum aggregate principal amount of $110,000,0001

Approximate date of proposed public offering:

On, or as soon as practicable after, the Effective Date of the Company’s Plan of Reorganization

Fountain View, Inc.

27442 Portola Parkway, Suite 200

Foothill Ranch, California 92610

Attn: Roland Rapp, General Counsel and Chief Administrative Officer

(949) 282 5800

(Name and address of agent for service)

With copies to:

Patrick T. Seaver

Latham & Watkins

650 Town Center Drive

Costa Mesa, CA 92626

(714) 540-1235

The Applicant hereby amends this application for qualification on such date or dates as may be necessary to delay its effectiveness until (i) the 20th day after the filing of an amendment that specifically states that it shall supersede this application for qualification or (ii) such date as the Securities and Exchange Commission, acting pursuant to Section 307(c) of the Trust Indenture Act of 1939, may determine upon the written request of the Applicant.

¹ The actual aggregate principal amount of the Notes to be outstanding will depend on the date of the Effective Date of the Company’s Plan of Reorganization as described herein.

GENERAL

Item 1.    General Information.

(a)    Fountain View, Inc. (the “Company”) is a corporation.

(b)    The Company is organized under the laws of Delaware. The mailing address for the Company is Fountain View, Inc., Attn: Secretary/Chief Financial Officer, 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610.

Item 2.    Securities Act Exemption Applicable.

On October 2, 2001, the Company and its subsidiaries (the “Debtors”) filed a petition in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”).

The Debtors filed their Third Amended Joint Plan of Reorganization dated April 22, 2003 (as amended, the “Plan”) with the Bankruptcy Court on June 30, 2003 and their Disclosure Statement relating to the Plan dated April 22, 2003 (the “Disclosure Statement”) with the Bankruptcy Court on April 22, 2003. The Chapter 11 case of the Debtors was confirmed by an order of the Bankruptcy Court on July 10, 2003. Pursuant to the Plan, the Company will issue its new Senior Subordinated Secured Increasing Rate Notes Due 2008 (the “New Notes,” as further described in the Plan) under an indenture (the “Indenture”) between the Company, U.S. Bank National Association, as trustee (the “Trustee”), and certain guarantor subsidiaries of the Company identified therein (the “Guarantors”). The Indenture is the subject of this application. A copy of the Indenture is attached hereto as Exhibit T3C, a copy of the Disclosure Statement relating to the Plan is attached hereto as Exhibit T3E-1 and a copy of the Plan is attached hereto as Exhibit T3E-2. Capitalized terms used herein and not defined herein shall have the meanings given to such terms in the Plan. On or shortly following the date on which the Company consummates the Plan (the “Effective Date”), the holders of Allowed Class 9 Claims, consisting of claims held by holders of the Company’s outstanding 11¼% Senior Subordinated Note due 2008 (the “Old Notes”) will receive in satisfaction of such claims a pro rata portion of (i) the New Notes, (ii) 58,642 shares of new Common Stock of the Company, and (iii) $50 million dollars, plus an amount equal to the amount (if any) by which the Debtors’ cash, cash equivalents, and undrawn revolving commitments on the Effective Date exceed $30 million after giving effect to all payments required by the Plan (the “Cash Payment Amount”). The New Notes will be due five years after the Effective Date. The aggregate principal amount of the New Notes (the “Authorized Principal Amount”) will be equal to an amount determined by the result of (i) $133,012,500, plus (ii) post petition interest on $133,012,500 from October 2, 2001 to the Effective Date at the rate of 9½% per annum, minus (iii) the Initial Cash Payment.

The Company has completed a solicitation of acceptances of the proposed Plan. The Company is relying on Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), to exempt the offering of the New Notes pursuant to the solicitation and Section 1145(a)(1) of Title 11 of the Bankruptcy Code to exempt the offer, exchange and distribution of the New Notes pursuant to the Plan from the registration requirements of the Securities Act and state securities and “blue sky” laws. Generally, Section 1145(a)(1) of Title 11 of the Bankruptcy Code exempts an offer and sale of securities under a plan of reorganization from registration under the Securities Act and state securities laws if three principal requirements are satisfied: (i) the securities must be offered and sold under a plan of reorganization and must be securities of the debtor, an affiliate participating in a joint plan with the debtor or a successor to the debtor under the plan; (ii) the recipients of the securities must hold a prepetition or administrative expense claim against the debtor or an interest in the debtor; and (iii) the securities must be issued entirely in exchange for the recipient’s claim against or interest in the debtor, or principally in such exchange and partly for cash or property. The Company believes that the offer of the New Notes under the Solicitation and the exchange of New Notes for Old Notes under the Plan will satisfy the requirements of Section 3(a)(9) of the Securities Act and Section 1145(a)(1) of the Bankruptcy Code, respectively, and, therefore, such offer and exchange is exempt from the registration requirements referred to above. There has not been, nor is there going to be, any sales of New Notes by the Company or by or through an underwriter at or about the same time as the Plan or the offering, exchange and distribution of the New Notes. The Company has not paid or given, and will not pay or give, directly or indirectly, any commission or other remuneration to any broker, dealer, salesman or other person for solicitation in connection with any aspect of the Plan. The Debtors are not aware of any entity to which New Notes will be issued that is an “underwriter” as that term is defined in Section 1145(b) of the Bankruptcy Code.

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AFFILIATIONS

Item 3.    Affiliates.

(a)    Set forth on Annex A hereto is a list of all direct and indirect subsidiaries of the Company (the “Subsidiaries” and each a “Subsidiary”). Unless stated otherwise, each Subsidiary is wholly owned by the Company and each Subsidiary will continue its corporate existence unchanged after the Effective Date.

(b)    See Item 5 for “Principal Owners of Voting Securities” of the Company, some of whom may be deemed to be “affiliates” of the Company and the Subsidiaries by virtue of their holdings.

MANAGEMENT AND CONTROL

Item 4.    Directors and Executive Officers.

The following table sets forth the names of, and all offices held by, all current executive officers and directors (as defined in Sections 303(5) and 303(6) of the Trust Indenture Act of 1939 (the “TIA”), respectively) of the Company. The mailing address for each executive officer and director listed below is c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610. Each of the executive officers and directors listed below are expected to hold their same positions as of the Effective Date.

Name	Position
Boyd Hendrickson	Chief Executive Officer
Jose Lynch	President
John Harrison	Chief Financial Officer
Roland Rapp	General Counsel and Chief Administrative Officer
Allan Crommett	Chief Information Officer
Kelly Atkins	Senior VP of Operations-CA
Eddie Parades	Senior VP of Operations-TX
Joan Redden	Senior VP of Clinical Services
Ted Chigaros	VP of Business Development and Managed Care
Robert Fancy	VP Risk Management and Insurance
Brad Gibson	VP of Operations Finance
Scott Petterson	VP Corporate Controller
Lori Stewart	VP of Human Resources
William Scott	Chairman of the Board
Robert Snukal	Director
Sheila Snukal	Director
Peter Hermann	Director
Michael Gilligan	Director
Mark Jrolf	Director
Michel Reichert	Director
Scott Gross	Director
Tim Parris	Director
Keith Abrahams	Director

Item 5.    Principal Owners of Voting Securities.

(a)    The following table sets forth the voting securities as to each person beneficially owning 10 percent or more of the voting securities of the Company as of the date of this application. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given date which such person has the right to acquire within 60 days after such date:

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Name and Complete Mailing Address	Class A Common Stock		Percentage of Class A Common Stock		Class C Common Stock		Percentage of Class C Common Stock		Percentage of All Outstanding Voting Securities
Entities and Individuals Affiliated with Heritage Fund II, L.P.(1)	525,633	(2)	52.6	%	11,853	(3)	36.4	%	52.1	%
Robert M. and Sheila S. Snukal(4)	149,484		14.9	%					14.6	%

1) The address of Heritage Fund II, L.P. is c/o Heritage Partners, Inc., 30 Rowes Wharf, Boston, MA 02110. The general partner of Heritage Fund II, L.P. is HF Partners II, LLC. The three managers of HF Partners II, LLC are Michel Reichert, Peter Z. Hermann and Michael F. Gilligan. Heritage Fund II, L.P. has a management agreement under which it receives management services from Heritage Partners Management Company, Inc. The stockholders, board members and principal officers of Heritage Partners Management Company, Inc. are Messrs. Reichert, Hermann and Gilligan. Each of Messrs. Reichert, Hermann and Gilligan may be deemed to control the voting and disposition of the securities owned by Heritage Fund II, L.P., and accordingly may be deemed to have shared voting and investment power with respect to all shares held by Heritage Fund II, L.P. However, each of such persons disclaim beneficial ownership of the securities held by Heritage Fund II, L.P. Pursuant to a Stockholders Agreement, Heritage Fund II, L.P. has a proxy to vote an additional 474,367 shares held by other stockholders, representing approximately 46.5% of the Company’s voting stock, except with respect to matters the effect of which on such other stockholders differs materially and adversely from the effect on Heritage Fund II, L.P. Heritage Fund II, L.P. and Messrs. Reichert, Hermann and Gilligan disclaim beneficial ownership of the shares subject to this proxy.

2) Excludes 429 shares of Class A Common Stock held by Heritage Investors II, LLC. Heritage Investors II, LLC was formed to permit employees of Heritage Partners Management Company, Inc. to make co-investments in portfolio companies of Heritage Fund II, L.P. Its sole manager is Heritage Partners Management Company, Inc. Heritage Fund II, L.P. and Messrs. Reichert, Hermann and Gilligan disclaim beneficial ownership of the shares held by Heritage Investors II, LLC.

3) The number of shares indicated are issuable upon the exercise of a warrant to purchase Class C Common Stock at an exercise price of $0.01 per share. The warrant is immediately exercisable.

4) The address of such stockholders is c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610.

(b)    The following table sets forth the voting securities as to each person expected to beneficially own 10 percent or more of the voting securities of the Company promptly following the Effective Date. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given date which such person has the right to acquire within 60 days after such date:

Name	Common Stock		Percentage of Common Stock		Series A Preferred Stock	Percentage of Series A Preferred Stock		Percentage of All Outstanding Voting Securities
Heritage Fund II, L.P.	597,513	(1)	49.6	%	2,658	17.7	%	49.5	%
Robert M. and Sheila S. Snukal	166,555		14.0	%				13.9	%

1) The number of shares indicted includes 11,853 shares issuable upon the exercise of a warrant to purchase Common Stock at an exercise price of $0.01 per share. The warrant will be exercisable as of the Effective Date. Each of Messrs. Michael Reichert, Michael F. Gilligan and Peter Z. Hermann may, through one or more intermediaries be deemed to control the voting and disposition of the securities owned by Heritage Fund II, L.P., and accordingly may be deemed to have shared voting and investment power with respect to all shares held by Heritage Fund II, L.P However, each of such persons disclaim beneficial ownership of the securities held by Heritage Fund II, L.P. Excludes 477 shares of Common Stock to be held by Heritage Investors II, LLC. Heritage Fund II, L.P. and Messrs. Reichert, Gilligan and Hermann disclaim beneficial ownership of the shares held by Heritage Investors II, LLC. Pursuant to a Stockholders Agreement, Heritage Fund II, L.P. is expected to have a proxy to vote an additional approximately 609,387 shares held by other stockholders, representing all of the Company’s voting stock not held by Heritage Fund II, L.P., except with respect to matters the effect of which on such other stockholders differs materially and adversely from the effect on Heritage Fund II, L.P. Heritage Fund II, L.P. and Messrs. Reichert, Gilligan and Hermann disclaim beneficial ownership of the shares subject to this proxy.

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UNDERWRITERS

Item 6.    Underwriters.

(a)    No person has acted as an underwriter for the Company within the past three years.

(b)    No person is acting, or proposed to be acting, as principal underwriter of the securities proposed to be offered pursuant to the Indenture.

CAPITAL SECURITIES

Item 7.    Capitalization.

(a)    Existing and Future Capitalization.    As of the date of this Application, the Company has two classes of capital stock: Common Stock, $0.01 par value per share, and Preferred Stock, $0.01 par value per share. The total authorized number of shares of each class of capital stock is (i) 3,000,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock. In addition, the Company has outstanding immediately exercisable warrants to purchase Class C Common Stock at an exercise price of $0.01 per share. The following table sets forth information with respect to each class of securities of the Company as of the date of this Application:

Title of Class	Amount Authorized	Amount Outstanding
Class A Common Stock	1,500,000	1,000,000
Class B Common Stock	200,000	114,202
Class C Common Stock	1,200,000	20,742
Series A Preferred Stock	200,000	15,000
11¼% Senior Subordinated Notes Due 2008	$170,000,000	$133,012,500

As of the Effective Date, the Company will have two classes of capital stock: Common Stock, $0.01 per value per share, and Preferred Stock, $0.01 par value per share. The total authorized number of shares of each class of capital stock as of the Effective Date will be (i) 1,500,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock. Pursuant to the Plan, (i) each holder of Class A Common Stock will receive 1.1142 shares of new Common Stock (the “New Common Stock”) for each share of Class A Common Stock held by them immediately prior to the Effective Date; (ii) all shares of Class B Common Stock will be cancelled; (iii) each holder of Class C Common Stock will receive one share of New Common Stock for each share of Class C Common Stock held by them immediately prior to the Effective Date, (iv) each holder of Series A Preferred Stock will receive a share of new Series A Preferred Stock (the “New Series A Preferred Stock”) for each share of Series A Preferred Stock held by them immediately prior to the Effective Date and (v) each holder of a warrant to purchase Class C Common Stock will receive a warrant to purchase a number of shares of New Common Stock that is equal to the number of shares of Class C Common Stock issuable upon the exercise of warrants held by them immediately prior to the Effective Date. The following table sets forth information with respect to each authorized series of securities of the Company expected to be outstanding promptly following the Effective Date:

Title of Class	Amount Authorized	Amount Outstanding
Common Stock	1,500,000	1,193,586
Series A Preferred Stock	15,000	15,000
Senior Secured Increasing Rate Notes Due 2008	Authorized Principal Amount	Authorized Principal Amount

(b)    Voting Rights.    As of the date of this Application, at every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law, on all matters to be voted on by the stockholders of the Company:

(i)    the Series A Preferred Stock is non-voting, and the holders thereof, as such, are not entitled to vote on matters to be voted upon by the stockholders of the Company;

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(ii)    each holder of Class A Common Stock is entitled to one vote for each such share held by such holder,

(iii)    the Series B Common Stock is non-voting, and the holders thereof, as such, are not entitled to vote on matters to be voted upon by the stockholders of the Company; and

(iv)    each holder of Class C Common Stock is entitled to one vote for each such share held by such holder.

As of the Effective Date, at every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law, on all matters to be voted on by the stockholders of the Company:

(i)    the holders of the New Common Stock and New Series A Preferred Stock will vote together as a single class;

(ii)    each holder of New Series A Preferred Stock will be entitled to one tenth of one vote for each such share held by such holder; and

(iii)    each holder of New Common Stock will be entitled to one vote for each such share held by such holder.

INDENTURE SECURITIES

Item 8.    Analysis of Indenture Provisions.

The following is a general description of certain provisions of the Indenture. The description is qualified in its entirety by reference to the form of Indenture filed as Exhibit T3C hereto. Capitalized terms used in this Item 8 and not defined herein have the meanings given to such terms in the Indenture.

(a)    Events of Default; Withholding of Notice.    The “Events of Default” set forth in the Indenture include:

(i)    a default for 30 days in the payment when due of interest on the New Notes;

(ii)    a default in payment when due of principal on the New Notes;

(iii)    the failure by the Company or any of its Subsidiaries to comply with Section 4.07 (Restricted Payments), 4.11 (Asset Sales), 4.15 (Offer to Repurchase Upon Change of Control) or Article 5 (Successors) of the Indenture;

(iv)    the failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.08 (Limitation on Restricted Investments), 4.10 (Incurrence of Indebtedness) or 4.20 (Perfection of Security Interests) of the Indenture;

(v)    the failure by the Company or any of its Subsidiaries for 60 days after written notice to comply with any of its other agreements in the Indenture, the New Notes or the Security Documents;

(vi)    a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided by the documents governing such Indebtedness, which default has not been waived or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness which has been not so paid or the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness, the Exit Facility or the Senior Mortgage Loan, to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under the Indenture);

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(vii)    the receipt by the Collateral Agent of a written notice under the Collateral Agency Agreement from the Claims Agent to realize and foreclose upon the Collateral;

(viii)    failure by the Company or any Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days;

(ix)    certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary as set forth in the Indenture;

(x)    except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee;

(xi)    the Liens created by the Security Documents shall at any time not constitute a valid and perfected Liens on the Collateral intended to be covered thereby in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of the Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 15 days after notice, or the enforceability thereof shall be contested by the Company or any Subsidiary Guarantor;

(xii)    failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and such failure continues unremedied for ten Business Days after notice of such failure is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding New Notes; or

(xiii)    except as permitted by the Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee.

If any Event of Default (other than an Event of Default arising from certain events of bankruptcy or insolvency) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding New Notes may declare all the New Notes to be due and payable immediately. In the case of an Event of Default arising from certain events of bankruptcy or insolvency as set forth in the Indenture, with respect to the Company, any Significant Subsidiary that is a Restricted Subsidiary or any group of Restricted Subsidiaries, that taken together would constitute a Significant Subsidiary, all outstanding New Notes will become due and payable without further action or notice.

Holders of the New Notes may not enforce the Indenture or the New Notes except as provided in the Indenture. Subject to certain limitations, Holders of at least 60% in aggregate principal amount of the then outstanding New Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the New Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of at least 60% in aggregate principal amount of the then outstanding New Notes by notice to the Trustee may on behalf of the Holders of all of the New Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the New Notes.

The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

No Holder of a Note may pursue any remedy under the Indenture unless:

(i)    such Holder has previously given to the Trustee written notice of a continuing Event of Default;

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(ii)    the Trustee shall have received a request from Holders of at least 25% in principal amount of outstanding New Notes to pursue such remedy;

(iii)    such Holder offers and, if requested, provides to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;

(iv)    the Trustee shall have failed to act for a period of 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and

(v)    no direction inconsistent with such written request has been given to either Trustee during such 60 day period by Holders of a majority in principal amount of the outstanding New Notes.

provided, however, such provision does not affect the right of a Holder of a New Note to sue for enforcement of any overdue payment thereon.

The Indenture provides that if an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee must mail to Holders of New Notes a notice of the Event of Default within 90 days after the Trustee knows of the Event of Default. Except in the case of an Event of Default relating to the payment of principal of or interest on any Note, the Trustee may withhold the notice if it determines that withholding the notice is in the interests of the Holders of the New Notes.

In addition, an officer of the Company and each Guarantor is generally required to deliver to the Trustee, within 90 days after the end of each fiscal year, a certificate indicating whether there has been an Event of Default during the preceding fiscal year and describing any Events of Default that have occurred of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto. The Company also is required to deliver to the Trustee, within ten Business Days after the Company becomes aware of the occurrence thereof, written notice of any event which would constitute an Event of Default, its status and what action the Company is taking or proposes to take in respect thereof.

(b)    Authentication and Delivery of the New Notes Under the Indenture and Application of Proceeds Thereof.

The Trustee shall, upon a Company Order, authenticate New Notes for original issue up to the aggregate principal amount equal to the Authorized Principal Amount.

No New Note shall be valid unless authenticated by manual signature of the Trustee, and such signature shall be conclusive evidence that such New Note has been duly authenticated under the Indenture.

The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate New Notes on behalf of the Trustee. An authenticating agent may authenticate New Notes whenever the Trustee may do so. Each reference in the Indenture to authentication by the Trustee includes authentication by such agent.

There will be no proceeds (and therefore no application of such proceeds) from the issuance of the New Notes because the New Notes will be issued in exchange for Old Notes pursuant to the Plan.

(c)    Release of Any Note Collateral Subject to the Lien of the Indenture.

Collateral may be released from the Liens created by the Security Documents at any time or from time to time, and the Security Documents may be terminated, in accordance with the provisions of the Security Documents or the Indenture. Upon the request of the Company and the delivery of an Officer’s Certificate and an Opinion of Counsel certifying that any sale, conveyance or disposal of any Collateral has been effected in compliance with the provisions of the Indenture, the Trustee will release such Collateral. The release of any Collateral from the terms of the Indenture and of the Security Documents or the release of the Liens created by the Security Documents will not be deemed to impair the Liens on the Collateral in contravention of the provisions of the Indenture if and to the extent that the Liens on Collateral are released, or the Security Documents are terminated, pursuant to the Indenture or the applicable Security Documents. To the extent applicable, the Company and each obligor on the Notes will cause § 314(d) of the TIA relating to the release of property or securities from the Lien of the Indenture and the Security Documents to be complied with.

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(d)    Satisfaction and Discharge of the Indenture.

It shall be a condition to the Company’s exercising Legal Defeasance or Covenant Defeasance that:

(i)    the Company has irrevocably deposited with the Trustee, in trust, for the benefit of the Holders of the New Notes, cash in United States dollars, noncallable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest on the outstanding New Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the New Notes are being defeased to maturity or to a particular redemption date;

(ii)    in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that the Holders of the outstanding New Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(iii)    in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(iv)    no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as certain bankruptcy related proceedings are concerned, at any time in the period ending on the 91st day after the date of deposit;

(v)    such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is bound;

(vi)    the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally;

(vii)    the Company shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of New Notes over any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and

(viii)    the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

If the Company exercises Legal Defeasance, it and the Guarantors will be discharged from any and all obligations in respect of the New Notes and to have satisfied all its other obligations under the Indenture and the Security Documents, except in each case for (A) the rights of Holders of outstanding New Notes to receive payments in respect of the principal of and interest on such New Notes when such payments are due, solely from the trust funds, (B) the obligations to satisfy the conditions to Legal Defeasance, (C) the obligations to register the transfer or exchange of such New Notes, replace stolen, lost or mutilated New Notes, maintain paying agencies, hold moneys for payment in trust and certain other administrative actions, and (D) the rights, powers, trusts, duties and immunities of the Trustee under the Indenture and the Company’s obligations in connection therewith.

If the Company exercises Covenant Defeasance it and the Guarantors need not comply with Sections 4.03 (Reports; Fiscal Year), 4.05 (Payment of Taxes), 4.07 (Restricted Payments), 4.08 (Limitation on Restricted Investments), 4.09 (Dividend and Other Payment Restrictions Affecting Subsidiaries), 4.10 (Incurrence of Indebtedness and Issuance of Preferred Stock), 4.11 (Asset Sales), 4.12 (Transactions with Affiliates), 4.13 (Liens), 4.15 (Offer to Repurchase Upon Change of Control), 4.17 (Additional Subsidiary Guarantees), 4.18 (Sale and Leaseback Transactions), 4.19 (Maintenance of Insurance), 4.20 (Perfection of Security Interests) and 4.21

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(Limitation on Issuance of Capital Stock of Restricted Subsidiaries) of the Indenture. In such event the New Notes shall thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed “outstanding” for all other purposes under the Indenture (it being understood that such New Notes shall not be deemed outstanding for accounting purposes).

(e)    Evidence Required to be Furnished by the Obligor to the Trustee as to Compliance with the Conditions and the Covenants Provided for in the Indenture.

The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers’ Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under the Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in the Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of the Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the New Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.

Company shall, so long as any of the New Notes are outstanding, deliver to the Trustee, forthwith upon and in any event within 10 Business Days after any Officer’s becoming aware of any Default or Event of Default, an Officers’ Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.

So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered by the Company shall be accompanied by a written statement of the Company’s independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 of the Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof.

Upon any request or application by the Company to the Trustee to take any action under the Indenture, the Company is required to furnish to the Trustee:

(i)    an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in the Indenture relating to the proposed action have been satisfied; and

(ii)    an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.

Item 9.    Other Obligors.

The Company’s obligations with respect to the New Notes will be guaranteed by each Subsidiary Guarantor. A schedule of names and addresses of the Subsidiary Guarantors is attached as Annex B hereto.

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Contents of Application for Qualification.    This application for qualification comprises:

(a)    Pages number 1 to 12, consecutively.

(b)    The statement of eligibility and qualification on Form T-1 of U.S. Bank National Association as Trustee under the Indenture to be qualified (filed herewith as Exhibit 25.1).

(c)    The following exhibits in addition to those filed as part of the statement of eligibility and qualification of the Trustee:

Exhibit T3A-1*	Certificate of Incorporation and Certificates of Amendment to Certificate of Incorporation of the Company, as in effect on the date of filing hereof.
Exhibit T3A-2	Amended and Restated Certificate of Incorporation of the Company anticipated to be in effect on the Effective Date (filed herewith).
Exhibit T3B*	Bylaws of the Company, as in effect on the date of filing hereof, which are anticipated to be in effect on the Effective Date.
Exhibit T3C	Form of Indenture among the Company, the Subsidiary Guarantors and U.S. Bank National Association, as Trustee, in the form to be qualified, including an itemized table of contents showing the articles, sections and subsections of the Indenture, together with the subject matter thereof and the pages on which they appear (filed herewith).
Exhibit T3D	Not applicable.
Exhibit T3E-1	Debtors’ Disclosure Statement dated April 22, 2003 (filed herewith).
Exhibit T3E-2	Debtors’ Third Amended Joint Plan of Reorganization, dated April 22, 2003 (filed herewith).
Exhibit T3F	A cross reference sheet showing the location in the Indenture of the provisions therein pursuant to Section 310 through 318(a), inclusive, of the TIA (filed herewith).

* 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.

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SIGNATURES

Pursuant to the requirements of the Trust Indenture Act of 1939, the applicant, Fountain View, Inc., a corporation organized and existing under the laws of Delaware, has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the city of Foothill Ranch and State of California, on July 15, 2003.

(SEAL)		FOUNTAIN VIEW, INC.
		By:	/s/    Roland Rapp
		Name: Title:	Roland Rapp General Counsel and Chief Administrative Officer
Attest:	/s/    John Harrison
Name: Title:	John Harrison Chief Financial Officer

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Annex A

Subsidiaries of the Company

Existing Subsidiaries to be Merged out of Existence Prior to the Effective Date

Subsidiary Name	State of Formation	Type of Entity
Fountain View Holdings, Inc.	Delaware	Corporation
Locomotion Therapy, Inc.	Delaware	Corporation
On-Track Therapy Center, Inc.	California	Corporation
Summit Care Texas Equity, Inc.	California	Corporation
Summit Care Texas, No. 2, Inc.	Texas	Corporation
Summit Care Texas, No. 3, Inc.	Texas	Corporation
Summit Care-California, Inc.	California	Corporation
Subsidiaries that will be in existence as of the Effective Date
Subsidiary Name	State of Formation	Type of Entity
Alexandria Care Center, Inc. (currently Alexandria Convalescent Hospital)	California	Corporation
Alta Care Center, LLC	Delaware	LLC
Anaheim Terrace Care Center, LLC	Delaware	LLC
Bay Crest Care Center, LLC	Delaware	LLC
Briarcliff Nursing and Rehabilitation Center GP, LLC	Delaware	LLC
Briarcliff Nursing and Rehabilitation Center, LP	Delaware	LP
Brier Oak on Sunset, Inc. (currently Briar Oak Convalescent, Inc.)	California	Corporation
California Secured Resources, LLC	Delaware	LLC
California Secured Resources, LLC	Delaware	LLC
Carehouse Healthcare Center, LLC	Delaware	LLC
Carson Senior Assisted Living, LLC	Delaware	LLC
Clairmont Beaumont GP, LLC	Delaware	LLC
Clairmont Beaumont, LP	Delaware	LP
Clairmont Longview GP, LLC	Delaware	LLC
Clairmont Longview, LP	Delaware	LP
Colonial New Braunfels Care Center, LP	Delaware	LP
Colonial New Braunfels GP, LLC	Delaware	LLC
Colonial Tyler Care Center, LP	Delaware	LP
Colonial Tyler GP, LLC	Delaware	LLC
Comanche Nursing Center GP, LLC	Delaware	LLC
Comanche Nursing Center, LP	Delaware	LP
Coronado Nursing Center GP, LLC	Delaware	LLC
Coronado Nursing Center, LP	Delaware	LP
Devonshire Care Center, LLC	Delaware	LLC
Elmcrest Care Center, Inc. (currently Elmcrest Convalescent Hospital)	California	Corporation
Flatonia Oak Manor GP, LLC	Delaware	LLC
Flatonia Oak Manor, LP	Delaware	LP
Fountain Care Center, LLC	Delaware	LLC
Fountain Senior Assisted Living, LLC	Delaware	LLC
Fountain View, Inc.	Delaware	Corporation
Fountain View Reinsurance Ltd.	Cayman Islands	Corporation
Fountain View Subacute and Nursing Center, Inc. (currently Fountainview Convalescent Hospital)	California	Corporation
Guadalupe Valley Nursing Center GP, LLC	Delaware	LLC

Annex A-1

Subsidiary Name	State of Formation	Type of Entity
Guadalupe Valley Nursing Center, LP	Delaware	LP
Hallettsville Rehabilitation and Nursing Center, LP	Delaware	LP
Hallettsville Rehabilitation GP, LLC	Delaware	LLC
Hallmark Investment Group, Inc.	Delaware	Corporation
Hallmark Rehabilitation GP, LLC	Delaware	LLC
Hallmark Rehabilitation, LP	Delaware	LP
Hancock Park Rehabilitation Center, Inc. (currently BIA Hotel Corp.)	California	Corporation
Hancock Park Senior Assisted Living, Inc. (currently AIB, Corp.)	California	Corporation
Hemet Senior Assisted Living, LLC	Delaware	LLC
Hospitality Nursing and Rehabilitation Center, LP	Delaware	LP
Hospitality Nursing GP, LLC	Delaware	LLC
I’NO., Inc.	California	Corporation
Leasehold Resource Group, LLC	Delaware	LLC
Live Oak Nursing Center GP, LLC	Delaware	LLC
Live Oak Nursing Center, LP	Delaware	LP
Montebello Care Center, LLC	Delaware	LLC
Monument Rehabilitation and Nursing Center, LP	Delaware	LP
Monument Rehabilitation GP, LLC	Delaware	LLC
Oak Crest Nursing Center GP, LLC	Delaware	LLC
Oak Crest Nursing Center, LP	Delaware	LP
Oakland Manor GP, LLC	Delaware	LLC
Oakland Manor Nursing Center, LP	Delaware	LP
Rio Hondo Subacute and Nursing Center, Inc. (currently Rio Hondo Nursing Center)	California	Corporation
Royalwood Care Center, LLC	Delaware	LLC
Secured Resource Management GP, LLC	Delaware	LLC
Sharon Care Center, LLC	Delaware	LLC
SHG Investments, LLC	Delaware	LLC
SHG Property Resources, LLC	Delaware	LLC
SHG Secured Resources, LP	Delaware	LP
Skilled Healthcare, LLC	Delaware	LLC
Southwood Care Center GP, LLC	Delaware	LLC
Southwood Care Center, LP	Delaware	LP
Spring Senior Assisted Living, LLC	Delaware	LLC
Summit Care Corporation	California	Corporation
Summit Care Management Texas, Inc. (to be converted to a Delaware limited liability company prior to the Effective Date)	Texas	Corporation
Summit Care Management Texas, LLC (to be converted from a Texas corporation prior to the Effective Date)	Delaware	LLC
Summit Care Pharmacy, Inc. (dba Skilled Care Pharmacy)	California	Corporation
Summit Care Texas, LP	Texas	LP
Sycamore Park Care Center, Inc. (currently Sycamore Park Convalescent Hospital)	California	Corporation
Texas Cityview Care Center GP, LLC	Delaware	LLC
Texas Cityview Care Center, LP	Delaware	LP
Texas Heritage Oaks Nursing and Rehabilitation Center GP, LLC	Delaware	LLC
Texas Heritage Oaks Nursing and Rehabilitation Center, LP	Delaware	LP
Texas Secured Resources, LLC	Delaware	LLC
The Clairmont Tyler GP, LLC	Delaware	LLC
The Clairmont Tyler, LP	Delaware	LP
The Earlwood, LLC	Delaware	LLC
The Woodlands Healthcare Center GP, LLC	Delaware	LLC
The Woodlands Healthcare Center, LP	Delaware	LP
The Woodlands Resource Management GP, LLC	Delaware	LLC
The Woodlands Resource Management, LP	Delaware	LP
Town and Country Manor GP, LLC	Delaware	LLC
Town and Country Manor, LP	Delaware	LP

Annex A-2

Subsidiary Name	State of Formation	Type of Entity
Valley Healthcare Center, LLC	Delaware	LLC
Villa Maria Healthcare Center, LLC	Delaware	LLC
West Side Campus of Care GP, LLC	Delaware	LLC
West Side Campus of Care, LP	Delaware	LP
Willow Creek Healthcare Center, LLC	Delaware	LLC
Woodland Care Center, LLC	Delaware	LLC

Annex A-3

Annex B

Schedule of Subsidiary Guarantors

Set forth below is a list of all the Subsidiary Guarantors for the Indenture. The mailing address for each Subsidiary Guarantor is c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610.

Alexandria Care Center, Inc.

Alta Care Center, LLC

Anaheim Terrace Care Center, LLC

Bay Crest Care Center, LLC

Brier Oak on Sunset, Inc. Elmcrest Care Center, Inc.

Carson Senior Assisted Living, LLC

Fountain View Subacute and Nursing Center, Inc.

Hallmark Investment Group, Inc.

Hallmark Rehabilitation, LLC

Hallmark Rehabilitation, LP

Hancock Park Rehabilitation Center, Inc.

Hancock Park Senior Assisted Living, Inc.

Hemet Senior Assisted Living, LLC

Leasehold Resource Group, LLC

Montebello Care Center, LLC

Rio Hondo Subacute and Nursing Center, Inc.

Royalwood Care Center, LLC

Sharon Care Center, LLC

Skilled Healthcare, LLC

Summit Care Corporation

Summit Care Management Texas, LLC

Summit Care Pharmacy, Inc.

Summit Care Texas, LP

Sycamore Park Care Center, Inc.

Woodland Care Center, LLC

Annex B-1

Exhibit Index

Exhibit T3A-1*	Certificate of Incorporation and Certificates of Amendment to Certificate of Incorporation of the Company, as in effect on the date of filing hereof.
Exhibit T3A-2	Amended and Restated Certificate of Incorporation of the Company anticipated to be in effect on the Effective Date (filed herewith).
Exhibit T3B*	Bylaws of the Company, as in effect on the date of filing hereof, which are anticipated to be in effect on the Effective Date.
Exhibit T3C	Form of Indenture among the Company, the Subsidiary Guarantors and U.S. Bank National Association, as Trustee, in the form to be qualified, including an itemized table of contents showing the articles, sections and subsections of the Indenture, together with the subject matter thereof and the pages on which they appear (filed herewith).
Exhibit T3D	Not applicable.
Exhibit T3E-1	Debtors’ Disclosure Statement dated April 22, 2003 (filed herewith).
Exhibit T3E-2	Debtors’ Third Amended Joint Plan of Reorganization, dated April 22, 2003 (filed herewith).
Exhibit T3F	A cross reference sheet showing the location in the Indenture of the provisions therein pursuant to Section 310 through 318(a), inclusive, of the TIA (filed herewith).
Exhibit 25.1	Form T-1 qualifying U.S. Bank National Association, as Trustee under the Indenture to be qualified (filed herewith).

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

EX-99.(T)(3)(A-2)

EXHIBIT T3A-2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

FOUNTAIN VIEW, INC.

Fountain View, Inc., (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby does certify as follows:

1.    This Corporation was originally incorporated under the name “Fountain View Management, Inc.”, and the original Certificate of Incorporation of this Corporation was filed with the Secretary of State of Delaware on July 14, 1997 (the “Original Certificate of Incorporation”).

2.    On October 2, 2001, the Corporation filed a petition in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 101-1130 (the “Bankruptcy Code”).

3.    This Amended and Restated Certificate of Incorporation was duly adopted pursuant to a plan of reorganization confirmed by an order of the Bankruptcy Court on July 10, 2003 in accordance with Section 303 of Title 8 of the General Corporation Law of the State of Delaware.

4.    This Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) restates and integrates and further amends the Original Certificate of Incorporation, as heretofore amended or supplemented.

5.    The Certificate of Incorporation of this Corporation shall be amended and restated to read in full as follows:

FIRST:    The name of this Corporation is Fountain View, Inc.

SECOND:    The address of the Corporation’s registered office in the State of Delaware is 9 East Loockerman Street, Suite 1B, Dover, Kent County, Delaware 19901. The name of the Corporation’s registered agent at such address is National Registered Agents, Inc.

THIRD:    The purpose of the Corporation is to engage in any lawful act or activity for which Corporations may be organized under the Delaware General Corporation Law.

FOURTH:    A description of each class and series of stock of the Corporation and the voting rights, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof is as follows:

1.    Capital Stock.    The Corporation shall have two classes of capital stock (the “Capital Stock”): Common Stock, $0.01 par value per share (the “Common Stock”), and Preferred Stock, $0.01 par value per share (the “Preferred Stock”).

(a)    Number of Shares.    The total authorized number of shares of each class of Capital Stock is (i) 1,500,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock, of which 15,000 shares have been designated “Series A Preferred Stock”.

(b)    Preferred Stock.    The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation (the “Board”) is hereby authorized, within the limitations and restrictions stated in this Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), to determine or alter the rights, preferences, powers, privileges and the restrictions, qualifications and limitations granted to or imposed upon any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof; to increase or decrease the number of shares constituting any such series; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series as are then issued and outstanding, and if any series shall be so decreased, the shares then constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

(c)    Prohibition of Non-Voting Capital Stock.    Notwithstanding anything to the contrary set forth in this Certificate of Incorporation, the Corporation shall not issue any nonvoting equity securities to the extent prohibited by Section 1123 of the Bankruptcy Code; provided, however, that this subsection 1(c) of this Article FOURTH (i) will have no further force and effect beyond that required under Section 1123 of the Bankruptcy Code, (ii) will have such force and effect, if any, only for so long as such section of the Bankruptcy Code is in effect and applicable to the Corporation, and (iii) in all events may be amended or eliminated in accordance with such applicable law as from time to time may be in effect.

2.    Dividends and Other Distributions.

(a)    Dividends on the Series A Preferred Stock.

(i)    Subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, a dividend at the annual rate of 12% of the Base Amount (as hereinafter defined) of each share of Series A Preferred Stock from and including the date of issuance of such share to and including the day on which the Liquidation Value (as

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hereinafter defined) of such share is paid. Such dividends shall accrue from day to day, whether or not earned or declared, on each issued and outstanding share of Series A Preferred Stock, and shall be cumulative. The date on which the Corporation initially issues any share of Series A Preferred Stock will be deemed to be its “date of issuance” regardless of the number of times transfer of such share is made on the stock records of the Corporation and regardless of the number of certificates which may be issued to evidence such share, provided, however, that all shares of Series A Preferred Stock issued prior to the first Dividend Reference Date (as hereinafter defined) shall be deemed, for purposes of this Subsection (a), to have been issued on March 27, 1998.

(ii)    If declared by the Board, dividends on each share of Series A Preferred Stock shall be paid on each March 31, commencing March 31, 2004 (the “Dividend Reference Dates”), while such share is outstanding.

(iii)    Any dividends that accrue on any share of Series A Preferred Stock during the period ending upon such Dividend Reference Date that are not paid on such Dividend Reference Date and that have not previously been added to the Base Amount of such share shall automatically be added to the Base Amount of such share and will remain a part thereof until such dividends are paid, at which time the Base Amount shall be reduced by such payment.

(iv)    The “Base Amount” of any share of Series A Preferred Stock as of a particular date shall be an amount equal to the sum of $1,000.00 plus any unpaid dividends on such share added to the Base Amount of such share as provided above and not thereafter paid.

(b)    Dividends on Common Stock.    The holders of record of Common Stock shall be entitled to receive such dividends ratably as may from time to time be declared by the Board out of funds legally available therefor.

3.    Voting Rights.

Subject to the rights of series of Preferred Stock which may from time to time come into existence, at every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law, on all matters to be voted on by the stockholders of the Corporation, the following provisions shall apply:

(a)    Voting as a Single Class.    Except as otherwise required by law, the holders of the Common Stock and Series A Preferred Stock shall vote together as a single class on all matters presented to the stockholders.

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(b)    Voting by Series A Preferred Stock.    In any matter to be voted on by the holders of the Series A Preferred Stock, each holder of Series A Preferred Stock shall have one tenth of one vote for each such share held by such holder.

(c)    Voting by Common Stock.    In any matter to be voted on by the holders of the Common Stock, each holder of Common Stock shall have one vote for each such share held by such holder.

4.    Liquidation.

(a)    Series A Preferred Stock.    Subject to the rights of any series of Preferred Stock which may from time to time come into existence, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled, before any distribution or payment is made upon any shares of Common Stock, to be paid in cash, in respect of each share of Series A Preferred Stock held by such holder, an amount equal to the Base Amount of such share on such date, plus all unpaid dividends accrued on such share from the previous Dividend Reference Date through the close of business on the date of payment (the “Liquidation Value”). If upon such liquidation, dissolution or winding up, the assets to be distributed among the holders of the shares of Series A Preferred Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining and legally available for distribution shall be distributed ratably among the holders of the shares of Series A Preferred Stock.

(b)    Common Stock.    Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock and the liquidation value of any other series of Preferred Stock which may from time to time come into existence, the holders of the Common Stock shall be entitled to receive ratably all remaining assets of the Corporation to be distributed among them, based upon the number of shares of Common Stock held by each such holder.

5.    Redemption of Series A Preferred Stock.

(a)    Redemption Upon Initial Public Offering.

(i)    Promptly after the closing of an underwritten, initial public offering of the Corporation’s Common Stock for cash pursuant to a registration statement under the Securities Act of 1933, as amended, the Corporation shall redeem, out of funds legally available therefor, all outstanding shares of the Series A Preferred Stock by paying in cash to the holders thereof an amount equal to the Liquidation Value thereof. Such payment shall be made to the record holders of the Series A Preferred

4

Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder.

(ii)    If the funds legally available to redeem shares of Series A Preferred Stock under this Section 5(a) of this Article FOURTH are insufficient to redeem all of the outstanding shares of Series A Preferred Stock at any time, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock owned by each holder, and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock then owned by each holder.

(iii)    Promptly after each holder of Series A Preferred Stock has received payment of the Liquidation Value thereof, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares of Series A Preferred Stock not redeemed.

(iv)    After any payment under this Section 5(a) of this Article FOURTH, the redeemed shares of Series A Preferred Stock shall be cancelled on the Corporation’s records and shall cease to be outstanding.

(b)    Redemption at Corporation’s Option.

(i)    The Corporation may at any time, at its option, redeem some or all shares of Series A Preferred Stock, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. All such redemptions shall be pro rata among the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock owned by each holder.

(ii)    Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5(b) of this Article FOURTH, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares of Series A Preferred Stock not redeemed.

5

(iii)    After any payment under this Section 5(b) of this Article FOURTH, the redeemed shares of Series A Preferred Stock shall be cancelled on the Corporation’s records and shall cease to be outstanding.

(c)    Mandatory Redemption.

(i)    The Corporation shall, on the first business day following May 1, 2010 (or, if the Corporation’s Senior Subordinated Secured Increasing Rate Notes due 2008 have not then been paid in full, immediately after the date on which such Notes have been paid in full), redeem all shares of Series A Preferred Stock then outstanding, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. In the event the funds legally available to redeem shares of Series A Preferred Stock are insufficient to redeem all of the outstanding shares of Series A Preferred Stock, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock, at the then applicable Liquidation Value. All such redemptions shall be pro rata among the holders of Series A Preferred Stock.

(ii)    Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5(c) of this Article FOURTH, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares not redeemed.

(iii)    After any payment under this Section 5(c) of this Article FOURTH, the redeemed shares shall be canceled on the Corporation’s records and shall cease to be outstanding.

6.    No Conversion Rights for Series A Preferred Stock.    The holders of the Series A Preferred Stock shall not have any rights to convert such shares into shares of any other class or series of stock or into any other securities of, or any other interest in, the Corporation.

7.    No Sinking Fund.    No sinking fund shall be established for the retirement or redemption of the Series A Preferred Stock.

8.    No Other Rights.    The Series A Preferred Stock shall not have any designations, preferences, or relative, participating, optional, or other special rights, except as set forth in this Certificate of Incorporation or as otherwise required by law.

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FIFTH:    Following the date the Corporation first has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, no action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken by written consent without a meeting, except by a written consent signed by all stockholders of the Corporation entitled to vote thereon.

SIXTH:

1.    Elections of Directors need not be by ballot unless the By-Laws of the Corporation shall so provide.

2.    The business and affairs of the Corporation shall be managed by or under the direction of the Board.

3.    Unless a greater vote requirement in any matter is provided in this Certificate of Incorporation or the By-Laws, the affirmative vote of a majority of the Directors present and acting at a duly constituted meeting at which a majority of the entire Board is present and acting, is sufficient for all action of the Board.

4.    Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to the adoption of resolutions authorizing the action.

5.    The Board shall have the power to adopt, amend or repeal the By-Laws of the Corporation.

SEVENTH:    The Board shall have that number of Directors set out in the By-Laws of the Corporation as adopted or as set from time to time by a duly adopted amendment thereto by the Directors or stockholders of the Corporation.

EIGHTH:    The Corporation shall have perpetual existence.

NINTH:

1.    The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.

2.    The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall

7

continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

3.    The right to indemnification conferred by this Article NINTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition upon receipt by the Corporation of an undertaking by or on behalf of the person receiving advancement to repay the amount advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation under this Article NINTH.

4.    Neither any amendment nor repeal of this Article NINTH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article NINTH, shall eliminate or reduce the effect of this Article NINTH in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article NINTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

TENTH:

1.    To the fullest extent permitted by the General Corporation Law of the State of Delaware and subject to Section 2 of this Article TENTH, this Certificate of Incorporation may be amended by the Board, with respect to corrections not affecting the rights, preferences and privileges of the Corporation’s stockholders.

2.    The Corporation reserves the right to amend and repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation.

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IN WITNESS WHEREOF, Fountain View, Inc., has caused this Certificate of Incorporation to be signed by [Jose Lynch], its [President], and attested by [Roland Rapp] its General Counsel and Secretary, this      day of                         , 2003.

FOUNTAIN VIEW, INC.
By:
	[Jose Lynch]
	[President]

ATTEST:

By:
	[Roland Rapp]
	[General Counsel and Secretary]

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EX-99.(T)(3)(C)

EXHIBIT T3C

FOUNTAIN VIEW, INC.

SENIOR SUBORDINATED SECURED INCREASING RATE NOTES DUE 2008

INDENTURE

Dated as of             , 2003

U.S. Bank National Association

Trustee

TABLE OF CONTENTS

			PAGE
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE			1
	Section 1.01.	Definitions.	1
	Section 1.02.	Other Definitions.	21
	Section 1.03.	Terms of TIA.	22
	Section 1.04.	Rules of Construction.	23
ARTICLE 2. THE NOTES			24
	Section 2.01.	Form and Dating.	24
	Section 2.02.	Execution and Authentication.	25
	Section 2.03.	Registrar and Paying Agent.	26
	Section 2.04.	Paying Agent to Hold Money in Trust.	26
	Section 2.05.	Holder Lists.	26
	Section 2.06.	Transfer and Exchange.	27
	Section 2.07.	Replacement Notes.	30
	Section 2.08.	Outstanding Notes.	31
	Section 2.09.	Treasury Notes.	31
	Section 2.10.	Temporary Notes.	31
	Section 2.11.	Cancellation.	32
	Section 2.12.	Defaulted Interest.	32
	Section 2.13.	CUSIP Numbers.	32
	Section 2.14.	Computation of Interest.	32
ARTICLE 3. REDEMPTION AND PREPAYMENT			33
	Section 3.01.	Notices to Trustee.	33
	Section 3.02.	Selection of Notes to Be Redeemed.	33
	Section 3.03.	Notice of Redemption.	33
	Section 3.04.	Effect of Notice of Redemption.	34
	Section 3.05.	Deposit of Redemption Price.	34
	Section 3.06.	Notes Redeemed in Part.	34
	Section 3.07.	Optional Redemption.	35
	Section 3.08.	Mandatory Redemptions.	35
	Section 3.09.	Offer to Purchase by Application of Excess Proceeds.	36
ARTICLE 4. COVENANTS			38
	Section 4.01.	Payment of Notes.	38
	Section 4.02.	Maintenance of Office or Agency.	38
	Section 4.03.	Reports; Fiscal Year.	38
	Section 4.04.	Compliance Certificate.	39
	Section 4.05.	Taxes.	40
	Section 4.06.	Stay, Extension and Usury Laws.	40
	Section 4.07.	Restricted Payments.	40
	Section 4.08.	Limitation on Restricted Investments.	41
	Section 4.09.	Dividend and Other Payment Restrictions Affecting Subsidiaries.	43
	Section 4.10.	Incurrence of Indebtedness and Issuance of Preferred Stock.	44

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

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

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

EXHIBITS

Exhibit A	FORM OF NOTE
Exhibit B	FORM OF SUBSIDIARY GUARANTEE
Exhibit C	FORM OF SUPPLEMENTAL INDENTURE
Exhibit D	FORM OF INTERCREDITOR AGREEMENT
Exhibit E	FORM OF SECURITY AGREEMENT
SCHEDULES
Schedule I	EXISTING AFFILIATE TRANSACTIONS
Schedule II	GUARANTORS
Schedule III	MEZZANINE LOAN BORROWERS
Schedule IV	PERMITTED JOINT VENTURES
Schedule V	EXISTING LIENS
Schedule VI	REVOLVING CREDIT FACILITY BORROWERS
Schedule VII	SENIOR MORTGAGE LOAN BORROWERS

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INDENTURE dated as of             , 2003 among Fountain View, Inc., a Delaware corporation (the “Company”), the Guarantors (as defined below) and U.S. Bank National Association, a national banking association organized and existing under the laws of the United States of America, as trustee (the “Trustee”).

RECITALS OF THE COMPANY

A. The Company and certain of its subsidiaries filed for reorganization under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”); and

B. By order, dated July 10, 2003, the Bankruptcy Court has confirmed the Company’s plan of reorganization (the “Plan”) in accordance with Section 1129 of the Bankruptcy Code and such Plan has become effective as of             , 2003; and

C. As part of the Plan, the Company has agreed, inter alia, to issue $              million principal amount of Senior Secured Increasing Rate Notes (the “Notes”) to holders of the Company’s outstanding 11¼% Senior Subordinated Notes due 2008 (the “Old Notes”) in exchange for all of the Company’s outstanding Old Notes and obligations thereunder.

All things necessary to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the issuance of the Notes to the Holders (as defined herein), it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows:

ARTICLE 1.

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.01. Definitions.

“Acquired Debt” means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“Adjusted Net Assets” of a Guarantor at any date means the amount by which the fair value of the assets and property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under any Subsidiary Guarantee, of such Guarantor at such date.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control.

“Agent” means any Registrar, Paying Agent or co-registrar.

“Applicable Procedures” means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.

“Asset Sale” means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 or Section 5.01, as applicable, and not by Section 4.11 hereof and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company’s Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance or sale of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Investment that is permitted by Section 4.08 hereof, (iv) transfers of Cash Equivalents and (v) an exchange of facilities by the Company or a Restricted Subsidiary to the extent that such facilities are exchanged for one or more nursing centers, long-term care facilities, assisted living facilities, outpatient clinics or any other facilities or businesses that are used or useful in the provision of healthcare related services, in each case the aggregate fair market value of which is equal to or greater than the fair market value of the facilities so exchanged, as determined in good faith by the Board of Directors.

“Asset Sale Proceeds” means, for any Fiscal Year of the Company, the aggregate amount of all net cash proceeds (i.e., cash or Cash Equivalent proceeds net of all amounts paid or payable in connection with such sale or other disposition of assets (including, without limitation, indebtedness paid and federal and state income taxes paid or payable in connection therewith)) realized by the Company and its Subsidiaries during such Fiscal Year in connection with any sale or other disposition of any asset (other than the sales of inventory in the ordinary course of business and other than the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or of the Company and its Restricted Subsidiaries taken as a whole (which shall be governed by Section 4.15 or Section 5.01, as applicable)); provided that, for purposes of this definition, such net cash proceeds will not be deemed to be realized until the earlier to occur of (a) 360 days after the receipt by the Company and its Subsidiaries of such net

2

cash proceeds and (b) that date the Company and its Subsidiaries apply such net cash proceeds to prepay indebtedness, to make Capital Expenditures or to make acquisitions.

“Attributable Debt” in respect of a sale and leaseback transaction or an operating lease in respect of a healthcare facility means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee of the property subject to such sale and leaseback transaction or operating lease in respect of a healthcare facility or net rental payments during the remaining term of the lease included in such transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended).

“B Note” means that certain subordinate Promissory Note B, in the initial principal amount of $10,000,000 (which is part of the Senior Mortgage Loan), pursuant to that certain Mortgage Loan Agreement dated             , 2003 between              and the borrowers under the Senior Mortgage Loan, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased (except for protective advances thereunder), from time to time, and all accrued and unpaid interest, costs and expenses thereon.

“Bank Midwest Amended and Restated Note” means the amended and restated promissory note in a maximum principal amount not to exceed $5,633,333 to be issued by the Woodlands Entities to Bank Midwest, N.A. pursuant to the Plan, the repayment of which is secured by the Bank Midwest Deed of Trust

“Bank Midwest Deed of Trust” means that certain Deed of Trust dated December 1, 1993 assigned to Bank Midwest, N.A. by instrument dated July 17, 2001 recorded in the real property records of Montgomery County, Texas and constituting a first priority lien against the real property associated with the long-term care facility known as the “Woodlands” located in such county and owned and operated by Subsidiaries of the Company.

“Bankruptcy Law” means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors.

“Bergen Note” means the promissory note in a principal amount of $             to be issued by Summit Care Pharmacy to AmerisourceBergen Drug Corporation (or its designee) pursuant to the Plan, the repayment of which is secured by Liens contained in that certain security agreement dated March 29, 2001.

“Board of Directors” means the Board of Directors of the Company, or any authorized committee of the Board of Directors.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Business Day” means any day other than a Legal Holiday.

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“Calculation Date” has the meaning assigned to it in the definition of Fixed Charge Coverage Ratio.

“Capital Expenditures” means, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, repairs, substitutions or additions thereto, that are required to be capitalized under GAAP.

“Capital Lease Obligation” of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

“Capital Source” means CapitalSource Finance, LLC.

“Capital Stock” means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Cash Equivalents” means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and Eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of “B” or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) - (v) of this definition.

“Change of Control” means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than one or more Principals and their Related Parties, (ii) the consummation of any transaction (including, without limitation, any

4

merger or consolidation) the result of which is that any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Principals and their Related Parties, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have “beneficial ownership” of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as defined above), other than one or more Principals and their Related Parties, becomes the “beneficial owner” (as defined above), directly or indirectly, of more than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares) and the Principals and their Related Parties in the aggregate “beneficially own” (as defined above) less than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares), provided that for the purpose of such determination, the Principals and their Related Parties shall be deemed to own at least 35% of the Voting Stock of the Company for so long as such Persons have not sold or otherwise disposed of more than 5% of the shares of Voting Stock held by them as of the Effective Date) or, in the event the Company has consummated a Public Equity Offering, less than 20% of the Voting Stock of the Company (measured by voting power rather than number of shares) provided that for the purpose of such determination, the Principals and their Related Parties shall be deemed to own at least 20% of the Voting Stock of the Company for so long as such Persons have not sold or otherwise disposed of more than 5% of the shares of Voting Stock held by them as of the Effective Date), or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors.

“Claims Agent” shall have the meaning set forth in the Collateral Agency Agreement.

“Clearstream” means Clearstream Banking, société anonyme.

“Collateral” means the collective reference to all assets, whether now owned or hereafter acquired, upon which a Lien is created or granted from time to time pursuant to any Security Document.

“Collateral Agency Agreement” means that certain Collateral Agency Agreement dated                 , 2003 by and among the Company, the Subsidiaries of the Company party thereto, the Collateral Agent and the Claims Agent.

“Collateral Agent” means the Trustee, in its capacity as collateral agent under the Security Documents, until a successor collateral agent shall have become such pursuant to the Security Documents, and thereafter “Collateral Agent” shall mean such successor collateral agent.

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this

5

instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Common Stock” of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person.

“Company” means Fountain View, Inc., a Delaware corporation, until a successor Person or Persons shall have become such pursuant to the applicable provisions of this Indenture and thereafter “Company” shall mean such successor Person.

“Company Order” means a written request or order signed in the name of the Company by two Officers of the Company and delivered to the Trustee.

“Consolidated Cash Flow” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers’ acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) non-recurring financing, advisory and other expenses Incurred in connection with the Transactions, minus (vi) non-cash items increasing such Consolidated Net Income for such period (other than items accrued in the ordinary course of business), minus (vii) gains from purchases of Indebtedness at a discount, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders.

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“Consolidated Net Income” means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a wholly Owned Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries, (vi) any gain or loss realized on the termination of any employee pension benefit plan shall be excluded, and (vii) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries.

“Consolidated Net Worth” means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person’s balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments).

“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election or (iii) was elected to such Board of Directors pursuant to a designation made pursuant to the Stockholders Agreement.

“Corporate Trust Office” shall be at the address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give notice to the Company.

“Custodian” means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.

“Default” means any event that is or with the passage of time or the giving of notice or both would be an Event of Default.

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“Definitive Note” means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend, shall not contain certain phrases specified in Exhibit A to be for Global Notes only and shall not have the “Schedule of Exchanges of Interests in the Global Note” attached thereto.

“Depositary” means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.

“Designated Senior Debt” means any Senior Debt outstanding under the Exit Facility, together with any Indebtedness constituting Senior Debt incurred to renew, refinance, refund or replace (within two Business Days) (or successive renewals, refinancings or refundings), in whole or in part, the Senior Debt outstanding under the Exit Facility.

“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof.

“Effective Date” means the Effective Date as defined in the Plan.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Euroclear” means Euroclear Bank S.A./N.V., as operator of the Euroclear system.

“Excess Cash Flow” means for any Fiscal Year of the Company, (a) the sum, without duplication, of (i) the net income or loss of the Company and its Subsidiaries for such fiscal year, calculated in accordance with GAAP, excluding, however, all gains and losses (together with any related provision for federal and state income taxes on such gains and losses) realized in connection with any sale or other disposition by the Company or any of its Subsidiaries of any asset (other than the sales of inventory in the ordinary course of business); (ii) the aggregate amount of all interest expense of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP, whether paid or accrued; (iii) the aggregate amount of all federal and state income taxes incurred by the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP, whether paid or accrued; (iv) the aggregate amount of all depreciation expense and amortization expense of the Company and its Subsidiaries during

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such Fiscal Year, calculated in accordance with GAAP; (v) the aggregate amount of all non-cash extraordinary losses (together with any related provision for federal and state income taxes on such extraordinary losses) of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP; (vi) the Asset Sales Proceeds for such Fiscal Year; and (vii) an amount equal to any decrease in Working Capital during such Fiscal Year; minus (b) the sum, without duplication, of (i) the aggregate amount of all non-cash extraordinary gains (together with any related provision for federal and state income taxes on such extraordinary gains) of the Company and its Subsidiaries during such Fiscal Year, calculated in accordance with GAAP; (ii) the Maintenance Capital Expenditures for such Fiscal Year; (iii) the aggregate amount of all non-financed acquisitions (other than the non-cash portion of any acquisitions) by the Company and its Subsidiaries during the Fiscal Year; (iv) the aggregate amount of all interest expense of the Company and its Subsidiaries paid or payable during such Fiscal Year; (v) the aggregate amount of all federal and state income taxes of the Company and its Subsidiaries paid or payable during such Fiscal Year; (vi) an amount equal to any increase in the Working Capital during such Fiscal Year; (vii) the aggregate amount of all scheduled payments and mandatory prepayments of principal actually made or required to be made during such Fiscal Year with respect to the Senior Mortgage Loan, the Bank Midwest Amended and Restated Note, the Woodlands Place Note, the Union Bank Note, the Mezzanine Loan, the Revolving Credit Facility, the Bergen Note, the Class 10 Deferred Obligations and the Continuing Creditor Deferred Obligations (as such terms are defined in the Plan); and (viii) the aggregate amount of all voluntary prepayments of principal actually made with respect to the Mezzanine Loan and the Revolving Credit Facility (solely to the extent that such prepayment is accompanied by a reduction in the commitments) thereunder.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Existing Affiliate Transactions” means any transaction between the Company and any of its Affiliates contemplated by the Plan or in the agreements listed on Schedule I.

“Existing Disqualified Stock” means the 15,000 shares of Series A Preferred Stock, par value $0.01 per share, of the Company to be issued pursuant to the Plan.

“Existing Indebtedness” means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Exit Facility or the Senior Mortgage Loan) in existence on the date of this Indenture, until such amounts are repaid.

“Exit Facility” means the Revolving Credit Facility and the Mezzanine Loan.

“Fiscal Year” means the calendar year.

“Fixed Charges” means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs (other than any costs incurred in connection with the Transactions) and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or

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bankers’ acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), (iv) accrued Disqualified Stock dividends of such Person and all Restricted Subsidiaries of such Person, whether or not declared or paid, and (v) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

“Fixed Charge Coverage Ratio” means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the referent Person or any of its Restricted Subsidiaries Incurs, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the referent Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time.

“Global Notes” means, individually and collectively, the Notes in the form of Exhibit A hereto issued in accordance with Section 2.01 and Section 2.06.

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“Global Note Legend” means the legend set forth in Section 2.06, which is required to be placed on all Global Notes issued under this Indenture.

“Government Securities” means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guaranteeing, any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and “Guaranteed,” “Guaranteeing” and “Guarantor” shall have meanings correlative to the foregoing); provided, however, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business.

“Guarantors” means (i) each of the Restricted Subsidiaries of the Company listed on Schedule II hereto; and (ii) any other Restricted Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns.

“Healthcare Related Business” means a business, at least a majority of whose revenues result from pharmacy, healthcare, long-term care, physical therapy or assisted living related businesses or facilities.

“Hedging Obligations” means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency changes.

“Holder” means a Person in whose name a Note is registered.

“Incur” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Indebtedness or other obligation including by acquisition of Restricted Subsidiaries or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and “Incurrence”, “Incurred”, “Incurable” and “Incurring” shall have meanings correlative to the forgoing); provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness.

“Indebtedness” means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes

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or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person (including reimbursement obligations with respect thereto) (other than letters of credit securing obligations entered into in the ordinary course of business to the extent such letters of credit are fully cash collateralized using funds provided by the Exit Facility), (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements), (v) every Capital Lease Obligation of such Person, (vi) Hedging Obligations of such Person and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or is responsible or liable for, directly or indirectly, as obligor, Guarantor or otherwise. The “amount” or “principal amount” of Indebtedness at any time of determination as used herein will be (a) the maximum principal amount thereof in the case of any contingent Indebtedness, (b) the accreted value thereof, in the case of any Indebtedness issued at a price that is less than the principal amount at maturity thereof, and (c) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. In no event shall “Indebtedness” include any trade payable or accrued expenses arising in the ordinary course of business which are not more than 180 days past due or which are being contested in good faith and by appropriate proceedings.

“Indenture” means this Indenture, as amended or supplemented from time to time by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

“Intercreditor Agent” means CapitalSource Finance LLC, or any person whom it may designate, as provided in the Intercreditor Agreement.

“Intercreditor Agreement” means an Intercreditor Agreement between the Company and Capital Source as agent for itself and other lenders pursuant to the Revolving Credit Facility, [Capital Source as agent for itself and the other lenders under the Mezzanine Loan], and the Trustee as agent for Holders and for the General Claim Holders (as defined therein), in substantially the form attached hereto as Exhibit D.

“Interest Payment Date” means the Stated Maturity of an installment of interest on the Notes.

“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity

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Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.08 hereof.

“Junior Securities” means securities that are subordinated to the Senior Debt at least to the same extent as the Notes and are unsecured.

“Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions in The City of New York or the city in which the principal Corporate Trust Office of the Trustee is located are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

“Maintenance Capital Expenditures” means, for any Fiscal Year, the aggregate amount of all non-financed capital expenditures (other than capital expenditures that are made in connection with an acquisition) incurred or made by the Company and its Subsidiaries during such Fiscal Year; provided that, for purposes of this definition, the maximum amount of such capital expenditures deducted in any Fiscal Year (for any Fiscal Year, the “Maximum Amount”) shall not exceed (a) for Fiscal Year 2003, $7,000,000 and (b) for any Fiscal Year thereafter, $7,000,000 plus the Maximum Amount for the immediately preceding Fiscal Year minus the actual amount of Maintenance Capital Expenditures included in this definition pursuant to clause (a) in such immediately preceding Fiscal Year.

“Management Agreement” means                     .

“Maturity”, when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

“Mezzanine Loan” means a $23,000,000 aggregate principal amount term loan facility provided by                     , pursuant to that certain Mezzanine Loan Agreement dated             , 2003 between                      and the borrowers thereunder, listed on Schedule III, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder.

“Mortgages” means the mortgages granted pursuant to the Security Documents on certain of the real property owned or leased by the Company or the Guarantors.

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“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).

“Net Proceeds” means the aggregate proceeds in the form of cash or Cash Equivalents received by the Company or any of its Restricted Subsidiaries (i) with respect to any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions), (b) any relocation expenses incurred as a result thereof, (c) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing), (d) any amounts required to be applied to the permanent repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and (e) any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP; provided, however, that any reduction in such reserve within twelve months following the consummation of such Asset Sale will be treated for all purposes of this Indenture and the Notes as a new Asset Sale at the time of such reduction with Net Proceeds equal to the amount of such reduction; and (ii) with respect to the issuance or sale of Capital Stock, or options, warrants or rights to purchase Capital Stock, or debt securities or Disqualified Stock that has been converted into or exchanged for Capital Stock, the proceeds of such issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations, net of attorney’s fees, accountant’s fees and brokerage, consultation, underwriting and other fees and expenses actually incurred in connection with such issuance or sale, conversion or exchange and net of any consolidated interest expense attributable to any debt securities paid to the holders thereof prior to the conversion or exchange and net of taxes paid or payable as a result thereof.

“Non-Recourse Debt” means Indebtedness: (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender; (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries, except, in each case, for any environmental indemnity and non-recourse carve-outs not broader than those provided for in the Senior Mortgage Loan.

“Notes” has the meaning assigned to it in the preamble to this Indenture.

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“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

“Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.

“Officers’ Certificate” means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 13.04 and 13.05 hereof.

“Opinion of Counsel” means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Sections 13.04 and 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.

“Participant” means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to The Depositary Trust Company, shall include Euroclear and Clearstream).

“Permitted Investments” means (a) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Guarantor; (d) any Investment by a Restricted Subsidiary that is not a Guarantor in any Restricted Subsidiary; (e) any Investment in a borrower under the Mezzanine Loan for the sole purpose of permitting such borrower to make payments on the Mezzanine Loan; (f) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.11 hereof; (g) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (h) Hedging Obligations; (i) any Investment in the joint venture entities identified on Schedule IV hereto; (j) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (j) that are at the time outstanding, not to exceed $2.5 million; (k) Guarantees issued in accordance with Section 4.10 of this Indenture; (l) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and worker’s compensation, performance and other similar deposits; and (m) accounts receivable in the ordinary course of business (and Investments obtained in exchange or settlement of accounts receivable for which the Company has determined that collection is not likely or as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in each case as to debt owing to the

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Company or any Restricted Subsidiary that arose in the ordinary course of business of the Company or such Restricted Subsidiary).

“Permitted Liens” means (i) Liens on assets of the Company, any of its Restricted Subsidiaries or any of the Guarantors securing the Exit Facility, the Senior Mortgage Loan, the Woodlands Place Note or the Union Bank Note; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property or assets existing at the time of acquisition thereof or the acquisition of a Person owning such property or assets by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any assets other than the acquired property and accessions and additions thereto and proceeds thereof; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bond or other obligations of a like nature Incurred in the ordinary course of business; (vi) Liens to secure Capital Lease Obligations and mortgage financing or purchase money obligations of the type (but without reference to any restrictions on amount) described in clause (viii) of Section 4.10 that are permitted to be Incurred pursuant to the terms of this Indenture covering only the assets acquired with such Indebtedness and proceeds thereof, provided, however, that (a) the principal amount of any Indebtedness secured by such a Lien does not exceed 100% of such purchase price or cost, (b) such a Lien is created within 180 days of the construction, acquisition or improvement of such property and does not extend to or cover any other property other than such item of property and any improvements or accessions thereto and proceeds thereof and (c) the Incurrence of such Indebtedness is otherwise permitted by this Indenture; (vii) Liens existing on the date of this Indenture listed on Schedule V; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (x) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on the assets of the Woodlands Entities securing the Bank Midwest Amended and Restated Note; (xii) Liens on the assets of Summit Care Pharmacy securing the Bergen Note; (xiii) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii), (iv), (vi), (vii), (xi) and (xii) so long as such Lien does not extend to any other property and the principal amount of Indebtedness so secured is not increased; (xiv) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially

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detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (xv) Liens on assets or Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; and (xvi) Liens on accounts of the Company’s Subsidiary organized under the laws of the Cayman Islands established for the purpose of obtaining insurance on behalf of the Company and its Subsidiaries to secure insurance or payment obligations to any third party insurer of the Company or any of its Subsidiaries.

“Permitted Refinancing Indebtedness” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses Incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is Incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business).

“Plan” has the meaning assigned to it in the preamble of this Indenture.

“Principals” means Heritage Partners Management Company, Inc., Heritage Fund II, L.P. and HF Partners II, L.P.

“Public Equity Offering” means a public offering of Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act.

“Regular Record Date” has the meaning set forth in Exhibit A attached hereto.

“Related Party” with respect to any Principal means (A) any controlling holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex-spouse or immediate family member (in the case of an individual) of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80%

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or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A) or (C) any investment fund, whether a limited partnership, limited liability corporation or corporation, or other entity managed and controlled by Heritage Partners Management Company, Inc. or HF Partners, L.P.

“Representative” means the indenture trustee or other trustee, agent or representative for any Senior Debt.

“Responsible Officer,” when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Restricted Investment” means any Investment other than a Permitted Investment.

“Restricted Subsidiary” means, with respect to any Person, each Subsidiary of such Person that is not an Unrestricted Subsidiary.

“Revolving Credit Facility” means the revolving credit facilities in an outstanding aggregate principal amount not to exceed $37,000,000 evidenced by (i) the Revolving Credit and Security Agreement dated as of             , 2003, by and among the Guarantors, the Company, the Woodlands Entities and CapitalSource Finance LLC and (ii) the Revolving Credit and Security Agreement dated as of             , 2003, by and among the borrowers thereunder, listed on Schedule VI, and CapitalSource, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case of (i) and (ii) as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder.

“Securities Act” means the Securities Act of 1933, as amended.

“Security Agreement” means the Security Agreement, dated as of the Closing Date, by and among the Company, the Guarantors and the Collateral Agent in substantially the form attached hereto as Exhibit E.

“Security Documents” means the Security Agreement, the Mortgages and any other document or agreement that secures the Notes or the Subsidiary Guarantees.

“Senior Debt” means any Indebtedness outstanding under the Exit Facility, the B Note and all Hedging Obligations with respect thereto; provided that such Indebtedness was not incurred in violation of this Indenture. Senior Debt shall not include any Indebtedness renewing, refinancing, replacing or refunding the Indebtedness outstanding under the Exit Facility and all Hedging Obligations with respect thereto to the extent, and only to the extent, that the Stated Maturity of any installments of principal and interest thereunder is after the Maturity of the Notes.

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“Senior Mortgage Loan” means that certain loan issued under that certain Loan Agreement between Column Financial, Inc., a Delaware corporation and the borrowers thereunder, listed on Schedule VII hereto, in an outstanding aggregate principal amount not to exceed $95,000,000, including any related guarantees, collateral documents, instruments and agreements, as such may be amended, modified, renewed, refunded, replaced (within two Business Days) or refinanced, but not increased, from time to time, and all accrued and unpaid interest costs and expenses thereunder.

“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act and the Exchange Act, as such Regulation is in effect on the date of this Indenture.

“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

“Stockholders Agreement” means the Amended and Restated Stockholders Agreement, dated as of             , 2003, among the Company and certain of its stockholders, as in effect on the Effective Date, and as thereafter amended from time to time; provided for purposes of the definition of “Continuing Director” that no such amendment alters the provision relating to the designation and election of members of the Board of Directors.

“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).

“Subsidiary Guarantee” means the Guarantee by each Guarantor of the Company’s payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture.

“Summit Care Corporation” means Summit Care Corporation, a Restricted Subsidiary of the Company.

“Summit Care Pharmacy” means Summit Care Pharmacy, Inc., a Restricted Subsidiary of the Company.

“TIA” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “TIA” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

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“Transactions” means the transactions contemplated by the Plan that are consummated on or before the Effective Date.

“Trustee” means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.

“Union Bank Note” means that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 issued by Summit Care Corporation to Union Bank of California, N.A. with an outstanding principal balance of $823,333.04 on the date of this Indenture and secured by certain real and personal property located in Burbank, California, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001, as such obligations shall be further modified and extended pursuant to the Extension and Modification Agreement.

“Unrestricted Subsidiary” means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (A) to subscribe for additional Equity Interests or (B) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; (iv) has not Guaranteed any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors (or manager on its board of managers or equivalent governing body) or the general partner of which has a member on its board of directors (or manager on its board of managers or equivalent governing body) that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced by a Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation compiled with the foregoing conditions and was permitted by Section 4.08 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under Section 4.10 hereof the Company shall be in default of such covenant).

“Voting Stock” of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) at such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.

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“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness.

“Wholly Owned” means, when used with respect to any Subsidiary or Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as appropriate) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors, qualifying shares) shall at the time be owned by such Person or by one or more wholly owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person.

“Woodlands Entities” means The Woodlands Resource Management, LP and The Woodlands Healthcare Center, LP.

“Woodlands Place Note” is that certain promissory note in the original principal amount of $1,887,866.62 [less the sum of all adequate protection payments received by the holder of the Class 2 Claim after June 6, 2003] and to be issued by the Woodlands Entities to Woodlands Place Nursing Center, L.P. pursuant to the Plan, the repayment of which is secured by a new deed of trust between Woodlands Place Nursing Center, L.P., or its successor and the Woodlands Entities that is on the same terms as the Bank Midwest Deed of Trust; provided however that such lien when properly perfected, will be junior to the lien of the Bank Midwest Deed of Trust and shall constitute a second priority lien against the property subject to the Bank Midwest Deed of Trust.

“Working Capital” means, as of the end of any Fiscal Year of the Company, (a) the sum, without duplication of (i) current assets (other than cash and Cash Equivalents) and (ii) cash and Cash Equivalents held in restricted accounts minus (b) the sum, without duplication, of (i) current liabilities (other than the current portion of long-term debt) and (ii) long-term liabilities related to accrued insurance, in each case as reflected on the consolidated balance sheet for such Fiscal Year for the Company and its Subsidiaries.

Section 1.02. Other Definitions.

Term	Defined in Section
“Affiliate Transaction”	4.12
“Asset Sale Offer”	4.11
“DTC”	2.03
“Change of Control Offer”	4.15
“Change of Control Payment”	4.15
“Change of Control Payment Date”	4.15

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Term	Defined in Section
“Change of Control Purchase Price”	4.15
“Covenant Defeasance”	8.03
“Event of Default”	6.01
“Excess Cash Flow Payment”	3.08
“Excess Cash Flow Payment Amount”	3.08
“Excess Cash Flow Payment Date”	3.08
“Excess Proceeds”	4.11
“Legal Defeasance”	8.02
“Nonpayment Default”	12.03
“Offer Amount”	4.11
“Offer Period”	3.09
“Paying Agent”	2.03
“Payment Blockage Notice”	12.03
“Payment Default”	12.03
“Permitted Debt”	4.10
“Purchase Date”	3.09
“Registrar”	2.03
“Restricted Payments”	4.07

Section 1.03. Terms of TIA.

Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following meanings:

“indenture securities” means the Notes;

“indenture security Holder” means a Holder of a Note;

“indenture to be qualified” means this Indenture;

“indenture trustee” or “institutional trustee” means the Trustee; and

“obligor” on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively.

All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them.

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Section 1.04. Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP (whether or not such is indicated herein); and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States as consistently applied by the Company on the Effective Date;

(3) “or” is not exclusive;

(4) words in the singular include the plural, and in the plural include the singular;

(5) unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with GAAP but shall not include the accounts of Unrestricted Subsidiaries, except to the extent of dividends and distributions actually paid to the Company or a Restricted Subsidiary;

(6) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision;

(7) unless the context otherwise requires, any reference to a “Clause,” and “Article” or a “Section”, or to an “Exhibit” or a “Schedule”, refers to a Clause, an Article or Section of, or to an Exhibit or a Schedule attached to, this Indenture, as the case may be;

(8) unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time;

(9) unless otherwise expressly provided herein, the principal amount of any preferred stock shall be greater of (i) the maximum liquidation value of such preferred stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such preferred stock; and

(10) provisions apply to successive events and transactions.

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ARTICLE 2.

THE NOTES

Section 2.01. Form and Dating.

(a) General. The Notes, notation of the Subsidiary Guarantees and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends, endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1.00 and integral multiples thereof.

The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.

Upon their original issuance, Notes shall be issued in the form of one or more Global Notes registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as Custodian for DTC, for credit by DTC to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct).

(b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.

Except as set forth in Section 2.06 hereof, the Global Notes may be transferred, in whole and not in part, only by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary, or a nominee of such successor Depositary.

(c) Book-Entry Provisions. This Section 2.01(c) shall apply only to Global Notes deposited with or on behalf of the Depositary.

The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver the Global Notes that (i) shall be registered in the name of the Depositary or the nominee of the Depositary and (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary’s instructions or held by the Custodian.

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Participants shall have no rights either under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Custodian as custodian for the Depositary or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in any Global Note.

(d) Definitive Notes. Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon, without certain phrases specified in Exhibit A to be for Global Notes only and without the “Schedule of Exchanges of Interests in the Global Note” attached thereto) and shall be printed, typewritten, lithographed or engraved or produced by any combination of these methods or may be produced by any other method permitted by the rules of any securities exchange on which the Notes may be listed, as evidenced by the execution of such Notes.

(e) Provisions Applicable to Forms of Notes. The Notes may also have such additional provisions, omissions, variations or substitutions as are not inconsistent with the provisions of this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with this Indenture, any applicable law or with any rules made pursuant thereto or with the rules of any securities exchange or governmental agency or as may be determined consistently herewith by the Officers of the Company executing such Notes, as conclusively evidenced by their execution of such Notes. All Notes will be otherwise substantially identical except as provided herein.

Subject to the provisions of this Article 2, a Holder of a Global Note may grant proxies and otherwise authorize any Person to take any action that a Holder is entitled to take under this Indenture or the Notes.

Section 2.02. Execution and Authentication.

An Officer shall sign the Notes for the Company by manual or facsimile signature. The Company’s seal shall be reproduced on the Notes and may be in facsimile form.

If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.

A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.

The Trustee shall, upon a Company Order, authenticate Notes for original issue up to the aggregate principal amount of $                         million. The aggregate principal amount of Notes outstanding at any time may not exceed such amount, except as provided in Section 2.07 hereof.

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The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company.

Section 2.03. Registrar and Paying Agent.

The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange (“Registrar”) and an office or agency where Notes may be presented for payment (“Paying Agent”). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term “Registrar” includes any co-registrar and the term “Paying Agent” includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.

The Company initially appoints The Depository Trust Company (“DTC”) to act as Depositary with respect to the Global Notes.

The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.

The Company shall, prior to each Regular Record Date, notify the Paying Agent of any wire transfer instructions for payments that it receives from Holders.

Section 2.04. Paying Agent to Hold Money in Trust.

The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes.

Section 2.05. Holder Lists.

The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date and at such other times as the

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Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA § 312(a).

Section 2.06. Transfer and Exchange.

(a) Transfer and Exchange of Global Notes. (i) Except as provided in this Section 2.06 and the sections of the Indenture referenced herein, notwithstanding any other provision in this Indenture, no Global Note may be exchanged in whole or in part for Definitive Notes, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Notes or a nominee thereof unless (i) such Depositary or the Trustee has notified the Company that the Depository is (A) unwilling or unable to continue as Depositary for such Global Notes or (B) has ceased to be clearing agency registered as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary within 120 days of such notice, (ii) the Company executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Notes in definitive form and that all Global Notes shall be exchanged in whole for Definitive Notes (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default with respect to the Notes. Notwithstanding the foregoing provisions of this Section 2.06(a), Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a); however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b) or (d) hereof.

(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures.

(i) If any Global Note is to be exchanged for other Notes or cancelled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Registrar, for exchange or cancellation as provided in this Article 2. If any Global Note is to be exchanged for other Notes or cancelled in part, or if another Note is to be exchanged in whole or in part for a beneficial interest in any Global Note, then either (i) such Global Note shall be so surrendered for exchange or cancellation as provided in this Article 2 or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or cancelled, or equal to the principal amount of such other Note to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate endorsement made on the Global Notes by the Trustee, as Custodian, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Note, the Trustee shall, as provided in this Article 2, authenticate and deliver any Notes issuable in exchange for such Global Note (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events

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specified in Section 2.06(a), the Company shall promptly make available to the Trustee a reasonable supply of Definitive Notes that are not in the form of Global Notes. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article 2 if such order, direction or request is given or made in accordance with the Applicable Procedures and in accordance with all applicable laws. Every Note authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Note or any portion thereof, whether pursuant to this Article 2 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depositary for such Global Note or a nominee thereof.

(ii) The Depositary or its nominee, as registered owner of a Global Note, shall be the Holder of such Global Note for all purposes under this Indenture and the Notes and owners of beneficial interests in a Global Note shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner’s beneficial interest in a Global Note will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Participants.

(c) Global Note Legend. Each Global Note shall bear a legend in substantially the following form:

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

(d) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part,

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each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction to reflect such increase.

(e) General Provisions Relating to Transfers and Exchanges.

Subject to the other provisions of this Indenture regarding restrictions on transfer, upon surrender for registration of transfer of any Note at any office or agency of the Company designated pursuant to Section 4.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferee or transferees, one or more new Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture.

(i) At the option of the Holder, and subject to the other provisions of this Section 2.06, Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and make available for delivery, the Notes which the Holder making the exchange is entitled to receive.

(ii) Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.

(iii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.08, 3.09, 4.11, 4.15 and 9.05 hereof).

(iv) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.

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(v) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.

(vi) The Registrar shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date.

(vii) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary.

(viii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof.

Section 2.07. Replacement Notes.

If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of a Company Order, shall authenticate a replacement Note if the Trustee’s requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note.

In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note.

Upon the issuance of any new Note under this Section 2.07, the Company and the Trustee (without duplication) may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and reasonable attorneys’ fees) connected therewith.

Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.

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The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

Section 2.08. Outstanding Notes.

The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.08 hereof.

If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser.

If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.

Section 2.09. Treasury Notes.

In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded.

Notwithstanding the foregoing, with respect to any Global Note, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by a Depositary or impair, as between a Depositary and holders of beneficial interests in any Global Note the operation of customary practices governing the exercise of the rights of the Depositary as Holder of such Global Note.

Section 2.10. Temporary Notes.

Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of a Company Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably

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acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, as soon as practicable upon its receipt of a Company Order, authenticate definitive Notes in exchange for temporary Notes.

Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.

Section 2.11. Cancellation.

The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.

Section 2.12. Defaulted Interest.

If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.

Section 2.13. CUSIP Numbers.

The Company in issuing the Notes may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice and that reliance may be placed only on the other identification numbers printed on the Notes and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.

Section 2.14. Computation of Interest.

Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months.

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ARTICLE 3.

REDEMPTION AND PREPAYMENT

Section 3.01. Notices to Trustee.

If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date (unless a shorter notice shall be satisfactory to the Trustee), an Officers’ Certificate setting forth (i) the redemption date, (ii) the principal amount of Notes to be redeemed and (iii) the redemption price.

Section 3.02. Selection of Notes to Be Redeemed.

If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption.

The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1.00 or whole multiples of $1.00; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1.00, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption.

Section 3.03. Notice of Redemption.

Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address.

The notice shall identify the Notes to be redeemed and shall state:

(a) the redemption date;

(b) the redemption price;

(c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note;

(d) the name and address of the Paying Agent;

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(e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;

(f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date;

(g) the CUSIP number or numbers, if any, of the Notes called for redemption; and

(h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.

At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers’ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.

Section 3.04. Effect of Notice of Redemption.

Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.

Section 3.05. Deposit of Redemption Price.

On or prior to 10:00 a.m. New York City time, on any redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed.

If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01, hereof.

Section 3.06. Notes Redeemed in Part.

Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the receipt of the Company’s written request, the Trustee shall as soon as practicable authenticate for

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the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered.

Section 3.07. Optional Redemption.

(a) The Company may at any time, in its sole and absolute discretion, redeem up to 100% of the outstanding Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to but excluding the date of redemption.

(b) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof.

Section 3.08. Mandatory Redemptions

(a) To the extent permitted by the terms of the Exit Facility, the Company shall be required to make mandatory redemptions of the Notes on a pro rata basis on the date which is 150 days following the end of the Company’s Fiscal Year (the “Excess Cash Flow Payment Date”) pursuant to which the Company will redeem a principal amount of Notes equal to 80% of the Excess Cash Flow for the Fiscal Year ended most recently prior to the Excess Cash Flow Payment Date (the “Excess Cash Flow Payment Amount”), unless the amount of such Excess Cash Flow is less than $2.0 million, in which case no redemption from Excess Cash Flow shall be required. Any such mandatory redemption shall be made at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Excess Cash Flow Payment Date. On the earlier of the ninetieth day following the end of the Company’s Fiscal Year or the date on which the Company delivers the audited financial statements to the Trustee pursuant to Section 4.03(a) hereof, the Company shall deliver an Officers’ Certificate setting forth the calculation of Excess Cash Flow (whether positive or negative) and the Excess Cash Flow Payment Amount, if any, to be made on the Excess Cash Flow Payment Date. On or before the record date the Company shall publicly announce the aggregate amount of such Excess Cash Flow Payment Amount and the Excess Cash Flow Payment Date.

(b) The record date for any such redemptions from Excess Cash Flow (the “Excess Cash Flow Payment”) shall be the one hundred and thirty-fifth day following the end of the Company’s Fiscal Year. On or prior to 10:00 a.m. New York City time on any Excess Cash Flow Payment Date, the Company shall deposit with the Trustee or with the Paying Agent the Excess Cash Flow Payment Amount.

(c) The Excess Cash Flow Payment Amount shall be applied on a pro rata basis to make a partial payment of principal on each Note and accrued and unpaid interest on the portion of the principal being so repaid on the Excess Cash Flow Payment Date, provided, however, that installments of interest whose Stated Maturity is on or prior to the Excess Cash Flow Payment Date shall first be payable to the Holders of such Notes, or one or more predecessor Notes, registered as such at the close of business on the relevant Regular Record Dates according to their terms.

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(d) Other than as specifically provided in this Section 3.08 (including, but not limited to the requirement for pro rata payments set forth in Section 3.08(c)), any redemption pursuant to this Section 3.08 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.

Section 3.09. Offer to Purchase by Application of Excess Proceeds.

In the event that, pursuant to Section 4.11 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of the Indebtedness of the Company or the Subsidiaries that is pari passu with the Notes or the Subsidiary Guarantee in question that contains provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets.

The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the “Offer Period”). No later than five Business Days after the termination of the Offer Period (the “Purchase Date”), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.11 or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made.

If the Purchase Date is on or after a Regular Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer.

Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice shall contain (i) the most recent annual and quarterly financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the documents required to be filed with the Trustee pursuant to Section 4.03(a) of this Indenture (which requirements may be satisfied by delivery of such documents together with the Asset Sale Offer), (ii) a description of material developments as found in press releases and public filings in the Company’s business subsequent to the date of the latest of such financial statements referred to in clause (i), (iii) a description of the events requiring the Company to make the Asset Sale Offer and (iv) any other information required by applicable law to be included therein. The notice, which shall govern the terms of the Asset Sale Offer, shall also state:

(a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.11 hereof and the length of time the Asset Sale Offer shall remain open;

(b) the Offer Amount, the purchase price and the Purchase Date;

(c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest;

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(d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date;

(e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased;

(f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date;

(g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;

(h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1.00, or integral multiples thereof, shall be purchased); and

(i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).

On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of a Company Order from the Company, shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date.

Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.

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ARTICLE 4.

COVENANTS

Section 4.01. Payment of Notes.

The Company shall pay or cause to be paid the principal of and interest on the Notes on the dates and in the manner provided in the Notes. Principal and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, (i) holds as of 10:00 a.m. New York City Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal and interest then due and (ii) is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture and the Notes.

The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including interest that accrues after, or would have accrued but for, the commencement of a proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.

Section 4.02. Maintenance of Office or Agency.

The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.

The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.

Section 4.03. Reports; Fiscal Year.

(a) Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company shall furnish to the Trustee and the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained

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in a filing with the Commission on Forms 10-Q and 10K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report thereon by the Company’s certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission’s rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission’s rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request.

(b) Any materials required to be furnished to Holders of Notes by this Section 4.03 shall discuss, in reasonable detail, either on the face of the financial statements included therein or in the footnotes thereto and in any Management’s Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.

(c) The Company shall not, and shall not permit any of its Subsidiaries, to change the date of the end of its Fiscal Year from December 31.

(d) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within 5 Business Days of its effective date, an Officers’ Certificate specifying any change in the final scheduled principal payment under the Exit Facility and publicly announce any resulting change in the date of the final Maturity of the Notes.

Section 4.04. Compliance Certificate.

(a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each Fiscal Year, an Officers’ Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding Fiscal Year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.

(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered

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pursuant to Section 4.03(a) shall be accompanied by a written statement of the Company’s independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.

(c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon and in any event within 10 Business Days after any Officer’s becoming aware of any Default or Event of Default, an Officers’ Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.

Section 4.05. Taxes.

The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.

Section 4.06. Stay, Extension and Usury Laws.

The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.

Section 4.07. Restricted Payments.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including; without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; or (iii) make any payment on or with respect to, or

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purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or a Subsidiary Guarantee, except a payment of interest or principal at Stated Maturity (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as “Restricted Payments”).

The foregoing provisions shall not prohibit (i) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness that is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the first paragraph of Section 4.08; (ii) the defeasance, redemption, repurchase or other acquisition of Indebtedness that is subordinated to the Notes with the net cash proceeds from an Incurrence of Permitted Refinancing Indebtedness; (iii) the payment of any dividend (in cash or otherwise) by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (iv) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company’s (or any of its Subsidiaries’) management pursuant to any management equity subscription agreement, stock option agreement or employment agreement, provided that the purchase price is paid with the proceeds to the Company of key man life or disability insurance policies purchased by the Company specifically to finance any such repurchase, redemption or other acquisition; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company’s (or any of its Restricted Subsidiaries’) management pursuant to any management equity subscription agreement, stock option agreement, or employment agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests of the Company or any Restricted Subsidiary shall not exceed $500,000 in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; or (vi) upon the occurrence of a Change of Control or an Asset Sale and within 60 days after the completion of the offer to repurchase the Notes pursuant to the covenants described under Section 3.09, 4.11 and 4.15, any purchase, repurchase, redemption, defeasance, acquisition or other retirement for value of Indebtedness subordinated to the Notes or a Subsidiary Guarantee required pursuant to the terms thereof as a result of such Change of Control or Asset Sale at a purchase price not to exceed 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any; provided, however, that at the time of such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, no Default or Event of Default shall have occurred and be continuing (or would result therefrom).

Section 4.08. Limitation on Restricted Investments.

The Company shall not, and shall not permit any Restricted Subsidiary to, make any Restricted Investment if:

(1) an Event of Default, or an event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and is continuing, or

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(2) upon giving effect to such Restricted Investment, the Company could not, after giving pro forma effect thereto as if such Restricted Investment had been made at the beginning of the applicable four (4) quarter period, Incur at least $1.00 of additional Indebtedness pursuant to the terms of the first paragraph of Section 4.10, or

(3) upon giving effect to such Restricted Investment, the aggregate amount of all Restricted Investments from the Effective Date and payments made pursuant to clauses (iii) or (v) of the second paragraph of Section 4.07 exceeds the sum of:

(a) 50% of Consolidated Net Income for the period (treated as one accounting period) commencing with the first full fiscal quarter after the Effective Date and ending on the last day of the last full fiscal quarter immediately preceding such Restricted Investment for which quarterly or annual financial statements of the Company are available (or if such Consolidated Net Income is a deficit, less 100% of such deficit); plus

(b) 100% of the aggregate Net Proceeds received after the Effective Date as a contribution to the common equity capital of the Company or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests or Disqualified Stock or convertible debt securities) sold to a Restricted Subsidiary of the Company after the Effective Date; plus

(c) an amount equal to the net reduction in Restricted Investments resulting from dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary (except to the extent any such payment is included in the calculation of Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed the amount of Restricted Investments previously made after the Effective Date by the Company and its Restricted Subsidiaries in such Person.

The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated as an Unrestricted Subsidiary will be deemed to be Restricted Investments at the time of such designation and will reduce the amount available for Restricted Investments under clause (3)(c) of this Section 4.08. All such outstanding Investments (except to the extent repaid in cash) will be deemed to constitute Restricted Investments in an amount equal to the greatest of (x) the net book value of such Investments at the time of such designation, (y) the fair market value of such Investments at the time of such designation and (z) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Investments would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation would not cause a Default; provided that such designation shall be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under Section 4.10 calculated on a pro forma basis as if such designation had occurred

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at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.

The amount of all Restricted Investments (other than cash) shall be the fair market value on the date of the Restricted Investments of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Investment. The fair market value of any assets or securities that are required to be valued pursuant to the foregoing sentence shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $10.0 million. Not later than the date of making any Restricted Investment, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Investment is permitted and setting forth the basis upon which the calculations required by this Section 4.08 were computed, together with a copy of any opinion or appraisal required by this Indenture.

Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the agreements governing the Existing Indebtedness as in effect on the date of this Indenture, (b) the Exit Facility or the Senior Mortgage Loan as in effect as of the date of this Indenture, any amendments, modifications, refundings, replacements, renewals or supplements thereof; provided that such amendments, modifications, refundings, replacements, renewals or supplements are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Exit Facility or the Senior Mortgage Loan, as the case may be, as in effect on the date of this Indenture as determined in good faith by the Company’s Board of Directors, (c) the Indenture, the Security Documents and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was Incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be Incurred, (f) customary non-assignment provisions in leases,

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licenses and other contracts and other contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) of this Section 4.09 above on the property so acquired, (h) any agreement for the sale of a Subsidiary or a substantial portion of such Subsidiary’s assets that restricts distributions by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced as determined in good faith by the Company’s Board of Directors, (j) secured Indebtedness otherwise permitted to be Incurred pursuant to the provisions of Section 4.10 that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business, (l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, and (m) any agreement or instrument governing Indebtedness permitted to be Incurred under this Indenture; provided that the terms and conditions of any restrictions and encumbrances, taken as a whole, are not more restrictive than those contained in this Indenture.

Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock.

The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, Incur or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may Incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company’s Subsidiaries may Incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.25 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period.

The provisions of the first paragraph of this Section 4.10 will not apply to the Incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):

(i) the Incurrence by the Company and the Guarantors of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the stated amount thereof) and other obligations under the Revolving Credit Facility in an aggregate principal amount that does not exceed at any one time $37,000,000 less any aggregate repayments made on the Revolving Credit Facility for which there is a concomitant permanent reduction in the commitment of the lenders under the Revolving Credit Facility; provided, however, that the Company and the Guarantors may Incur pursuant to this clause (i) Indebtedness in an aggregate principal amount in excess of $32,000,000 for the sole purpose of reimbursing the lenders and/or agents under the Exit

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Facility for any fees, costs, interest, charges, enforcement expenses (including legal fees and disbursements) and other reimbursement obligations attributable to protection of collateral;

(ii) the Incurrence by the Company and the Guarantors of the Mezzanine Loan and the Senior Mortgage Loan;

(iii) Incurrence by the Woodlands Entities of Indebtedness pursuant to the Bank Midwest Amended and Restated Note and the Woodlands Place Note;

(iv) the Incurrence by Summit Care Pharmacy of Indebtedness pursuant to the Bergen Note;

(v) the Incurrence by Summit Care Corporation of Indebtedness pursuant to the Union Bank Note;

(vi) the Incurrence by the Company and the Guarantors of the Existing Indebtedness and the issuance of the Existing Disqualified Stock;

(vii) the Incurrence by the Company of Indebtedness represented by the Notes in an aggregate principal amount not to exceed $             million;

(viii) the Incurrence by the Company or any of the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any other Indebtedness Incurred pursuant to this clause (viii), that does not exceed at any one time the amount of such Capital Lease Obligations, mortgage financings or purchase money obligations outstanding as of the date of this Indenture, plus $5.0 million;

(ix) the Incurrence by the Company or any of the Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that is permitted by this Indenture to be Incurred under the first paragraph hereof or clauses (iii) through (viii) or this clause (ix) of this paragraph;

(x) the Incurrence by the Company or any of the Guarantors of intercompany Indebtedness between or among the Company and any Guarantor; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor thereof shall be deemed, in each case, to

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constitute an Incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (x);

(xi) the Incurrence by the Company or any of the Guarantors of Hedging Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding;

(xii) the guarantee by the Company or any of its Subsidiaries or any of the Guarantors of Indebtedness of the Company or another Guarantor that was permitted to be Incurred by another provision of this Section 4.10 other than clause (xv);

(xiii) the Incurrence by the Company’s Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an Incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (xiii), and the issuance of preferred stock by Unrestricted Subsidiaries;

(xiv) the Incurrence by the Company or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred pursuant to this clause (xiv), not to exceed $5 million;

(xv) Indebtedness in an aggregate principal amount not to exceed $6,000,000 incurred by a Subsidiary of the Company organized under the laws of the Cayman Islands established for the purpose of obtaining insurance on behalf of the Company and its Subsidiaries to fund its obligations in connection therewith, whether incurred before or after the Effective Date.

(xvi) Indebtedness in an aggregate principal amount not to exceed $11,000,000 in connection with the purchase and Capital Lease of five previously identified properties located in Eureka, California, to be operated as skilled nursing facilities and an associated office facility.

For purposes of determining compliance with this Section 4.10, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xvi) above or is entitled to be Incurred pursuant to the first paragraph of this Section 4.10, the Company shall, in its sole discretion, classify such item of Indebtedness, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.10. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an Incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.10; provided, in each such case, that

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the amount thereof is included in Fixed Charges of the Company as accrued (to the extent not already included in Fixed Charges).

Section 4.11. Asset Sales.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a Board Resolution) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) in the case of any Asset Sale constituting the transfer (by merger or otherwise) of all of the Capital Stock of a Restricted Subsidiary, any liabilities (as shown on such Restricted Subsidiary’s most recent balance sheet) of such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that will remain outstanding after such transfer and will not be a liability of the Company or any other Restricted Subsidiary of the Company following such transfer and (z) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. To the extent that the assets which are the subject of any Asset Sale constitute Collateral, all proceeds thereof shall, to the extent permitted by law, be subject to a perfected Lien in favor of the Collateral Agent, and all Net Proceeds from such an Asset Sale shall be deposited in the escrow account established by the Security Documents.

Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of a Healthcare Related Business, the making of a capital expenditure or the acquisition of other long-term assets for use in a Healthcare Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make a pro rata offer to all Holders of Notes and any holders of other Indebtedness that is pari passu with the Notes or the Subsidiary Guarantee in question and that requires such an offer and contains provisions similar to those set forth in this Indenture with respect to offers (an “Asset Sale Offer”), to purchase or redeem with the proceeds of sales of assets in accordance with Section 3.09, the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set

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forth in this Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocated for the Notes (the “Offer Amount”), the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

Section 4.12. Transactions with Affiliates.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an “Affiliate Transaction”), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a Board Resolution certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity Interests (other than Disqualified Stock) of the Company, (v) Restricted Investments that are otherwise permitted by Section 4.08 hereof, (vi) reimbursements of actual out-of-pocket expenses and, to the extent consistent with prior practice, allocated expenses pursuant to the Management Agreement and (vii) Existing Affiliate Transactions.

Section 4.13. Liens.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, securing Indebtedness or trade payables, except Permitted Liens.

Section 4.14. Corporate Existence.

Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective

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organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.

Section 4.15. Offer to Repurchase Upon Change of Control.

(a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1.00 or an integral multiple thereof) of such Holder’s Notes pursuant to the offer described below (the “Change of Control Offer”) at an offer price in cash equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon (the “Change of Control Purchase Price”), to the date of purchase (the “Change of Control Payment Date”). If the Change of Control Payment Date is on or after a Regular Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such Regular Record Date, and no additional interest shall be payable to Holders who validly tender Notes pursuant to the Change of Control Offer in respect of such Interest Payment Date.

(b) Within 15 Business Days following any Change of Control, the Company shall mail a notice to each Holder, with a copy of such notice to the Trustee. The notice, which shall govern the terms of the Change of Control Offer, shall state, among other things:

(i) that a Change of Control has occurred and a Change of Control Offer is being made as provided for herein that each Holder has the right to require the Company to purchase such Holder’s Notes at the Change of Control Purchase Price, and that, although Holders are not required to tender their Notes, all Notes that are validly tendered shall be accepted for payment;

(ii) the circumstances giving rise to the Change of Control;

(iii) the Change of Control Purchase Price and the Change of Control Payment Date, which will be no earlier than 30 days and no later than 60 days after the date such notice is mailed;

(iv) that any Note accepted for payment pursuant to the Change of Control Offer (and duly paid for on the Change of Control Payment Date) shall cease to accrue interest, after the Change of Control Payment Date;

(v) that any Notes (or portions thereof) not validly tendered shall continue to accrue interest;

(vi) that any Holder electing to have a Note purchased pursuant to any Change of Control Offer shall be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” on the reverse of the Note

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completed, or transfer by book entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Change of Control Payment Date;

(vii) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;

(viii) the instructions and any other information necessary to enable Holders to tender their Notes (or portions thereof) and have such Notes (or portions thereof) purchased pursuant to the Change of Control Offer; and

(ix) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes; provided that such new Note must be equal to $1.00 principal amount and integral multiples thereof.

(c) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Change of Control Payment Date) mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unrepurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1.00 or an integral multiple thereof.

(d) Upon surrender and cancellation of a Definitive Note that is purchased in part pursuant to the Change of Control Offer, the Company shall promptly issue and the Trustee shall authenticate and mail (or cause to be transferred by book entry) to the surrendering Holder of such Definitive Note, a new Definitive Note equal in principal amount to the unpurchased portion of such surrendered Definitive Note; provided that each such new Definitive Note shall be in a principal amount of $1.00 or an integral multiple thereof. Upon surrender of a Global Note that is purchased in part pursuant to a Change of Control Offer, the Paying Agent shall forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note to an amount equal to the unpurchased portion of such Global Note, as provided in Section 2.06 hereof. The Company shall publicly announce the results of the Change of Control Offer on the Change of Control Payment Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent.

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(e) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

(f) The Company shall comply with the requirements of Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof.

Section 4.16. Payments for Consent.

Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Section 4.17. Additional Subsidiary Guarantees.

If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary (other than a Subsidiary that is also a Subsidiary of a Restricted Subsidiary that is not a Guarantor) after the date of this Indenture, then such newly acquired or created Subsidiary shall become a Guarantor and execute a Supplemental Indenture and deliver an opinion of Counsel, in accordance with the terms of this Indenture; provided that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with this Indenture (i) shall not be subject to the requirements of this Section 4.17 and (ii) shall be released from all Obligations under any Subsidiary Guarantee, in each case for so long as they continue to constitute Unrestricted Subsidiaries.

Section 4.18. Sale and Leaseback Transactions.

The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have Incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.10 hereof, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers’ Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.11 hereof.

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Section 4.19. Maintenance of Insurance.

The Company shall, and the Company shall cause its Restricted Subsidiaries to, keep at all times all of its properties which are of an insurable nature insured (which may include self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors, is adequate for the conduct of the Company and its Restricted Subsidiaries, with insurers believed by the Company to be responsible in such amounts, with such deductibles and by such methods as shall be customary, in the good faith judgment of the Board of Directors for companies similarly situated. To the extent that the Company and its Restricted Subsidiaries are required to maintain insurance by the Exit Facility, the Company will have satisfied its obligations under this Section 4.19 if it complies with the insurance covenants contained in the Exit Facility.

Section 4.20. Perfection of Security Interests.

The Company shall preserve the Liens granted under the Security Documents and, subject to the provisions of the Security Documents, shall undertake all actions which are required by applicable law in the reasonable judgment of the Trustee or the Collateral Agent to (a) maintain the Liens of the Collateral Agent in the Collateral in full force and effect at all times (including the priority thereof), and (b) preserve and protect the Collateral and protect and enforce the Company’s rights and title and the rights of the Collateral Agent to the Collateral, including, without limitation, the making or delivery of all filings and recordations, the payment of fees and other charges and the issuance of supplemental documentation for such purposes.

Section 4.21. Limitation on Issuance of Capital Stock of Restricted Subsidiaries.

The Company will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants, or other rights to purchase shares of such Capital Stock) except: (i) to the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) issuances of director’s qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; or (iii) issuances or sales of Common Stock of a Restricted Subsidiary so long as immediately giving effect to the issuance or sale, the Restricted Subsidiary would no longer constitute a Restricted Subsidiary, provided that (x) the proceeds therefrom shall be treated as proceeds from an Asset Sale in accordance with Section 4.11 and (y) any Investment in any Person remaining after giving effect to the issuance or sale would have been permitted to be made under Section 4.08 if made on the date of the issuance or sale.

Section 4.22. Consummation of Plan or Reorganization.

No provision of this Indenture shall prevent the Company and its Restricted Subsidiaries from consummating the Plan and the transactions contemplated thereby.

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ARTICLE 5.

SUCCESSORS

Section 5.01. Merger, Consolidation, or Sale of Assets.

The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes, this Indenture and the Security Documents pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, immediately after such transaction after giving pro forma effect thereto and any related financial transaction as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.10 hereof. The Company shall not lease its properties and assets substantially as an entity to any Person.

Section 5.02. Successor Corporation Substituted.

Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the “Company” shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company’s assets that meets the requirements of Section 5.01 hereof.

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ARTICLE 6.

DEFAULTS AND REMEDIES

Section 6.01. Events of Default.

An “Event of Default” occurs if:

(a) the Company defaults for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of this Indenture);

(b) the Company defaults in the payment when due of principal of the Notes (whether or not prohibited by the subordination provisions of this Indenture);

(c) failure by the Company or any of its Subsidiaries to comply with any of the provisions of Section 4.07, 4.11, 4.15 or Article 5;

(d) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.08, 4.10 or 4.20;

(e) the Company or any of its Subsidiaries fails to comply with any other covenant, representation, warranty or other agreement in this Indenture, the Notes or the Security Documents for 60 days and such failure continues for 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of outstanding Notes;

(f) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or is created after the date of this Indenture, which default (i) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided by the documents governing such Indebtedness, which default has not been waived or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness which has not been so paid or the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness, the Exit Facility or the Senior Mortgage Loan to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under this Indenture);

(g) the receipt by the Collateral Agent of a written notice under the Collateral Agency Agreement from the Claims Agent to realize and foreclose upon the Collateral;

(h) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days; provided that the aggregate of all such undischarged judgments exceeds $5.0 million;

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(i) the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:

(i) commences a voluntary case,

(ii) consents to the entry of an order for relief against it in an involuntary case,

(iii) consents to the appointment of a custodian of it or for all or substantially all of its property,

(iv) makes a general assignment for the benefit of its creditors,

(v) generally is not paying its debts as they become due; or

(j) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(i) is for relief against the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case;

(ii) appoints a custodian of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or

(iii) orders the liquidation of the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary;

and the order or decree remains unstayed and in effect for 60 consecutive days;

(k) the Liens created by the Security Documents shall at any time not constitute valid and perfected Liens on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of this Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 15 days after (i) written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of outstanding Notes, or (ii) the enforceability thereof shall be contested by the Company or any Subsidiary Guarantor;

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(l) failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and such failure continues unremedied for 10 Business Days after notice of such failure is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Notes; or

(m) except as permitted by this Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee.

Section 6.02. Acceleration.

If any Event of Default (other than an Event of Default specified in clause (i) or (j) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (i) or (j) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable without further action or notice. Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Indenture. In the event of a declaration of acceleration because an Event or Default set forth in clause (f) of Section 6.01 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (f) of Section 6.01 shall be remedied or cured or waived by the holders of the relevant Indebtedness within 30 days after such event of default; provided that no judgment or decree for the payment of the money due on Notes has been obtained by the Trustee as provided in this Indenture.

At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article, the Holders of at least 60% in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:

(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:

(A) the principal of any Notes which have become due otherwise than by such declaration of acceleration (including any Notes required to have been purchased on a Change of Control Payment Date or a Purchase Date pursuant to a Change of Control Offer or an Asset Sale Offer, as applicable, made by the Company) and, to the extent that payment of such interest is lawful, any interest thereon at the rate provided therefore in the Notes;

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(B) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided therefore in Section 4.01, and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amount due under Section 7.07; and

(2) all Events of Default, other than the non-payment of the principal of or interest on, the Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.04.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 6.03. Collection of Indebtedness and Suits for Enforcement by Trustee.

The Company covenants that if there is:

(1) a default in the payment of any interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or

(2) a default in the payment of the principal of any Note at the Maturity thereof or, with respect to any Note required to have been purchased pursuant to a Change of Control Offer or an Asset Sale Offer made by the Company, at the Change of Control Payment Date or Purchase Date thereof, as applicable,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate provided therefore in Section 4.01 hereof, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any amounts due the Trustee under Section 7.07 hereof.

If the Company fails to pay such amounts within 10 Business Days following such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute any such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property and assets of the Company or any other obligor upon the Notes, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may, subject to Article 12, pursue any available remedy to collect the payment of principal and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

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Section 6.04. Waiver of Past Defaults.

Subject to Section 6.07 hereof, Holders of not less than 60% in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of and interest on the Notes (including any waiver obtained in connection with a purchase of, tender offer or exchange offer for Notes) (provided, however, that the Holders of at least 60% in aggregate principal amount of then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

Section 6.05. Control by Super-Majority.

Holders of at least 60% in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may result in the incurrence of liability by the Trustee.

Section 6.06. Limitation on Suits.

A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if:

(a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default;

(b) the Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;

(c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;

(d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and

(e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.

A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.

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Section 6.07. Rights of Holders of Notes to Receive Payment.

Notwithstanding any other provision of this Indenture and subject to Section 11.02 and Article 12, the right of any Holder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder, except that no Holder shall have the right to institute any such suit, if and to the extent that the institution or prosecution thereof or the entry of judgment therein would under applicable law result in the surrender, impairment, waiver, or loss of the Liens of the Security Documents upon any property or assets subject to the Liens.

Section 6.08. Trustee May Enforce Claims Without Possession of Notes.

All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any amounts due the Trustee under Section 7.07 hereof, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered.

Section 6.09. Trustee May File Proofs of Claim.

The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

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Section 6.10. Priorities.

If the Trustee collects any money pursuant to this Article, it shall, subject to Article 12, pay out the money in the following order:

First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;

Second: to Holders of Notes for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and

Third: to the Company or the Subsidiary Guarantors or to such party as a court of competent jurisdiction shall direct.

The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.

Section 6.11. Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture, the Subsidiary Guarantees or the Security Documents and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 6.12. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 2.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 6.13. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

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Section 6.14. Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.14 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes.

ARTICLE 7.

TRUSTEE

Section 7.01. Duties of Trustee.

(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(b) Except during the continuance of an Event of Default:

(i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture but need not verify the contents thereof.

(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;

(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.

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(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01 and Section 7.02.

(e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture or the Security Documents at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

Section 7.02. Rights of Trustee.

(a) In connection with the Trustee’s rights and duties under this Indenture, the Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting, upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting under this Indenture, it may require an Officers’ Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.

(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.

(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or the Security Documents at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.

(g) Except with respect to Section 4.01 hereof, the Trustee shall have no duty to inquire as to the performance of the Company’s covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any

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Event of Default occurring pursuant to Sections 6.01(a), 6.01(b), 6.01(c) and 4.01 or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge.

(h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney.

Section 7.03. Individual Rights of Trustee.

The Trustee may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as defined in the TIA) it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.

Section 7.04. Trustee’s Disclaimer.

The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company’s use of the proceeds from the Notes or any money paid to the Company or upon the Company’s direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.

Section 7.05. Notice of Defaults.

If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after such Default or Event of Default becomes known to the Trustee. Except in the case of a Default or Event of Default relating to the payment of principal of or interest on any Note, the Trustee may withhold the notice if it determines that withholding the notice is in the interests of the Holders of the Notes.

Section 7.06. Reports by Trustee to Holders of the Notes.

Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA § 313(a) (but if no event described in TIA §313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA § 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA § 313(c).

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A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Notes are listed in accordance with TIA § 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange.

Section 7.07. Compensation and Indemnity.

The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.

The Company and the Guarantors shall jointly and severally indemnify the Trustee and each of its officers, directors, employees and agents for, and hold the same harmless against, any and all losses, liabilities or expenses (including, without limitation, reasonable attorneys’ fees) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. At the Trustee’s sole discretion, the Company shall defend the claim with counsel reasonably satisfactory to the Trustee and the Trustee shall cooperate in the defense at the Company’s expense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.

The obligations of the Company and the Guarantors under this Section 7.07 shall survive the resignation of the Trustee and/or the satisfaction and discharge or termination of this Indenture.

To secure the Company’s payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the resignation of the Trustee and/or the satisfaction and discharge or termination of this Indenture.

When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(i) or (j) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.

The Trustee shall comply with the provisions of TIA § 313(b)(2) to the extent applicable.

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Section 7.08. Replacement of Trustee.

A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.08.

The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:

(a) the Trustee fails to comply with Section 7.10 hereof;

(b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;

(c) a custodian or public officer takes charge of the Trustee or its property; or

(d) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.

If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.

If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company’s obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee.

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Section 7.09. Successor Trustee by Merger, Etc.

If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.

Section 7.10. Eligibility; Disqualification.

There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has (or in the case of a corporation included in a bank holding company, the bank holding company and related entities has) a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition.

This Indenture shall always have a Trustee who satisfies the requirements of TIA §§ 310(a)(1), (2) and (5). The Trustee is subject to TIA § 310(b).

Section 7.11. Preferential Collection of Claims Against Company.

The Trustee is subject to TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated therein.

ARTICLE 8.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01. Option to effect Legal Defeasance or Covenant Defeasance.

The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers’ Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.

Section 8.02. Legal Defeasance and Discharge.

Upon the Company’s exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its Obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, “Legal Defeasance”). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be “outstanding” only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes, this Indenture and the Security Documents (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until

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otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of and interest on such Notes when such payments are due, solely from the trust fund described in Section 8.04 hereof, (b) the Company’s Obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company’s obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.

Section 8.03. Covenant Defeasance.

Upon the Company’s exercise under Section 8.01 hereof of the option applicable to this Section 8.03, (i) the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their respective obligations under the covenants contained in Sections 4.03, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.17, 4.18, 4.19, 4.20 and 4.21 hereof with respect to the outstanding Notes and clauses (ii) and (iii) of Section 5.01 and (ii) the occurrence of an event specified in Section 6.01(c) (with respect to Sections 4.07, 4.11 and 4.15 and clauses (ii) and (iii) of Section 5.01), 6.01(d) (with respect to Sections 4.08, 4.10 and 4.20), 6.01(e) (with respect to Sections 4.03, 4.05, 4.09, 4.10, 4.12, 4.13, 4.17, 4.18, 4.19, 4.20 and 4.21 and clauses (ii) and (iii) of Section 5.01), 6.01(f), 6.01(g), 6.01(h), 6.01(k), 6.01(l) and 6.01(m) shall not be deemed to be an Event of Default on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, “Covenant Defeasance”), and the Notes shall thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby.

Section 8.04. Conditions to Legal or Covenant Defeasance.

The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes:

(a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, noncallable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date;

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(b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Sections 6.01(i) or 6.01(j) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit;

(e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is bound including, without limitation, the Exit Facility;

(f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally;

(g) the Company shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and

(h) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.

Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the “Trustee”) pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance

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with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal and interest, but such money need not be segregated from other funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.

Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06. Repayment to Company.

Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Note and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company.

Section 8.07. Reinstatement.

If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s Obligations under this Indenture, the Notes and the Security Documents shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company or a Guarantor makes any payment of principal of or interest on any Note following the reinstatement of its obligations, the

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Company or such Guarantor shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.

ARTICLE 9.

AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01. Without Consent of Holders of Notes.

Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes, the Security Documents or the Intercreditor Agreement without the consent of any Holder of a Note:

(1) to evidence the succession of another Person to the Company or a Guarantor and the assumption by any such successor of the covenants of the Company herein and in the Notes, the Security Documents and the Intercreditor Agreement and of such Guarantor contained herein and in the Security Documents; or

(2) to add to the covenants of the Company or the Guarantors for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or the Guarantors; or

(3) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or

(4) to cure any ambiguity, to correct or supplement any provision herein or in the Security Documents which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture or the Security Documents which shall not be inconsistent with the provisions of this Indenture; provided that such action pursuant to this clause (4) shall not adversely affect the interests of the Holders in any material respect;

(5) to evidence and provide for the acceptance and appointment hereunder of a successor Trustee with respect to the Notes;

(6) to mortgage, pledge, hypothecate or grant a Lien in favor of the Collateral Agent for the benefit of Trustee and the Holders of the Notes as additional security for the payment of principal of and interest on the Notes by the Company or on the Subsidiary Guarantees by the Guarantors under this Indenture in any property or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a Lien is required to be granted to the Collateral Agent, pursuant to this Indenture or the Security Documents;

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(7) to add Guarantees with respect to the Notes, to secure the Notes or to release Guarantors from Subsidiary Guaranties as provided by the terms of this Indenture; or

(8) to add additional Events of Default.

Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.

Section 9.02. With Consent of Holders of Notes.

Except as provided below in this Section 9.02 and in Section 12.14, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes, any Subsidiary Guarantees, the Security Documents and the Intercreditor Agreement with the consent of the Holders of at least 60% in aggregate principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of at least 60% in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes). Section 2.08 hereof shall determine which Notes are considered to be “outstanding” for purposes of this Section 9.02.

Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture.

It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.

After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the

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amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of 60% in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):

(1) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon, or change the place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of a Change of Control Offer or an Asset Sale Offer which has been made, on or after the applicable Change of Control Payment Date or Purchase Date), or

(2) reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and its consequences) provided for in this Indenture, or

(3) modify any of the provisions of this Section 9.02, Section 6.04 or Section 6.07, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holders of each outstanding Note affected thereby, or

(4) modify the provisions of this Indenture requiring the Company to make a Change of Control Offer after the occurrence of a Change of Control,

(5) make any change in the ranking of the Notes or the Subsidiary Guarantees that would adversely affect the Holders of the Notes, or

(6) make any change in any Subsidiary Guarantee that would adversely affect the Holders of the Notes.

Section 9.03. Compliance with Trust Indenture Act.

Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect.

Section 9.04. Revocation and Effect of Consents.

Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note

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or portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.

Section 9.05. Notation on or Exchange of Notes.

The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of a Company Order, authenticate new Notes that reflect the amendment, supplement or waiver.

Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.

Section 9.06. Trustee to Sign Amendments, Etc.

The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee.

The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers’ Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture.

ARTICLE 10.

SECURITY ARRANGEMENTS

Section 10.01. Collateral and Security Documents.

(a) To secure the due and punctual payment of principal of and interest on the Notes by the Company when and as the same shall be due and payable (whether on an Interest Payment Date, at Stated Maturity, by acceleration, call for redemption, upon a Change of Control Offer or an Asset Sale Offer, or otherwise) and interest on the overdue principal of, and interest (to the extent permitted by law) on, the Notes and performance of all other Obligations of the Company and the Guarantors to the Holders of the Notes, the Trustee or the Collateral Agent under this Indenture, the Notes, the Subsidiary Guarantees, and the Security Documents, according to the terms hereunder or thereunder, each of the Company and the Subsidiary Guarantors will enter into the Security Documents, to create the security interests with respect to the Collateral (except to the extent that granting such Liens is precluded by the provisions or the documents evidencing the Senior Debt). The Trustee, the Collateral Agent, the Guarantors and the Company hereby acknowledge and agree that the Collateral Agent holds the Collateral in

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trust for the benefit of the Holders and the Trustee, among others, pursuant to the terms of the Security Documents.

(b) Each Holder, by accepting a Note, agrees to all of the terms and provisions of the Security Documents (including, without limitation, the provisions providing for foreclosure and release of Collateral) as the same may be in effect or may be amended from time to time in accordance with the terms thereof and hereof, and authorizes and directs the Trustee, in its capacity as Collateral Agent, to perform its obligations and exercise its rights under the Security Documents in accordance therewith; provided, however, that if any provisions of the Security Documents limit, qualify or conflict with the duties imposed by the provisions of the TIA, the TIA will control.

(c) As more fully set forth in, and subject to the provisions of, the Security Documents, the Holders, and the Trustee and the Collateral Agent on behalf of such Holders, will have rights in and to the Collateral that are subject to the rights that have been or may be created in favor of the holders of other Indebtedness and obligations of the Company.

(d) As among the Holders, the Collateral shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other.

(e) With respect to the Trustee acting as Collateral Agent, the Trustee (i) shall not be deemed to have breached its fiduciary duty as Trustee to the Holders as a result of the performance of its duties as Collateral Agent to the extent it acts in compliance with the Security Documents and (ii) shall not be liable to the Holders for any such action or inaction. The rights and interests created under this Indenture shall be subject to the terms of the Security Documents.

(f) The Company and each Guarantor will do or cause to be done all such acts and things as may be required by the provisions of the Security Documents to which it is a party, to assure and confirm to the Trustee, in its capacity as Collateral Agent, the Liens on the Collateral contemplated by the Security Documents to which it is a party, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes and each Subsidiary Guarantee secured thereby, as applicable, according to the intent and purposes herein and therein expressed. The Company will take all actions required pursuant to the Security Documents to cause the Liens created pursuant to the Security Documents to be valid, enforceable and perfected (except as expressly provided therein) Liens in and on all the Collateral in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Notes. Each Guarantor will take any and all actions required pursuant to the Security Documents to cause the Liens created pursuant to the Security Documents to which it is a party to create and maintain for its Obligations under each Subsidiary Guarantee and the Security Document related thereto, valid and enforceable, perfected (except as expressly provided therein), Liens in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Notes.

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Section 10.02. Release of Collateral.

Collateral may be released from the Liens created by the Security Documents at any time or from time to time, and the Security Documents may be terminated, in accordance with the provisions of the Security Documents or in accordance with this Indenture. In addition, upon the request of the Company pursuant to an Officer’s Certificate and receipt of an Opinion of Counsel certifying that any sale, conveyance or disposal of any Collateral has been effected in compliance with the provisions of this Indenture, the Trustee will release such Collateral. Upon receipt of such Officer’s Certificate and Opinion of Counsel, the Trustee will execute, deliver and acknowledge any necessary or proper instruments of termination or release to evidence the release of any Collateral permitted to be released pursuant to this Indenture or the Collateral Documents. The release of any Collateral from the terms hereof and of the Security Documents or the release of, in whole or in part, the Liens created by the Security Documents, or the termination of the Security Documents, will not be deemed to impair the Liens on the Collateral in contravention of the provisions hereof if and to the extent that the Liens on Collateral are released, or the Security Documents are terminated, pursuant to this Indenture or the applicable Security Documents. The Trustee and each of the Holders acknowledge that a release of Collateral or a Lien in accordance with the terms of the Security Documents will not be deemed for any purpose to be an impairment of the Lien on the Collateral in contravention of the terms of this Indenture. To the extent applicable, the Company and each obligor on the Notes shall cause § 314(d) of the TIA relating to the release of property or securities from the Lien hereof and of the Security Documents to be complied with. Any certificate or opinion required by § 314(d) of the TIA may be made by an officer of the Company, except in cases which § 314(d) of the TIA requires that such certificate or opinion be made by an independent person. In releasing any Collateral pursuant to the terms of the Indenture, including the provisions of Section 10.02, or any Security Document, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, in addition to the documents required by Section 13.04, an Officers’ Certificate certifying that such release is authorized or permitted by this Indenture and the Security Documents and the Intercreditor Agreement and that all conditions precedent, if any, to such release have been satisfied.

Section 10.03. Opinions as to Recording.

(a) Each of the Company and the Guarantors represent that is has caused or will promptly cause to be executed and delivered, filed and recorded and covenants that it will promptly cause to be executed and delivered and filed and recorded, all instruments and documents, and represents that it has done and will do or will cause to be done all such acts and other things, at the Company’s or the Guarantors’ expense, as applicable, as are necessary to subject the applicable Collateral to valid Liens and to perfect those Liens to the extent contemplated by the Security Documents.

(b) The Company and the Guarantors shall furnish to the Trustee and the Collateral Agent promptly after the execution and delivery of this Indenture an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of this Indenture, financing statements or other instruments or otherwise necessary to make effective the Liens intended to be created by the Security Documents and reciting the details of such action, or (ii) stating that, in the opinion of

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such counsel, no such action is necessary to make such Lien effective. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinions.

(c) The Company and the Subsidiary Guarantors shall furnish to the Trustee and the Collateral Agent within three months after each anniversary of the Effective Date, an Opinion of Counsel, dated as of such date, stating either that (i) in the opinion of such counsel, all action has been taken with respect to the recording, filing, re-recording, and refiling of the Indenture and related financing statements, continuation statements and other instruments and documents as is necessary to maintain the effectiveness of the Liens intended to be created by the Security Documents and reciting the details of such action or (ii) in the opinion of such counsel, no such action is necessary to maintain the effectiveness of such Liens. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinions.

(d) The Company and the Subsidiary Guarantors shall otherwise comply with the provisions of § 314(b) and, as applicable §§ 314(c), (d) and (e) of the TIA.

Section 10.04. Further Assurances and Security.

The Company and the Guarantors will execute, acknowledge and deliver to the Trustee, at the Company’s and/or such Guarantor’s expense, at any time and from time to time such further assignments, transfers, assurances or other instruments as may be reasonably required by the Trustee, to assure and confirm to the Trustee, in its capacity as Collateral Agent, the Liens in the Collateral contemplated hereby and by the Security Documents, all to the extent contemplated by the Security Documents.

Section 10.05. Authorization of Actions to be Taken by Collateral Agent Under the Security Documents.

The Trustee, in its capacity as Collateral Agent, may, in its sole discretion and without the consent of the Holders, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Documents and (b) collect and receive any and all amounts payable in respect of the obligations of the Company and the Guarantors hereunder. The Trustee, in its capacity as Collateral Agent, shall have the power to institute and to maintain such suits and proceedings as such Person may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other government enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee).

Section 10.06. Authorization of Receipt of Funds by the Trustee Under the Security Documents.

The Trustee, in its capacity as Collateral Agent, is authorized to receive any funds for the benefit of the Holders distributed under the Security Documents, and to make further

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distributions of such funds to the Holders according to the provisions of this Indenture and the Security Documents.

Section 10.07. Covenants of Collateral Agent with Respect to the Exit Facility and the Senior Mortgage Loan.

The Trustee, in its capacity as Collateral Agent, and any successor Collateral Agent, hereby agrees that it shall, upon the written request of the Company, either:

(1) enter into the Intercreditor Agreement with regard to the Exit Facility to effectuate the priority of the Liens granted under the Exit Facility over the Liens of the Collateral Agent with respect to the Collateral to the extent contemplated herein; or

(2) release its Lien with respect to Collateral to the extent required under the Intercreditor Agreement.

ARTICLE 11.

SUBSIDIARY GUARANTEES

Section 11.01. Guarantee.

Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes, the Security Documents or the Obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes (including, without limitation, any interest that accrued after, or would accrue but for, the commencement of a proceeding of the type described in Section 6.01(i) or (j)) and any fees, expenses and other amounts owing under this Indenture will be duly and punctually paid in full when due, whether at Stated Maturity, by acceleration, mandatory redemption, call for redemption, upon a Change of Control Offer, an Asset Sale Offer or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Notes and any other amounts due in respect of the Notes and the Security Documents, and all other Obligations of the Company, including the Company’s Obligations to the Holders of the Notes under this Indenture, the Notes and the Security Documents and Subsidiary Guarantors under this Indenture, the Security Documents and the Subsidiary Guarantees, whether nor or hereafter existing, will be promptly paid in full or performed, all strictly in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.02. An Event of Default under this Indenture or the Notes shall constitute an Event of Default under each Subsidiary Guarantee, and shall entitle the Holders to accelerate the Obligations of each Subsidiary Guarantor hereunder in the same manner and to the same extent

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as the Obligations of the Company. Each Subsidiary Guarantee is intended to be superior to or pari passu in right of payment with all Indebtedness of the respective Guarantor and each Guarantor’s Obligations are independent of any Obligation of the Company or any other Guarantor. Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor, and that each Guarantor will remain bound under this Article 11 notwithstanding any extension or renewal of any Obligation.

The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes, this Indenture or the Security Documents, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. Each Guarantor waives notice of any default under the Notes or the Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder, Trustee or the Collateral Agent to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Notes, or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Notes, the Security Documents or any other agreement; (d) the release of any security held by any Holder, the Collateral Agent or the Trustee for the Obligations or any of them; (e) the failure of any Holder, the Trustee or the Collateral Agent to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of such Guarantor.

Each Guarantor further agrees that its Subsidiary Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations.

If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

Each Guarantor agrees that it shall not be entitled to any right of subrogation, contribution, exoneration, indemnification or reimbursement in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. If any amount shall be paid to such Guarantor in violation of the preceding sentence at any time prior to the later of the payment in full of the Notes and all other amounts payable under this Indenture and under each Subsidiary Guarantee upon the Stated Maturity of the Notes, such

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amount shall be held in trust for the benefit of the Holders and the Trustee and shall forthwith be paid to the Trustee to be credited and applied to the Notes and all other amounts payable under each Subsidiary Guarantee, whether matured or unmatured, in accordance with the terms of this Indenture, or to be held as security for any Obligations or other amounts payable under any Subsidiary Guarantee thereafter arising.

Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.01 is knowingly made in contemplation of such benefits. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) subject to this Article 11, the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of each Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any acceleration of such Obligations guaranteed hereby as provided in Article 6, such Obligations (whether or not due and payable) shall, forthwith become due and payable by the Guarantor for the purposes of each Subsidiary Guarantee.

A Guarantor that makes a distribution or payment under its Subsidiary Guarantee shall be entitled to contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each such other Guarantor for all payments, damages and expenses incurred by that Guarantor in discharging the Company’s obligations with respect to the Notes and this Indenture or any other Guarantor with respect to its Subsidiary Guarantee, so long as the exercise of such right does not impair the rights of the Holders of the Notes under the Subsidiary Guarantees.

Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 11.01.

Section 11.02. Subordination of Subsidiary Guarantee

The Obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 12 hereof.

Section 11.03. Limitation on Guarantor Liability.

Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such

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Guarantor under its Subsidiary Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Each Guarantor that makes a payment or distribution under its Subsidiary Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each such other Guarantor.

Section 11.04. Successors and Assigns.

This Article 11 shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.

Section 11.05. No Waiver.

Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise.

Section 11.06. Execution and Delivery of Subsidiary Guarantee.

To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit B shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its Chairman, President or one of its Vice Presidents. Further, the Company shall cause all future Guarantors to execute a Supplemental Indenture substantially in the form of Exhibit C.

Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee.

If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless.

The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.

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In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17 hereof the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Subsidiary Guarantees in accordance with Section 4.17 hereof and this Article 11, to the extent applicable.

Section 11.07. Guarantors May Consolidate, Etc., on Certain Terms.

No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or other entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company’s pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.10 hereof.

Section 11.08. Releases Following Sale of Assets or Capital Stock.

In the event of a sale or other disposition of all of the assets of any Guarantor (other than to the Company, another Guarantor or a Restricted Subsidiary), by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to, the Company, another Guarantor or a Restricted Subsidiary), then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the entity acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee and any such acquiring entity will not be required to assume any obligations of such Guarantor under the applicable Subsidiary Guarantee; provided that such sale or other disposition complies with all applicable provisions of this Indenture including, without limitation, Section 4.10 and this Article 11.

Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11.

ARTICLE 12.

SUBORDINATION

Section 12.01. Agreement to Subordinate.

The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt.

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Section 12.02. Liquidation; Dissolution; Bankruptcy.

Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company, any Guarantor, or their property, an assignment for the benefit of creditors or any marshaling of the Company’s or any Guarantor’s assets and liabilities, the holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not allowed as a claim in any such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes or under the Subsidiary Guarantee, and until all obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive payments made from the trust created pursuant to Article 8 hereof and payments or distributions in the form of Junior Securities).

In connection with the enforcement of the foregoing rights, Intercreditor Agent is hereby irrevocably appointed attorney in fact for the Trustee with full power to act in the place and stead of each Holder to exercise the rights of such Holders and the Trustee provided in Section 6.09 in the event the Trustee has failed to exercise such rights with 10 Business Days after receipt of written notice from the Intercreditor Agent.

The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the company following the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of its properties and assets to another Person or group of Affiliated Persons pursuant to, and in compliance with, the terms and conditions set forth in Article 5 hereof will not be deemed an insolvency or liquidation proceeding (requiring the repayment of all Senior Debt in full as a prerequisite to any payments being made to the Holders) for the purposes of this Section 12.02.

Section 12.03. Default on Senior Debt.

The Company and the Guarantors also may not make any payment upon or in respect of the Notes or the Subsidiary Guarantees (except from the trust created pursuant to Article 8 hereof) if (i) a default in the payment of the principal of, premium, if any, or interest on Senior Debt occurs and is continuing beyond any applicable period of grace (a “Payment Default”) or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that currently, or with the passage of time or giving of notice, permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity (a “Nonpayment Default”) and, in the case of any such Nonpayment Default, the Trustee receives a notice of such Nonpayment Default (a “Payment Blockage Notice”) from the Company or the holders of such Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a Payment Default, upon the date on which such Payment Default is cured or waived in writing by the holders of the applicable Senior Debt, or (b) in case of a Nonpayment Default, the earlier of (x) the date on which such Nonpayment Default is cured or waived in writing by the holders of Designated Senior Debt or (y) 179 days after the date on which the applicable Payment Blockage Notice is received by the Trustee, unless the maturity of any Designated Senior Debt has been

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accelerated. However, the Company may pay the Notes if the Company and the Trustee receive written notice approving such payment from the Representative of the Senior Debt with respect to which any of the events set forth in clause (i) of the immediately preceding sentence has occurred and is continuing. No new period of payment blockage may be commenced under clause (ii) above unless and until (x) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (y) all scheduled payments of principal of and interest on the Notes that have come due have been paid in full in cash. No Nonpayment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived in writing or cured for a period of not less than 180 days.

Section 12.04. Acceleration of Securities.

If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration.

Section 12.05. When Distribution Must Be Paid Over.

In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when such payment is prohibited by Section 12.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to the Company or as directed in writing by the Representative of the Senior Debt. In the event that the Company makes any payment in respect of the Notes to the Trustee and the Trustee receives written notice of a Payment Default or a Nonpayment Default in the manner provided by Section 12.12 hereof prior to making any payment to Holders in respect of the Notes, such payments will be paid over by the Trustee and delivered forthwith to the Company.

With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 12, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 12, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee.

Section 12.06. Notice by the Company.

The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 12, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 12.

Section 12.07. Payment Permitted if no Default.

Nothing contained in this Article 12 or elsewhere in this Indenture or in any of the Notes will prevent the Company or any Guarantor, at any time except during the pendency of any

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insolvency or liquidation proceeding referred to in Section 12.02 hereof or under the conditions described in Section 12.03 hereof, from making payments at any time of principal of or interest on the Notes.

Section 12.08. Subrogation.

After all Senior Debt is paid in full and commitments to lend have irrevocably terminated and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 12 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes.

Section 12.09. Relative Rights.

This Article 12 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall:

(1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms;

(2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or

(3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes.

If the Company fails because of this Article 12 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default.

Section 12.10. Subordination may not be Impaired by Company.

No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture.

Section 12.11. Distribution or Notice to Representative.

Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative.

Upon any payment or distribution of assets of the Company referred to in this Article 12, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative(s) or of the

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liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12.

Section 12.12. Rights of Trustee and Paying Agent.

Notwithstanding the provisions of this Article 12 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least two Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 12. Only the Company or a Representative may give the notice. Nothing in this Article 12 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.

Subject to Section 7.03 hereof and the applicable provisions of the TIA, the Trustee may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights.

Section 12.13. Authorization to effect Subordination.

Each Holder of Notes, by the Holder’s acceptance thereof, authorizes and directs the Trustee on such Holder’s behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 12 and the subordination of the Subsidiary Guarantees as provided in Section 11.02, and appoints the Trustee to act as such Holder’s attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes.

Section 12.14. Amendments.

The provisions of this Article 12, Section 11.02 or the definitions used therein shall not be amended or modified without the written consent of the holders of all Senior Debt.

ARTICLE 13.

MISCELLANEOUS

Section 13.01. Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA § 318(c), the imposed duties shall control.

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Section 13.02. Notices.

Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, facsimile or overnight courier guaranteeing next day delivery, to the other’s address.

If to the Company and/or any Guarantor:

Fountain View, Inc.

27442 Portola Parkway, Suite 200

Foothill Ranch, California 92610

Facsimile No.: (949) 282-5820

Attention: General Counsel

With a copy to:

Latham & Watkins LLP

650 Town Center Drive, 20^th Floor

Costa Mesa, CA 92626

Facsimile No. (714) 755-8290

Attention: Patrick T. Seaver

If to the Trustee:

U.S. Bank National Association

1 Federal Street

Boston, Massachusetts 02110

Facsimile No.: (617) 603-6640

Attention: Corporate Trust Department

with a copy to:

Brown Rudnick Berlack Israels LLP

CityPlace I, 185 Asylum Street

Hartford, Connecticut 06103

Facsimile No.: (860) 509-6501

Attention: David Golden, Esq.

The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications.

All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; 5 Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight courier guaranteeing next day delivery.

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Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA § 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.

If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.

Section 13.03. Communication by Holders of Notes with Other Holders of Notes.

Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

Section 13.04. Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

(a) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and

(b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such eligible and qualified Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an Officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating the information on which counsel is relying unless such counsel knows, or

87

in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 13.05. Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA § 314(a)(4)) shall comply with the provisions of TIA § 314(e) and shall include:

(a) a statement that the Person making such certificate or opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and

(d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.

Section 13.06. Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.

Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders.

No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

Section 13.08. Governing Law.

THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF

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CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 13.09. No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 13.10. Successors.

All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors.

Section 13.11. Severability.

In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the remaining provisions shall not in any way be affected or impaired thereby.

Section 13.12. Counterpart Originals.

The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

Section 13.13. Table of Contents, Headings, Etc.

The Table of Contents and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.

[SIGNATURES ON FOLLOWING PAGES]

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SIGNATURES

FOUNTAIN VIEW, INC.

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:

Name:

Title:

ALEXANDRIA CARE CENTER, INC.

By:

Name:

Title:

ALTA CARE CENTER, LLC

By:

Name:

Title:

ANAHEIM TERRACE CARE CENTER, LLC

By:

Name:

Title:

BAY CREST CARE CENTER, LLC

By:

Name:

Title:

S-1

BRIER OAK ON SUNSET, INC.

By:

Name:

Title:

CARSON SENIOR ASSISTED LIVING, LLC

By:

Name:

Title:

ELMCREST CARE CENTER, INC.

By:

Name:

Title:

FOUNTAIN VIEW SUBACUTE AND NURSING CENTER, INC.

By:

Name:

Title:

HALLMARK INVESTMENT GROUP, INC.

By:

Name:

Title:

HALLMARK REHABILITATION, LLC

By:

Name:

Title:

S-2

HALLMARK REHABILITATION, LP

By:

Name:

Title:

HANCOCK PARK REHABILITATION CENTER, INC.

By:

Name:

Title:

HANCOCK PARK SENIOR ASSISTED LIVING, INC.

By:

Name:

Title:

HEMET SENIOR ASSISTED LIVING, LLC

By:

Name:

Title:

LEASEHOLD RESOURCE GROUP, LLC

By:

Name:

Title:

MONTEBELLO CARE CENTER, LLC

By:

Name:

Title:

S-3

RIO HONDO SUBACUTE AND NURSING CENTER, INC.

By:

Name:

Title:

ROYALWOOD CARE CENTER, LLC

By:

Name:

Title:

SHARON CARE CENTER, LLC

By:

Name:

Title:

SKILLED HEALTHCARE, LLC

By:

Name:

Title:

SUMMIT CARE CORPORATION

By:

Name:

Title:

SUMMIT CARE MANAGEMENT TEXAS, LLC

By:

Name:

Title:

S-4

SUMMIT CARE PHARMACY, INC.

By:

Name:

Title:

SUMMIT CARE PHARMACY, INC.

By:

Name:

Title:

SUMMIT CARE TEXAS, LP

By:

Name:

Title:

SYCAMORE PARK CARE CENTER, INC.

By:

Name:

Title:

WOODLAND CARE CENTER, LLC

By:

Name:

Title:

S-5

EXHIBIT A-1

(Face of Note)

[IF THE NOTE IS A GLOBAL NOTE, THEN INSERT: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

[IF THE NOTE IS A GLOBAL NOTE AND THE DEPOSITORY TRUST COMPANY IS TO BE THE DEPOSITARY THEREFOR, THEN INSERT: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN]

FOUNTAIN VIEW, INC

SENIOR SECURED INCREASING RATE NOTES DUE 2008

CUSIP No. [                          ]

[ISIN:                                 ]

No.             

$                

Fountain View, Inc, a corporation duly organized and existing under the laws of Delaware (herein called the “Company”, which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to             , or registered assigns, the principal sum of                      Dollars (such amount the “principal amount” of this Note) [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT —, or such other principal amount as may be set forth in the records of the Trustee as referred to in accordance with the Indenture,] on the earlier of

(i)             , 2008; or

A-1

(ii) one Business Day after the final scheduled principal payment under the Exit Facility (as defined in the Indenture referred below) becomes due,

at the office or agency of the Company in the Borough of Manhattan, City of New York, State of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest semi-annually on                           and                           [six months after date of Indenture and one year after date of indenture respectively] of each year (each, an “Interest Payment Date”), on said principal sum at the rate per annum specified below, at such office or agency, in like coin or currency, from the                           or                          , as the case may be, to which interest on the Notes has been paid preceding the date hereof (unless the date thereof is a                           or a                           to which interest has been paid, in which case from the date thereof) until payment of said principal sum has been made or duly provided for. This Note shall bear interest at the rate of 9¼% per annum until              [date of the Indenture], 2004, at the rate of 11¼% per annum from              [day after date of the Indenture], 2004 until             [date of the Indenture], 2005, at the rate of 13¼% per annum from             [day after date of the Indenture], 2005 until             [date of the Indenture], 2006 and at the rate of 15% per annum after             [day after date of the Indenture], 2006, until the principal hereof is paid or made available for payment. Interest will be computed on the basis of a 360 day year consisting of twelve 30-day months.

The interest that is so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the record date for such Interest Payment Date, which shall be the                          or                          [15 days prior to each Interest Payment date] (the “Regular Record Date”) (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on the relevant Regular Record Date and shall be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee in accordance with Section 2.12 of the Indenture, notice whereof shall be given to Holders of Notes not less than 15 days prior to such special record date, or shall be paid in any other lawful manner not inconsistent with the requirements of any national securities exchange on which the Notes may then be listed.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

Dated:             ,             

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FOUNTAIN VIEW, INC.

By:

Name:

Title:

This is one of the [Global] Notes referred

to in the within-mentioned Indenture:

U.S. Bank National Association,

as Trustee

By:

Name:

Title:

A-3

(Back of Note)

SENIOR SUBORDINATED SECURED INCREASING RATE NOTES DUE 2008

Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

1. Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its Senior Subordinated Secured Increasing Rate Notes due 2008 (herein called the “Notes”), issued under an Indenture, dated as of             , 2003 (herein called the “Indenture”, which term shall have the meaning assigned to in such instrument), among the Company, the Subsidiaries acting as Guarantors and U.S. Bank National Association, as Trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantors, the Trustee and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.

2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the applicable Regular Record Date next preceding the Interest Payment Date, even if such Notes are cancelled after such Regular Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal and interest on the Notes will be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal and interest with respect to Notes the Holders of which have given wire transfer instructions to the Company prior to the Regular Record Date will be required to be made by wire transfer of immediately available funds within the United States to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company’s office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1.00 and integral multiples thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

3. Paying Agent and Registrar. Initially, U.S. Bank National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.

4. Security. The payment of principal of and interest on the Notes is secured by the Liens of the Security Documents pursuant to, and subject to the terms (including the provisions of Article 11) of the Indenture, the Security Agreement and the other Security Documents.

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5. Subordination. The payment of the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Debt.

6. Redemption. The Notes are subject to redemption, at the option of the Company, in whole or in part, at any time and from time to time on or after the Effective Date and prior to Maturity, upon not less than 30 nor more than 60 days’ notice mailed to each Holder of Notes to be redeemed at such Holder’s address appearing in the register of the Notes, in amounts of $1.00 (or such lesser amount if the entire principal amount of such Security is redeemed) or an integral multiple of $1.00, at the redemption price of 100% of the principal amount plus accrued and unpaid interest, if any, to but excluding the redemption date (subject to the right of Holders of record on the immediately preceding Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the redemption date).

7. Prepayments. Except as set forth in Paragraphs 7 and 8 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes.

8. Mandatory Prepayments. To the extent permitted by the terms of the Exit Facility, the Company shall be required to make mandatory redemptions of the Notes on a pro rata basis on the date which is 150 days following the end of each Fiscal Year of the Company (the “Excess Cash Flow Payment Date”) in an amount equal to 80% of the Excess Cash Flow for the Fiscal Year ended most recently prior to the applicable Excess Cash Flow Payment Date unless the amount of such Excess Cash Flow is less than $2.0 million, in which case no redemption from Excess Cash Flow shall be required. Any such mandatory redemption shall be made at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Excess Cash Flow Payment Date. The record date for such redemptions from Excess Cash Flow shall be the one hundred and thirty-fifth day following the end of the Company’s Fiscal Year.

9. Repurchase at Option of Holder.

(a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to make an offer (a “Change of Control Offer”) to repurchase all or any part (equal to $1.00 or an integral multiple thereof) of such Holder’s Notes at an offer price in cash equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the “Change of Control Payment”). Within 15 Business Days following any Change of Control, the Company will mail a notice to each Holder describing the circumstances giving rise to the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the “Change of Control Payment Date”), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 13e-4 and Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control.

(b) If the Company or a Restricted Subsidiary consummates any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes and to the extent required by the terms thereof, an offer to

A-5

the holders of any other Indebtedness of the Company that is pari passu with the Notes or Indebtedness of a Restricted Subsidiary that is pari passu with its Subsidiary Guarantee and containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with proceeds of sales of assets (an “Asset Sale Offer”), to purchase the maximum principal amount of Notes that may be purchased with the amount of Excess Proceeds allocated for the Notes at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocated for the Notes, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

10. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. Notes in denominations larger than $1.00 may be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.

11. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1.00 and integral multiples of $1.00. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company or the Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Company or the Registrar is not required to transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed.

12. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.

13. Amendment, Supplement and Waiver. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantors and the rights of the Holders of the Notes under the Indenture and the Security Documents at any time by the Company, the Guarantors and the Trustee with the consent of the Holders of at least 60% in aggregate principal amount of the then outstanding Notes. The Indenture also contains provisions permitting the Holders of at least 60% in aggregate principal amount of the Notes at the time outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and the Security Documents and certain past defaults under the Indenture and its consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon

A-6

such Holder and upon all future Holders of the Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

14. Defaults and Remedies. Events of Default include in summary form: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal on the Notes; (iii) failure by the Company or any of its Subsidiaries to comply with Section 4.07, 4.11, 4.15 or Article 5 of the Indenture; (iv) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.08, 4.10 or 4.20 of the Indenture; (v) failure by the Company or any of its Subsidiaries for 60 days after written notice to comply with any of its other agreements in the Indenture, the Notes or the Security Documents; (vi) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness after any applicable grace period provided by the documents governing such Indebtedness, which default has not been waived or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness which has been not so paid or the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness, the Exit Facility or the Senior Mortgage Loan, to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under the Indenture); (vii) the receipt by the Collateral Agent of a written notice under the Collateral Agency Agreement from the Claims Agent to realize and foreclose upon the Collateral; (viii) failure by the Company or any Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary as set forth in the Indenture; (x) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (xi) the Liens created by the Security Documents shall at any time not constitute a valid and perfected Liens on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of the Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 15 days after notice, or the enforceability thereof shall be contested by the Company or any Subsidiary Guarantor; (xii) failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral required to be made by it and such failure continues unremedied for 10 Business Days after notice of such failure is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; or

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(xiii) except as permitted by the Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency as set forth in the Indenture, with respect to the Company, any Significant Subsidiary that is a Restricted Subsidiary or any group of Restricted Subsidiaries, that taken together would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of at least 60% in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of at least 60% in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

15. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.

16. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy.

17. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

18. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

A-8

19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other. identification numbers placed thereon.

The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:

Fountain View, Inc.

27442 Portola Parkway, Suite 200

Foothill Ranch, California 92010

Attention: Chief Executive Officer

A-9

ASSIGNMENT FORM

To assign this Note, fill in the form below: (i) or (we) assign and transfer this Note to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint                                                                                                                                                 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:                 

Your Signature:                                                             

(Sign exactly as your name appears on the face of this Note)

SIGNATURE GUARANTEE.

______________________________

Participant in a Recognized Signature

Guarantee Medallion Program

A-10

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company pursuant to Sections 3.09 and 4.11 or Section 4.15 of the Indenture, check the box below:

[_] Sections 3.09 and 4.11                     [_] Section 4.15

If you want to elect to have only part of the Note purchased by the Company pursuant to Sections 3.09 and 4.11 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $            

Date:	Your Signature:
	(Sign exactly as your name appears on the Note)
	Tax Identification No:

SIGNATURE GUARANTEE.

Participant in a Recognized Signature

Guarantee Medallion Program

A-11

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/1/

The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

DATE OF
EXCHANGE AMOUNT OF
DECREASE IN
PRINCIPAL
AMOUNT OF THIS GLOBAL
NOTE AMOUNT OF
INCREASE IN PRINCIPAL
AMOUNT OF
THIS GLOBAL
NOTE PRINCIPAL
AMOUNT OF THIS
GLOBAL NOTE
FOLLOWING
SUCH DECREASE
(OR INCREASE)
SIGNATURE
OF
AUTHORIZED
OFFICER OF
TRUSTEE OR CUSTODIAN

/1/ This should be included only if the Note is issued in global form.

A-12

EXHIBIT B

FORM OF SUBSIDIARY GUARANTEE

For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of                 , 2003 (the “Indenture”) among Fountain View, Inc., the Guarantors listed on the signature page thereto and U.S. Bank National Association, as trustee (the “Trustee”), (a) the due and punctual payment of the principal of and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, and (b) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture.

The terms of Article 11 of the Indenture are incorporated herein by reference.

Dated:             

ALEXANDRIA CARE CENTER, INC.

By:

Name:

Title:

ALTA CARE CENTER, LLC

By:

Name:

Title:

B-1

ANAHEIM TERRACE CARE CENTER, LLC

By:

Name:

Title:

BAY CREST CARE CENTER, LLC

By:

Name:

Title:

BRIER OAK ON SUNSET, INC.

By:

Name:

Title:

CARSON SENIOR ASSISTED LIVING, LLC

By:

Name:

Title:

ELMCREST CARE CENTER, INC.

By:

Name:

Title:

FOUNTAIN VIEW SUBACUTE AND NURSING

CENTER, INC.

By:

Name:

Title:

B-2

HALLMARK INVESTMENT GROUP, INC.

By:

Name:

Title:

HALLMARK REHABILITATION, LLC

By:

Name:

Title:

HALLMARK REHABILITATION, LP

By:

Name:

Title:

HANCOCK PARK REHABILITATION CENTER, INC.

By:

Name:

Title:

HANCOCK PARK SENIOR ASSISTED LIVING,

INC.

By:

Name:

Title:

HEMET SENIOR ASSISTED LIVING, LLC

By:

Name:

Title:

B-3

LEASEHOLD RESOURCE GROUP, LLC

By:

Name:

Title:

MONTEBELLO CARE CENTER, LLC

By:

Name:

Title:

RIO HONDO SUBACUTE AND NURSING

CENTER, INC.

By:

Name:

Title:

ROYALWOOD CARE CENTER, LLC

By:

Name:

Title:

SHARON CARE CENTER, LLC

By:

Name:

Title:

SKILLED HEALTHCARE, LLC

By:

Name:

Title:

B-4

SUMMIT CARE CORPORATION

By:

Name:

Title:

SUMMIT CARE MANAGEMENT TEXAS, LLC

By:

Name:

Title:

SUMMIT CARE PHARMACY, INC.

By:

Name:

Title:

SUMMIT CARE PHARMACY, INC.

By:

Name:

Title:

SUMMIT CARE TEXAS, LP

By:

Name:

Title:

SYCAMORE PARK CARE CENTER, INC.

By:

Name:

Title:

B-5

WOODLAND CARE CENTER, LLC

By:

Name:

Title:

B-6

EXHIBIT C

FORM OF SUPPLEMENTAL INDENTURE

TO BE DELIVERED BY SUBSEQUENT GUARANTORS

Supplemental Indenture (this “Supplemental Indenture”), dated as of                     , among                      (the “Guaranteeing Subsidiary”), a subsidiary of Fountain View, Inc. (or its permitted successor), a Delaware corporation (the “Company”), and U.S. Bank National Association, as trustee under the indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of             , 2003 providing for the issuance of an aggregate principal amount of up to $             million of Senior Secured Increasing Rate Notes due 2008 (the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Subsidiary Guarantee”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows:

(a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:

(i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the

C-1

Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and

(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately.

(b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor.

(c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever.

(d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.

(e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.

(f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby until payment in full of all Obligations guaranteed hereby.

(g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee.

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(h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.

(i) The obligations hereunder shall be subject to the subordination provisions set forth in Section 11.2 and Article 12 of the Indenture.

3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee.

4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.

(a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless:

(i) subject to Section 11.07 and 11.08 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein;

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

(iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company’s pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.10 of the Indenture.

(b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the

C-3

terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof.

(c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor.

5. Releases.

(a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to the Company or another Guarantor), then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor (other than to the Company or another Guarantor)) or the entity acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any Obligations under its Subsidiary Guarantee and the Security Documents and any such acquiring entity will not be required to assume any Obligations of such Guarantor under the applicable Subsidiary Guarantee and the Security Documents; provided that such sale or other disposition complies with all applicable provisions of the Indenture including, without limitation, Section 4.11 hereof. Upon delivery by the Company to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.11 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee.

(b) Any Guarantor not released from its Obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture.

6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy.

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7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

Dated:                 ,             

[Guaranteeing Subsidiary]

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION, as

Trustee

By:

Name:

Title:

C-5

EXHIBIT D

FORM OF INTERCREDITOR AGREEMENT

INTERCREDITOR AGREEMENT

THIS INTERCREDITOR AGREEMENT (this “Agreement”) is made and entered into as of this              day of                  2003, by and among CAPITALSOURCE FINANCE LLC (“CapitalSource”) as agent for itself and the other lenders under the Revolving Loan Agreement (as defined herein), CapitalSource as agent for itself and the other lenders under the Mezzanine Loan Agreement (as defined herein), U.S. BANK NATIONAL ASSOCIATION, as trustee for the Bondholders (as defined herein) under the Indenture (as defined herein) and as collateral agent for the Bondholders and the General Claim Holders (as defined herein),                 , as claims agent for the General Claim Holders (as defined herein),                 , as Term Loan B Lender (as defined herein) under the Term Loan Agreement (as defined herein), FOUNTAIN VIEW, INC., a Delaware corporation (“Company”) and each of the subsidiaries of the Company signatory hereto (Company and such subsidiaries each individually an “Obligor” and collectively the “Obligors”).

BACKGROUND

As an inducement for (a) Revolving Agent and Revolving Lenders (as those terms are defined herein) to provide secured credit facilities in favor of the Obligors in accordance with the Revolving Loan Agreements (as defined herein), (b) Mezzanine Agent and Mezzanine Lenders (as those terms are defined herein) to provide secured credit facilities in favor of the Mezzanine Loan Obligors (as defined herein) in accordance with the Mezzanine Loan Agreements (as defined herein), (c) Term Loan B Lender (as defined herein) to provide the financing evidenced by the Term Note B (as defined herein) in favor of the Term Loan B Obligors (as defined herein) in accordance with the Term Loan Agreements (as defined herein) and (d) as contemplated by the Plan of Reorganization (as defined herein), the Subordinated Collateral Agent (as defined herein) has agreed to enter into this Agreement to provide for subordination of (i) the General Claim Indebtedness (as defined herein) to the Senior Indebtedness (as defined herein) and (ii) Liens (as defined herein) in the assets of the Obligors granted to the Holders of Subordinated Indebtedness (as defined herein) to the Liens in such assets granted to Agent. In addition, (x) Mezzanine Agent and Term Loan B Lender have agreed to enter into this Agreement to provide for subordination of Liens in certain assets of the Obligors granted to Mezzanine Agent and Term Loan B Lender to the Liens in such assets granted to Revolving Agent and (y) Revolving Agent has agreed to enter into this Agreement to provide for subordination of Liens in certain assets of the Obligors granted to Revolving Agent to the Liens in such assets granted to Mezzanine Agent and Term Loan B Lender.

AGREEMENTS

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows:

D-1

1. Definitions.

1.1. General Terms. For purposes of this Agreement, the following terms shall have the following meanings:

“Acceleration Event” shall have the meaning provided in the Claims Agent Agreement.

“Agent” shall mean, individually and collectively, the Revolving Agent, the Mezzanine Agent and the Term Loan B Lender.

“Agreements” shall mean, collectively, the Revolving Loan Agreements, the Mezzanine Loan Agreements, the Term Loan B Agreements, the Refinancing Senior Loan Agreements, if any, the Bondholder Agreements and the General Claim Agreements.

“Bankruptcy Code” shall mean the United States Bankruptcy Code, 11 U.S.C. § 101, et seq.

“Bondholder Agreements” shall mean, collectively, the Indenture, the Bondholder Notes, the Collateral Agency Agreement (to the extent such agreement relates to the Bondholders) and all agreements, documents and instruments now or at any time hereafter executed and/or delivered by the Bondholder Obligors or any other Person to, with or in favor of the Indenture Trustee, the Bondholders or the Subordinated Collateral Agent in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

“Bondholder Notes” shall mean the $                 aggregate amount of Senior Subordinated Increasing Rate Notes due 2008 issued pursuant to the Indenture.

“Bondholder Obligations” shall mean all debts, liabilities and obligations of any kind or nature owed to the Bondholders, the Indenture Trustee or the Subordinated Collateral Agent under the Bondholder Agreements.

“Bondholder Obligors” shall mean Obligors and any other obligors under the Bondholder Agreements from time to time and shall include their respective successors and assigns.

“Bondholders” shall mean the holders from time to time of the Bondholder Notes.

“Claims Agent” shall mean                  in its capacity as agent for the General Claim Holders under the Claims Agent Agreement.

“Claims Agent Agreement” shall mean that certain General Claim Holder Agency Agreement by and between                                      and the Company, made and entered into on or about the date of this Agreement.

D-2

“Class 10 Deferred Obligations” shall have the meaning provided in the Plan of Reorganization.

“Collateral” shall mean all of the property and interests in property, tangible or intangible, real or personal, now owned or hereafter acquired by the Obligors, in or upon which Agent at any time has a Lien, and including, without limitation, all proceeds and products of such property and interests in property. “Collateral” shall also include any asset or property of any Obligor upon which the Subordinated Collateral Agent has a Lien.

“Collateral Agency Agreement” shall mean that certain Collateral Agency Agreement by and among Subordinated Collateral Agent, the Indenture Trustee and the Claims Agent.

“Company” shall mean Fountain View, Inc., a Delaware corporation, and its successors and assigns.

“Continuing Creditor Deferred Obligations” shall have the meaning provided in the Plan of Reorganization.

“Creditors” shall mean, collectively, Agent, Lenders, Refinancing Senior Agent, Refinancing Senior Lenders, Indenture Trustee, Bondholders, Subordinated Collateral Agent, the Claims Agent, the General Claim Holders, and their respective successors and assigns.

“Default” shall have the meaning set forth in the Revolving Loan Agreement, Mezzanine Loan Agreement, the Term Loan Agreement (to the extent applicable to the Term Note B) and Refinancing Senior Loan Agreement, if any.

“Default Notice” shall have the meaning set forth in Section 2.2(a) hereof.

“Distribution” shall mean any payment, whether in cash, in kind, securities or any other property, or security for any such Distribution.

“Event” shall have the meaning set forth in Section 2.2(c) hereof.

“General Claim Agreements” shall mean, collectively, the provisions of the Plan of Reorganization which set forth the provisions of the General Claims, the Claims Agent Agreement, the Collateral Agency Agreement (to the extent such agreement relates to the General Claim Holders) and all agreements, documents and instruments now or at any time hereafter executed and/or delivered by the Obligors or any other Person to, with or in favor of the Subordinated Collateral Agent, the Claims Agent or the General Claim Holders in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

“General Claim Holders” shall mean the holders of the General Claims and all of their respective successors and assigns.

D-3

“General Claim Indebtedness” shall mean the General Claims and all other principal, interest and other amounts payable or chargeable by the General Claim Holders in connection with the General Claim Agreements.

“General Claims” shall mean, collectively, the Class 10 Deferred Obligations, the Continuing Creditor Deferred Obligations and the Vendor Lien Obligations.

“Holders of Subordinated Indebtedness” shall mean collectively, the Subordinated Collateral Agent, the General Claim Holders, the Indenture Trustee and the Bondholders, and any other Person(s) at any time or in any manner acquiring any right or interest in any of the Subordinated Indebtedness, and any successor and assigns of such Person(s).

“Indenture” shall mean the Indenture dated as of                 , 2003 by the Company, as Issuer, the subsidiaries of the Company party thereto, as guarantors, and the Indenture Trustee, pursuant to which the Bondholder Notes were issued, as the same may be amended, supplemented, modified or restated from time to time.

“Indenture Default” shall mean a “Default” as defined in Section 1.01 of the Indenture.

“Indenture Trustee” shall mean U.S. Bank National Association, in its capacity as trustee for the Bondholders under the Indenture and its successors and assigns in such capacity.

“Lenders” shall mean the Revolving Lenders, the Mezzanine Lenders, the Term Loan B Lender and the Refinancing Senior Lenders.

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), lien (statutory or other), security agreement or transfer intended as security, including without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a capital lease or any financing lease having substantially the same economic effect as any of the foregoing.

“Mezzanine Agent” shall mean CapitalSource Finance LLC in its capacity as agent under the Mezzanine Loan Agreement and its successors and assigns under the Mezzanine Loan Agreement.

“Mezzanine Lenders” shall mean the lenders from time to time under the Mezzanine Loan Agreement.

“Mezzanine Loan Agreement” shall mean the Mezzanine Loan Agreement dated                              , 2003 among Mezzanine Agent, the Mezzanine Lenders and the Mezzanine Loan Obligors as the same may be amended, supplemented, modified or restated from time to time.

“Mezzanine Loan Agreements” shall mean the Mezzanine Loan Agreement and the other Loan Documents (as that term is defined in the Mezzanine Loan Agreement).

D-4

“Mezzanine Loan Indebtedness” shall mean all “Indebtedness” as defined in the Mezzanine Loan Agreement.

“Mezzanine Loan Obligors” shall mean Obligors under the Mezzanine Loan Agreement.

“Mezzanine Loan/Term Loan B Priority Collateral” shall mean (i) the Collateral consisting of all leasehold mortgages of any Obligor until such time as the Revolving Loan Obligations (other than the Unmatured Surviving Obligations) have been paid in full and Revolving Lenders’ commitments to lend under the Revolving Loan Agreements have irrevocably terminated and (ii) thereafter, shall mean all Collateral.

“Obligations” shall mean, collectively, the Senior Indebtedness, the Refinancing Senior Loan Obligations, the Bondholder Obligations and the General Claim Indebtedness.

“Obligor” and collectively the “Obligors” shall have the meaning set forth in the introductory paragraph of this Agreement, and shall include and each other Person obligated as a borrower, guarantor or obligor under any of the Agreements from time to time, and all of their respective direct and indirect subsidiaries and successors and assigns.

“Person” shall mean an individual, a partnership, a limited liability company, a corporation (including a business trust), a joint stock company, a trust, an unincorporated association, a joint venture, or other entity or a government or any agency, instrumentality or political subdivision thereof.

“Plan of Reorganization” or “Plan” means Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678-BB through LA 01-39697-BB and LA 01-45516-BB, LA 01-45520-BB and LA 01-45525-BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as amended and supplemented through the Closing Date.

“Pledged Securities” shall mean, collectively, all capital stock, partnership interest, membership interest or other equity interest of any kind in any Obligor (other than the Company) or in any subsidiary of any Obligor.

“Refinancing Senior Agent” shall mean the agent under any Refinancing Senior Loan Agreement, in its capacity as agent under such Refinancing Senior Loan Agreement and its successors and assigns under such Refinancing Senior Loan Agreement.

“Refinancing Senior Lenders” shall mean the lenders from time to time under the Refinancing Senior Loan Agreements.

“Refinancing Senior Loan Agreement” shall mean any loan agreement, credit agreement or other document entered into by Obligors in connection with the refinancing of all

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or any portion of any Senior Indebtedness, as the same may be amended, supplemented, modified or restated from time to time.

“Refinancing Senior Loan Agreements” shall mean, collectively, all agreements, documents and instruments now or at any time hereafter executed and/or delivered by any or any other Person to, with or in favor of the Refinancing Senior Lenders in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, supplemented, modified or restated from time to time.

“Refinancing Senior Loan Obligations” shall mean all obligations of any kind or nature owed to the Refinancing Senior Lenders pursuant to the Refinancing Senior Loan Agreements.

“Refinancing Senior Loan Obligors” shall mean Obligors under the Refinancing Senior Loan Agreements from time to time and shall include their successors and assigns.

“Revolving Agent” shall mean CapitalSource Finance LLC in its capacity as agent under the Revolving Loan Agreement and its successors and assigns under the Revolving Loan Agreement.

“Revolving Lenders” shall mean the lenders from time to time under the Revolving Loan Agreements.

“Revolving Loan Agreement” shall mean the Revolving Credit and Security Agreement dated                          , 2003 among Revolving Agent, the Revolving Lenders and the Revolving Loan Obligors as the same may be amended, supplemented, modified or restated from time to time.

“Revolving Loan Agreements” shall mean the Revolving Loan Agreement and the other Loan Documents (as that term is defined in the Revolving Loan Agreement).

“Revolving Loan Obligations” shall mean all “Obligations” as defined in the Revolving Loan Agreement.

“Revolving Loan Obligors” shall mean Obligors under the Revolving Loan Agreements from time to time and shall include their successors and assigns.

“Revolving Loan Priority Collateral” shall mean (i) initially, all Collateral, other than the Mezzanine Loan/Term Loan B Priority Collateral until the Mezzanine Loan Obligations and Term Loan B Indebtedness (other than Unmatured Surviving Obligations) have been paid in full in cash and the Mezzanine Loan Agreements and Term Loan B Agreements have terminated and (ii) thereafter, shall mean all Collateral.

“Secured Lender Remedies” shall mean any action which results in the sale, foreclosure, realization upon, or a liquidation of any of the Collateral, including without

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limitation, the exercise of any remedies or rights of a “Secured Party” under Article 9 of the Uniform Commercial Code, such as, without limitation, the notification of account debtors.

“Senior Indebtedness” shall mean all Revolving Loan Obligations, Mezzanine Loan Indebtedness, Term Loan B Indebtedness and Refinancing Senior Loan Obligations of any kind owed by Obligors to Lenders and/or Agent from time to time under or pursuant to any of the Senior Lending Agreements including, without limitation, all principal, interest accruing thereon, charges, expenses, fees and other sums (including all interest, charges, expenses, fees and other sums accruing after commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any Obligor) chargeable to Obligors by Lenders and/or Agent, and reimbursement, indemnity or other obligations due and payable to Lenders and/or Agent. Senior Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided or disallowed under the federal Bankruptcy Code or other applicable law. Notwithstanding the foregoing, so long as the Bondholder Obligations remain outstanding, (i) the amount of Revolving Loan Obligations, Mezzanine Loan Indebtedness or Term Loan B Indebtedness, respectively, in excess of the maximum amount of Senior Indebtedness permitted pursuant to the definition of “Revolving Credit Facility”, “Mezzanine Loan” or “B Note”, respectively, set forth in the Indenture as in effect on the date of this Agreement shall not constitute Senior Indebtedness under this Agreement, and (ii) the amount of Refinancing Senior Loan Obligations in excess of the amounts permitted pursuant to the Indenture as in effect on the date of this Agreement shall not constitute Senior Indebtedness under this Agreement.

“Senior Lending Agreements” shall mean, collectively, the Revolving Loan Agreements, the Mezzanine Loan Agreements, Term Loan B Agreements and the Refinancing Senior Loan Agreements.

“Subordinated Collateral Agent” shall mean U.S. Bank National Association, in its capacity as collateral agent for the Trustee and the Bondholders and the Claims Agent and the General Claim Holders and its successors and assigns in such capacity.

“Subordinated Indebtedness” shall mean the Bondholder Obligations, the General Claim Indebtedness and all principal, interest and other amounts payable or chargeable in connection with the Subordinated Lending Agreements.

“Subordinated Lending Agreements” shall mean, collectively the Bondholder Agreements and the General Claim Agreements.

“Term Loan Agreement” shall mean the Loan Agreement dated                      , 2003 among Column Financial, Inc.,                  as Term Loan B Lender and the Obligors thereto as the same may be amended, supplemented, modified or restated from time to time.

“Term Loan B Agreements” shall mean the Term Loan Agreement (as it relates to the Term Note B and the Term Note B Indebtedness), the Term Note B and the other Loan Documents (as that term is defined in the Term Loan Agreement) applicable to the Term Note B.

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“Term Loan B Indebtedness” shall mean all “Debt”, as defined in the Term Loan Agreement, applicable to the Term Note B.

“Term Loan B Lender” shall mean                          in its capacity as the Lender with respect to the Term Note B issued pursuant to the Term Loan Agreement and its successors and assigns under the Term Loan Agreement.

“Term Loan B Obligors” shall mean Obligors under the Term Note B.

“Term Note B” shall mean that certain $10,000,000 Promissory Term Note B delivered in connection with and as more particularly described in the Term Loan Agreement.

“Unmatured Surviving Obligations” shall mean indemnity Obligations with respect to which no claim has been made and which pursuant to the provisions of the applicable Agreement survive termination of such Agreement.

“Vendor Lien Obligations” shall mean the obligations that are secured by the Vendor’s Lien.

“Vendor’s Lien” shall have the meaning provided in the Plan of Reorganization.

1.2. Other Terms. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Revolving Loan Agreement as in effect on the date of this Agreement.

1.3. Certain Matters of Construction. The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any instruments or agreements, including, without limitation, references to any of the Agreements shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

2. Covenants. Each Obligor, the Trustee, the Subordinated Collateral Agent and the Claims Agent (and, by virtue of receiving its Obligation pursuant to the Plan, each Bondholder and General Claim Holder are bound by the following covenants) hereby covenants that, until the Senior Indebtedness shall have been paid in full and the Lenders’ commitments to lend under the Senior Lending Agreements shall have been irrevocably terminated, all in accordance with the terms of the Senior Lending Agreements, each will comply with such of the following provisions as are applicable to it:

2.1. Transfers. Each Holder of Subordinated Indebtedness covenants that any transferee from it of any Subordinated Indebtedness shall be bound by the terms and conditions of this Agreement.

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2.2. Payment Subordination Provisions. To induce Lenders and Agent to enter into the Senior Lending Agreements and to make loans and advances thereunder, notwithstanding any other provision of the Subordinated Indebtedness to the contrary, any Distribution with respect to the (x) Bondholder Obligations is and shall be expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior Indebtedness outstanding from time to time in the manner set forth in the Indenture as in effect on the date of this Agreement and (y) General Claim Indebtedness is and shall be expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior Indebtedness outstanding from time to time as hereafter set forth in this Agreement. Specifically, but not by way of limitation:

(a) Payments. Obligors shall make no Distribution on the General Claim Indebtedness until such time as the Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full and the Senior Lending Agreements shall have been irrevocably terminated; provided, however, that so long as no Default or Event of Default shall have occurred under the Senior Lending Agreements or would occur after giving effect to such payment, Obligors may pay, and the Holders of General Claim Indebtedness may receive, payments on the General Claim Indebtedness in accordance with Payment Option 10B described in Section II.D.2. of the Plan.

Following the occurrence of a Default or an Event of Default under the Senior Lending Agreements, (i) Obligors shall make no Distribution on the General Claim Indebtedness and (ii) upon and after receipt by the Subordinated Collateral Agent of written notice of such Default or Event of Default from Agent (such notice, the “Default Notice”), no Holder of General Claim Indebtedness shall be entitled to receive or retain any such Distribution in respect of the General Claim Indebtedness, provided, further, that notwithstanding the foregoing restriction, Obligors may pay and the Holders of General Claim Indebtedness shall be entitled to receive and retain any payment which shall have become due and payable (on a non-accelerated basis) on or before the earliest to occur of (x) the date on which all such Defaults and/or Events of Default specified in the Default Notice shall have been cured or waived, or (y) payment in full in cash of all Senior Indebtedness (other than Unmatured Surviving Obligations) and the irrevocable termination of the Senior Lending Agreements.

(b) Limitation on Acceleration. During any period described in Section 2.2 (a) hereof in which a Distribution is not permitted to be made on General Claim Indebtedness, the Claims Agent shall not be entitled to accelerate the maturity of the General Claim Indebtedness, exercise any Secured Lender Remedies or commence any other action or proceeding to recover any amounts due or to become due with respect to its General Claim Indebtedness; provided, however, that the foregoing limitation on acceleration shall not be applicable following (x) the occurrence of an Event (as to which Section 2.2 (c) shall apply) or (y) following the maturity or acceleration of all Senior Indebtedness. In addition, no General Claim Holder shall be entitled to receive, and no Obligor shall make, any payment to such General Claim Holder that would violate the provisions of Section 2.2(a) above.

(c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the

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event of any insolvency or bankruptcy proceedings relative to any Obligor or any Obligor’s property, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, or, in the event of any court proceedings for voluntary liquidation, dissolution or other winding up of any Obligor or court-ordered distribution or marshalling of any Obligor’s assets or any composition with creditors of any Obligor, whether or not involving insolvency or bankruptcy, or if any Obligor shall cease its operations or no longer do business as a going concern other than any such event that is permitted pursuant to the Senior Loan Agreements (each individually or collectively, an “Event”), then all Senior Indebtedness shall be paid in full and satisfied in cash and the Senior Lending Agreements irrevocably terminated before any Distribution shall be made on account of any General Claim Indebtedness. Any such Distribution which would, but for the provisions hereof, be payable or deliverable in respect of the General Claim Indebtedness, shall be paid or delivered directly to Agent or its representatives, in the proportions in which the Holders of General Claim Indebtedness hold the same, until amounts owing upon Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Senior Lending Agreements irrevocably terminated.

(d) Power of Attorney. To enable Agent to assert and enforce its rights hereunder in any proceeding referred to in Section 2.2(c) or upon the happening of any Event, Agent or any person whom it may designate is hereby irrevocably appointed attorney in fact for all Holders of General Claim Indebtedness with full power to act in the place and stead of each Holder of General Claim Indebtedness including the right to make, present, file and vote such proofs of claim against Obligors on account of all or any part of the General Claim Indebtedness as Agent may deem advisable if the holder thereof shall fail to do so within ten (10) business days of the applicable bar date and to receive and collect any and all dividends or other payments made thereon and to apply the same on account of the Senior Indebtedness. The Subordinated Collateral Agent on behalf of the General Claim Holders will execute and deliver to Agent such instruments as may be required by Agent to enforce any and all General Claim Indebtedness, to effectuate the aforesaid power of attorney and to effect collection of any and all dividends or other payments which may be made at any time on account thereof, and each Holder of General Claim Indebtedness hereby irrevocably appoints Agent as the lawful attorney and agent of such Holder of General Claim Indebtedness to execute financing statements on behalf of such Holder of General Claim Indebtedness and hereby further authorizes Agent to file such financing statements in any appropriate public office.

(e) Knowledge; Delivery of Default Notice. No Holder of any General Claim Indebtedness shall at any time be charged with knowledge of any of the events described in Section 2.2 (a) hereof or on such account be prohibited from receiving or retaining any Distribution or from taking any action regarding acceleration or the exercise of remedies, unless and until such Holder shall have received the Default Notice; provided, however, any Acceleration Event under the General Claim Agreements shall automatically constitute an Event of Default under the Senior Lending Agreements so that payments received by any Holder of General Claim Indebtedness following any such occurrence with respect to the General Claim Agreements of such Holder shall not be retained irrespective of the lack of receipt by such Holder of a Default Notice, unless (i) the Acceleration Event is waived by such Holder of General Claim Indebtedness, (ii) a copy of such waiver is given in writing by such Holder of

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General Claim Indebtedness to Agent, and (iii) no Default Notice is thereafter forthcoming from Agent within five (5) Business Days following the giving of notice of the aforesaid waiver, in which event any Holder of General Claim Indebtedness may retain all Distributions previously or thereafter received, subject to the provisions of Section 2.2 (a).

Each Default Notice shall be deemed to be properly given by Agent or other holder of Senior Indebtedness to the Holders of General Claim Indebtedness if such Default Notice is delivered the Subordinated Collateral Agent in accordance with Section 4.7 hereof.

(f) Payments Held in Trust. Should any Distribution or the proceeds thereof, in respect of the General Claim Indebtedness, be collected or received by any Holder of General Claim Indebtedness or any Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the Securities and Exchange Commission pursuant to the Securities Act of 1933) of any Holder of General Claim Indebtedness at a time when such Holder of General Claim Indebtedness is not permitted to receive any such Distribution or proceeds thereof including if same is collected or received when there is or would be after giving effect to such payment a Default or an Event of Default under the Senior Lending Agreements, then such Holder of General Claim Indebtedness will forthwith deliver, or cause to be delivered, the same to Agent in precisely the form held by such Holder of General Claim Indebtedness (except for any necessary endorsement) and until so delivered, the same shall be held in trust by such Holder of General Claim Indebtedness, or any such Affiliate, as the property of Agent and shall not be commingled with other property of the such Holder of General Claim Indebtedness or any such Affiliate.

(g) Subrogation. Subject to the prior payment in full of the Senior Indebtedness (other than Unmatured Surviving Obligations) and the irrevocable termination of the Senior Lending Agreements, to the extent that Agent has received any Distribution on the Senior Indebtedness which, but for this Agreement, would have been applied to the General Claim Indebtedness, Holders of General Claim Indebtedness shall be subrogated to the then or thereafter rights of Agent including, without limitation, the right to receive any Distribution made on the Senior Indebtedness until the principal of, interest on and other charges due under the General Claim Indebtedness shall be paid in full; and, for the purposes of such subrogation, no Distribution to Agent to which Holders of General Claim Indebtedness would be entitled except for the provisions of this Agreement shall, as between Obligors, its creditors (other than Agent) and Holders of General Claim Indebtedness, be deemed to be a Distribution by Obligors to or on account of Senior Indebtedness, it being understood that the provisions hereof are and are intended solely for the purpose of defining the relative rights of Holders of General Claim Indebtedness on the one hand, and Agent on the other hand.

(h) Scope of Subordination. The provisions of this Agreement are solely to define the relative rights of any Holder of General Claim Indebtedness and Agent. Nothing in this Agreement shall impair, as between Obligors and Holders of General Claim Indebtedness the unconditional and absolute obligation of Obligors to punctually pay the principal, interest and any other amounts and obligations owing under the General Claim Agreements in accordance with the terms thereof, subject to the rights of Agent under this Agreement.

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(i) Vendor Lien Obligations. Notwithstanding anything herein to the contrary, nothing in this Agreement shall prohibit the payment of any Vendor Lien Obligations made in the ordinary course of business prior to the occurrence of an Event and holders of Vendor Lien Obligations may receive and retain any and all such payments.

3. Lien Priority Provisions

3.1. Acknowledgment of Lien. Each Creditor hereby agrees and acknowledges that the other Creditors have been granted a Lien upon the Collateral; provided that the Subordinated Collateral Agent acknowledges and agrees that it does not have, and shall not assert, a Lien upon any Pledged Securities.

3.2. Priority. Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a Lien in favor of each Creditor in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Agreements, the following shall be the relative lien priorities of the Creditors in the Collateral:

(a) Revolving Loan Priority Collateral.

(i) the Liens of Revolving Agent upon the Revolving Loan Priority Collateral have and shall have priority over the Liens upon the Revolving Loan Priority Collateral of each other Creditor and such Liens of each other Creditor shall be, in all respects, subject and subordinate to the Liens of Revolving Agent therein to the full extent of the Senior Indebtedness outstanding from time to time under the Revolving Loan Agreements; and

(ii) the Liens of Mezzanine Agent and Term Loan B Lender upon the Revolving Loan Priority Collateral have and shall have priority over the Liens upon the Revolving Loan Priority Collateral of Subordinated Collateral Agent and such Liens of Subordinated Collateral Agent shall be, in all respects, subject and subordinate to the Liens of Mezzanine Agent and Term Loan B Lender therein to the full extent of the Senior Indebtedness outstanding from time to time under the Mezzanine Loan Agreements and the Term Note B Agreements.

(b) Mezzanine Loan/Term Loan B Priority Collateral.

(i) the Liens of Mezzanine Agent and Term Loan B Lender upon the Mezzanine Loan/Term Loan B Priority Collateral have and shall have priority over the Liens upon the Mezzanine Loan/Term Loan B Priority Collateral of each other Creditor and such liens of each other Creditor are and shall be, in all respects, subject and subordinated to the Liens of Mezzanine Agent and Term Loan B Lender therein to the full extent of the Senior Indebtedness outstanding under the Mezzanine Loan Agreement and the Term Note B Agreements, and

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(ii) the Liens of Revolving Agent upon the Mezzanine Loan/Term Loan B Priority Collateral have and shall have priority over the Liens upon the Mezzanine Loan/Term Loan B Priority Collateral of Subordinated Collateral Agent and such Liens of Subordinated Collateral Agent shall be, in all respects, subject and subordinate to the Liens of Revolving Agent therein to the full extent of the Senior Indebtedness outstanding from time to time under the Revolving Agreements.

(c) General. The Liens securing the Bondholder Obligations and the General Claim Indebtedness shall have the same priority and, as among the holders of such obligations, shall be administered in the manner set forth in the Collateral Agency Agreement.

(d) Refinancing Senior Loan Obligations. The Lien of any Refinancing Senior Agent and the related Refinancing Senior Lenders shall have the same priority as the Senior Indebtedness which is refinanced by the applicable Refinancing Senior Loan Obligations so long as, as between the Refinancing Senior Agent and the Refinancing Senior Lenders on the one hand and the Bondholders on the other hand, such Refinancing Senior Loan Obligations shall be in compliance with Section 4.10(i) and (ii) and the related definitions of the Indenture as in effect on the date of this Agreement.

3.3. No Alteration of Priority. The Lien priorities provided in Section 3.2 hereof shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of any of the Obligations, nor by any action or inaction which any Creditor may take or fail to take in respect of the Collateral.

3.4. Perfection.

(a) Each Creditor shall be solely responsible for perfecting and maintaining the perfection of its Lien in and to each item constituting the Collateral in which such Creditor has been granted a Lien. The foregoing provisions of this Agreement are intended solely to govern the respective Lien priorities as between the Creditors and shall not impose on Agent any obligation in respect of the disposition of proceeds of foreclosure on any Collateral which would conflict with perfected claims therein in favor of any other Person.

(b) Mezzanine Agent, Term Loan B Lender and Subordinated Collateral Agent agree that they will not contest the validity, perfection, priority or enforceability of the Liens of Revolving Agent upon the Revolving Loan Priority Collateral and that as between Revolving Agent on the one hand, and Mezzanine Agent, Term Loan B Lender and Subordinated Collateral Agent on the other hand, the terms of this Agreement shall govern even if part or all of the Revolving Loan Obligations or the Liens securing payment and performance thereof are avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise; provided, however, that, except as provided in Section 3.9 below, the terms, provisions and restrictions of this Agreement in favor of Revolving Agent shall be void and of no further force and effect upon the indefeasible payment and satisfaction in full of the Revolving

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Loan Obligations (other than Unmatured Surviving Obligations) and the irrevocable termination of the Revolving Loan Agreements.

(c) Revolving Agent and Subordinated Collateral Agent agree that they will not contest the validity, perfection, priority or enforceability of the Liens of Mezzanine Agent and Term Loan B Lender upon the Mezzanine Loan/Term Loan B Priority Collateral and that as between Mezzanine Agent and Term Loan B Lender on the one hand, and Revolving Agent and Subordinated Collateral Agent on the other hand, the terms of this Agreement shall govern even if part or all of the Mezzanine Loan Indebtedness or the Term Loan B Indebtedness, as the case may be, or the Liens securing payment and performance thereof are avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise; provided, however, that, except as provided in Section 3.9 below, the terms, provisions and restrictions of this Agreement in favor of Mezzanine Agent and Term Loan B Lender shall be void and of no further force and effect upon the indefeasible payment and satisfaction in full of the Mezzanine Loan Indebtedness or the Term Loan B Indebtedness, as the case may be, (other than Unmatured Surviving Obligations) and the irrevocable termination of the Mezzanine Loan Agreement or the Term Note B Agreements, as the case may be.

3.5. Management of Collateral.

(a) Revolving Agent shall have the exclusive right to manage, perform and enforce the terms of the Revolving Loan Agreements with respect to the Revolving Loan Priority Collateral and to exercise and enforce all privileges and rights thereunder according to its discretion and the exercise of its business judgment, including, without limitation, the exclusive right to enforce or settle insurance claims, take or retake control or possession of such Revolving Loan Priority Collateral and to hold, prepare for sale, process, sell, lease, dispose of, or liquidate such Collateral (but subject to the rights of the Holders of Subordinated Indebtedness in and to such Collateral and any proceeds thereof to the extent of any excess thereof over the amount of the applicable Senior Indebtedness). In connection therewith, Mezzanine Agent, Term Loan B Lender and Subordinated Collateral Agent each waive any and all rights to affect the method or challenge the appropriateness of any action by Revolving Agent.

(b) Mezzanine Agent and Term Loan B Lender shall have the exclusive right to manage, perform and enforce the terms of the Mezzanine Loan Agreement and the Term Loan Agreement, collectively, with respect to the Mezzanine Loan/Term Loan B Priority Collateral and to exercise and enforce all privileges and rights thereunder according to their discretion and the exercise of their business judgment, including, without limitation, the exclusive right to enforce or settle insurance claims, take or retake control or possession of such Mezzanine Loan/Term Loan B Priority Collateral and to hold, prepare for sale, process, sell, lease, dispose of, or liquidate such Collateral (but subject to the rights of the Holders of Subordinated Indebtedness in and to such Collateral and any proceeds thereof to the extent of any excess thereof over the amount of the applicable Senior Indebtedness). In connection therewith, Revolving Agent and Subordinated Collateral Agent each waive any and all rights to affect the method or challenge the appropriateness of any action by Mezzanine Agent or Term Loan B Lender.

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3.6. Sale of Collateral.

(a) Notwithstanding anything to the contrary contained in any of the Agreements, only Revolving Agent shall have the right to restrict or permit, or approve or disapprove, the sale, transfer or other disposition of Revolving Loan Priority Collateral; provided, however, that the Obligors acknowledge that any such transfer that violates the term of the Indenture will be an Indenture Default. Mezzanine Agent, Term Loan B Lender and Subordinated Collateral Agent will, immediately upon the receipt of a written request of Revolving Agent, release or otherwise terminate their respective Liens upon the Collateral, to the extent such Revolving Loan Priority Collateral is sold or otherwise disposed of either by Revolving Agent or the Obligors with the consent of Revolving Agent pursuant to the terms of the Revolving Loan Agreements, and Mezzanine Agent, Term Loan B Lender and Subordinated Collateral Agent will immediately deliver such release documents as Revolving Agent may require in connection therewith (but subject to the rights of such Creditors in and to such Collateral and any proceeds thereof to the extent of any excess thereof over the amount of the applicable Senior Indebtedness).

(b) Notwithstanding anything to the contrary contained in any of the Agreements, only Mezzanine Agent and Term Loan B Lender shall have the right to restrict or permit, or approve or disapprove, the sale, transfer or other disposition of Mezzanine Loan/Term Loan B Priority Collateral; provided, however, that the Obligors acknowledge that any such transfer that violates the term of the Indenture will be an Indenture Default. Revolving Agent and Subordinated Collateral Agent will, immediately upon the receipt of a written request of Mezzanine Agent or Term Loan B Lender, release or otherwise terminate their respective Liens upon the Collateral, to the extent such Mezzanine Loan/Term Loan B Priority Collateral is sold or otherwise disposed of either by Mezzanine Agent or Term Loan B Lender or the Obligors with the consent of Mezzanine Agent and Term Loan B Lender pursuant to the terms of the Mezzanine Loan Agreement and Term Loan Agreement, respectively, and Revolving Agent and Subordinated Collateral Agent will immediately deliver such release documents as Mezzanine Agent or Term Loan B Lender may require in connection therewith (but subject to the rights of such Creditors in and to such Collateral and any proceeds thereof to extent of any excess thereof over the amount of the applicable Senior Indebtedness).

3.7. Secured Lender Remedies.

(a) In no event shall any Holder of Subordinated Indebtedness exercise any Secured Lender Remedies until such time as the Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Senior Lending Agreements irrevocably terminated; nor shall any Holder of Subordinated Indebtedness join in, solicit any other person to, or act to cause the commencement of, any case involving any Obligor under any state or federal bankruptcy or insolvency laws or seek the appointment of a receiver for the affairs or property of any Obligor until such time as the Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Senior Lending Agreements shall have been irrevocably terminated. In the event any Holder of Subordinated Indebtedness shall receive any payment or distribution of any kind representing proceeds of any Collateral as to which its Lien in the Collateral is or is required to be subordinated to the Lien of

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Agent, before the Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Senior Lending Agreements irrevocably terminated, such sums shall be held in trust by such Holder of Subordinated Indebtedness for the benefit and on account of Agent and such amounts shall be paid to Agent for application to the then unpaid Senior Indebtedness.

(b) In no event shall Mezzanine Agent or Term Loan B Lender exercise any Secured Lender Remedies against the Revolving Loan Priority Collateral until such time as the Revolving Loan Obligations (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Revolving Loan Agreements irrevocably terminated; nor shall Mezzanine Agent or Term Loan B Lender join in, solicit any other person to, or act to cause the commencement of, any case involving any Revolving Loan Obligor under any state or federal bankruptcy or insolvency laws or seek the appointment of a receiver for the affairs or property of any Revolving Loan Obligor until such time as the Revolving Loan obligations (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Revolving Loan Agreements shall have been irrevocably terminated. In the event Mezzanine Agent or Term Loan B Lender shall receive any payment or distribution of any kind representing proceeds of any Collateral as to which their Lien in the Collateral is or is required to be subordinated to the Lien of Revolving Agent, before the Revolving Loan Obligations (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Revolving Loan Agreements irrevocably terminated, such sums shall be held in trust by Mezzanine Agent or Term Loan B Lender, as the case may be, for the benefit and on account of Revolving Agent and such amounts shall be paid to Revolving Agent for application to the then unpaid Revolving Loan Obligations.

(c) In no event shall Revolving Agent exercise any Secured Lender Remedies against the Mezzanine Loan/Term Loan B Priority Collateral until such time as the Mezzanine Loan Indebtedness (other than Unmatured Surviving Obligations) and the Term Loan B Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Mezzanine Loan Agreements and the Term Loan B Loan Agreements irrevocably terminated; nor shall Revolving Agent join in, solicit any other person to, or act to cause the commencement of, any case involving any Mezzanine Loan Obligor or Term Loan B Obligor under any state or federal bankruptcy or insolvency laws or seek the appointment of a receiver for the affairs or property of any Mezzanine Loan Obligor or Term Loan B Obligor until such time as the Mezzanine Loan Indebtedness (other than Unmatured Surviving Obligations) and the Term Loan B Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Mezzanine Loan Agreements and the Term Loan B Loan Agreements shall have been irrevocably terminated. In the event Revolving Agent shall receive any payment or distribution of any kind representing proceeds of any Collateral as to which its Lien in the Collateral is or is required to be subordinated to the Lien of Mezzanine Agent or Term Loan B Lender, before the Mezzanine Loan Indebtedness (other than Unmatured Surviving Obligations) and the Term Loan B Indebtedness (other than Unmatured Surviving Obligations) shall have been paid in full in cash and the Mezzanine Loan Agreements and the Term Loan B Loan Agreements irrevocably terminated, such sums shall be held in trust by Revolving Agent for the benefit and on account of Mezzanine Agent or Term Loan B Lender, as the case may be, and such amounts shall be paid to Mezzanine Agent or Term Loan B Lender, as the case may be, for

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application to the then unpaid Mezzanine Loan Indebtedness or the Term Loan B Indebtedness, as the case may be.

3.8. Waiver of Marshaling. Each Creditor waives any right to compel any marshaling of any of the Collateral.

3.9. Refinancing Senior Loan Obligations. Notwithstanding anything to the contrary contained in this Agreement, if the Senior Indebtedness is satisfied with proceeds of any Refinancing Senior Loan Documents, then the Refinancing Senior Loan Agent and Refinancing Senior Loan Lenders party to such Refinancing Senior Loan Documents shall be entitled to the benefit of and subject to the obligations imposed by all of the provisions of this Agreement with respect to the Senior Indebtedness which was refinanced by such Refinancing Senior Loan Obligations, and each reference to the Agent shall refer to the Refinancing Senior Loan Agent and each reference to the Lenders shall be refer to the Refinancing Senior Loan Lenders.

4. Miscellaneous.

4.1. Survival of Rights. The right of Agent to enforce the provisions of this Agreement shall not be prejudiced or impaired by any act or omitted act of the Obligors or Agent, including forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security in respect of any Senior Indebtedness or noncompliance by the Obligors with such provisions, regardless of the actual or imputed knowledge of such holder of the Senior Indebtedness.

4.2. Amendments to Lending Agreements. Nothing contained in this Agreement, or in any other agreement or instrument binding upon any of the parties hereto, shall, in any manner limit or restrict the ability of Agent from increasing or changing the terms of the loans under the Senior Lending Agreements, or to otherwise waive, amend or modify the terms and conditions of the Senior Lending Agreements, in such manner as Agent and the Obligors shall mutually determine. Revolving Agent, Mezzanine Agent and Term Loan B Lender (as among each other) and Subordinated Collateral Agent hereby consent to any and all such waivers, amendments, modifications and compromises, and any other renewals, extensions, indulgences, releases of Revolving Loan Priority Collateral or Mezzanine Loan/Term Loan B Priority Collateral or other accommodations granted by the Agent to any Obligor from time to time, and agrees that none of such actions shall in any manner affect or impair the relative Lien priorities and subordination established by this Agreement in respect of the indebtedness payable under the Indenture and the General Claim Agreements; provided, that neither the Trustee nor the Subordinated Collateral Agent consent to any replacement of Senior Indebtedness with Refinancing Senior Indebtedness in violation of the Indenture; provided further that Revolving Agent, Mezzanine Agent and Term Loan B Lender acknowledge that so long as the Bondholders Obligations remain outstanding, any increase in the amount of Revolving Loan Obligations, Mezzanine Loan Indebtedness or Term Loan B Indebtedness, respectively, in excess of the maximum amount of Senior Indebtedness permitted pursuant to the definition of “Revolving Credit Facility”, “Mezzanine Loan” or “B Note”, respectively, set forth in the Indenture as in effect on the date of this Agreement shall not constitute Senior Indebtedness under this

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Agreement.

4.3. Amendments to Subordinated Lending Agreements. So long as the Senior Lending Agreements remain in effect, no Obligor shall enter into any amendment to or modification of any of the Subordinated Lending Agreements which increases the principal amount of indebtedness thereunder, increases the interest rate charged thereunder, accelerates the maturity date of any payment of principal or interest or increases any fees or other compensation payable thereunder without the prior written consent of Agent, or amends any event of default or any other material covenant or agreement of any Obligor thereunder or in respect thereof in a manner materially adverse to the holders of the Senior Indebtedness, without the prior written consent of Agent; provided that the provisions of this Section 4.3 shall not apply to any Vendor Lien Obligation, which shall be adjusted, modified and otherwise dealt with by the Company and the Obligors in the ordinary course of their dealings with the Vendor Lien Obligations. The Subordinated Collateral Agent, Indenture Trustee and Claims Agent hereby acknowledge that the Obligors shall not enter into any amendment or modification to the Subordinated Lending Agreements which is restricted by this Section 4.3.

4.4. Bankruptcy Financing Issues. This Agreement shall continue in full force and effect after the filing of any petition (“Petition”) by or against any Obligor under the United States Bankruptcy Code (the “Code”) and all converted or succeeding cases in respect thereof. All references herein to any Obligor shall be deemed to apply to such Obligor as debtor-in-possession and to a trustee for such Obligor. If any Obligor shall become subject to a proceeding under the Code, and if Agent or Lenders shall desire to permit the use of cash collateral or to provide post-petition financing from the Lenders to the Obligors under the Code, Holders of Subordinated Indebtedness agree as follows: (1) adequate notice to any Holder of Subordinated Indebtedness shall be deemed to have been provided for such post-petition financing if the Subordinated Collateral Agent receives notice thereof at least five (5) Business Days (or such shorter notice as is given to Agent) prior to the earlier of (a) any hearing on a request to approve such post-petition financing, or (b) the date of entry of an order approving the same; and (2) no objection will be raised by any Holder of Subordinated Indebtedness to any such use of cash collateral or such post-petition financing from Lenders on the grounds of a failure to provide adequate protection for such Holder of Subordinated Indebtedness’s junior Lien, provided that each Holder of Subordinated Indebtedness is granted a junior Lien on the post-petition Collateral

4.5. Insurance Proceeds. Proceeds of the Collateral include insurance proceeds, and therefore, notwithstanding the terms set forth in the Senior Lending Agreements or Subordinated Lender Agreements, the priorities set forth in Section 3.2 govern the ultimate disposition of casualty insurance proceeds. Agent, as the holder of a senior security interest on the Collateral insured shall have the sole and exclusive right, as against Holders of Subordinated Indebtedness, to adjust settlement of insurance claims in the event of any covered loss, theft or destruction of such Collateral. All proceeds of such insurance shall inure to Agent, to the extent of Lenders’ and Agent’s claim, and Holders of Subordinated Indebtedness shall cooperate (if necessary) in a reasonable manner in effecting the payment of insurance proceeds to Lenders and Agent. In the event Agent, in its sole discretion or pursuant to agreement with Obligors, permits Obligors to utilize the proceeds of insurance to replace Collateral, the consent of Agent thereto shall be deemed to include the consent of Holders of Subordinated Indebtedness.

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4.6. Notice of Default and Certain Events. Each Creditor shall undertake in good faith to notify the other Creditors of the occurrence of any of the following as applicable:

(a) the acceleration of amounts owing by the Obligors under the Revolving Loan Agreements, Mezzanine Loan Agreements, the Term Loan B Agreements, Bondholder Agreements and the General Claim Agreements, as applicable;

(b) the payment in full by the Obligors (whether as a result of refinancing or otherwise) of all amounts owing by the Obligors under the Revolving Loan Agreements, Mezzanine Loan Agreements, the Term Note B Agreements, Bondholder Agreements and the General Claim Agreements, as applicable; or

(c) the sale or liquidation by any Creditor of, or realization by any Creditor upon, any of the Collateral (other than a sale, liquidation or realization in the ordinary course of business of the Obligors).

The failure of any party to give such notice shall not affect the relative Lien priorities as provided in this Agreement.

4.7. Notices, Etc. Any notice or other communication required or permitted to be given by this Agreement or by applicable law shall be in writing and shall be deemed to have been duly given or made when received, with confirmation of receipt or delivery by such carrier or courier: (a) by hand delivery (to the person or department if one is specified below); or (b) by Federal Express or other national overnight carrier for next-day delivery, and in each case addressed as set forth on Schedule 1 to this Agreement, or such additional or different addresses as such party may designate by notice for subsequent notice and communication.

4.8. Binding Effect; Other. This Agreement shall be a continuing agreement, shall be binding upon and shall inure to the benefit of the parties hereto from time to time and their respective successors and assigns, shall be irrevocable and shall remain in full force and effect until the Senior Indebtedness (other than Unmatured Surviving Obligations) shall have been satisfied or paid in full in cash and the Senior Lending Agreements shall have been irrevocably terminated, but shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any amount paid by or on behalf of the Obligors with regard to the Senior Indebtedness or the Refinancing Senior Loan Obligations are rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Obligors, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee, custodian, or similar officer, for the Obligors or any substantial part of their property, or otherwise, all as though such payments had not been made. The headings in this Agreement are for convenience of reference only, and shall not alter or otherwise affect the meaning hereof.

4.9. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any

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promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing, signed by each party hereto. Neither this Agreement nor any portion hereof may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by each party hereto. Any waiver of this Agreement by Agent shall be limited solely to the express terms and provisions of such waiver. Each party to this Agreement acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and/or provisions of this Agreement.

4.10. General Claim Holder Covenants. The General Claim Holders, by accepting their General Claims pursuant to the Plan of Reorganization agree that they are Holders of Subordinated Indebtedness that is indebtedness under the General Claim Agreements and the Liens which secure or will secure such Subordinated Indebtedness. Pursuant to the Plan of Reorganization all General Claim Holders, by accepting their General Claim shall be bound by the provisions of this Agreement.

5. Representations and Warranties.

(a) Indenture Trustee represents and warrants to Agent that Indenture Trustee and the Bondholders are the holders of the Subordinated Indebtedness that is indebtedness under the Bondholder Agreements and the Liens which secure or will secure such Subordinated Indebtedness. Indenture Trustee represents and warrants that, pursuant to the Indenture, all Bondholders are bound by the provisions of this Agreement. Indenture Trustee also agrees that upon request from Agent, Indenture Trustee shall provide Agent with a list of Bondholders. Indenture Trustee further warrants to Agent and Subordinated Collateral Agent that it has full right, power and authority to enter into this Agreement and it is a legally valid and binding obligation of Indenture Trustee, enforceable against Indenture Trustee in accordance with its terms.

(b) Subordinated Collateral Agent warrants to Agent and Indenture Trustee that it has full right, power and authority to enter into this Agreement and it is a legally valid and binding obligation of Subordinated Collateral Agent, enforceable against Subordinated Collateral Agent in accordance with its terms.

(c) Claims Agent warrants to Agent and Indenture Trustee that it has full right, power and authority to enter into this Agreement and it is a legally valid and binding obligation of Claims Agent, enforceable against Claims Agent in accordance with its terms.

(d) Subordinated Collateral Agent agrees upon Agent’s request to execute and file an amendment to any financing statement or mortgage, trust deed or other encumbrance now on file which covers Collateral to the effect that the same is subject to the terms of this Agreement, and agrees to so mark any extension of such financing statements, or any financing statement or mortgage, trust deed or other encumbrance filed by Subordinated Collateral Agent on Collateral in the future.

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(e) Agent represents and warrants to Subordinated Collateral Agent that Agent is the holder of the Senior Indebtedness and Liens which secure or will secure the Senior Indebtedness. Agent agrees that it shall not assign or transfer any of the Senior Indebtedness or Liens without (i) prior notice being given to Subordinated Collateral Agent and (ii) such assignment or transfer being made expressly subject to the terms and provisions of this Agreement. Agent further warrants to Subordinated Collateral Agent that it has full right, power and authority to enter into this Agreement and, to the extent Agent is an agent or trustee for other parties, that this Agreement shall fully bind all such other parties.

(f) Revolving Agent, Mezzanine Agent and Term Loan B Lender agree that, as among each other, they shall not assign or transfer any of the Senior Indebtedness or Liens without (i) prior notice being given to the other holders of Senior Indebtedness and (ii) such assignment or transfer being made expressly subject to the terms and provisions of this Agreement.

6. Refinancing. The rights of the Lenders set forth in this Agreement as against each Holder of Subordinated Indebtedness shall remain in full force and effect without regard to, and shall not be impaired by any refinancing of any of the Senior Indebtedness, other than such as would cause all or any portion of such Senior Indebtedness to fail to meet the definition of “Senior Indebtedness”.

7. Governing Law; Jurisdiction; Construction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its choice of law provisions (other than Section 5-1401 of the New York General Obligation Law). Any judicial proceeding with respect to any of the rights or obligations hereunder, this Agreement or any related agreement may be brought in any federal or state court of competent jurisdiction located in the City of New York, State of New York (any such court, individually a “New York Court,” and all such courts collectively, the “New York Courts”), provided nothing in this Agreement shall be deemed or operate to preclude Agent from bringing suit or taking other legal action to the extent, but only to the extent, it is required to bring suit in such jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Agent (any such court and any New York Court, individually a “Qualified Court” and collectively, the “Qualified Courts”), and provided, further that the parties hereto acknowledge that any appeals from a Qualified Court may have to be heard by a court located outside of the jurisdiction where such Qualified Court sits. By execution and delivery of this Agreement, each Creditor and Obligor (i) accepts the non-exclusive jurisdiction of the Qualified Courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with Section 4.7 hereof and (iv) waives any objection to jurisdiction and venue of any action instituted hereunder in any Qualified Court and agrees not to assert any defense to an action brought in any Qualified Court based on lack of jurisdiction, venue or convenience. Any judicial proceedings against Agent or any Lender involving, directly or indirectly, any matter or claim in any way arising out of, or related to or connected with this Agreement or any of the Senior Lending Agreements, shall be brought only in a New York Court. All parties acknowledge that they participated in the negotiation and

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drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other.

8. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS EVIDENCED OR CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 8 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.

9. Counterparts; Telecopied Signatures. This Agreement may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts 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.

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IN WITNESS WHEREOF, the undersigned have entered into this Agreement this      day of                         , 2003.

CAPITALSOURCE FINANCE LLC,

as Revolving Agent

By:

Name:

Title:

CAPITALSOURCE FINANCE LLC,

as Mezzanine Agent

By:

Name:

Title:

                                                         ,

as Term Loan B Lender

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION,

as Subordinated Collateral Agent

By:

Name:

Title:

                                                         ,

as Claims Agent

By:

Name:

Title:

FOUNTAIN VIEW, INC.,

Company

By:

Name:

Title:

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[OBLIGORS]

By:

Name:

Title:

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EXHIBIT E

FORM OF SECURITY AGREEMENT

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of                         , 2003 (this “Security Agreement”), among FOUNTAIN VIEW, INC., a Delaware corporation (the “Company”), the undersigned Subsidiaries of the Company (the Company and such undersigned Subsidiaries are sometimes collectively referred to herein as “Grantors” and individually as a “Grantor”); and U.S. BANK NATIONAL ASSOCIATION, in its capacity as collateral agent (the “Collateral Agent”) for the benefit of (i)                          as agent (the “Claims Agent”) for the holders of Class 10 Claims (the “Class 10 Holders”) and the Vendor Claims (the “Vendor Claim Holders”), (ii) the Class 10 Holders, (iii) the Vendor Claim Holders, (iv) U.S. Bank National Association, as trustee (together with its successors in such capacity the “Trustee”) under the Indenture, dated as of                         , 2003 (the “Indenture”), pursuant under which Company shall issue $                     in aggregate principal amount of the Company’s Senior Subordinated Secured Increasing Notes due 2008 (the “Notes”) to the Bondholders (the “Bondholders”), and (v) the Bondholders.

W I T N E S S E T H:

A. The Company and certain of its subsidiaries filed for reorganization under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the “Bankruptcy Court”); and

B. By order, dated                         , 2003, the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated April 22, 2003, in Case No. LA 01-39678BB through LA 01-39697BB and LA 01-45516BB, LA 01-45520BB and LA 01-45525BB, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, as such may be modified, amended or supplemented from time to time (the “Plan”), has been approved in accordance with section 1129 of the Bankruptcy Code and such Plan has become effective as of                         , 2003; and

C. As part of the Plan, the Company has agreed, inter alia, to issue $                     million principal amount of Senior Subordinated Secured Increasing Rate Notes (the “Notes”) to holders of the Company’s outstanding 11¼% Senior Subordinated Notes due 2008 (the “Old Notes”) in exchange for all of the Company’s outstanding Old Notes and obligations thereunder; and

D. As part of the Plan, the Company has also agreed to grant Liens on the Collateral and secure the Notes, the Class 10 Claims (as defined in the Plan) and the Vendor Claim Holders (as defined in the Plan).

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

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1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Indenture or Annex A attached hereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein.

2. GRANT OF LIEN.

(a) To secure the prompt and complete payment, performance and observance of all of the Obligations, each Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Collateral Agent, for the benefit of the Claims Agent, the Class 10 Holders and the Vendor Claim Holders and for the benefit of the Trustee and the Bondholders, a Lien upon all of its right, title and interest in, to and under the following personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, such Grantor, and regardless of where located which is used in the conduct of the pharmaceutical business and the physical therapy business of the Company and its Subsidiaries (all of which being hereinafter collectively referred to as the “Collateral”):

(i) all tangible personal property, including without limitation all present and future Inventory and Equipment (other than items of Equipment which are or become Fixtures);

(ii) all intangible personal property, including without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Chattel Paper, Documents, Instruments, Deposit Accounts, Letter-of-Credit Rights and Supporting Obligations, commercial tort claims, rights to the payment of money or other forms of consideration of any kind, including, without limitation, Payment Intangibles, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing;

(iii) all present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof; provided, however, that the Collateral shall not include any rights under any Government Contract of any Grantor or in the related Government Account where the taking of such security interest would be a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, § 203 or Title 41, § 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law; and

(iv) any and all additions to any of the foregoing, and any and all replacements, products and Proceeds (including insurance proceeds) of any of the foregoing.

Notwithstanding the foregoing provisions of this Section 2, such grant of a security interest shall not extend to, and the term “Collateral” shall not include, (x) any General Intangible, contract, agreement or document of any Grantor to the extent that (i) such General

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Intangible, contract, agreement or document is not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law, which applicable law includes Section 9-408 of the Code), without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term “Collateral” shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to, the enforcement or collection of, any Account or right to the payment of money, (b) any and all proceeds of any General Intangible, contract, agreement or document that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, contract, agreement or document, such General Intangible, contract, agreement or document as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term “Collateral”; (y) any asset of any Grantor to the extent that (i) such asset is subject to a contract, agreement or document otherwise permitted pursuant to the Indenture, which contract, agreement or document restricts the grant of such security interest (but solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the other party to such contract, agreement or document, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term “Collateral” shall include, each of the following: (a) any and all proceeds of any asset that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (b) upon obtaining the consent of the other party to any such contract, agreement or document with respect to any such otherwise excluded asset, such asset as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term “Collateral” ; and (z) any Permit of any Grantor to the extent that the assignment of such Permit would violate the law applicable to such Permit, or materially impair the validity of such Permit. Each Grantor shall use all reasonable efforts (which shall not include the unreasonable expenditure of funds) to obtain any such required consent.

3. COLLATERAL AGENT’S RIGHTS: LIMITATIONS ON COLLATERAL AGENT’S OBLIGATIONS.

(a) It is expressly agreed by Grantors that, anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of its Contracts and each of its Licenses, to observe and perform in all material respects all the conditions and obligations to be observed and performed by it thereunder. Collateral Agent shall have no obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Collateral Agent of any payment relating to any Contract or License pursuant hereto. Collateral Agent shall not be required or obligated in any manner to perform or fulfill any of the obligations of any Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

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(b) Collateral Agent may, at any time after an Event of Default has occurred and be continuing, notify (i) Account Debtors owing Accounts to Grantors other than Medicaid/Medicare Account Debtors that their Accounts have been assigned to Collateral Agent and to collect such Accounts directly in its own name and to charge reasonable collection costs and expenses, including reasonable attorney’s fees, to Grantors, and (ii) Medicaid/Medicare Account Debtors that Grantors have waived any and all defenses and counterclaims they may have or could interpose in any such action or procedure brought by Collateral Agent to obtain a court order recognizing the collateral assignment or security interest and lien of Collateral Agent in and to any Account or other Collateral payable by Medicaid/Medicare Account Debtors and that Collateral Agent is seeking or may seek to obtain a court order recognizing the collateral assignment or security interest and lien of Collateral Agent in and to all Accounts and other Collateral payable by Medicaid/Medicare Account Debtors. Upon the request of Collateral Agent, at any time after an Event of Default has occurred and is continuing, each Grantor shall so notify Account Debtors and other Persons obligated on Collateral. Collateral Agent’s rights under this Section 3(b), shall be subject to the provisions of the General Intercreditor Agreement.

(c) Collateral Agent may at any time in Collateral Agent’s own name or in the name of any Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper and/or payment intangibles to verify with such Persons, to Collateral Agent’s satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper and/or payment intangibles.

4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants that:

(a) Such Grantor has rights in and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder free and clear of any and all Liens other than Permitted Liens.

(b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by any Grantor in favor of Collateral Agent pursuant to this Security Agreement or the other Loan Documents, and (ii) in connection with any other Permitted Lien.

(c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto, a perfected Lien in favor of Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Trustee and Bondholders, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except Permitted Liens, and is enforceable as such as against any and all creditors of and purchasers from any Grantor (other than purchasers (but not creditors of such purchasers) and lessees in the ordinary course of business). All action by any Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken or shall be promptly taken.

(d) As of the Effective Date, Schedule II hereto lists all Instruments, Letter of Credit Rights and Chattel Paper constituting Collateral of each Grantor. All action by any Grantor

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necessary or desirable to protect and perfect the Lien of Collateral Agent on each item set forth on Schedule II (including the delivery of all originals thereof to Collateral Agent and the legending of all Chattel Paper as required by Section 5(b) hereof) has been duly taken; provided so long as the General Intercreditor Agreement shall be in effect, no Grantor shall be required to deliver such collateral to Collateral Agent under this Section 4(d). The Lien of Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, on the Collateral listed on Schedule II hereto is prior to all other Liens, except Permitted Liens, and is enforceable as such against any and all creditors of and purchasers from any Grantor.

(e) Each Grantor’s name as it appears in official filings in the state of its incorporation or other organization, the type of entity of each Grantor (including corporation, partnership, limited partnership or limited liability company), organizational identification number issued by each Grantor’s state of incorporation or organization or a statement that no such number has been issued, each Grantor’s state of organization or incorporation, the location of each Grantor’s chief executive office, principal place of business, offices, all warehouses and premises where Collateral is stored or located, and the locations of its books and records concerning the Collateral are set forth on Schedule III hereto.

(f) With respect to the Accounts constituting Collateral, (i) Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of each Grantor’s business and are not evidenced by a judgment, Instrument or Chattel Paper; and (ii) to each Grantor’s knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on any Grantor’s books and records and any invoices, statements with respect thereto. Further with respect to the Accounts (x) the amounts shown on all invoices and statements are actually and absolutely owing to such Grantor as indicated thereon and are not in any way contingent; (y) no payments have been or shall be made thereon except payments immediately delivered to the applicable Accounts; and (z) to each Grantor’s knowledge, all Account Debtors have the capacity to contract. Notwithstanding anything in this Section 4(f) to the contrary, the failure of any Account to satisfy the representations contained in the of this Section 4(f) shall not constitute misrepresentation unless Accounts having an aggregate face amount of $250,000 or greater fail to comply with the representations contained in this Section 4(f).

(g) With respect to any Inventory constituting Collateral, (i) such Inventory is located as of the Effective Date at one of the applicable Grantor’s locations set forth on Schedule III hereto, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without at least thirty (30) days prior written notice to Collateral Agent and after Grantors have completed all reasonable action requested by Collateral Agent in connection therewith required to continue the perfection of any Liens in favor of Collateral Agent, on behalf of itself, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, in any Collateral; provided that any such new location shall be in the continental United States, (iii) the applicable Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, and except for Permitted Liens, (iv) such Inventory is

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not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (v) the completion of manufacture, sale or other disposition of such Inventory by Collateral Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such property is subject. Notwithstanding anything in this Section 4(g) to the contrary, the failure of any Inventory to satisfy the representations contained in the of this Section 4(g) shall not constitute misrepresentation unless Inventory having an aggregate face amount of $250,000 or greater fail to comply with the representations contained in this Section 4(g).

(h) As of the Effective Date, no Grantor has any interest in, or title to, any Patent, Trademark or Copyright constituting Collateral except as set forth in Schedule IV hereto. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the financing statements listed on Schedule I hereto, and filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United State Patent and Trademark Office, perfected Liens in favor of Collateral Agent on each Grantor’s material Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers (but not creditors of such purchasers) from any Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United State Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Collateral Agent’s Lien on each Grantor’s material Patents, Trademarks or Copyrights shall have been duly taken.

5. COVENANTS. Each Grantor covenants and agrees with Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, that from and after the date of this Security Agreement and until the Termination Date:

(a) Further Assurances.

(i) At any time and from time to time, upon the written request of Collateral Agent and at the sole expense of Grantors, each Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Collateral Agent may deem desirable to perfect the security interest herein granted, including (A) using commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Collateral Agent of any License or Contract held by such Grantor, and (B) filing any financing or continuation statements under the Code.

(ii) Upon written request of Collateral Agent, each Grantor shall deliver to Collateral Agent all Collateral consisting of negotiable Documents, certificated securities, Chattel Paper and Instruments (other than checks received in the ordinary course of business, which shall be delivered to Collateral Agent or into a lockbox or Deposit

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Account with respect to which the Grantor has entered into a control agreement with Collateral Agent and the related bank) (in each case, accompanied by stock powers, allonges or other instruments of transfer executed in blank) promptly after such Grantor receives the same.

(iii) If requested by Collateral Agent, each Grantor shall obtain or use commercially reasonable efforts to obtain waivers or subordinations of Liens from landlords and mortgagees, and each Grantor shall in all instances obtain signed acknowledgements of Collateral Agent’s Liens from bailees having possession of any Grantor’s Goods that they hold for the benefit of Collateral Agent.

(iv) If requested by Collateral Agent in writing, each Grantor shall obtain authenticated Control Letters from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor.

(v) Unless otherwise restricted by the Exit Facility, upon the occurrence of a Default, each Grantor shall obtain a blocked account, lockbox or similar agreement, as applicable, with each bank or financial institution holding a Deposit Account for such Grantor.

(vi) Unless otherwise restricted by the Exit Facility, if requested by Collateral Agent, each Grantor that is or becomes the beneficiary of a letter of credit shall promptly, and in any event within five (5) Business Days after becoming a beneficiary, notify Collateral Agent thereof and enter into a tri-party agreement with Collateral Agent and the issuer and/or confirmation bank with respect to Letter-of-Credit Rights assigning such Letter-of-Credit Rights to Collateral Agent and directing all payments thereunder to the Collection Account, all in form and substance reasonably satisfactory to Collateral Agent.

(vii) Unless otherwise restricted by the Exit Facility, if requested by Collateral Agent, each Grantor shall take all steps necessary to grant Collateral Agent control of all electronic chattel paper in accordance with the Code and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

(viii) Each Grantor hereby irrevocably authorizes Collateral Agent at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Grantor which is used in the conduct of the pharmaceutical business and the physical therapy business of the Company and its Subsidiaries, or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Code or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance of any financing statement or amendment, including (x) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor, and (y) in the case of a

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financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Each Grantor agrees to promptly furnish any such information as Collateral Agent shall request in writing. Each Grantor also ratifies its authorization for Collateral Agent to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

(ix) Each Grantor shall promptly, and in any event within five (5) Business Days after the same is acquired by it, notify Collateral Agent of any commercial tort claim (as defined in the Code) acquired by it, and if requested by the Collateral Agent, such Grantor shall enter into a supplement to this Security Agreement, granting to Collateral Agent a Lien in such commercial tort claim; provided that no Grantor shall be in default of this provision for failure to notify of any commercial tort claims unless the value of all commercial tort claims of Grantors for which no notice has been given hereunder shall be $250,000 or more.

(b) Maintenance of Records. Grantors shall keep and maintain, at their own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral.

(c) Covenants Regarding Patent, Trademark and Copyright Collateral.

(i) Grantors shall notify Collateral Agent immediately if they know or have reason to know that any application or registration relating to any material Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding any Grantor’s ownership of any material Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.

(ii) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Collateral Agent prior written notice thereof, and, upon request of Collateral Agent, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Collateral Agent may request to evidence Collateral Agent’s Lien on such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.

(iii) Grantors shall take all actions necessary or requested by Collateral Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the material Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of

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use, affidavits of noncontestability and opposition and interference and cancellation proceedings, each at Grantor’s expense.

(iv) In the event that any of the material Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, such Grantor shall comply with Section 5(a)(v) of this Security Agreement. Such Grantor shall, unless such Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Collateral Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral.

(d) Indemnification. In any suit, proceeding or action brought by Collateral Agent relating to any Collateral for any sum owing with respect thereto or to enforce any rights or claims with respect thereto, each Grantor will save, indemnify and keep Collateral Agent harmless from and against all reasonable expense (including reasonable attorneys’ fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the Account Debtor or other Person obligated on the Collateral, arising out of a breach by any Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from such Grantor, except to the extent such expense, loss, or damage is attributable solely to the negligence or willful misconduct of Collateral Agent as finally determined by a court of competent jurisdiction. All such obligations of Grantors shall be and remain enforceable against and only against Grantors and shall not be enforceable against Collateral Agent or Trustee, Bondholders, Claims Agent, Class 10 Holders or Vendor Claim Holders.

(e) Compliance with Terms of Accounts, etc. Each Grantor will perform and comply in all material respects with all obligations in respect of the Collateral and all other agreements to which it is a party or by which it is bound relating to the Collateral.

(f) Limitation on Liens on Collateral. No Grantor will create, permit or suffer to exist, and each Grantor will defend the Collateral against, and take such other action as is necessary to remove, any material Lien on the Collateral except Permitted Liens, and will defend the right, title and interest of Collateral Agent in and to any of such Grantor’s rights under the Collateral against the material claims and demands of all Persons whomsoever, in each case defended in accordance with Collateral Agent’s request and at Grantor’s expense.

(g) Limitations on Disposition. No Grantor will sell, license, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Indenture.

(h) Further Identification of Collateral. Grantors will, if so requested by Collateral Agent, furnish to Collateral Agent, as often as Collateral Agent reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in

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connection with the Collateral as Collateral Agent may reasonably request, all in such detail as Collateral Agent may reasonably specify.

(i) Notices. Grantors will advise Collateral Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Liens) or claim made or asserted against any of the Collateral, (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder and (iii) updates of any of the schedules to this Security Agreement to the extent necessary to keep them accurate on an ongoing basis in all material respects.

(j) No Reincorporation. Without limiting the prohibitions on mergers involving the Grantors contained in the Indenture, no Grantor shall reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof or change its name without providing 30 days prior written notice to Collateral Agent and taking all action necessary to maintain the perfection of the security interests in accordance with this Security Agreement.

(k) Terminations; Amendments Not Authorized. Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of Collateral Agent and agrees that it will not do so without the prior written consent of Collateral Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the Code.

(l) Authorized Terminations. Collateral Agent will promptly deliver to each Grantor for filing or authorize each Grantor to prepare and file termination statements and releases in accordance with the Indenture.

6. COLLATERAL AGENT’S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date each Grantor shall execute and deliver to Collateral Agent a power of attorney (the “Power of Attorney”) substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the termination of this Security Agreement in accordance with its terms. The powers conferred on Collateral Agent under the Power of Attorney are solely to protect Collateral Agent’s interests (for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders) in the Collateral and shall not impose any duty upon Collateral Agent, Trustee or Claims Agent to exercise any such powers. Collateral Agent agrees that (a) except for the powers granted in clause (h) of the Power of Attorney, it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Collateral Agent shall account for any moneys received by Collateral Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that none of Collateral Agent, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee or Bondholders shall have any duty as to any Collateral, and Collateral Agent, Claims Agent, Class 10 Holders, Trustee and Bondholders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF COLLATERAL AGENT, CLAIMS AGENT, CLASS 10 HOLDERS, VENDOR CLAIM HOLDERS, TRUSTEE OR BONDHOLDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE

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RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

7. REMEDIES: RIGHTS UPON DEFAULT.

(a) In addition to all other rights and remedies granted to it under this Security Agreement, the Indenture, the other Security Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Collateral Agent may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, each Grantor expressly agrees that in any such event Collateral Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon such Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of such Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving such Grantor or any other Person notice and opportunity for a hearing on Collateral Agent’s claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, license, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Collateral Agent shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Collateral Agent, the Claims Agent, the Class 10 Holders and the Vendor Claim Holders and for the benefit of the Trustee and the Bondholders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption each Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Collateral Agent shall have the right to conduct such sales on any Grantor’s premises or elsewhere and shall have the right to use any Grantor’s premises without charge for such time or times as Collateral Agent deems necessary or advisable.

If any Event of Default shall have occurred and be continuing, each Grantor further agrees, at Collateral Agent’s request, to assemble the Collateral and make it available to Collateral Agent at a place or places designated by Collateral Agent which are reasonably convenient to Collateral Agent and such Grantor, whether at such Grantor’s premises or elsewhere. Until Collateral Agent is able to effect a sale, lease or other disposition of Collateral, Collateral Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Collateral Agent. Collateral Agent shall have no obligation to any Grantor to maintain or preserve the rights of such Grantor as against third parties with respect to Collateral while Collateral is in the possession of Collateral Agent. Collateral Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral

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and to enforce any of Collateral Agent’s remedies (for the benefit of the Claims Agent and the Class 10 Holders and the Vendor Claim Holders and for the benefit of the Trustee and the Bondholders), with respect to such appointment without prior notice or hearing as to such appointment. Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Collateral Agency Agreement, and only after so paying over such net proceeds, and after the payment by Collateral Agent of any other amount required by any provision of law, need Collateral Agent account for the surplus, if any, to any Grantor. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against Collateral Agent, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee or Bondholders arising out of the repossession, retention or sale of the Collateral except such as arise solely out of the negligence or willful misconduct of Collateral Agent or Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee or Bondholders as finally determined by a court of competent jurisdiction. Each Grantor agrees that ten (10) days’ prior notice by Collateral Agent to Grantor of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantors shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including any reasonable attorneys’ fees and other expenses incurred by Collateral Agent or Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee or Bondholders to collect such deficiency.

(b) Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

(c) Neither Collateral Agent nor the Trustee shall be required to make any demand upon, or pursue or exhaust any of their rights or remedies against, any Grantor, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof. Neither Collateral Agent nor Trustee shall be required to marshal the Collateral or any guarantee of the Obligations or to resort to the Collateral or any such guarantee in any particular order, and all of its and their rights hereunder or under any other Security Document shall be cumulative. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against Collateral Agent, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee or Bondholders, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise.

8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Collateral Agent to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to Collateral Agent, for the benefit of Collateral Agent, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and

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Bondholders, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

9. LIMITATION ON COLLATERAL AGENT’S DUTY IN RESPECT OF COLLATERAL. Collateral Agent shall use reasonable care with respect to the Collateral in its possession or under its control. Collateral Agent shall have no other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Collateral Agent, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

10. REINSTATEMENT. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Collateral Agency Agreement.

12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Indenture and the other Security Documents which, taken together, set forth the complete understanding and agreement of Collateral Agent, Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee, Bondholders and Grantors with respect to the matters referred to herein and therein.

13. NO WAIVER: CUMULATIVE REMEDIES. None of Collateral Agent or Trustee or Claims Agent shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing,

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signed by Collateral Agent and then only to the extent therein set forth. A waiver by Collateral Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Collateral Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Collateral Agent or Trustee or Claims Agent, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Collateral Agent and Grantors.

14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law.

15. TERMINATION OF THIS SECURITY AGREEMENT; RELEASE OF COLLATERAL.

(a) Subject to Section 10 hereof, this Security Agreement shall terminate as set forth in Section 7.08 of the Collateral Agency Agreement and the Collateral shall be released from the Lien created hereby upon payment and performance in full of the Obligations (other than contingent indemnification obligations for which no claims have been asserted). Upon such termination, and at the request and sole expense of the Grantors, Collateral Agent shall execute and deliver such documents as the Grantors shall reasonably request to evidence such termination.

(b) If any Collateral shall be sold, conveyed, or disposed of in compliance with the provisions of the Indenture, the Lien of the Collateral Agent pursuant to this Security Agreement on such Collateral shall be released automatically. Collateral Agent shall execute deliver such documents as any Grantor shall reasonably request at the cost of Grantor to evidence such release.

(c) If any Grantor (other than the Company) shall cease to be a Subsidiary of the Company in a transaction that complies with the provisions of the Indenture, then such Grantor shall automatically cease to be a Grantor under this Security Agreement and shall be releases from all of its obligations under this Security Agreement and the Collateral of such Grantor shall be release from the created hereby. Collateral Agent shall execute deliver such documents as the Company or such Grantor shall reasonably request at the cost of Grantor to evidence such release.

16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantors hereunder shall be binding upon the successors and assigns of each Grantor (including

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any debtor-in-possession on behalf of such Grantor) and shall, together with the rights and remedies of Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, hereunder, inure to the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Collateral Agent, for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, hereunder. No Grantor may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement.

17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTORS, COLLATERAL AGENT, CLAIMS AGENT, CLASS 10 HOLDERS, VENDOR CLAIM HOLDERS, TRUSTEE AND BONDHOLDERS PERTAINING TO THIS SECURITY AGREEMENT OR THE INDENTURE OR ANY OF THE OTHER SECURITY DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS, PROVIDED, THAT COLLATERAL AGENT, THE CLAIMS AGENT, CLASS 10 HOLDERS, VENDOR CLAIM HOLDERS, TRUSTEE AND BONDHOLDERS AND GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE COLLATERAL AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF COLLATERAL AGENT. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY NEW YORK COURT, AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NQN CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT

E-15

SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH ON SCHEDULE III TO THE SECURITY AGREEMENT OR AT SUCH OTHER ADDRESS AS SUCH GRANTEE SHALL STATE IN NOTICES DELIVERED PURSUANT TO THE COLLATERAL AGENCY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG COLLATERAL AGENT, CLAIMS AGENT, CLASS 10 HOLDERS, TRUSTEE, BONDHOLDERS AND GRANTORS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

20. SECTION TITLES. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

21. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement.

22. ADVICE OF COUNSEL. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and, Section 19. with its counsel.

23. BENEFIT OF HOLDERS. All Liens granted or contemplated hereby shall be for the benefit of Collateral Agent for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Collateral Agency Agreement.

[Signature page follows]

E-16

IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

FOUNTAIN VIEW, INC.

By:

Name:

Ttile:

[GUARANTORS
By:
Name:
Ttile:	]

U.S. BANK NATIONAL ASSOCIATION, as Collateral Agent

By:

Name:

Ttile:

E-17

SCHEDULE A

“Account Debtor” means any Person who may become obligated to any Grantor under, with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a payment intangible).

“Accounts” shall mean all “accounts” (as defined in the Code) of any Grantor, including without limitation, accounts, accounts receivables, monies due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, Instruments, General Intangibles or Chattel Paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.

“Agreements” shall mean, collectively, the Revolving Credit Facility, the Refinancing Senior Loan Agreements, if any, the Bondholder Agreements and the General Claim Agreements.

“Bank Midwest Amended and Restated Note” means the amended and restated promissory note(s) in an aggregate maximum principal amount not to exceed $5,633,333 to be issued by New Woodlands Entity to Bank Midwest, N.A. pursuant to the Plan, the repayment of which is secured by that certain deed of trust and security agreement dated December 1, 1993 and assigned to Bank Midwest by instrument dated July 17, 2001.

“Bergen Note” means the promissory note in a principal amount of $             to be issued by Summit Care Pharmacy to AmerisourceBergen Drug Corporation (or its designee) pursuant to the Plan, the repayment of which is secured by Liens contained in that certain security agreement dated March 29, 2001.

“Bondholder Agreements” shall mean, collectively, the Indenture, the Notes, the Collateral Agency Agreement (to the extent such agreement relates to the Bondholders) and all agreements, documents and instruments now or at any time hereafter executed and/or delivered by the Bondholder Obligors or any other Person to, with or in favor of the Indenture Trustee, the Bondholders or the Collateral Agent in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

“Bondholder Obligations” shall mean all debts, liabilities and obligations of any kind or nature owed to the Bondholders, the Indenture Trustee or the Collateral Agent under the Bondholder Agreements.

“Bondholder Obligors” shall mean Obligors and any other obligors under the Bondholder Agreements from time to time and shall include their respective successors and assigns.

“Bondholders” shall have the meaning assigned in the Preamble to this Security Agreement.

Sch. A-1

“Capital Lease Obligation” of any Person means the obligation to pay rent or other payment amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

“Capital Stock” means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“CapitalSource” shall mean CapitalSource Finance LLC, a Delaware limited liability company.

“Chattel Paper” means any “chattel paper” as such term is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by any Grantor.

“Claims Agency Agreement” shall mean that certain General Claim Holder Agency Agreement by and between              and the Company, made and entered into on or about the date of this Agreement.

“Class 10 Deferred Obligations” shall have the meaning provided in the Plan of Reorganization.

“Code” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York; provided, that to the extent that the Code is used to define any term in the Security Agreement and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided, further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the Collateral Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

“Collateral Agent” shall have the meaning assigned in the Preamble to this Security Agreement.

“Collateral Agency Agreement” shall mean that certain Collateral Agency Agreement by and among the Company, the Subsidiaries party thereto, the Claims Agent, the Trustee and the Collateral Agent.

Sch. A-2

“Continuing Creditor Deferred Obligations” shall have the meaning provided in the Plan of Reorganization.

“Contracts” shall mean all “contracts,” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Grantor may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account.

“Control Letter” means a letter agreement between Collateral Agent and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Grantor, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Grantor, (iii) a futures commission merchant or clearing house with respect to commodity accounts and commodity contracts held by any Grantor, whereby, among other things, the issuer, securities intermediary or futures commission merchant disclaims any security interest in the applicable financial assets, acknowledges the Lien of Collateral Agent, on behalf of Claims Agent, the Class 10 Holders and the Vendor Claim Holders and for the benefit of the Trustee and the Bondholders, on such financial assets, and agrees to follow the instructions or entitlement orders of Administrative Agent without further consent by the affected Grantor.

“Copyright License” shall mean any and all rights now owned or hereafter acquired by any Grantor under any written agreement granting any right to use any Copyright or Copyright registration.

“Copyrights” shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all copyrights and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registration and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof.

“Deposit Account” shall mean all bank or other depository accounts of any Grantor.

“Documents” means all “documents” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located.

“Equipment” means all “equipment” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located and, in any event, including all such Grantor’s machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment, including embedded software and peripheral equipment and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, together-with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes

Sch. A-3

for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto.

“Exit Facility” means the Revolving Credit Facility and the Mezzanine Loan Facility.

“Fixtures” means all “fixtures” as such term is defined in the Code, now owned or hereafter acquired by any Grantor.

“General Claim Agreements” shall mean, collectively, the provisions of the Plan of Reorganization which set forth the provisions of the General Claims, the Claims Agency Agreement, the Collateral Agency Agreement (to the extent such agreement relates to the General Claim Holders) and all agreements, documents and instruments now or at any time hereafter executed and/or delivered by the Obligors or any other Person to, with or in favor of the Collateral Agent, the Claims Agent or the General Claim Holders in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

“General Claim Holders” shall mean the holders of the General Claims and all of their respective successors and assigns.

“General Claim Obligations” shall mean the General Claims and all principal, interest and other amounts payable or chargeable in connection with the General Claim Agreements.

“General Claims” shall mean, collectively, the Class 10 Deferred Obligations, the Continuing Creditor Deferred Obligations and the Vendor Lien Obligations.

“General Intangibles” means all “general intangibles” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, including all right, title and interest that such Grantor may now or hereafter have in or under any Contract, all payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged Stock and Investment Property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Grantor or any computer bureau or service company from time to time acting for such Grantor.

Sch. A-4

“General Intercreditor Agreement” shall mean that certain Intercreditor Agreement dated as of the date hereof by and among CapitalSource Finance LLC (“CapitalSource”), a Delaware limited liability company, as agent for itself and the other lenders under the Revolving Credit Facility, CapitalSource as agent for itself and the other lenders under the Mezzanine Loan Facility, the Collateral Agent, the Trustee,             , as claims agent,             , as Term Loan B Lender, the Company and each of the Obligors signatory thereto.

“Goods” means all “goods” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, including embedded software to the extent included in “goods” as defined in the Code, manufactured homes, standing timber that is cut and removed for sale and unborn young of animals.

“Government Accounts” shall be defined to mean all Accounts arising out of or with respect to any Government Contract.

“Government Contracts” shall be defined to mean all contracts with any Government Authority, and all amendments thereto.

“Governmental Authority” shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.

“Indebtedness” means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person (including reimbursement obligations with respect thereto) (other than letters of credit securing obligations entered into in the ordinary course of business to the extent such letters of credit are fully cash collateralized using funds provided by the Exit Facility), (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements), (v) every Capital Lease Obligation of such Person, (vi) Hedging Obligations of such Person and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or is responsible or liable for, directly or indirectly, as obligor, Guarantor or otherwise. The “amount” or “principal amount” of Indebtedness at any time of determination as used herein will be (a) the maximum principal amount thereof in the case of any contingent Indebtedness, (b) the accreted value thereof, in the case of any Indebtedness issued at a price that is less than the principal amount at maturity thereof, and (c) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. In no event shall “Indebtedness” include any trade payable or accrued expenses arising in the ordinary course of business which are not more than 180 days past due or which are being contested in good faith and by appropriate proceedings.

Sch. A-5

“Indenture Trustee” shall mean U.S. Bank National Association, in its capacity as trustee for the Bondholders under the Indenture and its successors and assigns in such capacity.

“Instruments” means all “instruments” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

“Intellectual Property” shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists.

“Inventory” shall mean all “inventory” (as defined in the Code) of any Grantor now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.

“Investment Property” means all “investment property” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, including (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Grantor, including the rights of any Grantor to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts of any Grantor; (iv) all commodity contracts of any Grantor; and (v) all commodity accounts held by any Grantor.

“Letter-of-Credit Rights” means all “letter-of-credit rights” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, including rights to payment or performance under a letter of credit, whether or not such Grantor, as beneficiary, has demanded or is entitled to demand payment or performance.

“License” shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Grantor.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

“Mezzanine Loan Facility” means a $23,000,000 aggregate principal amount term loan facility provided by             , pursuant to that certain Mezzanine Loan Agreement dated             , 2003 between              and the borrowers thereunder, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time.

Sch. A-6

“New Woodlands Entity” means, collectively, The Woodlands Resource Management, LP, a Delaware limited partnership, and The Woodlands Healthcare Center, LP, a Delaware limited partnership.

“Non-Recourse Debt” means Indebtedness: (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender; (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries, except, in each case, for any environmental indemnity and non-recourse carve-outs not broader than those provided for in the Senior Mortgage Loan.

“Notes” shall have the meaning assigned in the Preamble to this Security Agreement.

“Obligations” means the Bondholder Obligations and the General Claim Obligations.

“Obligor” and collectively the “Obligors” mean the Company and each of its subsidiaries that are signatories to the General Intercreditor Agreement, and shall include each other Person obligated as a borrower, guarantor or obligor under any of the Agreements from time to time, and all of their respective direct and indirect subsidiaries and successors and assigns.

“Patent License” shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right with respect to any invention on which a patent is in existence.

“Patents” shall mean all of the following in which any Grantor now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof.

“Permitted Liens” means (i) Liens on assets of the Company, any of its Restricted Subsidiaries or any of the Guarantors securing the Exit Facility, the Senior Mortgage Loan, the Woodlands Place Note or the Union Bank Note; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property or assets existing at the time of acquisition thereof or the acquisition of a Person owning such property or assets by the Company or any Restricted Subsidiary of the Company,

Sch. A-7

provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any assets other than the acquired property and accessions and additions thereto and proceeds thereof; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bond or other obligations of a like nature Incurred in the ordinary course of business; (vi) Liens to secure Capital Lease Obligations and mortgage financing or purchase money obligations of the type (but without reference to any restrictions on amount) described in clause (viii) of Section 4.10 of the Indenture that are permitted to be Incurred pursuant to the terms of the Indenture covering only the assets acquired with such Indebtedness and proceeds thereof, provided, however, that (a) the principal amount of any Indebtedness secured by such a Lien does not exceed 100% of such purchase price or cost, (b) such a Lien is created within 180 days of the construction, acquisition or improvement of such property and does not extend to or cover any other property other than such item of property and any improvements or accessions thereto and proceeds thereof and (c) the Incurrence of such Indebtedness is otherwise permitted by the Indenture; (vii) Liens existing on the date of the Indenture listed on Schedule V thereto; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (x) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on the assets of New Woodlands Entity securing the Bank Midwest Amended and Restated Note; (xii) Liens on the assets of Summit Care Pharmacy securing the Bergen Note; (xiii) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii), (iv), (vi), (vii), (xi) and (xii) so long as such Lien does not extend to any other property and the principal amount of Indebtedness so secured is not increased; (xiv) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xv) Liens on assets or Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.

“Permits” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other rights.

“Person” shall mean an individual, a partnership, a limited liability company, a corporation (including a business trust), a joint stock company, a trust, an unincorporated association, a joint venture, or other entity or a government or any agency, instrumentality or political subdivision thereof.

Sch. A-8

“Proceeds” means “proceeds” as such term is defined in the Code, including (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Grantor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Grantor against third parties (i) for past, present or future infringement of any Patent or Patent License or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Grantor against third parties with respect to any litigation or dispute concerning any of the Collateral including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in, or damage to, Collateral, (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property and pledged Stock, and (f) any and all other amounts, rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral.

“Revolving Credit Facility” means the revolving credit facilities in an outstanding aggregate principal amount not to exceed $37,000,000 evidenced by (i) the Revolving Credit and Security Agreement dated as of             , 2003, by and among the Guarantors, the Company and CapitalSource Finance LLC, and (ii) the Revolving Credit and Security Agreement dated as of             , 2003, by and among the borrowers thereunder, and CapitalSource, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time.

“Refinancing Senior Lenders” shall mean the lenders from time to time under the Refinancing Senior Loan Agreements.

“Refinancing Senior Loan Agreements” shall mean, collectively, all agreements, documents and instruments now or at any time hereafter executed and/or delivered by any or any other Person to, with or in favor of the Refinancing Senior Lenders in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, supplemented, modified or restated from time to time.

“Senior Mortgage Loan” means that certain loan issued pursuant to that certain Loan Agreement between Column Financial, Inc., a Delaware corporation and the borrowers thereunder, in an outstanding aggregate principal amount not to exceed $95,000,000, including any related guarantees, collateral documents, instruments and agreements, as such may be amended, modified, renewed, refunded, replaced (within 2 Business Days) or refinanced, but not increased, from time to time.

“Software” means all “software” as such term is defined in the Code, now owned or hereafter acquired by any Grantor, other than software embedded in any category of goods, including all computer programs and all supporting information provided in connection with a transaction related to any program.

Sch. A-9

“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).

“Summit Care Pharmacy” means Summit Care Pharmacy, Inc., a Restricted Subsidiary of the Company.

“Supporting Obligations” means all “supporting obligations” as such term is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments or Investment Property.

“Trademark License” shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right to use any Trademark.

“Trademarks” shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing.

“Uniform Commercial Code Jurisdiction” means any jurisdiction that had adopted all or substantially all of Article 9 as contained in the 2000 Official Text of the Uniform Commercial Code, as recommended by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, together with any subsequent amendments or modifications to the Official Text.

“Union Bank Note” means that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 issued by [Summit Care Corporation] to Union Bank of California, N.A. with an outstanding principal balance of $823,333.04 on the date of the Indenture and secured by certain real and personal property located in Burbank, California, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001.

“Vendor Lien Obligations” shall mean the obligations that are secured by the Vendor’s Lien.

“Vendor’s Lien” shall have the meaning provided in the Plan of Reorganization.

Sch. A-10

“Woodlands Place Note” is that certain promissory note in the original principal amount of $1,887,866.62 and to be issued by New Woodlands Entity to Woodlands Place Nursing Center, L.P. pursuant to the Plan, the repayment of which is secured by that certain Warranty Deed with Vendor’s Lien dated December 1, 1993.

Sch. A-11

EXHIBIT A

POWER OF ATTORNEY

This Power of Attorney is executed and delivered by Fountain View, Inc., a Delaware corporation [or Insert Subsidiary name] (“Grantor”), to U.S. Bank National Association (hereinafter referred to as “Attorney”), as Collateral Agent for the benefit of Claims Agent, Class 10 Holders, Vendor Claim Holders, Trustee and Bondholders, under that certain Security Agreement, dated as of             , 2003, and other related documents (as amended from time to time, the “Security Documents”). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below (but Collateral Agent shall be required to request to such Person that it is entitled to take such action pursuant to the Security Agreement), or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is subject to that certain Intercreditor Agreement dated as of                          , 2003, by and among CapitalSource Finance LLC, a Delaware limited liability company, as agent for itself and the other lenders under the Revolving Credit Facility, CapitalSource as agent for itself and the other lenders under the Mezzanine Loan Facility, the Collateral Agent,             , as claims agent,             , as Term Loan B Lender, the Company and each of the Obligors signatory thereto, and to the extent that any provisions contained herein are inconsistent, the Intercreditor Agreement shall control. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney’s written consent.

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to perfect the Lien of Attorney granted pursuant to the Security Agreement, and without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property other than those being contested by Grantor in accordance with the Security Agreement; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such

Exh. A-1

suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor’s property; (f) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; (g) to file such financing statements and amendments thereto and continuation statements with respect to the Security Agreement, as Collateral Agent may deem appropriate to perfect the security interest in the collateral granted pursuant to the Security Agreement; and (h) execute, in connection with any sale provided for in any Security Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney’s option and Grantor’s expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor’s property or assets and Attorney’s Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor, and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this             day of             , 2003.

[INSERT NAME]

By:

Name:

Title:

NOTARY PUBLIC CERTIFICATE

On this              day of             , 2001, [officer’s name] who is personally known to me appeared before me in his/her capacity as the [title] of [            ] (“Grantor”) and executed on behalf of Grantor the Power of Attorney in favor of U.S. Bank National Association to which this Certificate is attached.

Notary Public

Exh. A-2

SCHEDULE I

EXISTING AFFILIATE TRANSACTIONS

SCH I-1

SCHEDULE II

GUARANTORS

Summit Care Corporation

Summit Care Pharmacy, Inc.

Alexandria Care Center, Inc.

Brier Oak on Sunset, Inc. Elmcrest Care Center, Inc.

Hancock Park Rehabilitation Center, Inc.

Hancock Park Senior Assisted Living, Inc.

Fountain View Subacute and Nursing Center, Inc.

Rio Hondo Subacute and Nursing Center, Inc.

Sycamore Park Care Center, Inc.

Anaheim Terrace Care Center, LLC

Bay Crest Care Center, LLC

Alta Care Center, LLC

Royalwood Care Center, LLC

Sharon Care Center, LLC

Woodland Care Center, LLC

Carson Senior Assisted Living, LLC

Hemet Senior Assisted Living, LLC

Montebello Care Center, LLC

Summit Care Texas, LP

Summit Care Management Texas, LLC

Hallmark Investment Group, Inc.

Hallmark Rehabilitation, LLC

Hallmark Rehabilitation, LP

Leasehold Resource Group, LLC

Skilled Healthcare, LLC

SCH II-1

SCHEDULE III

MEZZANINE LOAN BORROWERS

SHG Property Resources, LLC

SHG Investments, LLC

SCH III-1

SCHEDULE IV

PERMITTED JOINT VENTURES

APS – Summit Care Pharmacy, L.L.C.

SCHEDULE V

EXISTING LIENS

SCH V-1

None

SCHEDULE VI

REVOLVING CREDIT FACILITY BORROWERS

Borrowers:

Carehouse Healthcare Center, LLC

Devonshire Care Center, LLC

The Earlwood, LLC

Fountain Care Center, LLC

Fountain Senior Assisted Living, LLC

Spring Senior Assisted Living, LLC

Valley Healthcare Center, LLC

Villa Maria Healthcare Center, LLC

Willow Creek Healthcare Center, LLC

Texas Cityview Care Center, LP

Clairmont Beaumont, LP

Clairmont Longview, LP

The Clairmont Tyler, LP

Colonial New Braunfels Care Center, LP

Colonial Tyler Care Center, LP

Coronado Nursing Center, LP

Hallesttsville Rehabilitation and Nursing Center, LP

Texas Heritage Oaks Nursing and Rehabilitation Center, LP

Hospitality Nursing and Rehabilitation Center, LP

Monument Rehabilitation and Nursing Center, LP

Oak Crest Nursing Center, LP

Flatonia Oak Manor, LP

Oakland Manor Nursing Center, LP

Southwood Care Center, LP

Town and Country Manor, LP

West Side Campus of Care, LP

Comanche Nursing Center, LP

Guadalupe Valley Nursing Center, LP

Briarcliff Nursing and Rehabilitation Center, LP

Live Oak Nursing Center, LP

SCH VI-1

SCHEDULE VII

SENIOR MORTGAGE LOAN BORROWERS

California Secured Resources, LLC

Texas Secured Resources, LLC

SHG Secured Resources, LP

Carehouse Healthcare Center, LLC

Devonshire Care Center, LLC

The Earlwood, LLC

Fountain Care Center, LLC

Fountain Senior Assisted Living, LLC (Ashton Court)

Spring Senior Assisted Living, LLC

Valley Healthcare Center, LLC

Villa Maria Healthcare Center, LLC

Willow Creek Healthcare Center, LLC

Texas Cityview Care Center, LP

Clairmont Beaumont, LP

Clairmont Longview, LP

The Clairmont Tyler, LP

Colonial New Braunfels Care Center, LP

Colonial Tyler Care Center, LP

Coronado Nursing Center, LP

Hallesttsville Rehabilitation and Nursing Center, LP

Texas Heritage Oaks Nursing and Rehabilitation Center, LP

Hospitality Nursing and Rehabilitation Center, LP

Monument Rehabilitation and Nursing Center, LP

Oak Crest Nursing Center, LP

Flatonia Oak Manor, LP

Oakland Manor Nursing Center, LP

Southwood Care Center, LP

Town and Country Manor, LP

West Side Campus of Care, LP

Comanche Nursing Center, LP

Guadalupe Valley Nursing Center, LP

Briarcliff Nursing and Rehabilitation Center, LP

Live Oak Nursing Center, LP

SCH VII-1

EX-99.(T)(3)(E-1)

EXHIBIT T3E_1

DANIEL J. BUSSEL (State Bar No. 121939),

MICHAEL L. TUCHIN (State Bar No. 150375), and

BRENDT C. BUTLER (State Bar No. 211273), Attorneys with

KLEE, TUCHIN, BOGDANOFF & STERN LLP

1880 Century Park East, Suite 200

Los Angeles, California 90067-1698

Telephone:    (310) 407-4000

Facsimile:     (310) 407-9090

New Address Effective May 5, 2003:

2121 Avenue of the Stars, 33rd Floor

Los Angeles, California 90067-5061

Reorganization Counsel for

Debtors and Debtors in Possession

Debtors’ Mailing Address

27442 Portola Parkway, Suite 200

Foothill Ranch, CA 92610

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

In re:

FOUNTAIN VIEW, INC., a Delaware corporation, et al.

Debtors.

Case No.:	LA 01-39678 BB through
	LA 01-39697 BB
And	LA 01-45516 BB; LA 01-45520 BB; and LA 01-45525 BB

(Jointly Administered under Case No. LA 01-39678 BB)

Chapter 11

DEBTORS’ DISCLOSURE STATEMENT DATED APRIL 22, 2003

Disclosure Statement Hearing Held:

Date:	April 15, 2003
Time:	2:00 p.m.

Confirmation Hearing Set For:

Date:	July 3, 2003
Time:	11:00 a.m.
Place:	Courtroom 1475
	Royal Federal Building
	255 E. Temple Street
	Los Angeles, CA 90021

[THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE UNITED STATES BANKRUPTCY COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA (THE “BANKRUPTCY COURT”) UNDER SECTION 1125(b) OF THE BANKRUPTCY CODE FOR USE IN THE SOLICITATION OF ACCEPTANCES OF THE PLAN OF REORGANIZATION DESCRIBED HEREIN. ACCORDINGLY, THE FILING AND DISTRIBUTION OF THIS DISCLOSURE STATEMENT IS NOT INTENDED, AND SHOULD NOT BE CONSTRUED, AS A SOLICITATION OF ACCEPTANCES OR REJECTIONS OF SUCH PLAN OF REORGANIZATION. THE INFORMATION CONTAINED HEREIN SHOULD NOT BE RELIED UPON FOR ANY PURPOSE BEFORE A DETERMINATION BY THE BANKRUPTCY COURT THAT THIS DISCLOSURE STATEMENT CONTAINS “ADEQUATE INFORMATION” WITHIN THE MEANING OF SECTION 1125(a) OF THE BANKRUPTCY CODE.]¹

¹ [Legend to be removed upon entry by the Clerk of the Bankruptcy Court of the Order of the Bankruptcy Court approving this Disclosure Statement.]

SUMMARY INFORMATION
Debtors:	Fountain View, Inc. and 22 direct and indirect subsidiaries.
Recommendation:	The Debtors, the Creditors’ Committee, and the Noteholders’ Committee recommend that you vote to accept the Plan.
Vote Required to Accept the Plan:	With respect to Claims, acceptance of the Plan requires the affirmative vote of two-thirds in amount and a majority in number of Allowed Claims actually voted in each Class of Impaired Claims entitled to vote. With respect to Interests, acceptance of the Plan requires the affirmative vote of two-thirds in amount of the Allowed Interests actually voted in each Class of Impaired Interests entitled to vote. Only entities holding Claims or Interests in Classes 1, 2, 6, 9, 10, 12, 13, 14, 15, 17, and 18 are entitled to vote. If any of these Classes rejects the Plan, however, the Court may nevertheless confirm the Plan if the requirements of Bankruptcy Code section 1129(b) for nonconsensual confirmation are satisfied.
Voting Information:	If you are entitled to vote, you should have received a ballot with this Disclosure Statement. Except for the holders of the 11¼% Notes, after completing and signing your ballot, you should return it to:
	Klee, Tuchin, Bogdanoff & Stern LLP
	Attn: Shanda D. Ellingwood, Paralegal (Ballot Tabulator)
	2121 Avenue of the Stars, 33rd Floor
	Los Angeles, CA 90067
	Facsimile: (310) 407-9090
	To be counted, holders of Class 9 Claims (11¼% Notes) must return their Beneficial Holder Ballots so that they are received by their respective financial intermediaries by June 4, 2003. To be counted, all other ballots must be received by Klee, Tuchin, Bogdanoff & Stern LLP at the address above by no later than 5:00 p.m. Pacific Time on June 6, 2003.
Class 10 Elections:	Holders of General Unsecured Claims classified in Class 10 have the right to make two elections at the time the holder votes to accept or reject the Plan. Such holders may elect to accept $1,000 in full satisfaction of all their Class 10 Claims (the “Convenience Class Election”). Those holders of Class 10 Claims not making the Convenience Class Election may elect either payment Option 10A (80% cash payment) or payment Option 10B (deferred payment). Class 10 holders who do not make a valid election will be deemed to have elected payment Option 10B. Option 10B will provide the electing holder with deferred cash payments with a present value equal to such holder’s Allowed Claim. Any holder that makes the Convenience Class Election but holds aggregate Class 10 Claims in excess of $1,250 will receive cash equal to 80% of such holder’s Allowed Claims without postpetition interest.
Confirmation Hearing:	The Confirmation Hearing will be held on July 3, 2003 at 11:00 a.m. Pacific Time. The Confirmation Hearing may be continued from time to time without further notice.
Treatment of Claims and Interests:	The treatment that creditors and shareholders receive if the Court confirms the Plan is set forth in the Plan and summarized in Section X hereof. The terms of the Plan are controlling, and all creditors, shareholders and interested parties are urged to read the Plan in its entirety.
Effective Date:	The Plan’s Effective Date will be the first Business Day (i) that is at least 11 days after the Confirmation Date; (ii) on which no stay of the Confirmation Order is in effect; and (iii) on which all of the conditions set forth in Section IV.O of the Plan have been satisfied or waived in accordance with the Plan.
Questions:	All inquiries about the Plan or this Disclosure Statement should be in writing and should be sent to:
	Klee, Tuchin, Bogdanoff & Stern LLP
	Attn: Brendt C. Butler, Esq.
	2121 Avenue of the Stars, 33rd Floor
	Los Angeles, CA 90067
	Facsimile: (310) 407-9090
IMPORTANT NOTICE:	The Plan, Disclosure Statement, and ballots contain important information that is not included in this summary. That information could materially affect your rights. You should, therefore, read the Plan, Disclosure Statement, and ballots in their entirety. You should also consult with your legal and financial advisors before voting on the Plan, if you have questions about the effect of the Plan on your Claims or Interests.

TABLE OF CONTENTS

				Page
I.	INTRODUCTION AND EXECUTIVE SUMMARY			1
II.	GENERAL DISCLAIMERS AND INFORMATION			6
III.	WHO MAY VOTE TO ACCEPT OR REJECT THE PLAN			8
	A.	Allowed Claims and Interests		8
	B.	Impaired Claims and Interests		10
IV.	VOTES NECESSARY TO CONFIRM THE PLAN			11
V.	INFORMATION REGARDING VOTING IN THESE CASES			11
	A.	Voting Instructions		11
	B.	Convenience Class Election		12
VI.	CRAMDOWN: TREATMENT OF NON-CONSENTING CLASSES			14
VII.	WHO MAY OBJECT TO PLAN CONFIRMATION			14
VIII.	HISTORY AND DESCRIPTION OF THE DEBTORS’ BUSINESSES AND EVENTS PRECIPITATING THESE REORGANIZATION CASES			15
	A.	Description of the Debtors’ Businesses		15
		1.	Basic Healthcare Services	17
		2.	Specialty Medical Care	19
		3.	Alzheimer’s Care	19
		4.	Therapy Services	20
		5.	Pharmacy Services	20
		6.	Durable Medical Equipment	20
	B.	Prepetition Capital Structure of the Debtors		20
	C.	The Debtors’ Insurance Coverage		22
	D.	The Debtors’ Board of Directors		25
		1.	Keith Abrahams	25
		2.	Michael F. Gilligan	25
		3.	Scott Gross	26
		4.	Peter Z. Hermann	26
		5.	Mark J. Jrolf	26

i

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				Page
	6.	Timothy Parris		27
	7.	Michel Reichert		27
	8.	William C. Scott		27
	9.	Robert M. Snukal		27
	10.	Sheila S. Snukal		28
E.	The Debtors’ Management Team			29
	1.	Previous Management		29
	2.	Interim Management		30
	3.	The New Management Team		30
		a.	Boyd Hendrickson, Chief Executive Officer	31
		b.	Jose Lynch, President	31
		c.	Roland Rapp, General Counsel	32
		d.	John Harrison, Chief Financial Officer	32
		e.	Lori Stewart, Vice President of Human Resources	32
		f.	Brad Gibson, Vice President of Operations Finance	33
		g.	Mark Wortley, President of Locomotion Therapy, Inc	33
		h.	Kelly Atkins, Vice President for California Long-Term Care	33
		i.	Eddie Parades, Senior Vice President of Operations for Texas	33
	4.	Executive Employment Agreements		33
F.	Assets and Liabilities of the Debtors’ Estates			38
	1.	Assets		38
	2.	Long-Term Debt		39
		a.	Facility Level Debt	39
		b.	Secured Obligations	40
		c.	Public Debt	41

ii

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					Page
			d.	Other Material Secured Obligations	41
			e.	Unsecured Obligations	42
	G.	The Debtors’ Revenue Sources			42
			a.	Medicare	43
			b.	Medicaid/Medi-Cal	44
			c.	Private and Managed Care Patients	44
	H.	Events Precipitating these Chapter 11 Filings			45
IX.	SIGNIFICANT EVENTS IN THE REORGANIZATION CASES AND THE DEBTORS’ CORPORATE RESTRUCTURING PLAN				47
	A.	Significant Events in the Reorganization Cases			47
		1.	Continuation of Business; Stay of Litigation		47
		2.	Transitioning into Chapter 11		48
		3.	Retention of Turnaround Management Consulting Firm		49
		4.	Use of Cash Collateral		49
		5.	Adequate Protection Payments		50
		6.	Relief from Stay Motions and ADR Procedures		51
		7.	Extensions of the Debtors’ Exclusive Periods		54
		8.	Improved EBITDA and Operations		54
		9.	Restructuring Management and Management Compensation		58
		10.	Appointment of the Official Committees		58
		11.	Professionals Retained by the Debtors’ Estates		59
			a.	Reorganization and Other Professionals Employed Pursuant to Bankruptcy Code Section 327	59
			b.	Special Purpose Professionals	62
		12.	Executory Contracts and Leases		62
		13.	Claims		63
			a.	Bar Date	63

iii

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						Page
			b.	Scheduled Claim Amounts		63
			c.	Claim Objections		66
		14.	Litigation and Avoidance Actions			67
			a.	Prepetition Litigation		67
			b.	Descriptionof Avoidance Action Claims		68
	B.	Retained Claims				69
	C.	Restructuring Efforts and Plan Process				69
		1.	Negotiations with the Debtors’ Key Constituents			69
		2.	Preliminary Financing Commitment			70
			a.	The  Commitment Fee Provisions		71
			b.	The  Liquidated Damages and Indemnity Provisions		72
		3.	The Exit Facility			72
		4.	Proposed Sources and Uses of Funds			76
		5.	Analysis of Proposed Plan of Reorganization			76
	D.	Business Strategy/Post-Confirmation Business Plan				76
		1.	Business Plan			76
		2.	Corporate Restructuring Plan			77
X.	SUMMARY OF MATERIAL PLAN PROVISIONS					78
	A.	Classification and Treatment of Claims and Equity Interests Under the Plan				78
		1.	Unclassified Claims			80
			a.	AdministrativeClaims		80
				i.	Ordinary Course Administrative Claims	81
				ii.	Cure Payments	81
				iii.	Non-Ordinary Course Administrative Claims (Other than Professional Fee Claims and Cure Payments)	82
				iv.	Professional Fee Claims	84

iv

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				Page
	b.	Priority Claims and Priority Tax Claims		84
		v.	Priority Claims	84
		vi.	Priority Tax Claims	85
2.	Classification and Treatment of Secured Claims (Classes 1, 2, 3, 4, 5, 6, 7 & 8)			85
	a.	Class 1—Bank Midwest Secured Claims		86
	b.	Class 2—Woodlands Place Secured Claims		88
	c.	Class 3—Secured Tax Claims		89
	d.	Class 4—Union Bank Secured Claims		89
	e.	Class 5—Leonard and Catherine May Secured Claims		90
	f.	Class 6—Bergen Secured Claims		90
	g.	Class 7—Other Secured Claims Including Personal Property Lessors		92
	h.	Class 8—Agent and Lenders Secured Claims		93
3.	Classification and Treatment of Unsecured Claims (Classes 9, 10, 11 & 12)			94
	a.	Class 9—Unsecured Claims of Holders of 11 1/4% Notes		94
	b.	Class 10—General Unsecured Claims		97
	c.	Class 11—Convenience Claims		102
	d.	Class 12—Insured Professional Liability Claims		103
	e.	Class 13—Other Subordinated Claims		104
4.	Classification and Treatment of Interests (Classes 14, 15, 16, 17, 18, & 19)			105
	a.	Class 14—Existing Preferred Stock		105
	b.	Class 15—Existing Class A Common Stock		105
	c.	Class 16—Existing Class B Common Stock		106
	d.	Class 17—Existing Class C Common Stock		106
	e.	Class 18—Existing Warrants		107

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				Page
		f.	Class 19—Existing Management Incentives and Other Existing Interests	107
B.	Treatment of Executory Contracts and Unexpired Leases			108
	1.	Assumption and Assignment of Contracts and Leases		108
		a.	Schedule of Assumed or Assigned Agreements	108
		b.	Cure Payments	109
		c.	Objections to Assumption or Assignment or Proposed Cure Payments	110
		d.	Liens with Respect to Assumed Contracts and Leases Pursuant to the Exit Facility and Plan	110
	2.	Rejection of Contracts and Leases		111
		a.	Schedule of Rejected Agreements	111
		b.	Bar Date for Rejection Damage Claims	111
	3.	Postpetition Contracts and Leases		112
C.	Means of Execution and Implementation of the Plan and Other Provisions			112
	1.	Substantive Consolidation		113
	2.	Corporate Restructuring Plan		113
	3.	Securities to be Issued Under the Plan		114
		a.	New Preferred Stock	114
		b.	New Class A Common Stock	114
		c.	New Public Notes	115
		d.	New Warrants	115
		e.	Amendments to the Stockholders’ Agreement	115
		f.	Amendments to the Stockholders’ Agreement	117
	4.	Exit Facility		117
	5.	The Collateral Agent		118
		a.	Designation of the Collateral Agent	118

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				Page
			b.     Powers and Duties	118
		6.	Revesting of Assets	119
		7.	Preservation of Causes of Action	119
		8.	Objections to Claims and Interests	119
		9.	Cancellation of Interests	121
		10.	Full Satisfaction	121
		11.	Setoff, Recoupment, and Other Rights	122
		12.	Conditions to Effectiveness of the Plan	122
			a.     Conditions	122
			b.     Waiver of Conditions	123
	D.	Miscellaneous Provisions		123
		1.	Limitation of Liability	123
			a.     For Solicitation or Participation	123
			b.     For Actions in Connection with Plan and Related Matters	123
			c.     No Admissions	124
		2.	Dissolution of Committees	124
		3.	Exemption from Certain Transfer Taxes	124
		4.	Modifications of the Plan	125
		5.	Revocation of the Plan	125
	E.	Effect of Confirmation of the Plan		125
		1.	Discharge and Injunction	125
		2.	Payment of Statutory Fees	127
		3.	Retention of Jurisdiction	127
XI.	FINANCIAL INFORMATION			127
	A.	Introduction		127
	B.	Financial Projections and Feasibility		128

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TABLE OF CONTENTS

(continued)

			Page
	C.	Securities Laws Matters	129
XII.	LIQUIDATION ANALYSIS		131
XIII.	ASSETS AND LIABILITIES OF THE ESTATES		134
	A.	Assets	134
	B.	Liabilities	134
	C.	Reorganization Value	134
XIV.	RISK FACTORS		135
	A.	Variances from Projections	136
	B.	General Factors Affecting the Reorganized Enterprise	136
		1.     General Economic Slowdown	136
		2.     General Risks of the Health Care Industry	137
	C.	Specific Risks Associated with the Reorganized Enterprise’s Future Operations	137
		1.     Competition	137
		2.     Governmental Regulations	138
		3.     Uncertainty of Future Reimbursement Levels	140
		4.     Fiscal Intermediary Audits	141
		5.     Therapy Regulation	141
		6.     Pharmacy Regulation	142
		7.     Referral Restrictions and Fraud and Abuse	142
		8.     Pending Legislation	144
		9.     Environmental Regulation	144
		10.   Reliance on Key Personnel	145
		11.   The Reorganized Enterprise May Not Grow as Projected	146
		12.   Tax Consequences	146
		13.   Inherent Uncertainty in Projections	146
		14.   Litigation	148

viii

TABLE OF CONTENTS

(continued)

				Page
		15.	Substantial Leverage; Ability to Service Debt	148
	D.	Risks Related to Plan Securities		149
		1.	Lack of Market	149
		2.	Stockholders’ Agreement	149
		3.	Dividends	151
		4.	Potential Dilution of Stock	152
XV.	TAX CONSEQUENCES OF THE PLAN			152
	A.	Federal Income Tax Consequences to the Debtors		153
		1.	General Discussion	153
		2.	Cancellation of Debt	154
		3.	NOLs and Future Utilization	154
	B.	Federal Income Tax Consequences to Holders of Claims		155
		1.	Realization and Recognition of Gain or Loss in General	155
		2.	Character of Gain or Loss	156
		3.	Claims for Accrued Interest	157
		4.	Original Issue Discount and Market Discount	158
		5.	Back-Up Withholding	159
XVI.	RECOMMENDATION AND CONCLUSION			160

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I.

INTRODUCTION AND EXECUTIVE SUMMARY

Fountain View, Inc. and 19 of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”)² on October 2, 2001. On November 28, 2001, three additional Fountain View, Inc. affiliates filed voluntary chapter 11 petitions. Fountain View, Inc. and its 22 chapter 11 affiliates are hereinafter referred to collectively as the “Debtors,” or individually as a “Debtor.”³ Since the Petition Date, the Debtors have managed their affairs as debtors and debtors in possession pursuant to Bankruptcy Code sections 1107 and 1108. Although the Reorganization Cases are being jointly administered before the Court, until the Court approves the Plan, which provides for substantive consolidation of the Debtors, each Debtor remains a separate legal entity with separate assets and liabilities.

The Debtors are the proponents of the Plan, a copy of which is attached hereto as Exhibit 1. THE DOCUMENT THAT YOU ARE READING IS THE DISCLOSURE STATEMENT ACCOMPANYING THE PLAN. The Plan sets forth the manner in which the Claims against and Interests in the Debtors will be treated following the Debtors’ emergence from chapter 11. This Disclosure Statement describes certain aspects of the Plan, the Debtors’ current and future business operations, including, but not limited to, the

² Capitalized terms not otherwise defined in this Disclosure Statement have the meaning ascribed to them in the Debtors’ Joint Plan of Reorganization Dated April 22, 2003 (the “Plan”), a copy of which is attached hereto as Exhibit 1. To the extent that there is any inconsistency between the description contained herein and the terms of the Plan, the terms in the Plan shall govern. Where a particular word (such as “Debtor”) or term (such as “Allowed Claim” or “Allowed Interest”) is capitalized in this Disclosure Statement, that word or phrase has the meaning provided in Article I (Definitions) of the Plan. Where, however, a particular word (such as “debtor”) or phrase (such as “allowed claim” or “allowed interest”) is not capitalized herein, that word or phrase should be interpreted consistent with usage generally in the bankruptcy process.

³ The 23 Debtors are: Fountain View, Inc., a Delaware corporation; Fountain View Holdings, Inc., a Delaware corporation; Rio Hondo Nursing Center, a California corporation; Alexandria Convalescent Hospital, Inc., a California corporation; Fountainview Convalescent Hospital, a California corporation; AIB Corp., a California corporation; BIA Hotel Corp., a California corporation; Elmcrest Convalescent Hospital, a California corporation; Brier Oak Convalescent, Inc., a California corporation; Sycamore Park Convalescent Hospital, a California corporation; Locomotion Holdings, Inc., a Delaware corporation; Locomotion Therapy, Inc., a Delaware corporation; I.’NO, Inc., a California corporation; Summit Care Corporation, a California corporation; Summit Care – California, Inc., a California corporation; Summit Care Pharmacy, Inc., a California corporation; Summit Care Texas, No. 2, Inc., a Texas corporation; Summit Care Texas Equity, Inc., a California corporation; Summit Care Management Texas, Inc., a Texas corporation; Summit Care Texas, L.P., a Texas limited partnership; Summit Care-Texas No. 3, Inc., a Texas corporation; Fountain View Management, Inc., a California corporation; and On-Track Therapy Center, Inc., a California corporation.

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proposed reorganization of the Debtors pursuant to which the Business Assets of the Debtors (other than those retained by Reorganized Summit Care Pharmacy and the Other Reorganized Debtors) will be transferred to the Post-Effective Date Subsidiaries under the Plan and Corporate Restructuring Plan, significant events occurring in the Reorganization Cases, and other related matters. The Reorganized Enterprise⁴ will continue to operate as a going concern on and after the Effective Date. The Plan is intended to be a reorganization within the meaning of Tax Code section 368(a). The “Summary of Material Plan Provisions” in Section X⁵ is intended solely as a summary of the distribution provisions of the Plan and certain matters related to the Debtors’ businesses.

FOR A COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THIS DISCLOSURE STATEMENT, THE PLAN, AND THE ANNEXED EXHIBITS IN THEIR ENTIRETY.

The Plan is based on extensive negotiations with the holders of the largest Claims against the Debtors. The Debtors believe that approval of the Plan is the best means for the Debtors to emerge from chapter 11, for creditors to maximize their recoveries, and for the business operations of the Debtors to succeed. The Creditors’ Committee, the Noteholders’ Committee, and the Agent and Lenders fully support the Plan.

The Plan provides for the distribution of cash, equity interests, and debt obligations of Reorganized Fountain View to certain holders of Claims and Interests in satisfaction of their Claims and Interests. Cash on hand and new financing under the Exit Facility will fund the cash payments under the Plan and provide for the Reorganized Enterprise’s working capital needs following the Effective Date.

The Plan provides for the payment in full of the Secured Claims of the Agent and the Lenders, which shall include outstanding principal as of the Petition Date, plus interest as determined under the terms of the Prepetition Credit Agreement, plus all fees,

⁴ The Reorganized Enterprise will consist of Reorganized Fountain View, Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries. The other Debtors will be dissolved or merged out of existence, pursuant to the Plan and the Corporate Restructuring Plan.

⁵ Unless otherwise indicated, Section references are to Sections of this Disclosure Statement.

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expenses, and costs of the Agent; less all adequate protection payments, all supplemental adequate protection payments, and all expense reimbursements pursuant to cash collateral orders entered by the Court.

The 11¼% Notes will be satisfied by the Pro Rata distribution as soon as reasonably practicable after the Effective Date, but in no event later than 10 days after the Effective Date, of the (i) Initial Cash Payment (i.e., $50 million plus an amount equal to the amount, if any, by which the Debtors’ cash, cash equivalents, and undrawn revolving commitments on the Effective Date exceed $30 million after giving effect to all payments required by the Plan); (ii) the New Public Notes; and (iii) and the Noteholders’ Stock Distribution.

Holders of Class 10 general unsecured claims must elect in writing between payment option 10A or 10B. Holders who fail to make a timely and valid election in writing shall be afforded treatment under payment option 10B. Payment option 10A is cash equal to 80% of the Allowed Claim without postpetition interest. Treatment under payment option 10B varies for Continuing Creditors and other Class 10 Claims. Continuing Creditors identified on Exhibit 13 (Schedule of Continuing Creditors) hereto (or as may otherwise be specifically designated in writing by the Debtors) that elect payment option 10B are entitled to both (i) cash equal to the sum of 65% of the Allowed Claim, and postpetition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date to the date of payment; and (ii) a Continuing Creditor Deferred Obligation in a principal amount equal to the remaining 35% of the Allowed Claim. Class 10 holders that are not Continuing Creditors that elect payment option 10B are entitled to both (i) cash equal to the sum of 40% of the Allowed Claim, and postpetition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date to the date of payment; and (ii) a Class 10 Deferred Obligation in a principal amount equal to the remaining 60% of the Allowed Claim. Notwithstanding anything else to the contrary, holders of unliquidated Claims shall not be entitled to accrue prejudgment interest except as may be provided by otherwise applicable non-bankruptcy law. Unless the holder of a Class

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10 Claim is identified as a Continuing Creditor on Exhibit 13 or is otherwise specifically designated in writing as a Continuing Creditor by the Debtors, such holder will not be treated as a Continuing Creditor.

The Debtors will be required to make the following significant one-time cash payments under the Plan: (i) approximately $82 million in full satisfaction of the Class 8 Claims of the Agent and the Lenders on the Effective Date; (ii) $50 million on account of the Class 9 Claims for principal and interest arising under 11¼% Notes as soon as reasonably practicable after the Effective Date, but no later than 10 days after the Effective Date; (iii) approximately $15 million on account of the Claims of general creditors, convenience Claims, certain Secured Claims (including Secured Tax Claims, counterparties to executory contracts, and suppliers) as soon as reasonably practicable after the Effective Date; and (iv) approximately $7.2 million in satisfaction of Allowed Administrative Claims and fees related to the Exit Facility. These payments will be funded from the cash derived from the Exit Facility and from cash on hand.

The Existing Preferred Stock will be canceled under the Plan and the holders thereof will receive in exchange on the Distribution Date an equal number of shares of New Preferred Stock of Reorganized Fountain View. The Existing Class A Common Stock and Existing Class C Common Stock will be cancelled under the Plan and holders thereof will receive in exchange on the Distribution Date an equal number of shares of New Class A Common Stock of Reorganized Fountain View. Existing Warrants (convertible into Existing Class C Common Stock) will be cancelled and on the Distribution Date and holders of Existing Warrants will be issued New Warrants (convertible into New Class A Common Stock) with substantially the same terms and conditions as the Existing Warrants. The Debtors’ Existing Class B Common Stock is subject to a cumulative preferred return in favor of the Existing Class A Common Stock such that the reorganization value of the Debtors does not extend to the Existing Class B Common Stock. Similarly, the strike prices and other terms of the Existing Management Incentives are such that the Debtors do not believe they have any reorganization value. Accordingly, the Plan proposes to cancel all Existing

4

Class B Common Stock and Existing Management Incentives without consideration.

The Reorganized Enterprise will continue to operate as a going concern on and after the Effective Date. As a means of implementing the Plan, the Debtors intend to adopt a new corporate structure whereby the Debtors—other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors—will be dissolved or merged out of existence and their assets transferred to a number of new direct and indirect subsidiaries pursuant to the Corporate Restructuring Plan.

This Disclosure Statement sets forth the assumptions underlying the Plan, describes the process that the Court will follow when determining whether to confirm the Plan, and describes how the Plan will be implemented if it is confirmed by the Court. Bankruptcy Code section 1125 requires that a disclosure statement contain “adequate information” concerning a plan of reorganization. 11 U.S.C. § 1125(a). The Court has approved the form of this document as an adequate disclosure statement that contains enough information to enable entities affected by the Plan to make an informed judgment when deciding whether to vote to accept or to reject the Plan.

The Court’s approval of the adequacy of this Disclosure Statement, however, does not constitute a determination by the Court with respect to the fairness or the merits of the Plan or the accuracy or completeness of the information contained in the Plan or this Disclosure Statement. The Court has not yet confirmed the Plan described in Section X of this Disclosure Statement. In other words, the Plan’s terms are not yet binding. If the Court later confirms the Plan, however, then the Plan will be binding on the Debtors and on all creditors and Interest holders in these Reorganization Cases. The Debtors, the Creditors’ Committee, and the Noteholders’ Committee believe that Plan confirmation and implementation are preferable to any feasible alternative because the Plan will maximize the value of the Estates, provide entities holding Allowed Claims with payment in full, and provide the holders of Interests in Classes 14, 15, 17, and 18 with equity in Reorganized Fountain View in accordance with applicable law. Any alternative would result in further delay, uncertainty, and expense to the Estates. The

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Debtors, the Creditors’ Committee, and the Noteholders’ Committee, therefore, recommend that all creditors and Interest holders entitled to vote cast their ballots to accept the Plan.

II.

GENERAL DISCLAIMERS AND INFORMATION

Please carefully read this document, the attached exhibits, and the Plan. These documents explain who may object to confirmation of the Plan, who is entitled to vote to accept or reject the Plan, and the treatment that Claim holders and Interest holders can expect to receive if the Court confirms the Plan. The Disclosure Statement also describes the Debtors’ history, the events precipitating the Reorganization Cases, the significant events that occurred during the Reorganization Cases, some of the things the Court may consider in deciding whether to confirm the Plan, and the effect of Plan confirmation. It also provides adequate information to assess the Plan’s feasibility and how the treatment of each class of creditors under the Plan compares to its treatment under a chapter 7 liquidation. The statements and information contained in the Plan and the Disclosure Statement, however, do not constitute financial or legal advice. You should, therefore, consult your own advisors if you have questions about the effect of the Plan on your Claims or Interests.

The financial information used to prepare the Plan and this Disclosure Statement was prepared by the Debtors from information contained in their books and records and is the sole responsibility of the Debtors. The Debtors’ professionals and financial advisors prepared the Plan and this Disclosure Statement at the direction of, and with the review, input, and assistance of, the Debtors’ management. The Debtors’ professionals and financial advisors have not independently verified the information contained in this Disclosure Statement.

The statements and information that concern the Debtors and that are set forth in the Plan and this Disclosure Statement constitute the only statements and information that the Court has approved for the purpose of soliciting votes to accept or reject the Plan.

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Therefore, no statements or information that are inconsistent with anything contained in this Disclosure Statement are authorized unless otherwise ordered by the Court. Attached hereto are letters from the Debtors, the Creditors’ Committee and the Noteholders’ Committee supporting confirmation of the Plan.

Unless another time is expressly specified in this Disclosure Statement, all statements contained in this document are made as of April 22, 2003. Under no circumstances will the delivery of this Disclosure Statement or the exchange of any rights made in connection with the Plan create an implication or representation that there has been no subsequent change in the information included in this document. The Debtors assume no duty to update or supplement any of the information contained in this document, and they presently do not intend to undertake any such updates or supplements.

CAUTIONARY STATEMENT: Some statements in this document may constitute forward-looking statements within the meaning of the Securities Act of 1933 or the Securities Exchange Act of 1934 and any amendments to those acts. Such statements are based upon information available when the statements were made and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Neither the SEC nor any state securities commission has approved or disapproved this document.

The exhibits to this Disclosure Statement listed in the following table are incorporated into this Disclosure Statement by this reference and will be deemed to be included in this Disclosure Statement when they are Filed.

EXHIBIT NO.	DESCRIPTION
1	Debtors’ Joint Plan of Reorganization Dated April 22, 2003
2	Pending Prepetition Lawsuits
3	5-Year Projections
4	Audited Financial Statements
5	Liquidation Analysis
6	Reorganization Value

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EXHIBIT NO.	DESCRIPTION
7	Sources and Uses of Funds
8	Schedule of Disputed Claims
9	Exit Financing Commitment Letters
10	Schedule of Assumed or Assigned Agreements
11	Schedule of Rejected Agreements
12	Noteholders’ Committee Term Sheet
13	Schedule of Continuing Creditors

III.

WHO MAY VOTE TO ACCEPT OR REJECT THE PLAN

This Section contains a general discussion of the rules governing who may vote to accept or reject the Plan. To vote to accept or reject the Plan, your Claim must be both an Impaired Claim/Interest and not a Disputed Claim/Interest and the Plan must provide for you to receive or retain some value. Unimpaired claimants are deemed to have accepted the Plan and do not vote, although they may object to Plan confirmation to the extent they otherwise have standing to do so. Holders of Claims/Interests who do not receive or retain any value under the Plan are deemed to reject the Plan. If you hold only a Disputed Claim/Interest, you may not vote to accept or reject the Plan unless the Court grants you authority to vote on the Plan. As defined by the Bankruptcy Code, a claim generally includes all rights to payment from a debtor, while an interest generally represents an ownership stake in the debtor. Section X sets forth the classification of Claims/Interests under the Plan.

A. Allowed Claims and Interests.

With the exceptions explained below, under the Bankruptcy Code, a claim or interest is generally allowed only if proof of the claim or interest is properly filed before any bar date and either no party in interest has objected or the Court has entered an order allowing the claim or interest.⁶ Under certain circumstances provided in the Bankruptcy Code, a creditor may have an allowed claim even if a proof of claim was not filed and the bar

⁶ See Section IX.A. 13 for specific information regarding the Bar Dates in the Reorganization Cases.

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date for filing a proof of claim has passed. For example, a claim may be deemed allowed if the claim is listed on a particular debtor’s schedules and is not scheduled as disputed, contingent, or unliquidated. Similarly, an interest may be deemed allowed if it is included on the list of equity security holders filed by a particular debtor with the court and is not scheduled as disputed.

A holder’s Claim or Interest must be an Allowed Claim or Interest for purposes of voting for such Claim or Interest to have the right to vote on the Plan. Generally, for voting purposes, a Claim or Interest is deemed Allowed if: (i) a proof of Claim or Interest was timely Filed; or (ii) if no proof of Claim or Interest was Filed, the Claim or Interest is identified in the Schedules as other than Disputed, “contingent,” or “unliquidated.”

Under the Plan, a creditor or shareholder whose Claim or Interest is not Allowed may still be entitled to vote to accept or reject the Plan, if the Claim holder or Interest holder has timely Filed a proof of Claim or Interest and that proof of Claim or Interest is not the subject of either an objection Filed before the Confirmation Hearing Date or an Order disallowing the Claim entered before the Confirmation Hearing Date. An entity whose Claim or Interest is subject to an objection is not eligible to vote on the Plan unless and until that objection is resolved in the entity’s favor or, after notice and a hearing under Bankruptcy Rule 3018(a), the Court temporarily allows the entity’s Claim or Interest for the purpose of voting to accept or reject the Plan. If the Debtors object to your Claim or you have not Filed a proof of Claim and your Claim is identified in the Schedules as a Disputed Claim or a “contingent” or “unliquidated” Claim, then your vote will not be counted to accept or reject the Plan unless you obtain an order of the Court on or before the voting deadline allowing your Claim for voting purposes. The Court has fixed May 12, 2003 as the last day for timely filing of a motion to allow a Disputed Claim for voting purposes. Timely Filed motions to allow a Claim for voting purposes will be heard on or before June 5, 2003. No vote may be cast by the holder of a Claim subject to objection or listed as disputed, “contingent,” or “unliquidated” on the Debtors’ Schedules unless an order of the Court allowing such Claim for voting

9

purposes is entered on or before June 6, 2003. The current Schedule of Disputed Claims in Class 10 and Class 11 is set forth on Exhibit 8 hereto.

B. Impaired Claims and Interests.

Under the Bankruptcy Code, a class of claims or interests is impaired if the plan alters the legal, equitable, or contractual rights of the members of the class, even if the alteration is beneficial to the creditors or interest holders. A contract provision that entitles a creditor to accelerated payment upon default, however, does not necessarily render a claim impaired, even if the debtor defaulted and the plan does not provide the creditor with accelerated payment. Instead, the claim is deemed unimpaired if the plan cures the default, reinstates the maturity of the claim as it existed before the default, and compensates the creditor for any damages incurred as a result of reasonable reliance upon the acceleration provision. Section X identifies, among other things, the Classes of Claims and Interests that the Debtors believe to be impaired under the Plan.

Classes 1, 2, 6, 9, 10, 12, 13, 14, 15, 17, and 18 are impaired and, therefore, entitled to vote on the Plan. Although Classes 16 and 19 are also impaired, holders of Interests in these Classes will receive or retain no value on account of their Class 16 and 19 Interests. Holders of Interests in Classes 16 and 19 are, therefore, deemed to reject the Plan. Classes 3, 4, 5, 7, 8, and 11 are unimpaired, not entitled to vote on the Plan, and deemed to accept the Plan. Entities holding Administrative and Priority Claims are not classified and are, therefore, not entitled to vote on the Plan.

Any party that disputes the Debtors’ characterization of its Claim or Interest as unimpaired may request a finding of impairment from the Court to obtain the right to vote. May 12, 2003 is the last day for timely filing a motion to determine impaired status of a Claim designated as unimpaired under the Plan. Timely Filed motions to determine impaired status of a Claim designated as unimpaired under the Plan will be heard on or before June 5, 2003. No vote may be cast by the holder of a Claim designated as unimpaired unless an order of the Court determining such Claim to be impaired is entered on or before June 6, 2003.

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IV.

VOTES NECESSARY TO CONFIRM THE PLAN

Under the Bankruptcy Code, impaired claims and interests are placed in classes under a plan, and it is each class that accepts or rejects that plan. Secured claims are separately classified from unsecured claims, while a creditor with a claim that is partially secured and partially unsecured may vote in both capacities.⁷ There are also some types of claims that are unclassified because the Bankruptcy Code requires that they be treated a certain way. These claims are considered unimpaired, and their holders cannot vote to accept or reject the plan.

A bankruptcy court may confirm a plan if at least one class of impaired claims has voted to accept the plan (without counting the votes of any insiders whose claims are classified within that class) and if certain statutory requirements are met both as to non-consenting members within a consenting class and as to dissenting classes. A class of claims has accepted the plan only when at least a majority in number and at least two-thirds in amount of the allowed claims actually voting in that class vote to accept the plan. A class of interests has accepted the plan only when at least two-thirds in amount of the allowed interests actually voting in that class vote to accept the plan.

Even if the Debtors receive the requisite number of votes to confirm the Plan, the Plan will not become binding unless and until, among other things, the Court makes an independent determination that confirmation is appropriate. This determination will be the subject of the upcoming Confirmation Hearing. Also, even if all Classes do not vote to accept the Plan, the Plan may nonetheless be confirmed if the dissenting Classes are treated in a manner prescribed by the Bankruptcy Code, as set forth in more detail in Section VI.

V.

INFORMATION REGARDING VOTING IN THESE CASES

A. Voting Instructions.

Please use only the ballot sent to you with this Disclosure Statement in voting

⁷ See Bankruptcy Rule 3018(d).

11

to accept or reject the Plan, and please carefully read the voting instructions on the ballot for an explanation of the applicable voting procedures and deadlines. After reviewing this Disclosure Statement, if you believe that you hold an Impaired Claim or Interest and that you are entitled to vote on the Plan but you did not receive a ballot, or if your ballot is damaged or lost, please send a written request for a ballot to the Ballot Tabulator at the following address:

Shanda D. Ellingwood, Ballot Tabulator

Klee, Tuchin, Bogdanoff & Stern LLP

2121 Avenue of the Stars, 33^rd Floor

Los Angeles, CA 90067

Facsimile: (310) 407-9090

Unless you are the holder of a Claim in Class 9 (11¼% Notes), if you wish to vote to accept or reject the Plan, your ballot must be received by the Ballot Tabulator at the address listed immediately above by no later than 5:00 p.m. Pacific Time, on June 6, 2003. If the Ballot Tabulator does not timely receive your ballot, your ballot will not be counted. Ballots must be provided to the Ballot Tabulator by mail, overnight delivery, messenger, or facsimile; ballots sent by email will not be accepted by the Ballot Tabulator and will not be counted in tabulating votes accepting or rejecting the Plan.

If you are the holder of a Claim in Class 9 (11¼% Notes) and you wish to vote to accept or reject the Plan, your beneficial holder ballot must be received by the financial intermediary that provided you the beneficial holder ballot and this Disclosure Statement by no later than June 4, 2003.

B. Convenience Class Election.

If your Allowed Unsecured Claims total $1,000 or less, those Claims will be classified and treated as Allowed Class 11 Claims (Convenience Claims). Holders of Allowed Class 11 Claims will be paid in full on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Convenience Claim becomes an Allowed Claim; or (iii) the date such Convenience Claim becomes due and payable in accordance with its terms. Holders of Convenience Claims are, therefore, not

12

impaired and will not vote to determine whether Class 11 accepts or rejects the Plan. This election is your only opportunity to have your Class 10 Claims treated as a Class 11 Claim.

If you hold Allowed Unsecured Claims that exceed $1,000 and that otherwise would be classified in Class 10 (General Unsecured Claims), you may indicate on your Class 10 ballot that you wish to make the Convenience Class Election. If you make this election, you will receive, in full satisfaction of your Allowed Class 10 Claims, a cash payment equal to $1,000 on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Convenience Claim becomes an Allowed Claim; or (iii) the date such Convenience Claim becomes due and payable in accordance with its terms. If you make the Convenience Class Election, you will be treated in Class 11 under the Plan. You may make this election only if you agree to accept $1,000 on account of all of your Allowed Class 10 Claims. Notwithstanding the foregoing, any holder that makes the Convenience Class Election but holds aggregate Allowed Class 10 Claims in excess of $1,250 will be treated in Class 10 under payment option 10A as voting to accept the Plan and will receive cash equal to 80% of such holder’s Allowed Claims without postpetition interest.

By way of example, if your Allowed Class 10 Claims total $1,000 or less, your Claims will automatically be classified and treated as a Class 11 Claim and you will retain unaltered all your legal, equitable, and contractual rights with respect to such Claim under the Plan. If your Allowed Class 10 Claims total $1,100, you may indicate on your ballot that you wish to make a Convenience Class Election, in which case you will receive $1,000 in the aggregate on account of all your Class 10 Claims without postpetition interest. If no Convenience Class Election is made, however, your Claims would be treated as Class 10 Claims. If, on the other hand, your Allowed Class 10 Claims total $1,400 and you indicate on your ballot that you wish to make the Convenience Class Election, you will be treated in Class 10 under payment option 10A and will receive 80% of your Allowed Claims without postpetition interest or $1,120.

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VI.

CRAMDOWN: TREATMENT OF NON-CONSENTING CLASSES

Even if all classes do not consent to the proposed treatment of their claims and interests under a plan, that plan may, nonetheless, be confirmed if the dissenting classes are treated in the manner prescribed by the Bankruptcy Code. The process by which dissenting classes are forced to abide by the terms of a plan is commonly referred to as “cramdown.” The Bankruptcy Code allows dissenting classes to be crammed down if the plan does not “discriminate unfairly” and is “fair and equitable.” The Bankruptcy Code does not define unfair discrimination, but it does set forth certain minimum requirements for “fair and equitable” treatment. For a class of secured claims, “fair and equitable” can mean that the secured claimants retain their liens and receive deferred cash payments whose present value equals the value of their interest in collateral. For a class of unsecured claimants, a plan is fair and equitable if the claims in that class receive reorganization value equal to the allowed amount of the claims, or, if the unsecured claimants’ claims are not fully satisfied, no claim or interest that is junior to their claims receives or retains anything under the plan.

Accordingly, if a class of general unsecured claims votes against a plan—unless the plan provides that the class of general unsecured claims receives reorganization value equal to the allowed amount of the claims in that class—the plan cannot be confirmed where a class of interest holders (e.g., shareholders) will receive or retain any property under the plan. These are complex statutory provisions, their judicial interpretation has evolved through an extensive body of case law, and the preceding paragraphs do not purport to state or explain fully the applicable statutes or case law.

VII.

WHO MAY OBJECT TO PLAN CONFIRMATION

A hearing has been scheduled for July 3, 2003 at 11:00 a.m. Pacific Time in Courtroom 1475 of the Roybal Federal Building, 255 East Temple Street, Los Angeles, California to determine whether the Court will confirm the Plan. If, after receiving the ballots, it appears that entities holding a sufficient number and amount of Claims and

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Interests have voted to accept the Plan, the Debtors will File a memorandum of points and authorities supporting the entry of an order confirming the Plan. This memorandum will be served on the U.S. Trustee; counsel for the Creditors’ Committee; counsel for the Noteholders’ Committee; counsel for the Agent; and all entities entitled to special notice.

Any party in interest in the Reorganization Cases—including any creditor or shareholder who voted (or was deemed to have voted) to accept or reject the Plan—may File an objection to Plan confirmation. Any such objection must be Filed and served on the Debtors and their counsel; the U.S. Trustee; counsel for the Creditors’ Committee; counsel for the Noteholders’ Committee; and counsel for the Agent no later than ten (10) days before the Confirmation Hearing Date (i.e., no later than June 23, 2003). Oppositions to assumptions or rejections of executory contracts or unexpired leases under the Plan must be Filed and served in accordance with Section III.A.3 of the Plan. Failure to properly and timely File an opposition to Plan confirmation may be deemed to be consent to the Plan’s confirmation. If you wish to obtain more information, you should contact the following person in writing:

Klee, Tuchin, Bogdanoff & Stern LLP

Attn: Brendt C. Butler, Esq.

2121 Avenue of the Stars, 33^rd Floor

Los Angeles, CA 90067

Facsimile: (310) 407-9090

VIII.

HISTORY AND DESCRIPTION OF THE DEBTORS’ BUSINESSES

AND EVENTS PRECIPITATING THESE REORGANIZATION CASES

A. Description of the Debtors’ Businesses.

Fountain View, Inc., a Delaware corporation, and 22 of its direct and indirect subsidiaries are the debtors and debtors in possession in these cases. No Debtor has elected under Bankruptcy Code section 1121(e) to be considered a small business.

The Debtors operate 48 long-term care facilities containing approximately 6,700 beds in California and Texas. The Debtors also distribute pharmaceuticals and provide an array of ancillary skilled nursing services to over 5,400 patients in their facilities and to outside operators. The services the Debtors provide are intensive, provided on a daily basis,

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and absolutely essential to the day-to-day health and well-being of the elderly, disabled and otherwise ill population the Debtors serve.

Presently headquartered in the City of Foothill Ranch in Orange County, California, the Debtors operate facilities throughout Southern and Central California, as well as in 18 counties in Texas. They employ approximately 6,400 people, serve approximately 5,400 residents daily, and generate annual revenues substantially in excess of $340 million. The Debtors’ employees provide crucial patient care services, as well as the administrative functions, financial management, human resource services, and marketing and distribution services needed to operate the Debtors’ facilities and their pharmaceutical and therapy businesses. Since the Debtors commenced these Reorganization Cases, certain of the Debtors’ employees have also been involved in preparing the Schedules and financial reports required by the U.S. Trustee, preparing financial projections and budgets, and developing the Plan. The Debtors have two collective bargaining agreements with unions covering approximately 300 employees, which have both expired according to their terms. Notwithstanding expiration of the two collective bargaining agreements, the Debtors continue to engage in good faith negotiations with representatives of their unionized workers and the Debtors’ relations with all of their employees, including unionized employees, are good and the Debtors have not experienced any strikes or work stoppages.

Approximately 37% of the Debtors’ revenues are derived from Medicare reimbursements, 19% from their managed care and private patients, and 44% from Medicaid and Medi-Cal reimbursements. Notwithstanding major changes in Medicare reimbursement policies that have (i) severely reduced reimbursements to long-term care providers, (ii) adversely affected the entire long-term care industry, and (iii) been a precipitating factor in the bankruptcy filings of numerous competitors, the Debtors have consistently maintained a substantial positive EBITDA.⁸

⁸ EBITDA refers to earnings before interest, taxes, depreciation and amortization determined in accordance with generally accepted accounting principles and based on the Debtors’ financial statements for the applicable period.

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The Debtors provide the following services and products:

1. Basic Healthcare Services.

As of April 22, 2003, the Debtors provided skilled nursing care to residents at 43 skilled nursing facilities (“SNFs”) operated and managed by the Debtors in two states. These SNFs have approximately 5,900 beds and serve approximately 5,000 patients on a daily basis. Of these, 18⁹ of the SNFs are leased facilities and 25 are owned facilities. The SNFs currently operated are the following:

Skilled Nursing Facility	State	Licensed Beds	Owned/Leased
Alexandria	CA	177	Leased
Anaheim	CA	99	Leased
Bay Crest	CA	80	Leased
Brier Oak	CA	159	Leased
Carehouse	CA	174	Owned
Devonshire	CA	98	Owned
Earlwood	CA	87	Owned
Elmcrest	CA	93	Leased
Fountain	CA	169	Owned
Fountain View	CA	99	Leased
Hancock Park	CA	141	Leased
Montebello	CA	99	Leased
Palm Grove	CA	129	Leased
Rio Hondo	CA	200	Leased
Royalwood	CA	110	Leased
Sharon	CA	86	Leased
Sycamore	CA	90	Leased
Valley –Fresno	CA	99	Owned
Villa Maria	CA	88	Owned
Willow Creek	CA	159	Owned
Woodland	CA	157	Leased
Briarcliff	TX	194	Leased
Cityview	TX	210	Owned
Clairmont—Beaumont	TX	148	Owned
Clairmont—Longview	TX	198	Owned

⁹ The following four leased facilities are subject to purchase options in favor of the Debtors: Comanche Trail, Live Oak, Guadalupe Valley, and Briarcliff.

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Clairmont—Tyler	TX	120	Owned
Colonial—Tyler	TX	172	Owned
Colonial Manor	TX	154	Owned
Comanche Trail	TX	119	Leased
Coronado	TX	235	Owned
Guadalupe Valley	TX	150	Leased
Hallettsville Rehab.	TX	120	Owned
Heritage Oaks	TX	159	Owned
Live Oak	TX	100	Leased
Lubbock	TX	117	Owned
Monument Hill	TX	110	Owned
Oak Crest	TX	92	Owned
Oak Manor	TX	90	Owned
Oakland Manor	TX	120	Owned
Southwood	TX	118	Owned
The Woodlands	TX	214	Owned
Town & Country	TX	125	Owned
West Side	TX	240	Owned

Skilled nursing care consists of 24-hour care by registered nurses, licensed practical or vocational nurses, and certified aides, as well as room and board, special nutritional programs, social services, recreational activities, and related medical and other services that may be prescribed by a physician.

The Debtors’ also operate or manage five assisted living facilities (“ALFs”) that provide assisted living services, including basic room and board, social activities and assistance with activities of daily living, such as dressing, eating, and bathing. The Debtors’ ALFs have approximately 700 beds and serve approximately 420 patients on a daily basis. Of these, one of the ALFs is a leased facility and four are owned facilities. The ALFs currently operated are:

Assisted Living Facility	State	Licensed Beds	Owned/Leased
Arbor Village	CA	230	Owned

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Fountain	CA	153	Owned
Hancock Park	CA	166	Leased
Hemet	CA	100	Owned
Spring	CA	51	Owned

2. Specialty Medical Care.

Specialty medical care is provided in the Debtors’ facilities. This includes a wide range of sub-acute services for patients whose medically complex needs generally require more intensive treatment and a higher level of skilled nursing care. These services typically generate higher profit margins than basic healthcare services and include:

Ÿ    Complex medical care for patients who require a combination of medical treatments, typically as a result of having undergone surgical procedures ranging from common joint replacements to organ transplants. Complex medical care frequently requires close monitoring and the administration of intravenous medications to patients through several types of venous access, such as fluids for hydration, diuretics for congestive heart failure, antibiotics for the treatment of infection, anti-coagulants to prevent clotting, and pain medicine to control pain. Licensed nurses that are intravenous therapy certified and skilled in initiating and handling central and peripheral lines for intravenous medications administer intravenous medications in the Debtors’ facilities.

Ÿ    Wound care programs addressing the needs of patients suffering from post-operative wounds, including stoma and ostomy care, and the care of amputees. Treatment for surgical wounds includes the prevention of post-operative infections, the treatment of existing infections, and the removal of surgical staples.

Ÿ    Other Specialty Services including blood transfusions, chemotherapy, dialysis, enteral/parenteral nutrition, tracheotomy care, and ventilator care.

3. Alzheimer’s Care.

The Debtors also have dedicated Alzheimer’s units. These units provide patients with Alzheimer’s disease or severe dementia with specialized care and environments, which are designed to reduce the stress and agitation associated with the

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disease by addressing the problems of short attention spans, hyperactivity, disorientation and perceptual confusion.

4. Therapy Services.

Locomotion Therapy, Inc., one of the Debtors, provides rehabilitative physical, occupational, and speech therapy to unaffiliated facilities and to the Debtors’ facilities. These therapy services help patients increase mobility and strength.

5. Pharmacy Services.

The Debtors provide pharmaceutical products and services through two institutional pharmacies in Southern California, and own a 50% equity interest in a limited liability company that operates a pharmacy in Austin, Texas. These pharmacies provide prescription drugs, intravenous products, enteral nutrition therapy services, and infusion therapies—including nutrition, pain management, antibiotics, and hydration—to unaffiliated facilities and to the Debtors’ facilities.

6. Durable Medical Equipment.

The Debtors provide various types of durable medical equipment to their facilities and unaffiliated facilities. This equipment includes enteral feeding supplies, poles and pumps, catheterization equipment, and orthotics.

B. Prepetition Capital Structure of the Debtors.

Prior to August 1, 1997, Robert Snukal and Sheila Snukal, the Debtors’ former Chief Executive Officer and Executive Vice President, respectively, directly owned the corporations—other than Summit Care Corporation and its subsidiaries (“Summit”), which are discussed below—that are now the direct subsidiaries of Fountain View, Inc. On or about August 1, 1997, each of those subsidiary corporations entered into a Stock Purchase and Contribution Agreement (the “1997 Agreement”) with Mr. and Mrs. Snukal, Heritage Fund II, L.P. (“Heritage”) and Fountain View, Inc. The 1997 Agreement provided for the recapitalization of Fountain View, Inc., the issuance of Fountain View, Inc. stock to Heritage, and the restructuring of the ownership of the various corporations so that all became wholly-owned subsidiaries of Fountain View, Inc. In addition, under the terms of

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the 1997 Agreement, Mr. and Mrs. Snukal received cash payments in the aggregate amount of $43.7 million from the investments by Heritage and loans from a senior lender.

The Debtors, as they presently exist, were formed in 1998 in a merger between Fountain View, Inc. (as it existed at that time) and Summit, a California based long-term care business. Heritage, the owner of a majority of the common shares of Fountain View, Inc., structured and financed the merger of these two entities in a transaction consummated on March 27, 1998. Summit became a wholly-owned subsidiary of Fountain View, Inc.

Prior to the merger, the Summit operations consisted of (i) thirty-six SNFs, (ii) five ALFs, and (iii) three institutional pharmacies (one of which is a joint venture), which served acute care hospitals as well as affiliated and unaffiliated SNFs and ALFs. The merger was accounted for under the purchase method of accounting.

To finance this transaction, the merged entity incurred approximately $115 million in secured bank loans under the Prepetition Credit Agreement with the Agent and Lenders, issued $120 million in principal amount of 11¼% Senior Subordinated Notes due 2008 (the “11¼% Notes”), and issued $15 million in pay-in-kind preferred stock. After the merger, certain functions were centralized in the former Burbank headquarters of Fountain View, Inc., but the predecessor companies’ operations were not fully integrated. Persistence of historical differences between Fountain View, Inc. operations and the Summit operations contributed to the Debtors’ operational problems preceding the Reorganization Cases.

On May 4, 1998, Fountain View, Inc. signed an investment agreement with Baylor Health Foundation System (“Baylor”), a vertically integrated healthcare system operating in Texas, and Buckner Foundation, a non-profit foundation (“Buckner” and with “Baylor,” the “Baylor Group”). In addition, Fountain View, Inc. signed an operating agreement with Baylor. Pursuant to these agreements, Baylor invested $10 million and Buckner invested $2.5 million in Fountain View, Inc. through the purchase of 12,342 shares of Existing Preferred Stock that entitles the Baylor Group to (i) a dividend at the time of a liquidity event calculated to achieve a 12% annual return; and (ii) Existing Warrants to purchase 71,119 shares of the Existing Class C Common Stock; 20,742 shares of these

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Existing Warrants have been exercised, and persons associated with the Baylor Group currently own 20,742 shares of Existing Class C Common Stock and retain 50,377 Existing Warrants.¹⁰ As part of its investment, the Baylor Group is entitled to have one of its nominees serve on Fountain View, Inc.’s board of directors (the “Board”). Timothy Parris is the Baylor Group’s nominee currently serving on the Board.

C. The Debtors’ Insurance Coverage.

After labor, and the purchase of drugs for its pharmacy operation, insurance costs are the most significant operating cost of the Debtors’ businesses. The largest insurance cost is the cost of professional liability insurance. The Debtors currently maintain professional and general liability insurance to insure against claims and/or lawsuits arising out of the care provided to their patients at their long term care facilities and ancillary businesses. Notwithstanding the Fountain View, Inc. and Summit merger on March 27, 1998, “Fountain View” facilities and “Summit” facilities maintained separate professional liability policies until June 2002 when the coverages for all facilities were consolidated. All claims before February 28, 1999 for “Summit” facilities and July 31, 1999 for “Fountain View” facilities have been settled or closed and there is no remaining liability. There are also no proofs of Claims Filed for professional liability matters relating to these years. The great majority of the professional liability claims asserted against the Debtors are asserted against the 40 facilities covered by the “Summit” professional and general liability policies. Accordingly, the efficient administration of the policies covering these facilities has been a priority focus of these Reorganization Cases.

For the policy years from March 1, 1999 through April 10, 2001, the primary insurer of the “Summit” facilities is Certain Underwriters at Lloyd’s, London, subscribing to policy no. B 1999CN00002000, including but not limited to St. Paul Syndicate Management Limited, America Re/Insurance Company and Great Lakes Reinsurance Company UK, each a subsidiary of Munich Re (collectively, “Lloyd’s”). There is $1 million of coverage per

¹⁰ William J. and Susan R. Boardman II are the beneficial owners of 10,371 shares of Existing Class C Common Stock, and the Gordon Brian Biggs Trust of 1998 is the beneficial owner of 10,371 shares of Existing Class C Common Stock.

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claim and $3 million of aggregate coverage. In addition, for these same policy years, the Debtors have excess coverage through American International Group, Inc. and American International Underwriters (“AIG/AIU”). The Debtors purchased $15 million of excess coverage for the 1999 policy year and $25 million for the 2000 policy year.

Insurance costs have increased dramatically in recent years, and coverage has become more difficult to obtain. For the 2001 policy year (beginning April 10, 2001 and ending April 19, 2002), the Debtors obtained a new policy issued by Lexington AIG (“Lexington”) for primary coverage. The coverage under this policy is $4 million per claim/$5 million aggregate coverage. The Debtors also have $10 million aggregate excess coverage (with no per claim sublimit) for general liability claims for this year. In June 2002, the “Fountain View” facilities were consolidated into this policy. For the 2002 policy year (beginning April 10, 2002 and ending April 9, 2003), the Debtors’ coverage with Lexington is also $4 million per claim/$5 million aggregate coverage. This policy covers all of the Debtors’ facilities. There is no excess coverage for this year.

In most cases, before the Debtors’ primary insurer will pay out on a claim, the Debtors’ must first exhaust their “Self Insured Retention” or SIR. A SIR is similar to a deductible in that the insured is responsible for paying up to a certain sum before the insurance will apply. The insured is directly responsible for paying costs up to the amount of the SIR either per claim or in some cases, in aggregate. Once the SIR is exhausted per claim or in the aggregate, the insurer is responsible for making payments up to the policy limits. In the policy periods March 1, 1999 through April 10, 2001, the primary insurance carrier is responsible for, in addition to the policy limits, all costs associated with defending a claim until policy limits are exhausted. All costs that the Debtors incur associated with defending a covered claim, and all amounts paid by the Debtors in settlement or in satisfaction of a judgment with respect to a covered claim (possibly subject to limitations regarding punitive damages), are applied to the SIR.

For the 1999 Lloyd’s policy, there is a $350,000 SIR per claim and $2,350,000 aggregate limit. In other words, after the Debtors have expended $350,000 defending any

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one claim, the insurance company is liable for the next $1 million plus defense costs. After the primary carrier has paid $1 million in indemnity on the claim, the excess carrier becomes responsible. This example assumes that neither the policy aggregate SIR has been met nor the $3 million coverage limit is exhausted. If the Debtors expend an aggregate of $2,350,000 defending or settling claims that are subject to the 1999 Lloyd’s policy, the insurers pay each additional dollar until the coverages are exhausted (possibly subject to limitations regarding punitive damages).

The Debtors have exhausted their aggregate self-insured retention for 1999. In addition, the Lloyd’s primary layer of $3 million has been exhausted. There remain 17 open claims subject to the 1999 excess AIG/AIU policy. The remaining coverage under the policy is currently $13,467,000.

For the 2000 Lloyd’s policy there is a $250,000 SIR per claim and $2,333,333 SIR in the aggregate. The Debtors have also exhausted the SIR aggregate for this policy year. There remain 33 open claims subject to the 2000 Lloyd’s policy. Approximately $3 million in aggregate coverage remains available under the Lloyd’s 2000 policy and $25 million excess coverage for that year remains available. In addition, the Debtors purchased an extended reporting period for this policy which will allow claims that occurred from January 1, 1995 through April 10, 2001 to be reported into this policy until June 2003.

As discussed above, insurance costs have increased and available coverage has decreased dramatically in the recent past and, as a result, the Debtors’ 2001 coverage is not as comprehensive as the 1999 and 2000 policies. There are 11 open claims against this policy period. For the 2001 Lexington AIG policy, there is a $1 million SIR per claim in Texas, $250,000 SIR per claim in California, and no aggregate limit on SIR.

For the 2002 Lexington AIG policy, there is a $1 million SIR per claim in Texas, $250,000 SIR per claim in California, and no aggregate SIR limit. There are 34 open claims against this policy year.

The SIR is credited with any and all expenses (including legal fees and expenses) incurred by the Debtors in connection with defensding a covered claim. The

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accounting and administering of all of these expenses is conducted by a third party called a Third Party Administrator or TPA. The TPA is an entity chosen by the Debtors and approved by the insurer. All expenses incurred by the Debtors in connection with defending a claim are actually paid by the TPA, which then bills the Debtors on a monthly basis. After the SIR has been exhausted, the TPA bills the insurance company.

D. The Debtors’ Board of Directors.

The Debtors’ Board consists of the following ten members: (1) Keith Abrahams; (2) Michael F. Gilligan; (3) Scott Gross; (4) Peter Z. Hermann; (5) Mark J. Jrolf; (6) Timothy Parris; (7) Michel Reichert; (8) William C. Scott; (9) Robert M. Snukal; and (10) Sheila S. Snukal.

1. Keith Abrahams.

Keith Abrahams has been a Director of Fountain View, Inc. since 1995 and served as president of Locomotion Therapy, Inc., one of the Debtors, until September 2002. Mr. Abrahams and his wife, Stacy Abrahams, jointly own 16,588 shares of Existing Class A Common Stock of Fountain View, Inc. Mr. Abrahams was previously employed as the Chief Financial Officer of Heftel Broadcasting from 1987 to 1992, a radio broadcasting company. He is also a certified public accountant. Mr. Abrahams is the son-in-law of Robert M. Snukal and Sheila S. Snukal, who are also directors. Mr. Abrahams is currently serving as consultant to the Debtors, pursuant to a court-approved consulting agreement, providing for monthly consulting fees of $6,500. Mr. Abrahams’ consulting agreement terminates on September 10, 2003.

2. Michael F. Gilligan.

Michael F. Gilligan has been a Director of Fountain View, Inc. since the acquisition of Summit on March 27, 1998. Since December 1993, Mr. Gilligan has been a General Partner of Heritage Partners, Inc., a Boston-based private investment firm that is the advisor and sponsor to Heritage, which owns 525,633 or 53% of the Existing Class A Common Stock, 2,658 shares of the Existing Preferred Stock, and 11,853 of the Existing Warrants. Prior to 1994, Mr. Gilligan was a Director of BancBoston Capital Inc., a private

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investment firm.

3. Scott Gross.

Scott Gross has been a Director of Fountain View, Inc. since December 1999. He is currently the President and Chief Executive Officer of Primus Management, Inc., a successor organization to Alpha Hospital Management, Inc., where he was President and Chief Executive Officer from 1989 to 1992. From 1988 to 1989, Mr. Gross was the Chairman and Chief Executive Officer of Carondolet Rehabilitation Centers of America, a diversified rehabilitation medicine services company. From 1984 to 1987, he was the President and Chief Executive Officer of Hospital Group-National Medical Enterprises. Mr. Gross holds a B.S. degree in Biology from Cal State University, Northridge, and a Masters degree in Public Administration (Health Care Management Option) from the University of Southern California.

4. Peter Z. Hermann.

Peter Z. Hermann has been a Director of Fountain View, Inc. since the acquisition of Summit on March 27, 1998. Since December 1993, Mr. Hermann has been a General Partner of Heritage Partners, Inc., a Boston-based private investment firm that is the advisor and sponsor to Heritage, which owns 525,633 or 53% of the Existing Class A Common Stock, 2,658 shares of the Existing Preferred Stock, and 11,853 of the Existing Warrants. Prior to 1994, Mr. Hermann was a Director of BancBoston Capital Inc., a private investment firm.

5. Mark J. Jrolf.

Mark J. Jrolf has been a Director of Fountain View, Inc. since August 1, 1997. Since February 1997, Mr. Jrolf has been a Partner and Vice President of Heritage Partners, Inc., a Boston-based private investment firm that is the advisor and sponsor to Heritage, which owns 525,633 or 53% of the Existing Class A Common Stock, 2,658 shares of the Existing Preferred Stock, and 11,853 of the Existing Warrants. From September 1993 to September 1996, Mr. Jrolf was a consultant with McKinsey & Co., specializing in healthcare.

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6. Timothy Parris.

Timothy Parris is a Director of Fountain View, Inc. Mr. Parris is president of Baylor University Medical Center, a non-profit affiliate of the Baylor Group. The Baylor Group owns 12,342 shares of Existing Preferred Stock, 38,524 of the Existing Warrants, and persons associated with the Baylor Group own 20,742 shares of Existing Class C Common Stock.

7. Michel Reichert.

Michel Reichert has been a Director of Fountain View, Inc. since August 1, 1997. Since 1994, Mr. Reichert has been Managing General Partner of Heritage Partners, Inc., a Boston-based private investment firm that is the advisor and sponsor to Heritage, which owns 525,633 or 53% of the Existing Class A Common Stock, 2,658 shares of the Existing Preferred Stock, and 11,853 of the Existing Warrants. Prior to 1994, Mr. Reichert was a Managing Director of BancBoston Capital Inc., a private investment firm.

8. William C. Scott.

William C. Scott became a Director and Chairman upon the closing of the merger of Summit and Fountain View, Inc. in 1998. Mr. Scott has held various positions with Summit since December 1985, including Chief Executive Officer and Chief Operating Officer. Mr. Scott served as Senior Vice President of Summit Health Ltd., Summit’s former parent company, from December 1985 until its acquisition by OrNda Health Corp. in April 1994 and previously was a partner in Arthur Andersen & Co. Mr. Scott currently owns 31,357 shares of Existing Class A Common Stock and 51,603 shares of Existing Class B Common Stock of Fountain View, Inc.

9. Robert M. Snukal.

Robert M. Snukal became a Director of Fountain View, Inc. on August 1, 1997. For the preceding five years, Mr. Snukal served as a Director and President of each of Fountain View Inc.’s then subsidiaries, which were owned directly by Mr. Snukal and Mrs. Snukal during that period. Mr. Snukal served as Chief Executive Officer of Fountain View, Inc. until February 2002. Mr. Snukal is the husband of Sheila S. Snukal, and the father-in

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law of Keith Abrahams, who also serve on the Board. Upon resigning as Chief Executive Officer, Mr. Snukal became a consultant to the Debtors. Pursuant to the terms of a court-approved consulting agreement, Mr. Snukal is currently receiving monthly consulting fees of $22,500 through December 31, 2003. Mr. Snukal’s consulting agreement with the Debtors terminates on December 31, 2003. Mr. and Mrs. Snukal jointly own 149,484 shares of Existing Class A Common Stock and 62,599 shares of Existing Class B Common Stock.

10. Sheila S. Snukal.

Sheila S. Snukal became a Director of Fountain View, Inc. on August 1, 1997. For the preceding five years, Mrs. Snukal served as a Director and Executive Vice President of each of Fountain View Inc.’s then subsidiaries, which were owned directly by Mr. and Mrs. Snukal during that period. Mrs. Snukal continued to serve as Fountain View, Inc.’s Executive Vice President until June 2002. Mrs. Snukal is the wife of Robert M. Snukal, and the mother-in-law of Keith Abrahams, who are also directors of the Board. Mrs. Snukal resigned as Executive Vice President effective June 2002 and is currently receiving monthly compensation of approximately $10,400 pursuant to a court-approved severance arrangement expiring on December 31, 2003. Mr. and Mrs. Snukal jointly own 149,484 shares of Existing Class A Common Stock and 62,599 shares of Existing Class B Common Stock.

None of these Board members currently occupy management positions with the Debtors, although, as noted, Mr. Snukal, Mrs. Snukal, and Mr. Abrahams currently receive compensation pursuant to court-approved consulting and severance agreements with Fountain View, Inc. Mr. Scott serves as Chairman of the Board in a non-executive capacity. The Board members, other than Mr. Scott, are not compensated for their services as directors. Under the Plan, the size of the Board may be changed, and new persons, to be designated and disclosed by the Exhibit Filing Date, may replace the members of the existing Board. Pursuant to Fountain View, Inc.’s court-approved employment agreement with Boyd Hendrickson, the Debtors’ current Chief Executive Officer, the Debtors will use their reasonable best efforts to cause Mr. Hendrickson to be (i) elected to the Board, and (ii) in the event Mr. Scott is no longer on the Board, to elect Mr. Hendrickson as Chairman of the

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Board.

E. The Debtors’ Management Team.

During the course of the Reorganization Cases, the Debtors made fundamental changes to management with the support of the Creditors’ Committee, the Noteholders’ Committee, and the Agent and Lenders.

1. Previous Management.

Prior to October 2001, the Debtors’ senior management team was:

Robert M. Snukal	Director, Chief Executive Officer and President
Sheila S. Snukal	Director, Executive Vice President and Chief Operating Officer
Paul C. Rathbun	Chief Financial Officer
Keith Abrahams	Director, President of Locomotion Therapy, Inc. and On-Track Therapy, Inc.
Myles Andrews	Senior Vice President-Texas and Arizona Operations
Joshua Snukal	Senior Vice President-California Operations
Richard Kam	Senior Vice President-Finance & Administration

None of these individuals remain employed by the Debtors in an executive or management capacity. As discussed above, Robert Snukal consensually left active management and entered into a consulting relationship with Fountain View, Inc. Robert Snukal’s wife, Sheila Snukal, his son Joshua Snukal and his son-in-law Keith Abrahams have also left active management positions with the Debtors. Robert Snukal will remain as a consultant through December 31, 2003. The consulting agreements of Sheila Snukal and Joshua Snukal have terminated, although they continue to receive compensation under the termination provisions of those agreements through December 31, 2003. Robert Snukal’s consulting agreement provides for him to receive compensation of $22,500 per month plus certain medical benefits and expenses until December 31, 2003. Keith Abrahams’ consulting agreement provides for him to receive $6,500 monthly plus certain medical benefits and expenses through September 2003. The severance provisions in Sheila Snukal’s consulting agreement provide for her annual compensation of $125,000 through December 31, 2003. The severance provisions of Joshua Snukal’s consulting agreement provide for his annual

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compensation of $87,500 through December 31, 2003. Each of these consulting agreements also includes non-compete, non-solicitation, and confidentiality protections for the Debtors.

2. Interim Management.

Having defaulted on certain obligations under the Prepetition Credit Agreement with the Bank of Montreal, as Agent and the Indenture pursuant to which the 11¼% Notes were issued, in August 2001 (prior to the filing of the Reorganization Cases), the Debtors engaged Crossroads LLC (“Crossroads”) to provide advisory and analytical services, and operational support. Crossroads is a nationally recognized turnaround management and financial advisory firm.

Shortly after the Petition Date, on October 9, 2001, the Board, with Court approval, appointed Dennis Simon, the Managing Principal of Crossroads, to the position of Chief Restructuring Officer of the Debtors. In this capacity, Mr. Simon reports directly to the Board (or, as appropriate in matters raising conflicts of interest for certain interested directors, the Independent Subcommittee of the Board).

Crossroads provided operational change teams to assist the Debtors under Mr. Simon’s direction. In particular, Mr. Kevin Pendergest of Crossroads was designated the Debtors’ Operations Improvement Officer and led the Crossroads operational change teams and the Debtors’ personnel to implement those changes approved by Mr. Simon and the Board. In addition, a team of Crossroads personnel, supervised by Mr. William Creelman, a Crossroads Director, was brought in to provide operational, financial, and restructuring analysis and advice to the Debtors.

3. The New Management Team.

The Debtors’ first priority during the Reorganization Cases was to strengthen their management team in order to address the financial and operating issues that had eroded their operating cash flow in the year preceding their chapter 11 filings. The Debtors promptly made fundamental changes to management with the support of the Noteholders’ Committee, the Creditors’ Committee, and the Agent and Lenders. In the aggregate, these changes resulted in the introduction of an entirely new management team and operating

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philosophy at the Debtors. Beginning in February 2002 and concluding in September 2002, the Debtors successfully recruited and implemented the new permanent management team described below.

a. Boyd Hendrickson, Chief Executive Officer.

Boyd Hendrickson, an executive with over 30 years of experience running large long-term care companies, was appointed CEO as of April 1, 2002. Before joining the Debtors, Mr. Hendrickson served in various senior management roles, including President and Chief Operating Officer of Beverly Enterprises, the nation’s largest long-term healthcare company. Mr. Hendrickson was also co-founder, President and Chief Operating Officer of Care Enterprises and Chairman and Chief Executive Officer of Hallmark Health Services. Mr. Hendrickson joined the Debtors from Evergreen Healthcare, where he served as President and Chief Executive Officer.

b. Jose Lynch, President.

Jose Lynch was appointed President in March 2002. Mr. Lynch has nearly a decade of experience in operations at nursing facilities and joined the Debtors from Mariner Post-Acute Network (“Mariner”) where he served as Senior Vice President in charge of operations of the Western Region of California. As Senior Vice President, Mr. Lynch presided over the operations of 30 SNFs and ALFs containing approximately 3,495 beds with annual revenues of almost $200 million. Under Mr. Lynch’s supervision, Mariner’s Western Region achieved all of its economic goals and quality of care standards, and maintained EBITDA margins in excess of 20 percent. During 2000 and 2001, the Western Region experienced increases in revenues of over 10 percent per year and profitability increases between 10 and 25 percent per year. The Operational Improvement Officer role, filled by Kevin Pendergest of Crossroads, was eliminated upon the retention of Mr. Lynch, and Mr. Lynch assumed the functions of that position.

Since Mr. Hendrickson and Mr. Lynch assumed their responsibilities, Mr. Simon’s operational responsibilities have been eliminated and he has since focused on a significantly more restricted Chief Restructuring Officer role, allowing him to serve, as

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needed, as an advisor to the Debtors’ Board and new senior management in dealing with the chapter 11 restructuring issues facing the Debtors.

c. Roland Rapp, General Counsel.

Roland Rapp was appointed General Counsel and Chief Administrative Officer in May 2002. Mr. Rapp has approximately 20 years of experience in the healthcare and legal sectors. Mr. Rapp previously was the Managing Partner of the law firm Rapp Kiepen and Harman and was Chief Financial Officer for Vintage Estates, both based in Pleasanton, California. His law practice centered on healthcare law and primarily focused on long-term care based on his prior experience as a nursing home administrator and director of operations for a small nursing home chain. Mr. Rapp is the past Chairman of the Board for the California Association of Health Facilities (“CAHF”). CAHF is the largest long-term care professional association in California, representing more than 1,600 skilled nursing, intermediate care, assisted living, and mental health facilities.

d. John Harrison, Chief Financial Officer.

John Harrison was appointed Chief Financial Officer effective July 2002. Mr. Harrison has almost 20 years of experience in the healthcare and financial sectors. Prior to joining the Debtors, Mr. Harrison served under Boyd Hendrickson as Controller and Treasurer of Evergreen Healthcare Management, LLC, a $200 million long term care company with 55 locations in seven states. Immediately prior to his employment at Evergreen, Mr. Harrison was Vice President of Finance for Beverly Care Alliance, Inc. (“Beverly”), a $380 million ancillary services company comprised of four health care divisions. Mr. Harrison served as chief financial officer for the outpatient clinic division of Beverly from 1996-1998 and from February through August 2000, and as acting chief financial officer for the home care and contract rehabilitation therapy divisions from June and August 2000, respectively, to January 2001.

e. Lori Stewart, Vice President of Human Resources.

Lori Stewart was appointed Vice President of Human Resources in April 2002. She has more than 15 years of human resources experience. Prior to joining the Debtors, she

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most recently served as Regional Director of Human Resources at another leading long-term care provider in California where she oversaw human relations issues for a workforce of 3,500 employees.

f. Brad Gibson, Vice President of Operations Finance.

Brad Gibson, with over 18 years of experience in operational finance positions in the long-tem care industry, was hired from Sun Healthcare as the Debtors’ Vice-President of Operations Finance in May 2002 to perform the monitoring, control, and reporting functions that had, in the past, been one of the Debtors’ weaknesses.

g. Mark Wortley, President of Locomotion Therapy, Inc.

Mark Wortley, with extensive experience in health-care management, was appointed President of Locomotion Therapy, Inc. in September 2002, succeeding Keith Abrahams.

h. Kelly Atkins, Vice President for California Long-Term Care.

Kelly Atkins, with more than 15 years experience in the long-term care industry, most recently as California Regional Vice President for Mariner Sub Acute, replaced Joshua Snukal as Senior Vice President for California Long-Term Care in May 2002.

i. Eddie Parades, Senior Vice President of Operations for Texas.

Eddie Parades, with more than 15 years of long-term care experience, most recently as an Area Director of Operations at Marriott Senior Living Services, assumed the role of Senior Vice President for Operations in Texas in August 2001. Previously Mr. Parades had served as District Director of Operations in the Texas market for Horizon Healthcare and in various other executive and management capacities for major long-term care providers.

4. Executive Employment Agreements.

Four members of the new management team, Messrs. Hendrickson, Lynch, Rapp and Harrison, have entered into employment agreements with Fountain View, Inc.,

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each of which has been approved by order of the Court. These agreements have similar terms and conditions, including the following:

Term. The period of employment for each executive continues until a specified expiration date:

Executive	Expiration Date
Hendrickson	March 31, 2007
Lynch	January 31, 2007
Rapp	March 31, 2007
Harrison	June 15, 2007

Base salary. Each Executive receives an annual base salary:

Executive	Base Salary
Hendrickson	$450,000
Lynch	$350,000
Rapp	$220,000
Harrison	$225,000

Annual Performance Bonus. Each executive is eligible for an annual performance bonus. Generally, the performance bonus is based on target EBITDA and patient care and quality goals, subject to certain conditions and a cap for each fiscal year. Subject to the establishment and satisfaction of patient care/quality goals, the annual performance bonus is calculated as a certain dollar amount (“Bonus Increment”) for each $1,000,000 or $2,000,000 (which is specified in the table below under the heading “EBITDA Increment”) that the Debtors’ consolidated EBITDA for that fiscal year exceeds the target EBITDA established by the Debtors for that year (without pro-ration). The targets for EBITDA in 2002, 2003, and 2004 are $43 million, $45 million, and $47 million, respectively. Each executive’s bonus, however, will not exceed the cap (“Bonus Cap”) in his agreement. The following table summarizes the performance bonuses:

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Executive	Bonus Increment	EBITDA Increment	Bonus Cap
Hendrickson	$50,000	$1,000,000	$300,000
Lynch	$33,000	$2,000,000	$264,000
Rapp	TBD	TBD	TBD
Harrison	$15,000	$2,000,000	$120,000

Mr. Rapp’s performance bonus is not specified in his agreement but will not be materially less favorable than for the other top-level management employees (other than the CEO and the President). Mr. Harrison’s annual performance bonus is only calculated in this manner for 2002; thereafter, the Board or the CEO will determine his performance bonus.

Sale Bonus. Each executive is also entitled to a “Sale Bonus” upon either: (i) a sale of the Debtors’ assets, an initial public offering, or sale of a majority of the Debtors’ common stock (“Bonus Trigger Event”) during his employment; or (ii) if the Debtors terminate his employment without cause and if a Bonus Trigger Event occurs within 9 months after such termination. The Sale Bonus will be at least a minimum amount for each executive and will increase with the increasing value of the Debtors (above certain thresholds) based on the Debtors’ “Terminal Value”¹¹ at the time of the Bonus Trigger Event; the means of calculating these amounts is described in detail in each executive’s employment agreement. If the Terminal Value of the Debtors exceeds $260 million (the difference being the “Excess Company Value”) at the Bonus Trigger Event, the Sale Bonus will be a stated amount for each executive plus a percentage of the Excess Company Value (e.g., $7.8 million plus 3% of the Excess Company Value for Mr. Hendrickson). The consummation of the Corporate Restructuring Plan and the consummation of the Plan

¹¹If the Bonus Trigger Event is caused by a sale of substantially all of the Debtors’ assets, the “Terminal Value” shall be the aggregate net proceeds that are or would be distributable in respect to all outstanding common stock assuming that: (i) the Debtors paid off their debt and preferred stock and debt securities, and liquidated on the Bonus Trigger Event; and (ii) any right, warrant or option to acquire any common stock is converted immediately prior to the distribution. If the Bonus Trigger Event is caused by an initial public offering, the Terminal Value shall equal the value of the Debtors' equity determined based on the public offering price of the common stock in the transaction. If the Bonus Trigger Event is caused by the sale of at least a majority of the common stock in a single transaction of series of substantially related transactions, then the Terminal Value shall equal the value of the Debtors' equity determined based on the net proceeds distributable in respect to the common stock sold in the transaction.

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following confirmation will not trigger sale bonuses under any of these agreements.

For Boyd Hendrickson, the minimum Sale Bonus is $1 million. If the Terminal Value of the Debtors is between $100 million and $200 million, the Sale Bonus will be $2 million plus $30,000 for every $1 million by which the value exceeds $100 million. If the Terminal Value is between $200 million and $260 million, the Sale Bonus will be $5 million plus $46,666.67 for every $1 million by which the Terminal Value exceeds $200 million. If the Terminal Value is over $260 million, the Sale Bonus will be equal to $7.8 million plus 3% of the Terminal Value in excess of $260 million.

For Jose Lynch, the minimum Sale Bonus is $500,000. If the Terminal Value of the Debtors is between $100 million and $200 million, the Sale Bonus will be $1 million plus $15,000 for every $1 million by which the Terminal Value exceeds $100 million. If the Terminal Value is between $200 million and $260 million, the Sale Bonus will be $2.5 million plus $23,333.33 for every $1 million by which the Terminal Value exceeds $200 million. If the Terminal Value is over $260 million, the Sale Bonus will be equal to $3.9 million plus 1.5% of the Terminal Value in excess of $260 million.

For Roland Rapp and John Harrison, the minimum Sale Bonus is $200,000. If the Terminal Value of the Debtors is between $100 million and $200 million, the Sale Bonus will be $250,000 plus $3,750 for every $1 million by which the Terminal Value exceeds $100 million. If the Terminal Value is between $200 million and $260 million, the Sale Bonus will be $625,000 plus $5,833.33 for every $1 million by which the Terminal Value exceeds $200 million. If the Terminal Value is over $260 million, the Sale Bonus will be equal to $975,000 plus 0.38% of the Terminal Value in excess of $260 million.

If no Bonus Trigger Event occurs, each executive receives 50% of his Sale Bonus determined as of his expiration date if (a) he is employed through his expiration date, and (b) EBITDA is over $60 million in any of the fiscal years during his employment prior to that date.

Alternative Equity Program. Fountain View, Inc. may replace the Sale Bonus program for an executive with an equity incentive program that provides options or

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restricted stock with vesting based on length of employment and the value of the Debtors as determined for the Sale Bonus. The exercise price for such options would be determined in relation to the value of any Sale Bonus that the executive would otherwise receive. If the alternative equity program is implemented for an executive, he would be entitled to receive no less under that program than the bonus he would otherwise have been entitled to under the Sale Bonus program.

Termination Benefits. Upon termination of an executive without cause, the following severance arrangements apply:

Ÿ    Boyd Hendrickson. If Mr. Hendrickson is terminated after December 31, 2002, he will receive $37,500 per month up to the lesser of (i) $900,000, or (ii) the balance of his annual salary for the remaining term of his employment agreement. In addition, Mr. Hendrickson will receive a pro-rated annual performance bonus based upon the Debtors’ EBITDA performance for the fiscal year up to the date of termination. Mr. Hendrickson’s medical insurance benefits will continue for a period up to one year after termination, provided that he does not obtain other employment during this period.

Ÿ    Jose Lynch. If Mr. Lynch’s employment is terminated without cause, the Debtors will pay Mr. Lynch an amount equal to his then current annual base salary.

Ÿ    Roland Rapp. If Mr. Rapp’s employment is terminated without cause before May 1, 2003, the Debtors will pay Mr. Rapp $220,000 plus a pro-rated annual performance bonus; thereafter upon termination without cause he will be paid $110,000 plus a pro-rated annual performance bonus.

Ÿ    John Harrison. If Mr. Harrison’s employment is terminated without cause, the Debtors will pay Mr. Harrison $112,500 plus a pro-rated annual performance bonus.

These executives’ employment will be deemed terminated by the Debtors without cause upon resignation within six months after a “Change of Control,”¹² if the

¹²“Change of Control” means a (i) sale of substantially all of the Debtors’ assets, or (ii) transaction after which the current stockholders (and their affiliates) do not own at least a majority of the common stock and Heritage Partners, Inc. (and its affiliates) does not constitute the single largest stockholder.

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change in control is accompanied by (i) a diminution of base salary, (ii) the Debtors’ termination of his status as an executive officer, or (iii) a material diminution in duties or responsibilities in effect immediately before the Change of Control. The consummation of the Corporate Restructuring Plan and the consummation of the Plan following confirmation will not a constitute a “change of control” under any of these agreements.

Miscellaneous. All the employment agreements include confidentiality, non-compete, and non-solicitation provisions for the benefit of the Debtors. Mr. Hendrickson has also borrowed $400,000 from Fountain View, Inc. on a short-term basis to finance the purchase of a new home in Southern California.

F. Assets and Liabilities of the Debtors’ Estates.

1. Assets.

Based on the Debtors unaudited balance sheet as of December 31, 2002, the book value of the Debtors’ primary assets, as of that date, consisted of approximately: (i) $19.5 million in cash and cash equivalents; $43.5 million in accounts receivable; $12.8 million in supplies, inventory and other related assets; and $142.0 million in plant, property and equipment. Included within that figure for property, plant and equipment are 34 long-term care facilities owned by the Debtors in California and Texas (the “Owned Facilities”). Thirty-three of the Owned Facilities will serve as the primary collateral for $113 million in real estate backed financing under the proposed Exit Facility. In connection with obtaining the Exit Facility, the Debtors retained Valuation & Information Group to conduct a comprehensive appraisal and valuation of the Debtors’ 34 Owned Facilities in California and Texas. The appraisal report provides for an “as is” market value of $202,890,000, and a “stabilized”¹³ market value of $206,090,000. Even after providing for an adjustment to the “as-is” value that assumes for the full effect of the “Medicare Cliff” on a permanent basis, the appraisal reveals an aggregate value of $186,990,000 for these 34 properties alone.

¹³The difference between “stabilized” market value and “as-is” market value are earnings improvements currently underway. There are 13 facilities in which “stabilized” values are slightly greater than “as-is” values.

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2. Long-Term Debt.

a. Facility Level Debt.

At the individual facility level, the Debtors’ operating subsidiaries are obligated on long-term leases on certain facilities and two senior mortgages on the skilled nursing facility known as the Woodlands (the “Woodlands”) that is owned and operated by Summit Care Texas, L.P. and located in Montgomery County, Texas. The lease payments and debt service at the facility level company-wide aggregate approximately $635,000 per month.

Bank Midwest, N.A. (“Bank Midwest”) asserts claims against Summit Care-Texas No. 3, Inc. (“Summit No. 3”) in the approximate principal amount of $4,927,126 secured by a first priority lien pursuant to that certain deed of trust and security agreement dated December 1, 1993 and assigned to Bank Midwest by instrument dated July 17, 2001 in the real and personal property associated with the Woodlands. Based upon a recent appraisal of the Woodlands, Bank Midwest is substantially oversecured. The Woodlands is conservatively appraised at $8.5 million, even taking into account the full effect of the Medicare Cliff. Bank Midwest also asserts a first priority security interest in the personal property related to the Woodlands.

The Agent on behalf of the Lenders asserts (in addition to a junior lien against the Woodlands real property) a competing senior, perfected lien and security interest as to all personal property of any and all Debtors, including the personalty related to the Woodlands. The Agent and Lenders, Bank Midwest, the Debtors, and the Committees reserved all of their respective rights, claims, and causes of action related to the Woodlands personal property collateral, pursuant to that Stipulation and Proposed Order Establishing Validity And Priority Of Bank Midwest’s Senior Liens On Woodlands Real Property approved by Order of the Court entered on December 3, 2002. The Debtors and Bank Midwest have entered into the Bank Midwest Stipulation pursuant to which Bank Midwest has agreed to make an additional advance of $630,000 within five (5) days of the Effective Date, and the Debtors and Bank Midwest have resolved the disputes relating to the Woodlands personalty and stipulated to the treatment to be afforded the Class 1 Claim as provided in the Plan. The

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Bank Midwest Stipulation was approved by Order of the Court on April 15, 2003.

Woodlands Place Nursing Center L.P. (“Woodlands Place”) also asserts liens against the real and personal property associated with the Woodlands, pursuant to that certain Agreement of Purchase and Sale of Assets dated November 6, 1993 and that certain Warranty Deed With Vendor’s Lien dated December 1, 1993. Pursuant to an adequate protection stipulation and order entered on May 29, 2002, the parties have stipulated to the proper perfection and validity of the Woodlands Place lien against the Woodlands real property collateral. The issue of priority was reserved in the stipulation, but based on public records of Montgomery County, Texas, it appears that Woodlands Place’s lien against the Woodlands is junior to the interest of Bank Midwest and senior to that of the Bank Group in the same collateral. The amount of the Woodlands Place Claim is subject to some dispute because the purchase agreement calls for installment payments of principal without interest, thereby necessitating, in the view of the Debtors, imputation and disallowance of an undetermined portion of the payment stream as unmatured interest pursuant to Bankruptcy Code section 502(b)(2). Pursuant to stipulation, the Debtors are currently paying $6,000 per month to Woodlands Place as a proxy for implicit interest at a 7% per annum rate, which implies that the principal amount of the Woodlands Place Claim is approximately $1 million.

b. Secured Obligations.

The Debtors’ principal secured lender is a syndicate of banks and investment funds, which make up the Lenders, for whom Bank of Montreal serves as Agent. The Lenders assert liens in substantially all of Fountain View, Inc.’s and its subsidiaries’ assets (including cash collateral) pursuant to pledge, guaranty, security agreements, and deeds of trust entered into as collateral support for the obligations under the Prepetition Credit Agreement.

In the spring of 1998, in connection with its merger with Summit, Fountain View, Inc. entered into a revolving credit facility and term loan facilities pursuant to the Prepetition Credit Agreement, providing for revolving credit borrowings of up to $30 million and term loan borrowings of up to $85 million. In October 1998, the Prepetition Credit

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Agreement was amended to provide $5 million in additional mortgage refinancing. The Lenders, under the Prepetition Credit Agreement, presently assert a secured claim for $27.3 million on account of revolving loans and a secured claim for $55 million on account of term loans. Pursuant to the Prepetition Credit Agreement, the Agent has also issued a letter of credit supporting certain worker’s compensation obligations of the Debtors in the amount of $500,000.

c. Public Debt.

Pursuant to a Trust Indenture dated April 16, 1998, Fountain View, Inc. issued the 11¼% Notes in an aggregate outstanding principal amount of $120 million. The maturity date of these high-yield unsecured subordinated debentures was accelerated by notice following default on July 13, 2001. The 11¼% Notes are unsecured obligations of Fountain View, Inc., but they are guaranteed by all the Debtors, subject to certain net worth limitations.

d. Other Material Secured Obligations.

AmerisourceBergen Drug Corporation (formerly known as Bergen Brunswig Drug Company) (“Bergen”), formerly a major pharmaceutical supplier to Summit Care Pharmacy, Inc. (“Summit Care Pharmacy”), one of the Debtors, holds Claims in the principal amount of $1,710,562.10 on account of pharmaceutical products sold and delivered to Summit Care Pharmacy. Bergen asserts that its Claims are fully secured by Summit Care Pharmacy’s accounts, general intangibles, inventory, equipment, and fixtures pursuant to that certain security agreement dated March 29, 2001 between Summit Care Pharmacy and Bergen. The Agent, on behalf of the Lenders, asserts a prior, perfected, senior security interest and lien against the Bergen collateral and has reserved all rights, claims, counterclaims, and causes of action related to the Bergen collateral and the security interest claimed by Bergen. Bergen and the Debtors have entered into a stipulation regarding Bergen’s treatment under the Plan.

Prior to the Petition Date, on April 1, 2001, Summit Care Corporation, one of the Debtors, and Union Bank of California, N.A. (“Union Bank”) entered into an Amended

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and Restated Commercial Promissory Note (the “Union Bank Note”). Union Bank asserts that the outstanding principal balance under the Note is $823,333.04, plus accrued interest, fees and costs, expenses, and other charges. Union Bank further asserts that this obligation is fully secured by a first priority lien pursuant to an Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001 in the real and personal property located at 730 North Frederick Street and 2600 West Magnolia Boulevard, Burbank, California 91507 (the “Burbank Location”). In addition to being a lender to the Debtors under the Union Bank Note, Union Bank is also one of the Lenders, and is the bank at which the Debtors maintain their principal operating account. The value of the Burbank Location—currently offered for sale at a price of $2.7 million—is believed to greatly exceed the secured claim of Union Bank under the Union Bank Note. Pursuant to an adequate protection stipulation, the Debtors are currently making monthly adequate protection payments equal to the postpetition interest provided for under the Union Bank Note at the non-default rate.

e. Unsecured Obligations.

According to the Debtors’ books and records, the Debtors’ unsecured prepetition debt (other than the 11¼% Notes) consisted primarily of approximately $12 million of unsecured trade payables for goods and services received and other unsecured Claims other than unliquidated, disputed professional liability Claims. The Debtors are also subject to numerous disputed professional liability Claims and suits. The Debtors believe that these professional liability Claims, to the extent they are valid, are fully covered by insurance insofar as they relate to the Debtors’ 1999 and 2000 policy years, and, as to other policy years, have otherwise adequately reserved for such Claims in their financial projections.

G. The Debtors’ Revenue Sources.

While long-term nursing care remains a critical part of the medical care delivery system for the elderly and a cost-effective alternative to hospitalization, providers continue to experience financial challenges, staff shortages, and high employee turnover, as

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well as a dramatic increase in litigation and increasing regulatory constraints. The Debtors rely primarily on revenues derived from Medicare reimbursements, private patient and managed care payments, and Medicaid and Medi-Cal reimbursements.

a. Medicare.

Approximately 37% of the Debtors’ revenues are derived from Medicare reimbursements. The Medicare program was created to provide nationwide federally funded health insurance for the elderly. The Medicare “Part A” program pays for the services provided in a SNF that are required by a beneficiary subsequent to a three-day hospital stay. Covered services include skilled nursing care, room and board, social services, medical supplies, prescription drugs, and other medically necessary services. In addition to the inpatient services billable under the “Part A” Medicare program, certain other services and supplies are billable under the Medicare “Part B” program, which pays for, among other things, doctors’ services, outpatient hospital care, and other medical services that Part A does not cover, such as the services of physical and occupational therapists, and some home health care. Part B helps pay for these covered services and supplies when they are medically necessary.

Reductions in Medicare funding, commonly known as the “Medicare Cliff,” automatically took effect on October 1, 2002 upon the expiration of previously legislated rate increases. These reductions in reimbursements, amounting to an average 17% reduction in per patient day rates, are adversely affecting the entire long-term care industry, including the Debtors. While the Medicare Cliff resulted in industry-wide average per patient day reductions in Medicare reimbursement of $33, the Debtors have projected the net impact of the Medicare Cliff on their operations at $23.88 per patient day based on their current reimbursement experience given the particular patient mix and acuity levels of the residents in their facilities. Unless Medicare Cliff is reversed, the Debtors project an aggregate reduction of $8 to $8.5 million annually in the Debtors’ revenue.

Bipartisan legislation to address the Medicare Cliff came before the 107^th Congress but was not enacted prior to the sunset date of October 1, 2002. If the 108^th

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Congress passes legislation restoring in part or in whole Medicare reimbursement rates to their 2002 level, the Debtors anticipate at least a six-month lag between the effective date and retroactive reimbursement from intermediaries. The Debtors expect to more than offset the current reduction in liquidity associated with the Medicare Cliff through improved collections, settlements, and asset sales.

b. Medicaid/Medi-Cal.

Approximately 44% of the Debtors’ revenues are derived from Medicaid/Medi-Cal reimbursements. The Medicaid program is a state-administered program financed by matching state and federal funds. In California the state administered Medicaid program is referred to as the Medi-Cal program. The program provides medical assistance to eligible low income and certain other eligible persons. Although administered under broad federal statutes and regulations, states are given flexibility to develop programs and payment methods consistent with their individual goals, and subject to compliance with federal requirements.

In December 2002, Governor Gray Davis of California, facing a budget deficit of $34.6 billion, proposed major cuts for health care services in the 2003-04 state budget, including a 10% reduction in the Medi-Cal rates paid to providers, ending certain benefits such as medical supplies, dental services, podiatry, acupuncture, chiropractor, psychology, and occupational therapy, and reducing the income level for eligible beneficiaries to 61% of the federal poverty level. Governor Davis’ proposed Medi-Cal cuts do not appear likely to be enacted into law for the 2003-2004 budget year. The Debtors anticipate, however, that some reduction in reimbursement rates or benefits of uncertain magnitude may be imposed pursuant to California’s 2004-2005 state budget.

c. Private and Managed Care Patients.

Long-term care nursing facilities generally attempt to maximize the number of private pay and managed care patients admitted. The private pay patients have financial resources to pay for the services without depending on third-party programs for assistance. The managed care residents are paid by the insurance companies, which have contracts with

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each facility for reimbursement. Managed care reimbursement rates are typically higher than governmental rates under Medicare and Medicaid because the rates include most ancillaries and the resident typically has a high acuity level. Approximately 19% of the Debtors’ revenues are derived from private and managed care payments. Revenues from private patients and managed care patients are not dependent on or limited by Medicare or Medicaid reimbursement rates. Private and managed care rates are projected to increase at a rate of 6% and 15% respectively in 2003.

H. Events Precipitating these Chapter 11 Filings.

The Debtors’ operating cash flows began to deteriorate in the first quarter of 2001 principally as a result of the cumulative effect of increased labor costs, increased insurance costs, and other adverse operating issues. EBITDA for the second quarter 2001 was only $6.6 million, and the cumulative effect of the poor first and second quarter 2001 operating results seriously strained the Debtors’ liquidity. As a consequence, in April 2001, the Debtors, although remaining current on their interest obligations to the Lenders, defaulted on a required amortization payment to the Lenders and failed to make their semi-annual interest payment on the 11¼% Notes. As a result, by May 2001, the Debtors were in default under both the Prepetition Credit Agreement and the indenture governing the 11¼% Notes.

The Debtors commenced out of court debt restructuring negotiations with the Lenders and an ad hoc committee of certain large institutional holders of the 11¼% Notes. As part of those discussions, the Debtors: (i) explored refinancing their senior mortgage debt with long-term mortgage loans under a program administered by the Department of Housing and Urban Development as well as other refinancing options; (ii) explored options with the holders of 11¼% Notes and Heritage for restructuring or retiring the 11¼% Notes; (iii) engaged Crossroads to assist in addressing the operational issues that had caused their financial distress; and (iv) at the urging of the ad hoc committee, consulted with UBS Warburg, a well-known investment bank, about the possibility of retaining UBS Warburg to investigate strategic alternatives for the Debtors.

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Independent of these events, but also in April 2001, certain of the Debtors unexpectedly suffered an adverse jury verdict of $5.8 million (including $4.5 million in punitive damages) in a professional liability case¹⁴ brought by John Muccianti and Dorothy Beard, individually, and as successors in interest of Margaret Muccianti (the “Muccianti Parties”). The defendant Debtors vigorously denied liability to the Muccianti Parties and appealed the adverse judgment. To stay the judgment pending appeal, however, the defendant Debtors were required by California law to post an $11 million supersedeas bond in July 2001. The Debtors’ insurers refused to bond the punitive component of the judgment and the Debtors lacked the liquidity or borrowing capacity to post the supersedeas bond in the amount required to obtain a stay of execution of the judgment pending appeal.

The Debtors negotiated and entered into a number of interim stays and agreements of forbearance with the Muccianti Parties, but on Friday, September 28, 2001, the Muccianti Parties unexpectedly executed on the unstayed judgment, placing liens on various real and personal property of the Debtors throughout California. Writs of execution served on the Debtors’ principal depository bank Union Bank, N.A. crippled the Debtors’ ability to operate their businesses. The Muccianti Parties executed upon the Debtors’ Union Bank General Operating Account in the amount of $5,115,106.77, the Summit Care Corporation Vacation Pay Plan account in the amount of $123,048.73, the Carson Retirement Center Account in the amount of $19,511.74, and 13 other accounts at Union Bank containing much smaller sums.

As a result, the Debtors had little choice but to file emergency petitions for chapter 11 relief and to seek Court authority to use the garnished funds in the ordinary course of their business operations subject to an appropriate adequate protection order. Those petitions were filed on the afternoon of October 2, 2001 for Fountain View, Inc. and 19 of its direct and indirect subsidiaries. The Court authorized the Debtors’ use of cash collateral, including, in particular, the Union Bank depository accounts, on an emergency basis the following morning.

¹⁴Muccianti et al. v. Willow Creek Care Center et al., Civil Action 625122-7 (California Superior Court).

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Shortly after the commencement of the initial 20 Reorganization Cases, substantial confusion with respect to the ownership of the Woodlands developed. This Facility and its licenses and permits had been transferred to Summit Care Texas, L.P. shortly after the 1998 merger transaction, but it appears that the deed of transfer was not recorded in the real property records of Montgomery County, Texas. Bank Midwest and Woodlands Place, holders of first and second deeds of trust, respectively, against this facility, threatened foreclosure actions against the record title holder, Summit Care Texas No. 3, Inc., a non-filed subsidiary believed by the Debtors to be dormant. Accordingly, on November 28, 2001, Summit Care Texas No. 3, Inc. and two other indirect dormant subsidiaries of Fountain View, Inc., that had been named as defendants in certain litigation, filed their own chapter 11 petitions. All 23 related cases have been administratively consolidated by the Court.

IX.

SIGNIFICANT EVENTS IN THE REORGANIZATION

CASES AND THE DEBTORS’ CORPORATE RESTRUCTURING PLAN

A. Significant Events in the Reorganization Cases.

1. Continuation of Business; Stay of Litigation.

Since the Petition Date, the Debtors have continued to operate their businesses as debtors in possession, subject to the supervision of the Court. Although the Debtors are authorized to operate in the ordinary course of business, transactions out of the ordinary course of business have required Court approval. An immediate effect of the filing of the Debtors’ petitions was the imposition of the automatic stay under Bankruptcy Code section 362 that, with limited exceptions, enjoined the commencement or continuation of all collection efforts by creditors, the enforcement of liens against property of the Debtors, and the continuation of litigation against the debtors. This relief provided the Debtors with the “breathing room” necessary to assess and reorganize their businesses. The automatic stay remains in effect, unless modified by the Court, until the Reorganization Cases are either closed or dismissed.

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2. Transitioning into Chapter 11.

During the beginning stages of these Reorganization Cases, the Debtors were primarily occupied with transitioning into chapter 11. Within days of the Petition Date, the Debtors filed a number of emergency motions designed primarily to minimize the impact of the chapter 11 filings on the Debtors’ operations and to facilitate the Debtors’ compliance with the requirements of chapter 11. Specifically, the Debtors filed motions requesting: (i) authority to maintain the Debtors’ existing bank account structure and cash receipts and disbursement procedures; (ii) authority to honor certain employee benefits; (iii) authority to honor prepetition patient refunds and maintain patient trust accounts; (iv) a determination as to adequate assurance of payment for postpetition utility services; (v) the establishment of certain notice procedures to be utilized during the Reorganization Cases; and (vi) an extension of time for the Debtors to File their Schedules and statements of financial affairs. The Court approved each of these motions.

On October 2, 2001, Fountain View, Inc. filed its Current Report Pursuant to Section 13 or 15(d) of the Exchange Act (Form 8-K) advising that the company and 19 of its subsidiaries filed voluntary petitions under chapter 11 of the Bankruptcy Code that day. All periodic reports required under the Exchange Act or Section 30 of the Investment Company Act of 1940 during the 12 months preceding the period ending September 30, 2001 have been filed, but Fountain View, Inc. did not file a quarterly report (Form 10-Q) for the period ended September 30, 2001 because of the Debtors’ filings under chapter 11 of the Bankruptcy Code. A notification of inability to timely file Form 10-Q (Form NT 10-Q) was filed on November 15, 2001, and no other such reports have been filed after that notification. The Debtors have been generating substantial information concerning their financial performance, and this information has been made public through pleadings (including status reports) Filed periodically in the Reorganization Cases and through operating reports and interim statements submitted to the U.S. Trustee.

Since the Petition Date, the Debtors have presented numerous motions to the Court relating to the administration of the Estates. The Debtors and their professionals have

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also spent a considerable amount of time complying with the many reporting and disclosure requirements imposed by the Bankruptcy Code, the Bankruptcy Rules, and the United States Trustee Guidelines, including the preparation of separate Schedules and statements of financial affairs for each of the Debtors.

3. Retention of Turnaround Management Consulting Firm.

Shortly after filing these cases, by unanimous consent, the Debtors’ Board created the Chief Restructuring Officer (“CRO”) position and appointed Dennis Simon, the managing principal of Crossroads, to serve as the Debtors’ CRO. The Court approved this appointment as well as the employment of Crossroads to provide operational and restructuring support.

The Debtors, with the assistance of Mr. Simon and other Crossroads’ personnel, focused on analyzing operations and identifying operational and financial weaknesses, improving the Debtors’ reporting and management systems, and developing a turnaround strategy. Prerequisites to the financial restructuring of the Debtors were identifying the causes of the Debtors’ deterioration in EBITDA during the second quarter of 2001, identifying appropriate remedial actions, and implementing operating improvements.

Only after the Debtors stabilized and normalized EBITDA could the appropriate capital structure for a reorganized company be determined. The Debtors intensively engaged in identifying operational and financial problems and constructing and implementing a business plan to substantially improve EBITDA. This task included, among other things, the implementation of new systems to enable the Debtors’ management to deal with significant business issues in a quantifiable manner.

4. Use of Cash Collateral.

On October 2, 2001 Fountain View, Inc. filed the Emergency Motion Of Debtor In Possession For Order Granting Interim Use Of Cash Collateral To Cover Postpetition Operating Expenses (the “Emergency Motion”), in which the other Debtors joined. On October 3, 2001, the Court entered the Order Granting Interim Use of Cash Collateral For Emergency Purposes Pending Final Hearing (the “First Interim Order”),

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authorizing the Debtors’ interim use of cash collateral in accordance with the budget attached as Exhibit 1 to the Emergency Motion. The First Interim Order was extended six times, pursuant to the second, third, fourth, fifth, sixth, and seventh interim orders, which were entered on October 29, 2001, November 29, 2001, January 18, 2002, March 14, 2002, June 26, 2002 and December 18, 2002, respectively.

Pursuant to the Seventh Interim Order Granting Interim Use Of Cash Collateral For Emergency Purposes Pending Final Hearing (the “Seventh Interim Order”), the Debtors were authorized to use cash collateral through and including the earlier of the date of a final hearing on cash collateral or March 31, 2003, and further to make principal payments to the Agent and Lenders of up to $20 million, subject to certain liquidity requirements, in order to reduce interest expense. Pursuant to the Seventh Interim Order, the Debtors made an initial $15 million principal payment on December 19, 2002 and a $5 million principal payment on January 8, 2003. Consistent with the authority granted under these cash collateral orders, the Debtors have been paying their postpetition liabilities as they become due in the ordinary course of business, and the Debtors are current with all of the suppliers of goods and services to the Estates. Subsequently, the Court extended the Debtors’ authority to use cash collateral pursuant to stipulation of the parties through June 30, 2003.

5. Adequate Protection Payments.

During the Reorganization Cases, the Debtors have made adequate protection payments to the Agent and Lenders, Bank Midwest, Woodlands Place, Union Bank, and Leonard and Catherine May (the “Mays”). Through January 31, 2003 the Debtors have made aggregate adequate protection payments to the Agent and Lenders of approximately $32.9 million, including the $20 million in supplemental adequate protection payments credited against principal discussed above. Through January 13, 2003 the Debtors have also made aggregate adequate protection payments to (i) Bank Midwest of $345,000; (ii) Union Bank of $67,000; (iii) Woodlands Place of $96,000; and (iv) the Mays of $4,357.86. The Debtors have also, pursuant to court-approved stipulations, made adequate protection

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payments to certain insurance premium financers in order to avoid forfeiture of the policies securing those obligations.

6. Relief from Stay Motions and ADR Procedures.

As of the Petition Date, there were approximately 126 professional liability Claims pending against one or more of the Debtors, of which 52 had ripened into lawsuits. All of these Claims are subject to the automatic stay, which prevents any of the claimants from pursuing their claims or collecting any judgments against the Debtors without seeking relief from the automatic stay from the Court. Fifteen relief from stay motions have been filed in the Reorganization Cases, each seeking permission from the Court for the movant to proceed with its case against the Debtors. The Court has consistently denied the claimants’ motions absent consent from the Debtors or demonstrated compliance with the court-approved ADR Procedures described below.

In order to resolve the multitude of prepetition professional liability claims, the Debtors formulated certain alternative dispute resolution procedures (the “ADR Procedures”) that the Court approved pursuant to its Order Establishing Alternative Dispute Resolution Procedures (the “ADR Order”), entered on June 17, 2002.

Pursuant to the ADR Procedures, all claimants (the “Claimants”) asserting professional liability or elder abuse claims for personal injuries or wrongful death against any of the Debtors arising prior to the Petition Date (except those claims that are properly tendered and the defense of which have been accepted by CNA HealthPro in its capacity as the insurer of certain of the Debtors’ long-term care facilities located in California during policy years 1999 and 2000) were enjoined from proceeding in any action pending in any forum against both the Debtors and any other defendant or defendants. Pursuant to the ADR Order, relief from the automatic stay will not be granted with respect to any Claimant unless (i) both the person or persons seeking relief from the stay and the Debtors certify in writing that they have attempted to settle their dispute in good faith pursuant to the ADR Procedures and, notwithstanding the completion of the ADR Procedures, they have failed to reach a settlement; or (ii) the entity seeking relief from stay otherwise establishes good cause not to

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follow the ADR Procedures under the circumstances of the particular case. Those Claimants that submit to the ADR Procedures agree to participate in negotiations and mediate with the Debtors to attempt to reach a settlement under specified procedures. The Debtors’ primary and excess insurance carriers were also ordered to participate in good faith in the mediations provided for by the ADR Procedures.

The ADR Order also authorized the Debtors to settle any Claim subject to the ADR Procedures on any reasonable terms and to enter into, execute, and consummate a written agreement of settlement that will be binding on the Debtors and the Estates without further notice or action by the Court, so long as the settlement does not involve allowance of a claim against the estates in excess of $100,000, or payments from property of the Estates exceeding $50,000 in advance of, or otherwise outside the terms of, any confirmed reorganization plan or plans.

The ADR Order also authorized the Debtors, subject to the written consent of the Noteholders’ Committee, Creditors’ Committee, and the Agent and Lenders, to settle any claim subject to the ADR Procedures, on any reasonable terms and to enter into, execute, and consummate a written settlement agreement that will be binding on the Debtors and the Estates without further notice or action by the Court, so long as the settlement does not involve the allowance of a Claim against the Estates in excess of $250,000. Any settlement calling for the allowance of a Claim in excess of $250,000 is subject to further Court approval upon a noticed motion under Bankruptcy Rule 9019.

Following entry of the ADR Order, the Debtors attempted to settle as many professional liability Claims as possible in advance of the formal mediation process. This has significantly reduced professional fees and expenses. Within the limits of the pre-approved settlement authority of the ADR Order, (in addition to the settlement with the Muccianti Parties discussed in Section IX.A.8 below) the Debtors have successfully consummated settlements with 60 professional liability claimants (involving 42 proofs of Claims), pursuant to which the Debtors paid $2,464,519. In addition, seven other settlements (involving 24 proofs of Claims) are currently pending consummation, pursuant to which the

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Debtors will pay an additional $315,000.

The formal mediation process began in early August 2002. Mediations with four plaintiffs have resulted in settlements that have been fully consummated. Moreover, mediations with four plaintiffs have resulted in preliminary settlements that are in the process of being documented and consummated. The Debtors were unable to reach a consensual resolution through good faith mediations in two cases by an agreed date and, accordingly, consented to stay relief in those cases. Nevertheless, the Debtors and the relevant insurers are currently attempting to continue mediations with these two claimants.

The Debtors have unsuccessfully completed mediations with two plaintiffs thus far: (i) Karen Jones, individually and as successor in interest of Amelia Sandoval (“Sandoval”); and (ii) Richard Wolf, individually and as successor in interest of Otto Wolf, Doris Wolf, individually, and Kathleen Sefrin, individually (collectively, “Wolf”). Sandoval and Wolf are represented by Wilkes & McHugh, PC., which filed oppositions to the Debtors’ motion for court-ordered alternative dispute resolution procedures on their behalf. Those objections were withdrawn at the hearing based on the plaintiffs’ and the Debtors’ agreement to mediate these long-pending disputes on an agreed schedule. Unfortunately, neither mediation resulted in a consensual resolution by the deadlines imposed by the stipulation governing these matters. These Claims are now expected to be liquidated in state court proceedings.

Three hundred and seventy (370) professional liability proofs of Claims—including worker’s compensation claims—were filed against the Debtors. Of these, 230 constitute duplicate Claims, leaving 140 professional liability proofs of Claims. Pursuant to the settlements discussed above, 66 proofs of Claims against the Debtors in the aggregate face amount of $89,622,500 have been withdrawn or will be withdrawn. In addition, three of the worker’s compensation proofs of Claims involving settled Claims will be withdrawn. Seventy-one disputed professional liability proofs of Claims against the Estates remain unresolved at this time. All of these remaining Claims appear to be fully covered by insurance or, in the opinion of management, are otherwise adequately reserved for in the

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Debtors’ projections.

7. Extensions of the Debtors’ Exclusive Periods.

The Bankruptcy Code establishes the initial “Exclusive Periods”¹⁵ during which a debtor has the exclusive right to file a plan of reorganization and solicit acceptances to its plan. Pursuant to the Bankruptcy Code, the Debtors’ initial Exclusive Periods were set to expire on January 30 and March 31, 2002, respectively. Shortly after the commencement of the Reorganization Cases, certain large institutional bondholders of the Debtors initiated intensive litigation against the Debtors to force early termination of the Exclusive Periods. The bondholder group, later reconstituted as the Noteholders’ Committee, and the Debtors carried on this litigation through the middle of January 2002, as the Debtors’ first motion to extend the Exclusive Periods through September 29, 2002 and November 28, 2002, respectively, and the Noteholders’ Committee’s motion to terminate the Exclusive Periods were concurrently pending before the Court. The Noteholders’ Committee’s motion to terminate was ultimately withdrawn pursuant to stipulation in January 2002. Since that time, the Exclusive Periods have been continuously extended pursuant to a series of stipulations and orders. Currently, the Exclusive Periods are set to expire on May 9, 2003, unless further extended. The Debtors expect to seek additional extensions of the Exclusive Periods through the Effective Date.

8. Improved EBITDA and Operations.

From the commencement of the Reorganization Cases in October 2001, the Debtors have consistently met or exceeded their financial projections in the face of significant increases in insurance costs and decreases in government reimbursement rates affecting the long-term care industry. For the year ending December 31, 2002, the Debtors’ consolidated EBITDA of $45.6 million met projections. Below is a chart comparing EBITDA performance since the commencement of the Reorganization Cases with the prior

¹⁵ Section 1121(b) of the Code provides for an initial period of 120 days after commencement of a chapter 11 case during which a debtor has the exclusive right to file a plan of reorganization (the “Filing Period”). Section 1121(c)(3) of the Code provides that if the debtor files a plan within the Filing Period, it has until 180 days after the commencement of the chapter 11 case to solicit and obtain acceptances of such plan during which time a competing plan may not be filed (the “Solicitation Period” and with the Filing Period, together, the “Exclusive Periods”).

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year’s results.

	2001		2002
First Quarter	$	7.9 million	$	10.5 million
Second Quarter	$	6.6 million	$	11.0 million
Third Quarter	$	8.5 million	$	12.0 million
Fourth Quarter	$	10.0 million	$	12.1 million
Year-End	$	33.0 million	$	45.6 million

The Debtors’ liquidity has remained consistently strong throughout the Reorganization Cases. The cash balance at January 31, 2003 was approximately $16,158,000, notwithstanding the $15 million supplemental adequate protection payment to the Agent and the Lenders on December 19, 2002 and the second supplemental payment of $5 million on January 8, 2003. Although the Debtors’ cash balances fluctuate widely within any given month on account of the Debtors’ normal collection cycle, the Debtors continue to build cash from operations, net of extraordinary restructuring costs, capital investments, and adequate protection payments, at a rate of over $2 million monthly.

The Debtors’ increasing EBITDA is due largely to (i) improvements in occupational and patient mix; (ii) operating cost reductions; and (iii) reductions in corporate overhead. The Debtors continue to examine all aspects of their businesses to identify opportunities for improvement, including, but not limited to, further improving information technology systems; staff retraining; labor and food cost management; vendor relations; effectiveness of organizational structures; profit potentials in all five business organizations; costs and benefits of centralized payroll systems; improved accounts receivable management; incentive bonus plans and retention of key managers; salary management systems; management and cost controls of litigation; improving risk management procedure and databases; recruiting new middle management with supplemental talents and skills; and elimination of certain employee leasing programs.

The improvements in EBITDA and operational performance have not been at the expense of the Debtors’ high quality of patient care. Indeed, new management has

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consistently viewed the Debtors’ tradition of providing high quality care as a vital business asset.

The Debtors’ efforts to improve operations and liquidity while reducing liabilities include:

Ÿ    Re-negotiation of prepetition agreements with Twin Med for medical supplies and respiratory equipment, which agreements were then assumed; the amended agreements provide for a 5.1% price reduction on certain supplies and equipment, which will result in approximately $1 million in savings over the agreements’ three-year term.

Ÿ    One of the Debtors (Summit Care Pharmacy, Inc.) entered a postpetition agreement with McKesson Pharmaceutical for McKesson to distribute pharmaceuticals and provide related goods and services at lower prices than those of Summit Care Pharmacy’s previous distributor while maintaining the same level of service.

Ÿ    Identification of non-core assets for sale, including certain undeveloped real property in Fresno that sold for $779,200, net of a 5.5% brokerage commission to Pearson Realty. The Fresno property was encumbered by a deed of trust in favor of the Lenders. The Fresno property sale closed in October 2002, and the net proceeds from the sale were remitted to the Lenders and credited to principal on the outstanding term loans. The Debtors’ former headquarters building at 2600 West Magnolia Boulevard, Burbank, California is also currently being offered for sale and the proceeds will be used to reduce secured indebtedness and lower interest expense. The Debtors also expect to list for sale certain real property in Texas.

Ÿ    The Debtors and the Center for Medicare and Medicaid Services (“CMS”), a unit of the United States Department of Health and Human Services, have settled Summit Care Corp. v. Thompson, Case No. SA CV 01-95 DOC (Anx), a district court action brought by the Debtors to review an adverse administrative ruling in connection with Carehouse Convalescent Center (“Carehouse”), one of the long-term care facilities operated by Debtor Summit Care California, Inc. Pursuant to the settlement, CMS retroactively reinstated the Carehouse facility as a certified and enrolled provider in the Medicare and

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Medi-Cal programs as of March 15, 2000. The Debtors estimate that, pursuant to that retroactive reinstatement order and related tie-in notices, in first quarter 2003 they will recoup approximately $3.18 million in previously withheld Medicare and Medi-Cal reimbursements as well as related co-payment obligations from third parties.

Ÿ    The Debtors have, pursuant to the Seventh Interim Order, made payments totaling $20 million to the Agent and Lenders out of excess cash collateral. The payments have been applied to principal. Net interest savings exceed $100,000 per month.

Ÿ    The Debtors have reached another agreement with CMS in which the Debtors will pay to CMS $320,000 in full satisfaction of CMS’ Claim of $650,000 for civil monetary penalties imposed upon certain long-term care facilities owned and operated by Summit Care—Texas, L.P. The Debtors will dismiss their appeal of the civil monetary penalties, and the funds will be paid to CMS over a 36-month period following the effective date of the Plan. On October 8, 2002, the Court entered its order approving this settlement, the terms of which are incorporated into the Plan.

Ÿ    The Debtors have reached an agreement with the Texas Department of Human Services (“TDHS”) in which the Debtors will pay $335,000 over time pursuant to the terms of the TDHS Settlement in full satisfaction of TDHS’ claim of $1 million for civil monetary penalties imposed upon certain long-term care facilities owned and operated by Summit Care—Texas, L.P.

Ÿ    The Debtors and their insurers (including Lloyd’s and AIG/AIU) have consummated a settlement agreement with the Muccianti Parties to settle the Muccianti Parties’ approximately $6 million judgment for $1.05 million, all of which has been funded by the Debtors’ liability insurance. The Muccianti Parties’ levy on the Debtors’ bank accounts pursuant to their unstayed judgment (far and away the largest professional liability judgment ever entered against the Debtors) was the precipitating factor in the filing of the Reorganization Cases, and the resolution of this matter removed a significant obstacle to obtaining the financing necessary to fund the Plan on terms acceptable to the key constituencies.

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Ÿ    Management made the determination to consolidate the Debtors’ corporate headquarters with their therapy business headquarters operated through their chapter 11 affiliate Locomotion Therapy, Inc. at Foothill Plaza, 27442 Portola Parkway, Foothill Ranch, California. This move resulted in significant cost savings and efficiencies, including improved monitoring of the therapy business. Leasing the new headquarters not only permitted the Debtors to consolidate their operations, but it also freed Fountain View, Inc. to sell the old Burbank headquarters located at 2600 W. Magnolia Blvd., Burbank, California.

9. Restructuring Management and Management Compensation.

As stated in Section VIII.E above, the Debtors made fundamental changes to their management during these Reorganization Cases with the support of the Noteholders’ Committee, Creditors’ Committee, and the Agent and Lenders. In the aggregate, these changes represent the introduction of an entirely new management team and operating philosophy at the Debtors.

New management has made key changes to the middle level management and supervisor incentive compensation structure in an effort to rationalize the process and link it to the Debtors’ operational and patient care performance. Management developed a “Management Incentive Plan” in order to (i) motivate and reward achievement of goals and results critical to the Debtors’ success going forward; (ii) share rewards of financial success with key management personnel below the most senior levels; (iii) encourage high levels of company and business unit performance; and (iv) retain and attract high-caliber management. On October 11, 2002, this Court entered an order authorizing the Debtors to implement the Management Incentive Plan.

10. Appointment of the Official Committees.

In November 2001, the U. S. Trustee appointed the Creditors’ Committee and the Noteholders’ Committee in the Reorganization Cases. The members of the Creditors’ Committee are as follows:

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Member	Representative
Twin Med, Inc.	Steve Rechnitz
Mediq/PRN Life Support Services, Inc.	Alan S. Einhorn, Esq.
Waltz Medical Specialties	Larry Waltz
Ancillary Provider Services	Judah Garber16
Culver Dairy, Inc., d.b.a. Dairy King	Allan Dalfen (Chairman)
Pharmacy Support Services	Andrew F. Torok
U.S. Food Service	Mark H. Speiser
Service Employees International Union, AFL-CIO17	Andrew L. Stern

The members of the Noteholders’ Committee are as follows:

Member	Representative
U.S. Bank Corporate Trust Services	Robert C. Butzier
MacKay Shields, LLC	Don Morgan
Fidelity Investments	Frederick Hoff (Chairman)
Philadelphia Brokerage Corp.	Robert Fisk
LC Capital Partners, L.P.	Steven Lampe
Redwood Capital Management, LLC	Jonathan Kolatch
McKenzie Patterson, Inc.	Howard Kaplan18

Throughout the Reorganization Cases, the Debtors’ reorganization counsel, Klee, Tuchin, Bogdanoff & Stern LLP, has provided regular status reports to the Committees and their representatives.

11. Professionals Retained by the Debtors’ Estates.

a. Reorganization and Other Professionals Employed Pursuant to Bankruptcy Code Section 327.

During the Reorganization Cases, the Debtors have retained seven professionals to assist with the administration of their Estates; the Creditors’ Committee has retained financial advisors and attorneys; and the Noteholders’ Committee has also retained financial advisors and attorneys. The Court has approved the employment of each of these Estate professionals. These professionals are as follows:

• Klee, Tuchin, Bogdanoff & Stern LLP as the Debtors’ reorganization counsel;

• O’Melveny & Myers LLP as corporate and litigation counsel for the

¹⁶ Mr. Garber is recently deceased and Ancillary Provider Services’ counsel, Baruch Cohen, has been participating on the committee in his stead.

¹⁷ Service Employees International Union, AFL-CIO is serving as an ex-officio (non-voting) member.

¹⁸ Howard Kaplan is a cousin by marriage of William Scott, the Chairman of the Board of Fountain View, Inc.

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Debtors;

• Latham & Watkins LLP as special counsel with respect to corporate restructuring and exit financing advice.¹⁹

• Crossroads, LLC as the Debtors’ financial advisors;

• Ernst & Young LLP as auditors, accountants, tax advisors, and consultants for the Debtors;

• Foley & Lardner as special California healthcare counsel for the Debtors;

• Underwood, Wilson, Berry, Stein & Johnson, P.C. as special Texas health care and regulatory counsel;

• PricewaterhouseCoopers LLP as actuarial advisor and consultant to the Debtors;

• Sonnenschein Nath & Rosenthal as counsel to the Creditors’ Committee;

• Arthur Andersen LLP as financial advisors to the Creditors’ Committee through May 2002 (when Andersen was replaced by Deloitte & Touche, LLP as the Creditors’ Committee’s financial advisors);

• Deloitte & Touche, LLP as financial advisors to the Creditors’ Committee from June 2002;

• Akin Gump Strauss Hauer & Feld LLP as counsel to the Noteholders’ Committee; and

• Houlihan Lokey Howard & Zukin Capital as financial advisors to the Noteholders’ Committee.

The Court has established interim fee procedures for professionals seeking compensation from the Estates. Generally, subject to the Debtors’ cash availability and the lack of a timely objection, professionals have received monthly payment of 80% of their monthly fees and 100% of their monthly costs following filing of a monthly statement with the Court and the service of such applications on certain parties. Professionals may, under the Court-approved procedures, request and obtain payment of the “hold back” amounts in connection with either interim or final fee applications.

The table below sets forth the interim amounts of fees and expenses paid to each professional listed above from the Petition Date through February 28, 2003.

¹⁹ The application to employ Latham & Watkins LLP is currently pending and has not yet been approved by the Court.

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	INTERIM ALLOWANCES as of JANUARY 31, 2003
FIRM	FEES		EXPENSES
AKIN GUMP STRAUSS HAUER & FELD LLP	$	1,399,809.50	$	150,892.94
ARTHUR ANDERSEN LLP	$	368,346.50	$	850.39
DELOITTE AND TOUCHE LLP	$	216,845.00	$	466.95
CROSSROADS, LLC	$	3,448,462.08	$	277,132.43
ERNST & YOUNG LLP	$	1,342,393.60	$	5,901.00
FOLEY & LARDNER	$	346,750.50	$	25,671.99
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL	$	1,650,000.00	$	55,299.39
KLEE, TUCHIN, BOGDANOFF, & STERN LLP	$	2,718,279.45	$	425,100.76
O’MELVENY & MYERS LLP	$	1,144,799.00	$	79,159.27
SONNENSCHEIN NATH & ROSENTHAL	$	673,030.70	$	50,378.70
UNDERWOOD, WILSON, BERRY, STEIN & JOHNSON, P.C.	$	403,598.50	$	19,858.51
PRICEWATERHOUSE COOPERS, LLP20	$	0.00	$	0.00
LATHAM & WATKINS LLP	$	0.00	$	0.00
TOTAL:	$	13,712,314.83		1,090,712.33

Allowance and treatment of Professional Fee Claims is described in detail in Section X.A.1.a of this Disclosure Statement and Section II.B.1 of the Plan.

²⁰ The Court entered the Order approving the Debtors’ retention of PricewaterhouseCoopers, L.L.P. (“PwC”) on February 12, 2003. PwC has not yet filed any applications or statements requesting fees and expenses pursuant to the Court’s Order Establishing Interim Fee Application and Expense Reimbursement Procedures.

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b. Special Purpose Professionals.

On December 7, 2001, the Court entered its Order Denying Motion For Order Authorizing Debtor In Possession To Employ And Compensate Certain Professionals In The Ordinary Course; And Establishing Modified Procedures For Employment And Compensation Of Certain Professionals. Pursuant to this Order, the Debtors have employed a number of additional attorneys that provide services that are necessary to the Debtors’ operations, but not necessarily related to the Reorganization Cases. These professionals are required to file a declaration with the Bankruptcy Court attesting that they do not represent or hold an interest adverse to the Debtors or the Estates with respect to matters for which they have been retained. Special purpose professionals may submit their bills directly to the Debtors for payment each month, provided that, in any month (i) no law firm shall be compensated more than $30,000; and (ii) the Debtors may pay no more than $250,000 in the aggregate to all law firms employed as special purpose counsel.

As of March 10, 2003, the Debtors have employed 31 firms as special purpose professionals and paid $1,029,501.72 to such special purpose professionals through January 31, 2003.

12. Executory Contracts and Leases.

On the Petition Date, the Debtors were parties to a large number of unexpired leases and executory contracts, including certain leases for their facilities. The Debtors have been engaged in ongoing negotiations regarding many of these agreements, have been analyzing those agreements that constitute executory contracts under the Bankruptcy Code to help make assumption/rejection decisions, and where appropriate, have assumed and rejected certain agreements or extended the applicable deadlines for assumption or rejection. Pursuant to the “Schedule of Assumed or Assigned Agreements” (see Exhibit 10) and “Schedule of Rejected Agreements” (see Exhibit 11) (as further described in Section III of the Plan), the executory contracts and unexpired leases not previously assumed or rejected will be assumed or rejected, as applicable. With respect to the thousands of Resident Agreements between various Debtors and their respective long-term care residents, the Plan

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provides that these agreements will be assumed pursuant to the Confirmation Order. No cure or damage amounts with respect to the Resident Agreements are owed or will be paid and notice of their proposed assumption will be provided in connection with notice of the voting and confirmation procedures to be provided pursuant to the Court order approving the Disclosure Statement. Except as otherwise provided by the Plan, unscheduled executory contracts and leases that have not previously been assumed are deemed rejected under the Plan. Certain of the Debtors’ real property leases contain purchase options. Purchase options for four properties will, unless extended, expire in 2003.²¹ The aggregate purchase price for all of these properties is $13.8 million. The Debtors’ financial projections and the terms of the Exit Facility anticipate that these purchase options will be exercised in accordance with their terms.

13. Claims.

a. Bar Date.

The Court fixed August 30, 2002 as the general bar date for filing any proofs of Claim or Interest (the “Bar Date”). On June 28, 2002, in accordance with the procedures approved by the Court, the Debtors mailed the notice of Bar Date to approximately 17,000 known parties and published the notice of Bar Date in eight newspapers. The Bar Date notice was also posted in each of the Debtors’ long-term care facilities. As of March 10, 2003, approximately 1,605 proofs of Claim or Interest were Filed in the Reorganization Cases. Of these, 112 have subsequently been withdrawn, 31 are pending withdrawal, and another 269 appear to be duplicate Claims Filed against multiple Estates which will be treated as a single Claim pursuant to Section IV.A of the Plan.

b. Scheduled Claim Amounts.

Pursuant to their Schedules, which were last amended in October 2002, the Debtors estimated that the total amount of Claims against the Debtors, on a consolidated basis excluding duplicate and intercompany Claims, as of the Petition Date was

²¹ The following are the four leased facilities subject to purchase options in favor of the Debtors: Comanche Trail, Live Oak, Guadalupe Valley, and Briarcliff.

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approximately $250 million. Secured Claims accounted for approximately $103 million; unsecured priority Claims for $0; and general unsecured Claims and the 11¼% Notes for approximately $150 million.

Since the filing of the Debtors’ Schedules and the amendments thereto, the Debtors have reviewed their books and records and the proofs of Claims Filed in the Reorganization Cases, and believe, subject to the disclaimer below, that the valid Claims asserted against the Debtors are as follows (grouped by type of Claim):

Type of Claim	Amount
Priority Tax and Priority Claims	$0
Agent and Lenders’ Secured Claim	$82 million
Woodlands Secured Claims	$6 million
Other Secured Claims	Less than $3 million
11¼% Notes	$133 million
General Unsecured Claims Not Covered by Insurance	$17.2 million

Disclaimer: the Debtors have estimated the valid amount of general unsecured claims based upon their Schedules (as amended), their books and records, the proofs of Claims Filed in the Reorganization Cases, Claims reconciliation, and certain assumptions regarding Claims objections. Including duplicate Claims, as of April 22, 2003, the total amount of Unsecured Claims indicated on Filed proofs of Claims equaled approximately $1.77 billion. The largest non-duplicative general unsecured Claims against the Estates are as follows:²²

Claimant	Proof of Claim Amount		Undisputed Amount23
State Street Bank and Trust Company predecessor to the Indenture Trustee of the 11¼% Notes	$	133,019,898.74	$	133,012,500.00
Twin Med, Inc.	$	1,827,826.42	$	1,827,826.42

²² This list does not include those Claims that have been disallowed, waived, or withdrawn by order of the Court, stipulation, or otherwise, or disputed in whole, or unliquidated personal injury tort or wrongful death Claims.

²³ The “Undisputed Amount” is the amount of the Claim that the Debtors presently acknowledge.

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APS Acquisition LLC	$	1,698,371.36	$	1,500,750.00
APS—Summit Care Pharmacy LLC	$	754,931.87	$	674,250.00
U.S. Foodservice, Inc.	$	597,846.20	$	597,846.20
Mediq/PRN Life Support Services, Inc. (including MEDIQ / PRN, MEDIQ / FST and MEDIQ / ACS)	$	588,247.44	$	440,000.00
Kan Di Ki Corp I	$	490,935.25	$	300,000.00
Waltz Medical Specialties, Inc.	$	463,730.56	$	463,730.56
Ancillary Provider Services, Inc. [transferred to Mediq/PRN Life Support Services, INC]	$	429,818.83	$	247,500.00
Dairy King	$	414,949.45	$	381,514.45
Radcliff, et al	$	344,362.89	$	277,525.92
Southern Desert Clinic Pharmacy, Inc.	$	339,276.35	$	209,000.00
CMS	$	320,000.00	$	320,000.00
Sysco Food Services	$	281,960.51	$	148,045.79
Foley & Lardner	$	281,332.00	$	264,239.79
Hill-Rom Company	$	258,091.80	$	175,000.00
Choate, Hall & Stewart	$	169,035.31	$	169,035.31
Unisource Worldwide	$	158,562.60	$	148,045.79
Floor Covering Design	$	144,496.00	$	140,821.00
Underwood Wilson Berry & Stein	$	108,633.05	$	108,633.05

While the Debtors believe that they or the Reorganized Enterprise should prevail in any Filed Claims objections, there can be no assurance that objections to a sufficient number of Claims will be sustained so as to result in a reduction of the Allowed Unsecured Claims (Class 10 and Class 11 Claims) to $17.2 million, the amount assumed in the projections supporting the feasibility of the Plan. Notwithstanding the foregoing, the Debtors’ projections include a cushion to permit distribution with respect to Disputed Claims in accordance with the Plan in the event such Claims become Allowed.

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THE DEBTORS AND THE REORGANIZED ENTERPRISE RESERVE ANY AND ALL RIGHTS, EXCEPT AS EXPRESSLY PROVIDED IN THE PLAN, TO OBJECT TO OR OTHERWISE ASSERT DEFENSES, SET-OFFS, AND COUNTERCLAIMS WITH RESPECT TO ANY CLAIM ASSERTED AGAINST THEM.

c. Claim Objections.

As described in Section IV.H of the Plan and this Section, the Plan enables the Debtors and the Reorganized Enterprise to File objections to Claims through at least the later of (i) nine months after the Effective Date, unless extended by the Court; or (ii) nine months after the date on which a proof of Claim has been Filed, unless extended by the Court. Subject to the Plan, the Debtors reserve any and all rights with respect to the allowance or disallowance of any and all Claims, including Claims not referenced in the Disclosure Statement. Attached hereto as Exhibit 8 is a Schedule of Disputed Claims in Class 10 and Class 11 setting forth the Claims in which the Debtors intend to object.

Except as otherwise provided in the Plan, in voting on the Plan, creditors may not rely on the absence of an objection to their proofs of Claims or the absence of the proofs of Claims from Exhibit 8 (Schedule of Disputed Claims) as any indication that the Debtors, the Reorganized Enterprise, the Committees, or other parties in interest ultimately will not object to the amount, priority, security, or allowability of their Claims. Moreover, the Debtors and the Reorganized Enterprise reserve, and intend to prosecute, all objections to Claims and counterclaims they may have with respect to Claims asserted against them, and, except as specifically set forth in the Plan, further reserve all rights to prosecute claims of the Debtors and the Estates (including rights to affirmative recovery, rights to subordinate Claims, and rights to avoid transfers). Notwithstanding anything else to the contrary in the Plan or Disclosure Statement, however, with respect to Class 10 Claims and Class 11 Claims, the Debtors and the Reorganized Enterprise may only object to a Claim if it is (i) listed on Exhibit 8 (Schedule of Disputed Claims) hereto (as such exhibit may be subsequently amended through the date the Debtors serve the Disclosure Statement upon

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creditors and interest holders), (ii) not timely Filed, or (iii) duplicative of another Claim that is not objected to.

14. Litigation and Avoidance Actions.

The Debtors are currently involved in the following non-bankruptcy legal proceedings.

a. Prepetition Litigation.

The litigation identified on Exhibit 2 was pending in non-bankruptcy forums on the Petition Date. As to the litigation in which any of the Debtors are defendants, this litigation is stayed by Bankruptcy Code section 362(a). The allowance of any of these Disputed Claims to the extent of any self-insured or uninsured amount could potentially increase the total amount of Allowed Unsecured Claims. The Debtors, however, believe that their professional liability, employer practices and general liability insurance coverages are adequate, and that, other than self-insured retention amounts adequately reserved for in the projections, the resolution of these Disputed Claims will not affect the feasibility of the Plan. In short, the Debtors believe that these Claims (to the extent they are valid) are covered by insurance or are adequately reserved for in the Debtors’ financial projections.

As for the litigation in which the Debtors are plaintiffs, the Debtors are evaluating these actions and determining whether the continued pursuit of any or all of these actions is in the best interests of the Estates. The Debtors and the Reorganized Enterprise reserve their rights to continue to prosecute any and all of these actions.

No person should vote to accept or reject the Plan in the expectation that the Debtors and/or the Reorganized Enterprise may pursue or refrain from pursuing any action whether or not that action was commenced prepetition. Except as set forth in the Plan, the Plan releases none of the Debtors’ rights to commence any action, which rights are vested in the Reorganized Enterprise. Instead, as set forth in Section IV.G of the Plan and Section X.C.7 of this Disclosure Statement, the Plan reserves all of the Estates’ rights to pursue these actions, each of which is vested in the Reorganized Enterprise.

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b. Description of Avoidance Action Claims.

Pursuant to Bankruptcy Code section 546(a), the two-year statute of limitations for the Debtors to bring Avoidance Actions under Bankruptcy Code sections 544, 545, 547, 548, or 553 expires on or about October 1, 2003. Since the Plan contemplates payment in full of Allowed Claims, the Debtors’ do not presently anticipate expending significant resources in preference analysis in connection with the confirmation of the Plan. With a preference action (as discussed in the Disclaimer directly below in this Section), recovery of the amount of the preferential transfer from a transferee would give that transferee an allowable Claim against one or more of the Estates. In most cases, that allowable Claim would be classified in the same class and allowed in the same amount as the Claim that the transferee would have held if the transferee had not received the preferential payment in the first place, and under the Plan the transferee would then receive full payment of that allowable Claim (because the Plan provides full payment of Allowed Claims). Avoidance of preferences would not benefit the Estates under these circumstances. The Debtors will evaluate other potential avoidance actions that the Estates may possess, including actions to set aside and/or recover fraudulent transfers arising under Bankruptcy Code sections 544 and 548.

The Debtors do not anticipate that there will be any significant recoveries on account of Avoidance Actions. The Debtors are not currently aware of fraudulent transfer actions held by the Estates under Bankruptcy Code sections 544 and 548. Nevertheless, except as expressly released pursuant to the Plan, the Reorganized Enterprise shall be vested with and shall retain and may enforce any claims, rights, and causes of action that the Debtors or the Estates may hold or have against any entity, including the Avoidance Actions. Any such rights shall be retained by the Reorganized Enterprise free and clear of all Claims and Interests, and the Reorganized Enterprise may pursue the Avoidance Actions or any other such claims, rights, and causes of action that Debtors or the Estates may hold or have against any entity, in accordance with its best interests.

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B. Retained Claims.

The Debtors expressly reserve and retain all claims, counterclaims, set-offs, recoupments, and defenses against all parties including all known and unknown claims against non-debtor parties under their executory contracts, whether scheduled or unscheduled, assumed or rejected, and notwithstanding the payment of any cure or damage amount. Such claims will vest in the Reorganized Enterprise under the Plan.

C. Restructuring Efforts and Plan Process.

1. Negotiations with the Debtors’ Key Constituents.

At the commencement of the Reorganization Cases, certain large institutional bondholders of the Debtors initiated intensive litigation against the Debtors to force early termination of the Exclusive Periods. The bondholder group, later reconstituted as the Noteholders’ Committee, and the Debtors, carried on this intensive litigation through the middle of January 2002. Since the cessation of hostilities in January 2002, the Debtors and their major constituents—including the Creditors’ Committee and Noteholders’ Committee—have been engaged in continuous negotiations regarding the terms of a consensual plan of reorganization.

As a result of those negotiations, the Debtors and the Noteholders’ Committee have executed a term sheet (the “Noteholders’ Committee Term Sheet”) setting forth the Debtors’ and Noteholders’ Committee’s preliminary understanding regarding the fundamental economic terms of a plan of reorganization. The Noteholders’ Committee Term Sheet is attached hereto as Exhibit 12. Modifications to the Plan that cause it not to be a “Conforming Plan” within the meaning of the Noteholders’ Committee Term Sheet (as it may hereafter be amended by the parties thereto) will be material modifications adverse to Class 9 and require resolicitation of Class 9 if such modifications are made after the voting deadline. The Noteholders’ Committee has agreed that the Plan is a “Conforming Plan” in its current form.

From the beginning of the Reorganization Cases, the Creditors’ Committee has thoroughly investigated the Debtors’ operations (principally through the efforts of its

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professional advisors) and engaged in intensive negotiations with the Debtors regarding issues of case administration, use of collateral, the Debtors’ business plan, and the Plan. The treatment afforded Class 10 and Class 11, the structure of the payment options available to Class 10, the creation of the Vendors’ Lien, and the terms and conditions of the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the terms of the Plan regarding the Collateral Agent and the Collateral Agency Agreement are the product of those negotiations.

2. Preliminary Financing Commitment.

Since the filing of these Reorganization Cases, the Debtors have conducted a comprehensive analysis to determine what would be required for the Debtors to emerge from chapter 11. The Debtors and their professionals have considered a wide range of restructuring options that would maximize both prospects for a successful reorganization and the return to creditors and Interest holders. Ultimately, the Debtors determined—in consultation with their professional advisors, the Committees, and the Lenders—that an internal plan of reorganization is in the best interest of these estates and their creditors and Interest holders.

Proceeding down this path toward reorganization, the Debtors conducted a comprehensive search for potential funding sources that would be interested in lending to or investing in a company such as the Debtors. Thus, for much of 2002, the Debtors engaged in a lengthy and exhaustive effort identifying, targeting, and soliciting interest from potential sources of funding that would enable them to fund payments under a plan of reorganization acceptable to their major creditor groups. The Debtors concurrently engaged in plan negotiations with their key creditor constituencies.

After exploring exit financing alternatives with at least six potential sources of funding, the Debtors entered into a preliminary letter agreement with CapitalSource Finance LLC (“CapitalSource”) that contemplated approximately $155 million in aggregate financing commitments on terms satisfactory to the parties. This preliminary letter agreement included certain protections for CapitalSource including expense reimbursement, a “break-up” fee

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equal to 0.3% of the commitment amount, and limited indemnification provisions. The preliminary letter contemplated that approximately $90 million of the required financing would be obtained through a real estate backed securitization transaction and the balance would be obtained from CapitalSource or co-investors. The Debtors, thereafter, filed a motion seeking an order of the Court authorizing certain protections for CapitalSource, including expense reimbursement and indemnification provisions, which the Court approved on August 15, 2002.

Thereafter, CapitalSource introduced Credit Suisse First Boston (through its subsidiary Column Financial, Inc.) (“CSFB”) into the proposed transaction as the underwriter of the securitization component of the financing, and partnered with Highbridge/Zwirn Opportunity Fund LP (“Highbridge”) as an equal co-participant on the other term loan components of the financing. The Debtors, CapitalSource, Highbridge, and CSFB, thereafter, negotiated and finalized the exit financing commitments, subject to Court approval. Pursuant to these two commitment letters, copies of which are attached hereto as Exhibit 9, CapitalSource, Highbridge, and CSFB will provide the Debtors with exit financing in four tranches aggregating $150 million on stated terms and conditions including, without limitation, confirmation of the Plan, final documentation, and occurrence of the Effective Date prior to July 31, 2003. The Court entered its Order approving the commitment letters on March 28, 2003.

a. The Commitment Fee Provisions.

Pursuant to the CSFB and CapitalSource/Highbridge commitment letters, the Debtors will be obligated upon acceptance of the commitments to pay commitment fees and thereafter reimburse specified third party costs. The total transaction costs are estimated at $7.2 million and will include (i) $850,000 in real property appraisals, title, environmental and seismic fees; (ii) $1,750,000 in legal, accounting and consulting fees (which estimated amount includes both third party costs and the Debtors’ estimates of their own legal, accounting and consulting expenses in connection with documenting and consummating these transactions); (iii) $1,500,000 in loan and commitment fees; and (iv) $3,000,000 for a

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“LIBOR cap” to hedge the risk that 30-day LIBOR exceeds 4.50% per annum while the securities to be issued pursuant to the CSFB commitment letter remain outstanding.

Pursuant to the CSFB commitment letter, in order to induce CSFB to make the commitments set forth therein, the Debtors have paid CSFB a refundable commitment fee of 1% of the proposed $85 million financing or $850,000. This commitment fee shall be held by CSFB until the closing of the transaction, and, if the closing occurs, “refunded” to the Debtors, although the Debtors will concurrently become obligated upon closing for a loan fee to CSFB of like amount. If the loan does not close because of lack of a good faith effort by the Debtors in a commercially reasonable time frame, then the commitment fee may be retained by CSFB to compensate CSFB for its time and expense. If for any reason CSFB does not fund the loan, then CSFB will reimburse the Debtors the commitment fee less any costs incurred by CSFB associated with the transaction.

Pursuant to the CapitalSource/Highbridge commitment letter, the Debtors have paid $650,000 to CapitalSource which may retain that fee under certain specified circumstances whether or not the loan closes.

b. The Liquidated Damages and Indemnity Provisions.

Pursuant to the CapitalSource/Highbridge commitment letter, the Debtors will indemnify CapitalSource and Highbridge, on terms comparable to those previously approved by the Court in favor of CapitalSource alone in connection with the August 19, 2002 Order, for liabilities related to the proposed financing, but such indemnity shall not extend to any losses, liabilities or claims arising out of or by reason of the respective negligence, recklessness, or willful misconduct of Lender and its managers, officers and principals.

3. The Exit Facility.

After extensive negotiations with CapitalSource and CSFB, the Debtors believe that the combination of the four financing facilities described in the CapitalSource commitment letter and the CSFB commitment letter are sufficient to fund the Plan and provide the Reorganized Enterprise with adequate working capital and liquidity going forward.

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In particular, the three interrelated tranches of real-estate backed financing under the commitment letters will be available to the Reorganized Enterprise at a weighted average interest cost of 9¾% per annum representing a favorable overall cost of financing. The securitization contemplated by the CSFB Commitment Letter imposes a complex set of constraints that would not exist if more traditional financing were available on satisfactory terms. The necessity of procuring the financing in four tranches requires further complex intercreditor relationships that must be layered on top of the restructuring of existing prepetition unsecured debt. The transaction costs and reserve requirements will require substantial cash outlays at closing. Nevertheless, the timing and amount of the proposed exit financing meet the demands of the key constituents at an acceptable cost and should enable the Debtors to more promptly confirm their chapter 11 reorganization plan than would otherwise be the case.

The proposed exit financing commitments from CapitalSource/Highbridge and CSFB are underwritten based on current financial performance and are not contingent on further demonstration of improved operating performance or reversal of the Medicare Cliff or maintenance of current Medi-Cal reimbursement rates. On balance, the Debtors—with the support of the Agent and Lenders and the Committees—believe that the advantages of moving forward now to obtain these funds on these terms and exit chapter 11 by July 31, 2003 significantly outweigh any disadvantages associated with the proposed exit financing.

Pursuant to the commitment letters, CapitalSource, Highbridge, and CSFB will provide the Debtors with exit financing in four tranches aggregating $150 million on the terms and conditions stated therein, including, without limitation, confirmation of the Plan, final documentation, and occurrence of the Effective Date prior to July 31, 2003. Three of the tranches are real-estate backed term loans in an aggregate amount of $118 million at a weighted average interest rate of 9¾% per annum based on current market rates. The fourth is a $32 million revolving facility at a fluctuating rate equal to Citibank, N.A. prime rate (currently 4.75%) plus 2.5%.

The senior real estate tranche is described in the CSFB commitment letter (the

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“Senior Mortgage Loan”) which contemplates the issuance of $85 million in real estate backed securities by special purpose entities to be created by the Debtors that will own a segregated portfolio of 33 long-term care facilities presently owned and operated by the Debtors. These senior securities will have a term of five years, will amortize on a 25-year schedule, and will bear interest at a floating rate equal to 30-day LIBOR (currently 1.25% per annum) subject to a floor of 1.75% plus 4.50%. This $85 million senior tranche will be secured by first priority mortgages or deeds of trust against the 33 properties in the segregated portfolio.

An additional $33 million in real estate backed term loans will be provided pursuant to the CapitalSource/Highbridge commitment letter. CapitalSource and Highbridge will participate equally in two secured term loans. First, a $28 million five-year term mortgage-backed secured loan amortizing on a 25-year schedule bearing interest at a floating rate equal to 30-day LIBOR subject to a floor of 1.75% plus 18.875% (the “Participation-Backed Term Loan”). The Participation-Backed Term Loan will be secured by a subordinate lien in the segregated portfolio of 33 long-term care facilities to be owned by special purpose entities pursuant to the securitization transaction contemplated in the CSFB commitment letter and all of the Debtors’ leasehold interest in an additional 15 skilled nursing facilities and assisted living facilities. Second, a $5 million two-year fully amortizing term loan secured by the Debtors’ interest as lessee in an additional 15 leased facilities and bearing interest at a floating rate equal to the lesser of 30-day LIBOR plus 7% or Citibank, N.A. prime rate (subject to a floor of 4.75%) plus 4% (the “Leasehold Mortgage-Backed Term Loan”).

Assuming current rates for LIBOR and the prime rate, on a weighted average basis, the blended initial interest rate on the three real estate backed components of the proposed financing will be 9¾% per annum.

In addition, pursuant to the CapitalSource/Highbridge commitment letter, CapitalSource will provide a $32 million asset-based revolving facility pursuant to a borrowing base and overadvance formula bearing interest at a fluctuating rate equal to

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Citibank, N.A. prime rate (subject to a floor of 4.75%) plus 2.5% (the “Revolving Credit Facility”). The term of the Revolving Credit Facility is five years and it may not be terminated by the Reorganized Enterprise so long as the CapitalSource/Highbridge term loans remain outstanding. Collateral management fees will equal an additional 1% per annum and unused portions of the revolving commitment are subject to an unused commitment fee of ½% per annum. The Revolving Credit Facility will be principally secured by a first priority perfected lien on and security interest in all existing and future accounts receivable and proceeds thereof, and, secondarily, to the extent not subject to a prior enforceable first priority lien, substantially all other assets of the Debtors and their direct and indirect subsidiaries, whether existing at the closing or thereafter organized or acquired.

To the extent that the Reorganized Enterprise’s availability under the Revolving Credit Facility may be reduced in light of the Bank Midwest Security Agreement, the Debtors believe that such reduction is fully offset by the Bank Midwest Advance.

The Participation-Backed Term Loan, the Leasehold Mortgage-Backed Term Loan, and the Revolving Credit Facility will also be:

cross-collateralized and cross-defaulted and shall be secured by a first priority perfected lien on and security interest in all assets of the Debtors (including, without limitation, the participation interest in the Senior Mortgage Loan, assignments of leases, equity interests in the Property (if any), accounts receivable, inventory, equipment, intellectual property, contracts and other general intangibles, cash and proceeds of each of the foregoing) and all available assets of Borrower’s direct and indirect subsidiaries, to the extent permitted by the Senior Mortgage Loan and not subject to a prior enforceable first priority lien, whether existing at Closing or thereafter organized or acquired. Lender will, subject to the execution of a satisfactory subordination agreement, allow a subordinated lien on the assets of the pharmacy business, the assets of the therapy business and the leasehold interests.

The financing contemplated in the commitment letters is dependent on reductions of no more than 10% in Medi-Cal reimbursement rates. The Debtors’ actual

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reductions in Medicare reimbursement rates on account of the Medicare Cliff and projected reductions of Medi-Cal reimbursement rates are within the parameters fixed by the commitment letters.

4. Proposed Sources and Uses of Funds.

The proceeds of the Exit Facility together with Bank Midwest Advance and the Debtors’ cash and cash equivalents on hand will be used, among other things, to make payments in satisfaction of (or partial satisfaction of) Allowed Claims under the Plan. The sources and uses of funds in connection with funding at the Effective Date are set forth in Exhibit 7.

5. Analysis of Proposed Plan of Reorganization.

The Debtors have analyzed various alternatives in connection with the formulation and development of the Plan described herein. The Debtors believe that the proposed Plan enables creditors and equity interest holders to realize the most value under the circumstances. Among other things, the Debtors believe that the Plan provides a substantially greater return for many Classes under the Plan than would be provided in a chapter 7 liquidation for the Debtors. The liquidation analysis is described in Section XII and attached in Exhibit 5 hereto. In light of the reduced asset values on the sale of the Debtors’ assets and significant additional administrative and unsecured liabilities associated with a chapter 7 liquidation, the Debtors estimate that general unsecured Claims, including the 11¼% Note Claims would receive approximately 34 cents on the dollar in an orderly liquidation and nothing in a forced liquidation. Finally, the Debtors believe that implementation of the Plan represents a better alternative than any alternative plan, including any plan to pursue an alternative source of financing or to seek a different type of transaction—such as a merger or acquisition—particularly given the delay, cost and uncertainty in negotiating, developing, and financing such an alternative.

D. Business Strategy/Post-Confirmation Business Plan.

1. Business Plan.

The Debtors’ management team, with the assistance of Crossroads, has built a

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five-year business plan (the “Business Plan”) that projects significant improvements over time in performance and growth.

2. Corporate Restructuring Plan.

In order to facilitate the securitization component of the Exit Facility and achieve other business, tax, and legal objectives, the Debtors will implement a Corporate Restructuring Plan in conjunction with the Plan. Pursuant to the Corporate Restructuring Plan, the Debtors (other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors) will transfer their properties and licenses to a series of new limited liability companies, limited partnerships and corporations that are referred to collectively in the Plan as the Post-Effective Date Subsidiaries and will cease their independent existence through dissolution or merger. Reorganized Fountain View will own directly or indirectly 100% of the equity interests in the Post-Effective Date Subsidiaries. On the Effective Date, the Debtors will consummate the transactions contemplated in the Corporate Restructuring Plan. The specific configuration of the Post-Effective Date Subsidiaries and their relationships to one another and Reorganized Fountain View, Reorganized Summit Care Pharmacy, and the Other Reorganized Debtors will be set forth in documentation Filed with the Plan Supplement. This proposed structure may be further modified to accomplish the business, financial, legal, and tax objectives of the Reorganized Enterprise consistent with the constraints imposed by the Exit Facility.

The Debtors desire to consummate the Corporate Restructuring Plan for a number of reasons. First, the Debtors must comply with the proposed Exit Facility’s requirements with respect to segregating assets that are collateral for the Exit Facility obligations in entities with provisions in their organizational documents that may restrict their ability to seek bankruptcy relief or provisions that otherwise facilitate the proposed securitization. Second, placing each line of the Debtors’ business (e.g., long-term care, therapy operations, pharmacy) in separate subsidiaries under Reorganized Fountain View will facilitate the future sale or divestiture of one line of business while retaining other lines of business. Third, the creation of an employer services subsidiary from which all employee

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payroll will be paid and reported will minimize future administrative and compliance burdens and reduce the Reorganized Enterprise’s state/federal payroll taxes. Fourth, placing certain of the Debtors’ operations and assets in the Post-Effective Date Subsidiaries will ease management and operation of the Reorganized Enterprise, which operates in a highly regulated industry. Finally, placing certain operations and assets in the Post-Effective Date Subsidiaries will minimize future state income tax and better prepare the Reorganized Enterprise to react appropriately to future business or state tax law changes, and provide for appropriate limitation of liabilities in accordance with applicable state law.

The specific form and terms of the transactions contemplated by the Corporate Restructuring Plan will be set out in the documents Filed in the Plan Supplement.

X.

SUMMARY OF MATERIAL PLAN PROVISIONS

The following is a narrative description of certain provisions of the Plan. The Plan is attached hereto as Exhibit 1. The following summary of the Plan is qualified in its entirety by the actual terms of the Plan. In the event of any conflict, the terms of the Plan will control over any summary set forth in this Disclosure Statement.

A. Classification and Treatment of Claims and Equity Interests Under the Plan.

The Bankruptcy Code requires that a chapter 11 plan divide the different claims against, and equity interests in, the debtor into separate classes based upon their legal nature. Claims of a substantially similar legal nature are usually classified together, as are equity interests of a substantially similar legal nature. The Bankruptcy Code does not require the classification of administrative claims and certain priority claims, and they are typically denominated “unclassified claims.”

Under Bankruptcy Code section 1124, a class of claims is “impaired” unless the plan (i) leaves unaltered the legal, equitable, and contractual rights of the holders of claims in the class; or (ii) cures all defaults (other than those arising from the debtor’s insolvency, the commencement of the case, or nonperformance of a nonmonetary obligation)

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that occurred before or after the commencement of the case, reinstates the maturity of the claims in the class, compensates the holders for their actual damages incurred as a result of their reasonable reliance on any acceleration rights, and does not otherwise alter their legal, equitable, and contractual rights. Except for any right to accelerate the debtor’s obligations, the holder of an unimpaired claim will be placed in the position it would have been if the debtor’s case had not been commenced.

A chapter 11 plan must designate each separate class of claims and equity interests either as “impaired” (affected by the plan) or “unimpaired” (unaffected by the plan). If a class of claims is “impaired,” under the Bankruptcy Code the holders of claims in that class are entitled to vote on the plan (unless the plan provides for no distribution to the class, in which case the class is deemed to reject the plan), and to the right to receive, under the plan, property with a value at least equal to the value that the holder would receive if the debtor were liquidated under chapter 7 of the Bankruptcy Code.

The Plan divides Claims and Interests into the following classes:

CLASS	DESCRIPTION	IMPAIRED/ UNIMPAIRED	VOTING STATUS
None	Administrative Claims and Priority Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 1	Secured Claims of Bank Midwest (The Woodlands, TX)	Impaired	Entitled to Vote
Class 2	Secured Claims of Woodlands Place Nursing Center, Inc. (The Woodlands, TX)	Impaired	Entitled to Vote
Class 3	Secured Tax Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 4	Secured Claims of Union Bank, N.A.	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 5	Secured Claim of Leonard and Catherine May	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 6	Secured Claims of Bergen	Impaired	Entitled to Vote
Class 7	Other Secured Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 8	Secured Claims of the Agent and the Lenders	Unimpaired	Deemed to Accept – Vote Not Solicited

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Class 9	11¼% Note Claims	Impaired	Entitled to Vote
Class 10	General Unsecured Claims	Impaired	Entitled to Vote
Class 11	Convenience Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 12	Insured Professional Liability Claims	Impaired	Entitled to Vote
Class 13	Uninsured Punitive Damage Claims and Other Subordinated Liabilities	Impaired	Entitled to Vote
Class 14	Existing Preferred Stock	Impaired	Entitled to Vote
Class 15	Existing Class A Common Stock	Impaired	Entitled to Vote
Class 16	Existing Class B Common Stock	Impaired	Deemed to Reject – Vote Not Solicited
Class 17	Existing Class C Common Stock	Impaired	Entitled to Vote
Class 18	Existing Warrants	Impaired	Entitled to Vote
Class 19	Existing Management Incentives and Other Existing Interests	Impaired	Deemed to Reject – Vote Not Solicited

1. Unclassified Claims.

a. Administrative Claims.

Administrative Claims are Claims under Bankruptcy Code section 503(b) for costs or expenses that are allowed under Bankruptcy Code section 507(a)(1). The Bankruptcy Code requires that all Administrative Claims be paid on the Effective Date, unless a particular claimant agrees to a different treatment. Administrative Claims include the actual and necessary costs and expenses of the Reorganization Cases. Those expenses include post-petition salaries and benefits owed to the employees, post-petition rent, amounts owed to vendors providing goods and services to the Debtors during the Reorganization Cases, tax obligations incurred after the Petition Date, and certain statutory fees and charges. Other Administrative Claims include the actual, reasonable fees and expenses of the Debtors’ professionals and professionals retained by the Creditors’ Committee and Noteholders’ Committee.

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Entities that hold Administrative Claims other than Ordinary Course Administrative Claims and that do not timely file and serve a proof of Claim or a motion seeking payment in accordance with the Plan are forever barred from asserting those Administrative Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property.

i. Ordinary Course Administrative Claims.

Description. Ordinary Course Administrative Claims are Claims arising from the provision of goods and services to the Debtors in the ordinary course of business of the Debtors and the provider of goods and services after the Petition Date and before the Effective Date.

Estimated Amount Owed. The Debtors have been generally paying all Ordinary Course Administrative Claims as they become due.

Treatment. An entity holding an Ordinary Course Administrative Claim may, but need not, File a request for payment of its Claim. Unless the Debtors or the Reorganized Enterprise object to an Ordinary Course Administrative Claim or the Debtors and the entity holding such Claim agree otherwise, the Claim will be paid by the Disbursing Agent in accordance with the terms and conditions of the particular transaction that gave rise to the Claim.

ii. Cure Payments.

Description. Cure Payments are amounts that Bankruptcy Code section 365(b)(1) requires be paid in order to permit the Debtors to assume, or to assume and assign, the executory contracts and unexpired leases listed on the Schedule of Assumed or Assigned Agreements.

Estimated Amount Owed. The estimated Cure Payment for unexpired leases is $0. The estimated Cure Payment for unexpired executory contracts is $0.

Treatment. Any and all monetary defaults under each executory contract and unexpired lease to be assumed or assigned under the Plan will be satisfied in one of the following two ways: (i) the Disbursing Agent will pay to the non-debtor party to the

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executory contract or unexpired lease the Cure Payments, as set forth on the Schedule of Assumed or Assigned Agreements, in cash within 10 days after the Effective Date; or (ii) the Disbursing Agent will satisfy any other terms that are agreed to by both the Debtors and the non-debtor party to an executory contract or unexpired lease that will be assumed or assigned, including, with respect to the applicable Medicare provider agreements, the terms of the CMS Stipulation and the TDHS Settlement. If, however, a dispute arises regarding: (i) the amount of any proposed Cure Payments; (ii) whether the Debtors have provided adequate assurance of future performance under an executory contract or unexpired lease to be assumed or assigned; or (iii) any other matter pertaining to a proposed assumption or assignment, the proposed Cure Payments will be made within 30 days after entry of a Final Order resolving the dispute and approving the assumption or assignment.

iii. Non-Ordinary Course Administrative Claims (Other than Professional Fee Claims and Cure Payments).

Description. Non-Ordinary Course Administrative Claims (other than Professional Fee Claims and Cure Payments) include: (i) U.S. Trustee fees under 28 U.S.C. § 1930; (ii) any other Claim arising after the Petition Date and before the Effective Date that is not an Ordinary Course Administrative Claim; and (iii) for the reasonable trustee fees and expenses and the reasonable attorneys’ fees and expenses of the Indenture Trustee in the aggregate approximate amount of $125,000.

Estimated Amount Owed. The estimated amount of Non-Ordinary Course Administrative Claims (other than Professional Fee Claims and Cure Payments) is $125,000.

Treatment. Unless the Debtors or the Reorganized Enterprise otherwise agree, Non-Ordinary Course Administrative Claims, other than Professional Fee Claims and Cure Payments, will be allowed only if: (i) on or before the sixtieth day after the Effective Date, the entity holding the Non-Ordinary Course Administrative Claim (except for the Indenture Trustee) Files a request for payment of its Claim and serves the request on the Debtors’ Counsel, the U.S. Trustee, and counsel for the Committees; and (ii) the Court allows the Claim by Final Order. Entities holding Non-Ordinary Course Administrative Claims that do

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not timely File and serve a request for payment will be forever barred from asserting those Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property.

With respect to U.S. Trustee fees, the Disbursing Agent will pay to the U.S. Trustee all fees due and owing under 28 U.S.C. § 1930 in cash on the Effective Date. For the Indenture Trustee fees and expenses and the reasonable attorneys’ fees and expenses, the Disbursing Agent will pay the reasonable trustee fees and expenses and reasonable attorneys’ fees and expenses of the Indenture Trustee in the aggregate approximate amount of $125,000, without interest, on or before the later of: (i) 30 days after the Effective Date; or (ii) 30 days after the date (I) on which Reorganized Fountain View receives from the Indenture Trustee a reasonably detailed itemized statement of the trustee fees and expenses and reasonable attorneys’ fees and expenses it has incurred in connection with acting as Indenture Trustee under the Indenture so long as Reorganized Fountain View does not, within such 30 day period, give written notice to the Indenture Trustee that it disputes the reasonableness of such fees and expenses or any part thereof, or (II) the Claim of the Indenture Trustee for reimbursement of its reasonable trustee fees and expenses and reasonable attorneys’ fees and expenses becomes an Allowed Claim. If Reorganized Fountain View gives the Indenture Trustee timely written notice that it disputes the reasonableness of the trustee fees and expenses or attorneys’ fees and expenses or any part thereof for which the Indenture Trustee seeks reimbursement, the amount of the Allowed Claim on account of such fees and expenses shall be determined by the Court as if such Claim were a Professional Fee Claim. For other Non-Ordinary Course Administrative Claims, unless the entity holding an Allowed Non-Ordinary Course Administrative Claim (other than a Professional Fee Claim, Cure Payment, Indenture Trustee fee Claim, or U.S. Trustee fee Claim) and the Debtors agree otherwise, the Disbursing Agent will pay to that entity cash in the Allowed Claim’s full amount, without interest, on or before the latest of: (i) 30 days after the Effective Date; (ii) 30 days after the date on which the Non-Ordinary Course Administrative Claim becomes an Allowed Claim; or (iii) the date on which the

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Allowed Claim becomes due and payable in accordance with its terms.

iv.  Professional Fee Claims.

Description. Professional Fee Claims are: (i) Claims under Bankruptcy Code sections 327, 328, 330, 331, 503, or 1103 for compensation for professional services rendered or expenses incurred; or (ii) Claims either under Bankruptcy Code section 503(b)(4) for compensation for professional services rendered or under Bankruptcy Code section 503(b)(3)(D) for expenses incurred in making a substantial contribution to the Estates.

Estimated Amount Owed. $7.8 million. The Debtors will File an update to this estimate shortly before the hearing on the adequacy of the Disclosure Statement.

Treatment. A Professional Fee Claim will be allowed only if: (i) on or before the sixtieth day after the Effective Date, the entity holding the Professional Fee Claim both Files with the Court a final fee application or a motion requesting allowance and payment of the fees and serves the application or motion on the Debtors’ Counsel, counsel to the Committees, and the U.S. Trustee; and (ii) the Court allows the Claim. Entities holding Professional Fee Claims that do not timely File and serve a fee application or motion for allowance and payment will be forever barred from asserting those Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property. Unless the entity holding a Professional Fee Claim allowed by the Court agrees to different treatment, the Disbursing Agent will pay to that entity cash in the full amount of the Professional Fee Claim, without interest, within five days after the date on which the Court allows such Claim.

b.  Priority Claims and Priority Tax Claims.

v.  Priority Claims.

Description. Priority Claims are Claims entitled to priority against any Estate under Bankruptcy Code sections 507(a)(3),
507(a)(4), or 507(a)(6). For example, Bankruptcy Code section 507 gives priority to certain employee compensation and benefit claims incurred within 90 days and 180 days, respectively, before the Petition Date, up to

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$4,650 per employee.

Estimated Amount Owed. The estimated amount owed for Allowed Priority Claims is $0.

Treatment. Unless the entity holding an Allowed Priority Claim and the Debtors agree otherwise, the Disbursing Agent will pay to that entity cash in the full amount of the Allowed Priority Claim, without interest, on or before the latest of: (i) the Distribution Date; (ii) 30 days after the date on which the Priority Claim becomes an Allowed Priority Claim; or (iii) the date on which the Allowed Priority Claim becomes due and payable in accordance with its terms.

vi.  Priority Tax Claims.

Description. Priority Tax Claims are Claims entitled to priority against any Estate under Bankruptcy Code section 507(a)(8).

Estimated Amount Owed. The estimated amount owed for Allowed Priority Tax Claims is $0.

Treatment. Unless the entity holding an Allowed Priority Tax Claim and the Debtors agree otherwise, the Disbursing Agent will pay to that entity the amount of its Allowed Priority Tax Claim, together with interest from the Petition Date to the date of payment calculated at the federal judgment rate as of the Petition Date, on the latest of (i) the Distribution Date; (ii) 30 days after the date such Priority Tax Claim becomes an Allowed Claim; or (iii) the date on which the Allowed Priority Tax Claim becomes due and payable in accordance with its terms.

2.  Classification and Treatment of Secured Claims (Classes 1, 2, 3, 4, 5, 6, 7 & 8).

Secured Claims are Claims secured by valid and unavoidable liens against property in which an Estate has an interest or that is subject to setoff under Bankruptcy Code section 553. A Claim is a Secured Claim only to the extent of the value of the holder’s interest in an Estate’s interest in the collateral securing the Claim or to the extent of the amount subject to setoff, whichever is applicable, and as determined under Bankruptcy Code

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section 506(a).

a.  Class 1—Bank Midwest Secured Claims.

Classification. Class 1 consists of all Claims held by Bank Midwest, N.A. as assignee and successor in interest to the Secretary of Housing and Urban Development, pursuant to that certain Deed of Trust Note dated March 6, 1985 as renewed, modified, extended, and consolidated pursuant to that certain Allonge thereto dated December 1, 1993, and all documents collateral thereto.

Insiders (Y/N). No.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Collateral. Bank Midwest asserts liens pursuant to that certain deed of trust and security agreement dated December 1, 1993 and assigned to Bank Midwest by instrument dated July 17, 2001 in the real and personal property associated with the Woodlands.

Estimated Claim Amount. $4,927,126.

Treatment. Unless the holder of the Class 1 Claim agrees to other treatment, on or as soon as reasonably practicable after the Effective Date, in accordance with the terms of the Bank Midwest Stipulation, the holder of the Class 1 Claim shall make the Bank Midwest Advance and shall receive the Bank Midwest Amended and Restated Note which shall be secured by the Bank Midwest Deed of Trust and the Bank Midwest Security Agreement.

The Bank Midwest Advance is the advance to Reorganized Fountain View in the amount of $630,000 from the holder of the Class 1 Claim required to be made within five (5) days after the Effective Date on the terms set forth in the Bank Midwest Stipulation.

The Bank Midwest Amended and Restated Note is the amended and restated promissory note made by the New Woodlands Entity in a principal amount equal to (i) $4,927,126 (ii) Bank Midwest’s reasonable legal fees and expenses in an amount not to exceed $75,000, (iii) $630,000, and (iv) $1,206.13; payable in equal monthly installments of

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principal and interest at 6% based on a 300-month (25-year) amortization schedule (and monthly tax and insurance payments as required by the Deed of Trust Note held by the holder of the Class 1 Claim) commencing on the Effective Date, but maturing in full on the seventh anniversary of the Effective Date, and prepayable without premium or penalty at any time, and otherwise, except as may hereafter be expressly agreed by the Debtors and the holder of the Class 1 Claim, on the same terms as those of that certain Deed of Trust Note dated March 6, 1985 as subsequently renewed, modified, extended and consolidated pursuant to that certain Allonge thereto dated December 1, 1993.

The Bank Midwest Deed of Trust is that certain Deed of Trust dated December 1, 1993 assigned to Bank Midwest by instrument dated July 17, 2001 recorded in the real property records of Montgomery County, Texas and constituting a first priority lien against the real property associated with the long-term care facility known as the “Woodlands” located in such county and owned and operated by the Debtors.

The Bank Midwest Security Agreement is a new security agreement between the holder of the Class 1 Claim and the New Woodlands Entity that, except as may be expressly agreed otherwise by the Debtors and the holder of the Class 1 Claim, shall be on the same terms as that certain Security Agreement dated December 1, 1993 between Bank Midwest’s predecessor in interest, the Secretary of Housing and Urban Development, and Woodlands Place Nursing Center, Inc., and that, when properly perfected, will constitute a first priority lien against the property subject to the New Bank Midwest Security Agreement.

The Bank Midwest Stipulation is that certain Stipulation Regarding Treatment Of Bank Midwest Claim Under Debtors’ Joint Plan Of Reorganization dated April 14, 2003 between Bank Midwest, N.A. and the Debtors and approved by Order of the Court on April 15, 2003.

The New Woodlands Entity is the Post-Effective Date Subsidiary to be formed under the Plan to own and operate the long-term care facility owned by Summit Care Texas, L.P., located in Montgomery County, Texas and known as the “Woodlands.”

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b.  Class 2—Woodlands Place Secured Claims.

Classification. Class 2 consists of all Claims of Woodlands Place Nursing Center, L.P., and any successor thereto, on account of that certain Agreement of Purchase and Sale of Assets dated November 6, 1993 between Woodlands Place Nursing Center, Inc. and Summit Care Texas No. 3, Inc. which are secured pursuant to that certain Warranty Deed With Vendor’s Lien dated December 1, 1993 and recorded as instrument No. 9404875 in the Public Records of Montgomery County, Texas.

Insiders (Y/N). No.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Collateral. Pursuant to an adequate protection stipulation and order entered on May 29, 2002, the parties stipulated to the proper perfection and validity of the Woodlands Place lien against the Woodlands real property collateral. The issue of priority was reserved in the stipulation, but based on public records of Montgomery County, Texas it appears that Woodlands Place’s interest in the Woodlands is junior to the interest of Bank Midwest and senior to that of the Agent and the Lenders in the same collateral.

Estimated Claim Amount. $1 million.

Treatment. The holder of the Class 2 Claims shall receive the Woodlands Place Note and shall, as security for the payment of the obligations thereunder, retain the liens securing the Class 2 Claims pursuant to that certain Warranty Deed With Vendor’s Lien dated December 1, 1993 and recorded as instrument No. 9404875 in the Public Records of Montgomery County, Texas. The Woodlands Place Note is a secured promissory note in the form filed with the Court on or before the Exhibit Filing Date issued (i) by the New Woodlands Entity; (ii) in a principal amount equal to the present value (discounted at the rate of 7% per annum) of the Class 2 Claim as of October 2, 2001, less the sum of all adequate protection payments received by the holder of the Class 2 Claim; (iii) bearing interest from and after the Effective Date at the rate of 7% per annum; (iv) with principal and interest being payable monthly in arrears based on a 25-year amortization schedule; and (v) with a

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final maturity date of the seventh anniversary of the Effective Date.

c. Class 3—Secured Tax Claims.

Classification. Class 3 consists of all Secured Claims of a governmental unit for the payment of taxes.

Insiders (Y/N). No.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Collateral. Unknown.

Estimated Claim Amount. $0.

Treatment. Unless the holder of an Allowed Class 3 Claim agrees to other treatment, the Disbursing Agent shall pay to such holder cash in the allowed amount of such holder’s Class 3 Allowed Claim on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Secured Tax Claim becomes an Allowed Secured Tax Claim; or (iii) the date such Allowed Secured Tax Claim becomes due and payable in accordance with its terms.

d. Class 4—Union Bank Secured Claims.

Classification. Class 4 consists of the Claims of Union Bank under that certain Amended and Restated Commercial Promissory Note dated April 1, 2001 which are secured, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001, in the real property and personal property affixed thereto located at 730 North Frederick Street and 2600 West Magnolia Boulevard, Burbank, California.

Insiders (Y/N). No.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Collateral. Real property located at 730 N. Frederick Street and 2600 W. Magnolia Boulevard, Burbank, California.

Estimated Amount of Claim. $823,333.04.

Treatment. Unless the holder of the Class 4 Claim agrees to other treatment,

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on or as soon as reasonably practicable after the Effective Date, Reorganized Fountain View shall (i) cure any default, other than a default of a kind specified in Bankruptcy Code section 365(b)(2), with respect to such holder’s Allowed Class 4 Claim, without recognition of any default rate of interest or similar penalty or charge, and upon such cure, no default shall exist; (ii) reinstate the maturity of such Allowed Class 4 Claim as the maturity existed before any default, without recognition of any default rate of interest or similar penalty or charge; and (iii) leave unaltered all other legal, equitable, and contractual rights of such holder with respect to such Allowed Class 4 Claim. Any defenses, counterclaims, rights of offset, or recoupment of the Debtors, the Estates, or the Reorganized Enterprise with respect to such Claims shall vest in and inure to the benefit of the Reorganized Enterprise.

e. Class 5—Leonard and Catherine May Secured Claims.

Classification. Class 5 consists of all Claims of Leonard and Catherine May.

Insiders (Y/N). No.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Collateral. Real property located at 1210 Eastwood Drive, Seguin, Texas.

Estimated Claim Amount. $45,000.

Treatment. The holders of the Class 5 Claim shall receive, in full satisfaction of the Class 5 Allowed Claim, cash in the amount of the Allowed Class 5 Claim (after crediting all adequate protection payments made by the Debtors) without recognition of any default rate of interest or similar penalty or charge.

f. Class 6—Bergen Secured Claims.

Classification. Class 6 consists of all Claims of Bergen, and any affiliates or successors thereto, secured by that certain Security Agreement dated March 29, 2001 between Bergen and Summit Care Pharmacy, Inc.

Insiders (Y/N). No.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

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Collateral. Summit Care Pharmacy, Inc. inventory, equipment, and accounts.

Estimated Claim Amount. $1,710,562.10.

Treatment. The holder of the Class 6 Claims shall receive (i) cash in an amount equal to forty percent of (a) $1,710,562.10 plus interest thereon from the Petition Date to the Effective Date at the rate of 9½% per annum, and (b) Bergen’s reasonable, actual attorneys’ fees and expenses incurred in connection with the Reorganization Cases not to exceed $40,000; and (ii) the Bergen Note issued to (a) Bergen (or, if applicable, any transferee of Bergen holding the Class 6 Claim), (b) by Reorganized Summit Care Pharmacy, (c) in a principal amount equal to sixty percent of (x) $1,710,562.10 plus interest thereon from the Petition Date to the Effective Date at the rate of 9½% per annum, and (y) Bergen’s reasonable, actual attorneys’ fees and expenses incurred in connection with the Reorganization Cases not to exceed $40,000, (d) bearing interest from and after the Effective Date at the rate of 9½% per annum, (e) with interest only being payable in arrears for the first six monthly payments following the Effective Date, and thereafter, with principal and interest being payable monthly in arrears and fully amortizing over the following eighteen months, and (f) with a final maturity date of the second anniversary of the Effective Date; provided, however, that the Bergen Note may be prepaid in part or in whole at any time without penalty or premium.

The Bergen Note shall be secured by a lien in all property of Reorganized Summit Care Pharmacy of the same nature and type as that previously securing the Class 6 Claim other than the accounts receivable of Reorganized Summit Care Pharmacy, which accounts shall not be subject to any lien securing the obligations under the Bergen Note. The liens securing the Bergen Note shall be (i) expressly subordinated to the Exit Facility on terms reasonably acceptable to the Exit Facility lenders; and (ii) senior to all other liens in the property of Reorganized Summit Care Pharmacy subject to the liens securing the Bergen Note, including the liens securing the New Public Notes, the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien.

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g. Class 7—Other Secured Claims Including Personal Property Lessors.

Classification. Class 7 consists of any Secured Claims (including without limitation the Secured Claims of personal property lessors), other than those Secured Claims in Classes 1, 2, 3, 4, 5, 6, or 8.

Insiders (Y/N). No.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Collateral. Various.

Estimated Claim Amount. $100,000.

Treatment. Unless the holder of the Class 7 Claim agrees to other treatment, on or as soon as reasonably practicable after the Effective Date, the Reorganized Enterprise shall at its option either (i) pay to such holder cash in the allowed amount of such holder’s Allowed Class 7 Claim plus interest calculated at the rate of 2.49%²⁴ per annum from the Petition Date through the date of payment on the later of (a) as soon as reasonably practicable after the Effective Date, or (b) 30 days after the date on which the Other Secured Claim becomes an Allowed Other Secured Claim; (ii) abandon the collateral securing such Class 7 Claim; or (iii) (a) cure any default, other than a default of a kind specified in Bankruptcy Code section 365(b)(2), with respect to such holder’s Allowed Class 7 Claim, without recognition of any default rate of interest or similar penalty or charge, and upon such cure, no default shall exist, (b) reinstate the maturity of such Allowed Class 7 Claim as the maturity existed before any default, without recognition of any default rate of interest or similar penalty or charge, and (c) leave unaltered all other legal, equitable, and contractual rights of such holder with respect to such Allowed Class 7 Claim. Any defenses, counterclaims, rights of offset, or recoupment of the Debtors, the Estates, or the Reorganized Enterprise with respect to such Claims shall vest in and inure to the benefit of the

²⁴ 2.49% is the federal judgment rate of interest as of October 2, 2001, the Petition Date for Fountain View, Inc. and 19 of its direct and indirect subsidiaries.

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Reorganized Enterprise.

h. Class 8—Agent and Lenders Secured Claims.

Classification. Class 8 consists of the Secured Claims of the Agent and the Lenders under the Prepetition Credit Agreement.

Insiders (Y/N). No.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Collateral. Substantially all of the Debtors’ assets.

Estimated Claim Amount. $82 million.

Treatment. The Disbursing Agent (i) shall pay to the Agent cash in an amount equal to the aggregate amount of all Class 8 Allowed Claims on the Effective Date (which shall include outstanding principal as of the Petition Date, plus interest as determined under the terms of the Prepetition Credit Agreement, plus all fees and expenses and costs of the Agent pursuant to the terms of the Prepetition Credit Agreement, less all adequate protection payments, all supplemental adequate protection payments and all expense reimbursements pursuant to the Cash Collateral Orders); and (ii) shall, with respect to each outstanding letter of credit issued by any of the Lenders for the account of any of the Debtors, at the Debtors’ option, either (a) cause such letter of credit to be released undrawn by the beneficiary thereof, or (b) cash collateralize the reimbursement obligation under such letter of credit in an amount equal to 110% of the then outstanding contingent obligation under such letter of credit.

All Claims, liens, and security interests of the Agent and Lenders under the Prepetition Credit Agreement, as well as any rights held by the Agent and Lenders pursuant to any subordination agreement, including, without limitation, the subordination provisions of the Indenture, shall be extinguished upon the satisfaction in full of the Class 8 Allowed Claims as set forth in Section II.C.8 of the Plan.

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3. Classification and Treatment of Unsecured Claims (Classes 9, 10, 11 & 12).

a. Class 9—Unsecured Claims of Holders of 11¼% Notes.

Classification. Class 9 consists of the unsecured claims for principal and interest arising under the 11¼% Notes, which shall be Allowed Claims in an aggregate amount equal to $133,012,500.

Insiders (Y/N). No.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Estimated Total Amount of Claims. $133,012,500.

Treatment. All Class 9 Claims shall be satisfied by the distribution as soon as reasonably practicable after the Effective Date, but in no event later than 10 days after the Effective Date, to the Indenture Trustee, who shall act as the Disbursing Agent for Class 9 and shall distribute to the holders of the 11¼% Notes, as of the Record Date, Pro Rata:

a. The Initial Cash Payment;

b. The Noteholders’ Stock Distribution; and

c. The New Public Notes.

Upon completion of all of its obligations as the Class 9 Disbursing Agent under the Plan, the Indenture Trustee shall be irrevocably released from all of its obligations under that certain indenture dated April 16, 1998 between the Indenture Trustee and Fountain View, Inc., the indenture shall be deemed terminated, and the liens granted to secure the obligations under the indenture shall be deemed to be discharged.

The Initial Cash Payment will be fifty million dollars plus an amount equal to the amount (if any) by which the Debtors’ cash, cash equivalents and undrawn revolving commitments on the Effective Date exceed $30 million after giving effect to all payments required by the Plan.

The Noteholders’ Stock Distribution will be 52,632 shares of New Class A Common Stock. The Confirmation Order shall provide that each record holder of

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Noteholders’ Stock shall be entitled to all the rights and shall be subject to all the obligations otherwise applicable under the Stockholders’ Agreement to “Qualified Stockholders” as such term is defined therein.

The New Public Notes shall be issued, pursuant to a qualified trust indenture, in the form submitted by the Debtors in the Plan Supplement in a form reasonably acceptable to the Noteholders’ Committee, in an aggregate principal amount equal to (i) $133,012,500, plus (ii) postpetition interest on $133,012,500 from the Petition Date to the Effective Date of the Plan at the rate of 9½% per annum, less (iii) the Initial Cash Payment. The Debtors will use reasonable best efforts to have the New Public Notes rated by Standard & Poors Corp. and Moody’s Investors Service as soon as reasonably practicable, but, in any event, within three months of the Effective Date. The indenture governing the New Public Notes shall include provisions incorporating the following terms and conditions:

Maturity Date: A maturity date one Business Day after the date on which the final principal payment on the Exit Facility is due, but in no event beyond the sixth anniversary of the Effective Date.

Lien: A junior lien to secure the New Public Notes in (i) the Debtors’ real property leases, and (ii) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy businesses, in all cases limited to the extent required by the Exit Facility, such liens to be expressly subordinate to the Exit Facility, subject to any prior valid and enforceable liens in such assets including those liens securing the Bergen Note and of equal rank with the liens securing the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien; provided, however, that the New Public Notes shall contain “basket” and release provisions²⁵ in connection with such liens as may be customary in high-yield public trust indentures and to be negotiated in good faith and reasonably acceptable to the Debtors and the Noteholders’ Committee.

Covenants: The indenture shall contain such covenants as are customary in

²⁵ “Basket and release provisions” permit limited substitution of collateral and sales free and clear of liens with respect to property pledged as a pool to support a secured obligation. Such provisions are customary in secured public trust indentures given the difficulty of obtaining transaction specific lien releases from the dispersed holders of public debt.

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high-yield public trust indentures and agreed upon in good faith by the Debtors and the Noteholders’ Committee; provided, however, that the indenture will contain: (i) limitations on restricted payments (including a prohibition on dividends and distributions to shareholders, management fees (other than reimbursement of actual out of pocket expenses and, to the extent consistent with past practice, allocated expenses, which have historically averaged approximately $200,000 per year), stock repurchases, non-mandatory payments on account of debt subordinated to the New Public Notes, and investments other than investments permitted by the terms of the indenture governing the New Public Notes); and (ii) restrictive covenants regarding (a) debt incurrence (subject to tests and exceptions contained in the indenture), and (b) use of asset sale proceeds; provided, further, however, that any covenants in the indenture may be waived, amended or modified with the consent of the holders of 60% in interest of the New Public Notes. So long as any New Public Notes remain outstanding, Reorganized Fountain View will furnish to the indenture trustee for distribution to the holders of the New Public Notes and file with SEC (unless such filing will not be accepted) and otherwise make such information available to securities analysts and prospective investors upon request within the time periods specified by the rules and regulations of the SEC (whether or not Reorganized Fountain View is required by such rules or regulations to do so) (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if Reorganized Fountain View were required to file such forms, including a Management’s Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual financial information only, a report on the annual financial statements by an independent certified public accounting firm; and (ii) all current reports that would be required to be filed on Form 8-K if Reorganized Fountain View were required to file such reports. So long as any New Public Notes remain outstanding, Reorganized Fountain View shall comply with section 314(a) of the Trust Indenture Act and shall furnish the information required to be delivered pursuant to Rule 144(d)(4) under the Securities Act of 1933 upon the request of any holder of the New Public Notes, securities analysts, or prospective investors.

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Interest: Interest will be payable semi-annually in arrears, at the rate of 9¼% per annum until the first anniversary of the Effective Date, 11¼% per annum between the first and second anniversaries of the Effective Date, 13¼% per annum between the second and third anniversaries of the Effective Date, and 15% per annum thereafter until maturity.

Call: The New Public Notes shall be callable at par plus accrued interest through the applicable record date, in whole or in part, at any time.

Mandatory Prepayment: To the extent permitted by the Exit Facility, Reorganized Fountain View shall prepay the New Public Notes in an amount equal to 80% of Excess Cash Flow.

b. Class 10—General Unsecured Claims.

Classification. Class 10 consists of all Unsecured Claims other than (i) Claims in Classes 9, 11, 12, and 13; and (ii) Claims held by one of the Debtors extinguished pursuant to Section IV.A of the Plan. Claims that would otherwise be Class 10 Claims will be classified and treated as Class 11 Claims, if the holder makes the Convenience Class Election; provided, however, that any holder that makes the Convenience Class Election but holds aggregate Allowed Class 10 Claims in excess of $1,250 will be classified and treated in Class 10 under payment option 10A as voting to accept the Plan and will receive cash equal to 80% of such holder’s Allowed Claims without postpetition interest. The Claims in Class 10 consist of the Claims of suppliers and other vendors, landlords with prepetition rent Claims and/or Claims based on rejection of leases, personal injury and other litigation Claims to the extent not covered by insurance, parties to contracts with the Debtors that are being rejected, deficiency Claims of secured creditors, and other general Unsecured Claims.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Estimated Total Amount of Claims. $17.2 million.

Treatment. Holders of Class 10 Claims must elect in writing payment option 10A or 10B on or before the last date fixed by the Court for the timely submission of Ballots; provided, however, that a holder of a Disputed Claim in Class 10 must make its election

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before the later of the deadline to submit Ballots and 14 days after the date upon which its Claim becomes an Allowed Claim. Holders who fail to make a timely and valid election in writing shall be afforded treatment under payment option 10B. Attached hereto as Exhibit 13 is the Schedule of Continuing Creditors. If you are not listed on Exhibit 13 (Schedule of Continuing Creditors), then you should assume that if you choose payment Option 10B you will not receive treatment as Continuing Creditor. The Debtors reserve the right to amend the Schedule of Continuing Creditors at any time before the Confirmation Date. The Debtors will provide notice of any amendment to the Schedule of Continuing Creditors to the party or parties affected by the amendment and counsel to the Committees. The Disbursing Agent will make distributions to the holder of each Class 10 Allowed Claim, in accordance with such holder’s applicable payment option on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Claim becomes an Allowed Claim; or (iii) the date such Claim becomes due and payable in accordance with its terms.

Payment Option 10A is cash equal to 80% of the Allowed Claim without postpetition interest.

Payment Option 10B is:

    (i) for all holders other than Continuing Creditors,

(a) cash equal to the sum of :

(y) 40% of the Allowed Claim, and

(z) postpetition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date through the date of payment (provided, however, that notwithstanding anything to the contrary herein no prejudgment interest shall accrue or be paid with respect to any unliquidated Class 10 Claim prior to its liquidation except as provided by otherwise applicable non-bankruptcy law); and

(b) a Class 10 Deferred Obligation in a principal amount equal to 60% of the Allowed Claim; or

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    (ii) for Continuing Creditors,

(a) cash equal to the sum of:

(y) 65% of the Allowed Claim, and

(z) post petition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date through the date of payment; and

(b) a Continuing Creditor Deferred Obligation in a principal amount equal to 35% of the Allowed Claim.

The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will be obligations of Reorganized Fountain View guaranteed by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries (except for any special purpose entities formed for insurance coverage purposes) to the extent permitted by the Exit Facility. The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will bear interest payable in arrears from and after the date of the initial cash payments under payment option 10B in respect of such Class 10 Claim at the rate of 9½% per annum; provided, however, that after maturity (whether by acceleration or otherwise) interest shall accrue at the rate of 11½% per annum. The Class 10 Deferred Obligation will be payable in five semiannual installments each of which shall consist of principal installments equal to one-fifth its original principal amount together with accrued interest on the remaining unpaid principal balance and the Continuing Creditor Obligation will be payable in three semiannual installments each of which shall consist of principal installments equal to one-third its original principal amount together with accrued interest on the remaining unpaid principal balance, such installments to commence on the first Business Day that is at least 180 days after the Effective Date; provided, however, that should, the Noteholder Prepayment Percentage exceed 50%, Reorganized Fountain View shall prepay the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation Pro Rata (to be credited against scheduled amortization payments relating to such Class 10 Deferred Obligation or Continuing Creditor Deferred Obligation in reverse order of

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maturity) in an amount equal to the initial amount of such Class 10 Deferred Obligation or the Continuing Creditor Deferred Obligation multiplied by the Noteholder Prepayment Percentage less all prior principal payments on account of such Class 10 Deferred Obligation or Continuing Creditor Deferred Obligation. The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will be secured by liens (which shall be expressly subordinated to those securing the Exit Facility on terms reasonably acceptable to the Exit Facility lenders as well as any prior perfected and valid liens retained under the Plan) against (a) the Debtors’ real property leases, and (b) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy businesses, such liens to be of equal rank and otherwise subject to the same limitations as the liens securing the New Public Notes and the Vendors’ Lien. The lien securing the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation shall be subject to the same “basket” and release provisions²⁶ as the lien securing the New Public Notes. The lien securing the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation shall be administered by the Collateral Agent under a collateral trust agreement or similar agreement, which agreement (together with such ancillary documents as may be reasonably necessary to implement its terms) shall be in the form submitted by the Debtors in the Plan Supplement and shall provide for acceleration of the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation and enforcement of the lien by the Collateral Agent in the event of a (i) payment default on the Class 10 Deferred Obligation and Continuing Creditor Deferred Obligation (in either case, following five (5) business days written notice and an opportunity to cure); (ii) upon the acceleration or any exercise of remedies by any party under the Exit Facility, the New Public Notes, or any comparable obligation following a default under such agreement; or (iii) the filing of a bankruptcy case by Reorganized Fountain View.

For the avoidance of doubt, the amount of any mandatory prepayment under the Noteholder Prepayment Percentage shall be calculated in accordance with the following

²⁶ “Basket and release provisions” permit limited substitution of collateral and sales free and clear of liens with respect to property pledged as a pool to support a secured obligation. Such provisions are customary in secured public trust indentures given the difficulty of obtaining transaction specific lien releases from the dispersed holders of public debt.

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examples:

Example 1: Class 10 Deferred Obligation:

Assume the Noteholder Prepayment Percentage is 60% on the date eight months following the Effective Date and the regularly scheduled amortization payment in an amount equal to 20% of the initial amount of the Class 10 Deferred Obligation has been made, such that its principal amount has been reduced from $1500 to $1200. A mandatory prepayment would then be due in the amount of $600 in order to further reduce the then outstanding principal balance to $600. This mandatory prepayment would be credited against the final two amortization payments. Assuming no further increase in the Noteholder Prepayment Percentage, the regularly scheduled amortization payment on the first anniversary of the Effective Date would, therefore, remain $300, and the third regularly scheduled amortization payment due one year after the first Business Day following 180 days after the Effective Date would extinguish the Class 10 Deferred Obligation.

Example 2: Continuing Creditor Deferred Obligation:

Assume the Noteholder Prepayment Percentage is 60% on the date eight months following the Effective Date and the regularly scheduled amortization payment in an amount equal to 33.33% of the initial amount of the Continuing Creditor Deferred Obligation has been made, such that its initial principal amount has been reduced from $1500 to $1000. A mandatory prepayment would then be due in the amount of $400 in order to further reduce the then outstanding principal balance to $600. This mandatory prepayment would be credited against the final amortization payment. Assuming no further increase in the Noteholder Prepayment Percentage, the regularly scheduled amortization payment on the first anniversary of the Effective Date would, therefore, remain $500, and upon final maturity the then remaining balance of $100 would be due.

Extensions of credit by Continuing Creditors in connection with the provision of goods and services to the Reorganized Enterprise will be secured by the Vendors’ Lien in favor of Continuing Creditors, which is a junior lien in (i) the Debtors’ real property leases, and (ii) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy

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businesses, in an aggregate amount not to exceed $8 million, in all cases limited to the extent required by the Exit Facility, such lien to be expressly subordinate to the Exit Facility, on terms reasonably acceptable to the Exit Facility lenders, subject to any prior valid and enforceable liens in such assets including those liens securing the Bergen Note and of equal rank with the liens securing the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the New Public Notes; provided, however, that the Vendors’ Lien shall be subject to the same “basket” and release provisions[27] as the lien securing the New Public Notes. The Vendors’ Lien shall be administered by the Collateral Agent pursuant to the Collateral Agency Agreement between the Debtors and the Collateral Agent. The Vendors’ Lien will expire on the date 18 months following the Effective Date unless there is a then-existing default in payment of the Continuing Creditor Deferred Obligation or other extension of maturity in which case the Vendors’ Lien will continue in force until such defaults are cured or the obligation satisfied.

            c. Class 11—Convenience Claims.

Classification. Class 11 consists of all Allowed Unsecured Claims other than 11¼% Note Claims that are either: (i) less than or equal to $1,000; or (ii) all Class 10 Claims of a holder that has made the Convenience Class Election.

Impaired/Unimpaired. Unimpaired: Claims in this Class are not entitled to vote on the Plan.

Estimated Total Amount of Claims. $400,000.

Treatment. The legal, equitable and contractual rights of the holders of Class 11 Claims are unaltered by the Plan. The Disbursing Agent will distribute to holders of Class 11 Allowed Claims cash equal to the allowed amount of the Convenience Claim plus interest calculated at the rate of 2.49%²⁸ per annum from the Petition Date through the date of payment on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii)

²⁷ “Basket and release provisions” permit limited substitution of collateral and sales free and clear of liens with respect to property pledged as a pool to support a secured obligation. Such provisions are customary in secured public trust indentures given the difficulty of obtaining transaction specific lien releases from the dispersed holders of public debt.

²⁸ 2.49% interest is the federal judgment rate of interest on October 2, 2001, the Petition Date for Fountain View, Inc. and 19 of its direct and indirect subsidiaries.

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30 days after the date on which the Convenience Claim becomes an Allowed Claim; or (iii) the date such Convenience Claim becomes due and payable in accordance with its terms.

Holders of Class 10 Claims validly making the Convenience Class Election will be treated as follows: (i) if the aggregate amount of their Allowed Class 10 Claims is equal to or less than $1,250, they will be treated in Class 11, deemed to accept the Plan, and will receive $1,000 in full and final satisfaction of all of their Allowed Class 10 Claims; or (ii) if the aggregate amount of their Allowed Class 10 Claims is in excess of $1,250, they will be treated in Class 10 under payment option 10A, deemed to have voted to accept the Plan, and will receive cash equal to 80% of such holder’s Allowed Class 10 Claims without postpetition interest.

d. Class 12—Insured Professional Liability Claims.

Classification. Class 12 consists of Claims that are insured pursuant to any of the following Prepetition Professional Liability Policies: (i) policy number B 1999CN00002000 subscribed by Certain Underwriters at Lloyd’s, London, including but not limited to St. Paul Syndicate Management Limited, American Re/Insurance Company and Great Lakes Reinsurance Company UK, each a subsidiary of Munich Re; (ii) policy number B2000CM00002004 subscribed by Certain Underwriters at Lloyd’s, London, including but not limited to St. Paul Syndicate Management Limited, American Re/Insurance Company and Great Lakes Reinsurance Company UK, each a subsidiary of Munich Re; (iii) policy number BE 357-94-52 issued by American International Specialty Lines; (iv) policy number BE 476-09-60 issued by American International Specialty Lines/AIU; (v) policy number 2004776 issued by Lexington Insurance Co./AIU; (vi) policy number P159392046 issued by CNA Health Pro; and (vii) policy number UP012395 issued by US Risk.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Estimated Total Amount of Claims. Estimated to be less than available insurance.

Treatment. Upon the later of (i) as soon as reasonably practicable after the

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Effective Date, or (ii) 30 days after the date upon which the Class 12 Claim (as liquidated through settlements, the ADR Procedures, Article IV.H of the Plan to the extent permitted by applicable law, or litigation) becomes an Allowed Claim, the applicable Class 12 Allowed Claim will be paid in full in cash exclusively from the applicable Prepetition Professional Liability Policy, except to the extent of any unexhausted self-insured retention thereunder. The uninsured portion of any Class 12 Allowed Claim, if any, shall, to that extent, be reclassified as a Class 10 Allowed Claim; provided, however, that the uninsured punitive damages portion of any Class 12 Allowed Claim shall be reclassified as a Class 13 Allowed Claim.

e. Class 13—Other Subordinated Claims.

Classification. Class 13 consists of any Claim not otherwise classified under the Plan that is subject to subordination to an Allowed Claim in Classes 9, 10 or 11, or Allowed Interest in any junior class, whether by contract, by operation of law, or in accordance with equitable principles, including by operation of sections 510 or 726 of the Bankruptcy Code, including without limitation any Claim for punitive damages, fines, or penalties, including without limitation Claims under Texas Revised Civil Statutes article 4590(i) section 11.02, Texas Civil Practice and Remedies Code section 41.008, California Welfare & Institutions Code section 15657(a), California Business & Professions Code section 17200, California Civil Code sections 3294 & 3345, and California Civil Procedure Code section 1021.5, as well as any predecessor or successor laws thereto, or any similar foreign, federal, or state law or regulation or common law, from any jurisdiction, giving rise to any such Claim.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Estimated Total Amount of Claims. $0.

Treatment. When and if any Class 13 Claim becomes an Allowed Claim, the holder thereof will receive a promissory note in the form set forth in the Plan Supplement in the principal amount of such holder’s Allowed Claim issued by Reorganized Fountain View.

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The promissory note will accrue interest from the date the Class 13 Claim becomes an Allowed Claim at the federal judgment interest rate in effect on the date the Class 13 Claim becomes an Allowed Claim, and shall be subordinated in right of payment to the New Public Notes, the Vendors’ Lien and the liens securing the Continuing Creditor Deferred Obligation and the Class 10 Deferred Obligation and the Exit Facility and mature on the eleventh anniversary of the Effective Date.

4. Classification and Treatment of Interests (Classes 14, 15, 16, 17, 18, & 19).

Interest holders are entities that hold ownership interests (i.e., equity interests) in a debtor. If the debtor is a corporation, persons holding preferred or common stock in the debtor are Interest holders. If the debtor is a partnership, the Interest holders include both general and limited partners.

            a. Class 14—Existing Preferred Stock.

Classification. Class 14 consists of the Existing Preferred Stock of which 15,000 shares will be issued and outstanding immediately prior to the Effective Date.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Treatment. The Existing Preferred Stock shall be cancelled and on the Distribution Date the holders thereof shall receive in exchange for each share of Existing Preferred Stock one share of New Preferred Stock; provided, however, no such holder shall receive any New Preferred Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement.

            b. Class 15—Existing Class A Common Stock.

Classification. Class 15 consists of Existing Class A Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto. One million shares of Existing Class A Common Stock will be issued and outstanding immediately prior to the Effective Date.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on

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the Plan.

Treatment. The Existing Class A Common Stock and any Claims for rescission or damages related thereto shall be cancelled and on the Distribution Date the holders thereof will receive in exchange for each share of Existing Class A Common Stock one share of New Class A Common Stock of Reorganized Fountain View; provided, however, that no such holder shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement. The Class 15 Allowed Interests will be diluted by the Noteholders’ Stock Distribution.

            c. Class 16—Existing Class B Common Stock.

Classification. Class 16 consists of Existing Class B Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto. 114,202 shares of Existing Class B Common Stock will be issued and outstanding immediately prior to the Effective Date.

Impaired/Unimpaired. Impaired: Claims in this Class are deemed to have rejected the Plan.

Treatment. Class 16 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 16 Allowed Interests will neither receive nor retain any property on account of the Plan.

            d. Class 17—Existing Class C Common Stock.

Classification. Class 17 consists of Existing Class C Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto. 20,742 shares of Existing Class C Common Stock will be issued and outstanding immediately prior to the Effective Date.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Treatment. Class 17 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 17 Allowed Interests shall receive on the Distribution Date the number of New Class A Common Stock in Reorganized

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Fountain View equal to the number of cancelled shares of Existing Class C Common Stock held by such entity; provided, however, that no holder of any Class 17 Interests shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement. The Class 17 Allowed Interests will be diluted by the Noteholders’ Stock Distribution.

e. Class 18—Existing Warrants.

Classification. Class 18 consists of the Existing Warrants and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto. Existing Warrants will be issued and outstanding immediately prior to the Effective Date to purchase 50,377 shares of Existing Class C Common Stock at a price of $.01 per share.

Impaired/Unimpaired. Impaired: Claims in this Class are entitled to vote on the Plan.

Treatment. Class 18 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled. On the Distribution Date, the holders of Class 18 Allowed Interests shall be issued new warrants, with substantially the same terms and conditions as the Existing Warrants and in the form provided in the Plan Supplement, for the number of shares of New Class A Common Stock in Reorganized Fountain View equal to the number of cancelled shares of Existing Class C Stock subject to issuance to that holder on account of the Existing Warrants; provided, however, that no holder of any Class 18 Interests shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement.

f. Class 19—Existing Management Incentives and Other Existing Interests.

Classification. Class 19 consists of (i) the options to purchase 23,793 shares of Existing Class C Common Stock issued to present and former directors, officers and employees (including, pursuant to Code section 510(b), any Claims for rescission or damages related thereto); and (ii) collectively, any Interests in any of the Debtors including options, warrants, and any other rights to purchase or otherwise acquire Interests, and any

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stock appreciation or similar rights, existing prior to the Effective Date, other than the Existing Class A Common Stock, Existing Class B Common Stock, Existing Class C Common Stock, Existing Preferred Stock, and Existing Warrants.

Impaired/Unimpaired. Impaired: Claims in this Class are deemed to have rejected the Plan.

Treatment. Class 19 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 19 Allowed Interests will neither receive nor retain any property on account of the Plan.

B. Treatment of Executory Contracts and Unexpired Leases.

1. Assumption and Assignment of Contracts and Leases.

a. Schedule of Assumed or Assigned Agreements.

On the Effective Date, the Debtors will assume the Resident Agreements and the executory contracts and unexpired leases—except for any agreements that were previously assumed or rejected by Final Order or under Bankruptcy Code section 365—that are identified on the Schedule of Assumed or Assigned Agreements attached hereto as Exhibit 10, and will assign those executory contracts and unexpired leases as further provided therein.

By the first business day that is at least twenty (20) days prior to the Confirmation Hearing Date, the Debtors will file an amended Schedule of Assumed or Assigned Agreements, and will serve the amended schedules on the non-debtor parties to the executory and unexpired leases whose treatment differs from that provided in the Exhibits attached to the Disclosure Statement. The Debtors reserve the right to further amend the Schedule of Assumed or Assigned Agreements at any time before the Confirmation Date to: (i) delete any executory contract or unexpired lease and provide for its rejection under Section III.B of the Plan; or (ii) add any executory contract or unexpired lease and provide for its assumption or assignment under this Section. The Debtors will provide notice of any amendment to the Schedule of Assumed or Assigned Agreements to the party or parties to the agreement affected by the amendment and counsel the Committees.

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The Confirmation Order will constitute a Court order approving the assumption, and, as applicable, assignment, on the Effective Date, of the Resident Agreements and the executory contracts and unexpired leases then identified on the Schedule of Assumed or Assigned Agreements.

            b. Cure Payments.

The Schedule of Assumed or Assigned Agreements also identifies any amounts that the Debtors believe Bankruptcy Code sections 365(b)(1)(A) or (B) require be paid in order to cure defaults under the executory contracts and unexpired leases to be assumed or assigned under the Plan. The Debtors will file an amended Schedule of Assumed or Assigned Agreements not later than 20 days before the Confirmation Hearing Date, setting forth any cure amounts under the executory contracts and unexpired leases to be assumed or assumed and assigned under Section III.A of the Plan. The Debtors reserve the right to further amend the Schedule of Assumed or Assigned Agreements, including modifying the cure amounts, up to the Confirmation Date. There are no Cure Payments to be made with respect to the Resident Agreements.

As required by Bankruptcy Code section 365(b)(1), any and all monetary defaults under each executory contract and unexpired lease to be assumed or assigned under this Plan will be satisfied in one of the following three ways: (i) the Disbursing Agent will pay to the non-debtor party to the executory contract or unexpired lease the Cure Payments, as set forth on the Schedule of Assumed or Assigned Agreements, in cash within 10 days after the Effective Date; (ii) the Disbursing Agent will satisfy any other terms that are agreed to by both the Debtors and the non-debtor party to an executory contract or unexpired lease that will be assumed or assigned, including, with respect to the applicable Medicare provider agreements, the terms of the CMS Stipulation; or (iii) if a dispute arises regarding (a) the amount of any proposed Cure Payments, (b) whether the Debtors have provided adequate assurance of future performance under an executory contract or unexpired lease to be assumed or assigned, or (c) any other matter pertaining to a proposed assumption or assignment; then the proposed Cure Payments will be made within 30 days after entry of a

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Final Order resolving the dispute and approving the assumption or assignment.

            c. Objections to Assumption or Assignment or Proposed Cure Payments.

Any party to an executory contract or unexpired lease that will be assumed or assumed and assigned under the Plan who either contends that the proposed Cure Payment specified on the Schedule of Assumed or Assigned Agreements is incorrect or otherwise objects to the contemplated assumption or assignment must File with the Court and serve upon the Debtors, Debtors’ Counsel, and counsel to the Committees, a written statement and supporting declaration stating the basis for its objection. This statement and declaration must be Filed and served by the later of: (i) twenty (20) days before the Confirmation Hearing Date; or (ii) with respect to objections relating to an executory contract or unexpired lease added to the Schedule of Assumed or Assigned Agreements by an amendment, or with respect to any changed cure amount, ten (10) days after the Debtors file and serve any amendments to the Schedule of Assumed or Assigned Agreements Any entity that fails to timely File and serve such a statement and declaration will be deemed to waive any and all objections to the proposed assumption or assignment and the proposed Cure Payments.

            d. Liens with Respect to Assumed Contracts and Leases Pursuant to the Exit Facility and Plan.

As of the Effective Date, the Reorganized Enterprise and the Debtors are authorized to grant liens to secure the Exit Facility, the New Public Notes, the Class 10 Deferred Obligations, the Continuing Creditor Deferred Obligations, and the Vendors’ Lien, in accordance with the terms of the Exit Facility Closing Documents, the indenture pursuant to which the New Public Notes are to be issued, and the agreement between the Collateral Agent and Reorganized Fountain View, in the Debtors’ interests in all unexpired real property leases (and, as applicable, executory contracts) included on the Schedule of Assumed or Assigned Agreements, notwithstanding anything to the contrary in otherwise applicable law or in any such lease. The Debtors or the Reorganized Enterprise are authorized to execute such documents and memoranda and record such instruments as may

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be appropriate to perfect such liens under otherwise applicable law.

        2. Rejection of Contracts and Leases.

            a. Schedule of Rejected Agreements.

On the Effective Date, the Debtors will reject the executory contracts and unexpired leases on the Schedule of Rejected Agreements attached hereto as Exhibit 11—except for any agreements that were previously assumed or rejected by Final Order or under Bankruptcy Code section 365 or that will be assumed under Section III.A of the Plan—but only to the extent that these agreements constitute executory contracts or unexpired leases under Bankruptcy Code section 365. (Listing an agreement on the Schedule of Rejected Agreements is not an admission that the agreement is an executory contract or unexpired lease or that the Debtors have any liability under the agreement.)

The Debtors reserve the right to amend the Schedule of Rejected Agreements at any time before the Confirmation Date to: (i) delete any executory contract or unexpired lease and provide for its assumption or assignment under Section III.A of the Plan; or (ii) add any executory contract or unexpired lease and provide for its rejection under Section III.B of the Plan. The Debtors will provide notice of any amendment to the Schedule of Rejected Agreements to the party or parties to the executory contracts or unexpired leases affected by the amendment and counsel to the Committees.

The Confirmation Order will constitute a Court order approving the rejection, as of the Effective Date, of any and all of the agreements that the Debtors executed before the Petition Date—except for any agreements that were previously assumed or rejected either by a Final Order or under Bankruptcy Code section 365 or that will be assumed under Section III.A of the Plan—including without limitation the executory contracts or unexpired leases identified on the Schedule of Rejected Agreements.

            b. Bar Date for Rejection Damage Claims.

Any rejection damage Claim or other Claim for damages arising from the rejection under the Plan of an executory contract or unexpired lease must be Filed with the Court and served upon Debtors’ Counsel and the Reorganized Enterprise within 30 days after

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the mailing of notice of entry of the Confirmation Order at which time the holder of the Claim shall elect between payment option 10A or 10B, if applicable, by delivering to the Debtors’ counsel and the Reorganized Enterprise a written notice of election of option 10A or 10B. Holders of timely Filed rejection damages Claims that fail to make a timely election shall receive treatment under payment option 10B. Any such damage Claims that are not timely Filed and served will be forever barred and unenforceable against the Debtors, the Estates, the Reorganized Enterprise, and their respective property; and entities holding these Claims will be barred from receiving any distributions under the Plan on account of their Rejection Damage Claims or other damage Claims. Nothing herein extends the Bar Date applicable to any contract or lease rejected otherwise than under the Plan or for any Claim other than one arising directly as a result of the rejection of a contract or lease under the Plan.

        3. Postpetition Contracts and Leases.

Except as expressly provided in the Plan or the Confirmation Order, each contract, lease, or other agreement that any of the Debtors entered into after the Petition Date will either revest in Reorganized Fountain View, Reorganized Summit Care Pharmacy, or the Other Reorganized Debtors, or be assigned to a Post-Effective Date Subsidiary pursuant to the terms of the Corporate Restructuring Closing Documents. These agreements will then become obligations solely of the entities so designated in the Corporate Restructuring Closing Documents and will remain in full force and effect after the Confirmation Date and the Effective Date. The CMS Stipulation and the TDHS Settlement will be binding on the Reorganized Enterprise in accordance with their terms notwithstanding anything else to the contrary in the Plan.

    C. Means of Execution and Implementation of the Plan and Other Provisions.

Except as otherwise specifically provided in the Plan, Fountain View, Inc., and, after the Effective Date, Reorganized Fountain View, shall serve as the duly authorized agent of the Debtors, the Estates, and the Reorganized Enterprise for the purposes of performing and consummating the Plan pursuant to the Bankruptcy Code.

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1. Substantive Consolidation.

As of the Effective Date, solely for the purposes of the Plan, the assets, claims, and affairs of the Debtors and the Estates shall be substantively consolidated pursuant to Bankruptcy Code section 105(a). As a result of the substantive consolidation, on the Effective Date, all property, rights, and claims of the Debtors and the Estates, and all Claims against the Debtors and the Estates shall be deemed pooled for purposes of allowance, treatment, and distributions under the Plan and multiple proofs of Claim on account of any Claim upon which any of the Debtors are co-obligors or guarantors or otherwise may be contingently liable shall without necessity of objection by any party be deemed to constitute a single proof of Claim entitled to a single satisfaction from the substantively consolidated Estates in accordance with the terms of the Plan; the duplicative Claims being otherwise deemed disallowed. Further, as a result of this substantive consolidation, all Claims between and among the Debtors and the Estates shall be cancelled without being entitled to any distribution under the Plan.

The Debtors believe that substantive consolidation is reasonable and appropriate to the orderly, efficient, and economical administration of the Estates for the following reasons: (i) the Debtors’ operations and accounting functions were centralized and directed in a coordinated fashion; (ii) the operations of some Debtors were not strictly accounted for on a separate basis; (iii) property of one Debtor was commonly used by another Debtor without compensation; (iv) all of the Debtors are co-obligated on the secured debt outstanding under the Prepetition Credit Agreement and the 11¼% Notes, which collectively constitute approximately 95% of the Claims against the Debtors; and (v) allocating the value available under the Plan to the Agent and the Lenders and then to holders of Unsecured Claims in the various Estates would be very difficult, costly, and of no practical importance given that the Plan provides for payment in full of any and all Claims against the Debtors.

2. Corporate Restructuring Plan.

On the Effective Date, the Debtors will consummate the transactions

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contemplated in the Corporate Restructuring Plan discussed in Section IX.D.2 above. Upon consummation of the Corporate Restructuring Plan, all of the Business Assets shall be held by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries, in accordance with the Corporate Restructuring Plan, free and clear of all liens, Claims, encumbrances, and Interests, except as otherwise provided in the Plan. Reorganized Fountain View will own directly or indirectly 100% of the equity interests in Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries. The Debtors (other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors) will, following consummation of the Corporate Restructuring Plan, cease their independent existence through dissolution or merger.

3. Securities to be Issued Under the Plan.

a. New Preferred Stock.

Reorganized Fountain View will issue 15,000 shares of the New Preferred Stock, which will be outstanding as of the Effective Date. The New Preferred Stock to be issued and reserved under the Plan shall have the same attributes as the Existing Preferred Stock, except that Reorganized Fountain View’s articles of incorporation will be amended in the form provided in the Plan Supplement to prohibit the issuance of non-voting equity securities. Pursuant to those amended and restated articles of incorporation, the holders of New Preferred Stock shall have one-tenth of a vote per share of New Preferred Stock on all matters requiring a shareholder vote. The New Preferred Stock shall not be convertible into New Class A Common Stock. The holders of New Preferred Stock shall be bound by the Stockholders’ Agreement.

b. New Class A Common Stock.

Reorganized Fountain View will issue 1,073,274 shares of the New Class A Common Stock, which will be outstanding as of the Effective Date. The New Class A Common Stock to be issued and reserved under the Plan shall have the following attributes:

a. Authorization and Issuance. Reorganized Fountain View’s articles of

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incorporation will authorize the issuance of 1,500,000 shares of New Class A Common Stock, subject to further amendment after the Effective Date.

b. Par Value. The New Class A Common Stock shall have a par value of $0.01 per share.

c. Rights. The New Class A Common Stock shall have such rights with respect to dividends, liquidations, voting, and other matters as are set forth in Fountain View, Inc.’s articles of incorporation, as amended, restated, and Filed with the Court in the Plan Supplement, and as otherwise provided by applicable law. The holders of the New Class A Common Stock will be bound by the Stockholders’ Agreement.

c. New Public Notes.

As discussed in more detail in Section X.A.3.a above, Reorganized Fountain View will issue approximately $100 million in New Public Notes under the Plan to holders of Class 9 Allowed Claims, which will be guaranteed by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries (except for any special purpose entities formed for insurance coverage purposes) to the extent permitted by the Exit Facility.

d. New Warrants.

On the Distribution Date, the holders of Existing Warrants shall be issued new warrants, with substantially the same terms and conditions as the Existing Warrants and in the form provided in the Plan Supplement, for the number of shares of New Class A Common Stock in Reorganized Fountain View equal to the number of cancelled shares of Existing Class C Common Stock subject to issuance to that holder on account of the Existing Warrants; provided, however, that no holder of any Class 18 Interests shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement.

e. Amendments to the Stockholders’ Agreement.

On or before the Effective Date, the Stockholders’ Agreement shall be amended so as to provide that all of the shares of New Class A Common Stock held by the

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holders of the Class 9 Allowed Claims (the “Noteholder Stock”) shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder (as that term is defined in the Stockholders’ Agreement); provided, however, that notwithstanding any provision contained in the Stockholders’ Agreement to the contrary, no holder of the Noteholder Stock will be entitled to (i) receive, except as otherwise provided in the Indenture, the reports, securities filings and other information described in Section 7.02 of the Stockholders’ Agreement; or (ii) exercise the right of inspection afforded to Qualified Stockholders under Section 7.03 of the Stockholders’ Agreement. Except as limited by the sentence immediately preceding, the holders of the Noteholder Stock shall be entitled to all of the rights, and shall be subject to all of the obligations otherwise applicable to Qualified Stockholders under the Stockholders’ Agreement.

The Stockholders’ Agreement will also be amended to provide that a clause will be added to Section 7.11 of the Stockholders’ Agreement providing that no waiver, modification, or amendment of the Stockholders’ Agreement shall be valid or binding unless such waiver, modification, or amendment is in writing and is approved by a majority of holders of Noteholder Stock as to which the effect of such waiver, modification, or amendment (A) differs in a material and adverse manner from the effect on Heritage (as defined in the Stockholders’ Agreement), or (B) would eliminate any of the material rights of such holders of Noteholder Stock provided for in the Stockholders’ Agreement or create any material additional obligation for such holders of Noteholder Stock. Section 7.11 of the Stockholders’ Agreement will also provide that any waiver, modification, or amendment which requires any Investor (as defined in the Stockholders’ Agreement), Management Stockholder (as defined in the Stockholders’ Agreement), or holder of Noteholder Stock to make additional cash contributions to the Company (as defined in the Stockholders’ Agreement) shall require the consent of such Investor, Management Stockholder, or holder of Noteholder Stock.

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f. Amendment to Articles of Incorporation.

Reorganized Fountain View’s articles of incorporation will be amended in the form provided in the Plan Supplement to eliminate Class B Common Stock and Class C Common Stock and prohibit the issuance of nonvoting equity securities. Reorganized Summit Care Pharmacy’s and the Other Reorganized Debtors’ articles of incorporation will be amended in the form Filed with the Plan Supplement to, inter alia, prohibit the issuance of nonvoting equity securities.

4. Exit Facility.

On the Effective Date, the Debtors will consummate the transactions contemplated in the Exit Facility Commitment Letters. The Disbursing Agent shall use the proceeds of the Exit Facility together with the Bank Midwest Advance and the Debtors’ cash and cash equivalents on hand to fund payments under the Plan as follows:

• Payments in satisfaction of Allowed Administrative Claims, Allowed Priority Tax Claims, and Allowed Priority Claims and required cure amounts in respect of unimpaired Claims;

• Payments in satisfaction of Allowed Claims in Classes 3, 5, 7, 8, and 11;

• Payments in partial satisfaction of Allowed Claims in Class 6;

• Payments in satisfaction of Allowed Claims in Class 10 electing payment option 10A;

• Payments in partial satisfaction of Allowed Claims in Class 10 electing (or deemed to elect) payment option 10B;

• Payment of the Initial Cash Payment in partial satisfaction of Allowed Claims in Class 9; and

• Retention of sufficient funds to meet the Reorganized Enterprise’s working capital needs after the Effective Date.

The closings of the Exit Facility and the Corporate Restructuring Plan are integral and necessary conditions and terms of the Plan.

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5. The Collateral Agent.

a. Designation of the Collateral Agent.

The Collateral Agent shall be designated by the Creditors’ Committee with the prior consent of the Debtors, which consent shall not be unreasonably withheld, pursuant to the terms and conditions of the Collateral Agency Agreement submitted by the Debtors in the Plan Supplement and reasonably acceptable to the Creditors’ Committee. The Collateral Agency Agreement shall provide that financial and business information concerning Reorganized Fountain View provided to the indenture trustee for the New Public Notes that is not otherwise publicly available shall be concurrently provided to the Collateral Agent so long as any Class 10 Deferred Obligation remains outstanding.

b. Powers and Duties.

The Collateral Agent shall have the following rights, powers, and duties pursuant to the Collateral Agency Agreement (and such related documents as are necessary to evidence and perfect the liens created to secure the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Venders’ Lien under otherwise applicable non-bankruptcy law):

• The Collateral Agent may employ counsel reasonably acceptable to the Debtors. The reasonable costs, fees, and expenses of counsel for the Collateral Agent shall be paid by the Reorganized Enterprise;

• The Collateral Agent may exercise rights and remedies in accordance with the terms of the Collateral Agency Agreement upon (i) default by the Reorganized Enterprise in the payment of the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, or the obligations securing the Vendors’ Lien (in any case, following five (5) business days notice and failure to cure); (ii) acceleration or any exercise of remedies by any party under the Exit Facility, the New Public Notes, or any comparable obligation following a default under such agreement; or (iii) the filing of a bankruptcy case by Reorganized

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Fountain View; and

• The Collateral Agent may file suit or any appropriate motion for relief in the Court or in any other court of competent jurisdiction to exercise its rights, powers, or duties, or to receive compensation or its counsel’s compensation under the Collateral Agency Agreement.

All functions and procedures applicable to the Collateral Agent not expressly set forth in the Plan shall be governed by the provisions of the Collateral Agency Agreement.

6. Revesting of Assets.

Except as otherwise provided in the Plan, the Corporate Restructuring Plan, the Exit Facility Closing Documents, or in any other agreements contemplated under the Plan, on the Effective Date, all property of the Estates shall vest in the Reorganized Enterprise, free and clear of all Claims, liens, encumbrances, and other Interests. From and after the Effective Date, the Reorganized Enterprise may operate the businesses and use, acquire, and dispose of property without supervision by the Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan and the Confirmation Order.

7. Preservation of Causes of Action.

Except as expressly released under the Plan, pursuant to Bankruptcy Code section 1123(b), the Reorganized Enterprise shall be vested with and shall retain and may enforce any claims, rights, and causes of action that the Debtors or the Estates may hold or have against any entity, including without limitation, the Avoidance Actions.

Any such rights shall be retained by the Reorganized Enterprise free and clear of all Claims and Interests, and the Reorganized Enterprise may pursue the Avoidance Actions or any other such claims, rights, and causes of action that the Debtors or the Estates may hold or have against any entity, in accordance with its best interests.

8. Objections to Claims and Interests.

Except as otherwise provided in Section II.B of the Plan (regarding allowance of Administrative Claims), objections to any Claims or Interests shall be filed and served

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upon the holder of such Claim or Interest no later than the date that is the later of (i) nine months after the Effective Date, unless extended by the Court; or (ii) nine months after the date on which a proof of Claim or Interest has been filed, unless extended by the Court. After the Effective Date, only the Reorganized Enterprise shall have the authority to file, settle, compromise, withdraw, or litigate to judgment objections to Claims and Interests. The Reorganized Enterprise may file, settle, compromise, withdraw, or litigate to judgment such objections without further order of the Court.

The Plan provides for the Court to enter an injunction pursuant to the Confirmation Order, providing that the commencement or continuation of all personal injury or wrongful death actions will be enjoined from proceeding except in conformity with the ADR Procedures (or, as applicable, the Code’s claim adjudication process). Pursuant to the Plan and the Confirmation Order, the ADR Procedures will apply to all personal injury or wrongful death actions that are based on Claims that arose prior to the Confirmation Date. Relief from the injunction established by the Confirmation Order will not be granted unless (i) both the entity seeking relief from the injunction and the Reorganized Enterprise certify in writing that they have attempted to settle their dispute in good faith pursuant to the ADR Procedures, and, notwithstanding the completion of the ADR Procedures, they have failed to reach a settlement; or (ii) the entity seeking relief from the injunction established by the Confirmation Order otherwise establishes good cause not to follow the ADR Procedures under the circumstances of the particular case.

Attached hereto as Exhibit 8 is the Schedule of Disputed Claims setting forth the Class 10 and Class 11 Claims to which the Debtors intend to object. Except as otherwise expressly provided in Section IV.H of the Plan, in voting on the Plan, creditors may not rely on the absence of an objection to their proofs of Claim or the absence of their proof of Claim from Exhibit 8 as any indication that the Debtors, the Committees, or other parties in interest, ultimately will not object to the amount, priority, security, or allowability of their Claims. Moreover, except as otherwise expressly provided in the Plan or by written stipulation Filed with the Court, the

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Debtors reserve, and intend that the Reorganized Enterprise shall prosecute, all objections to Claims and counterclaims they may have with respect to Claims asserted against them, and further reserve, and intend that the Reorganized Enterprise shall prosecute, claims of the Debtors and the Estates (including rights to affirmative recovery, rights to subordinate claims, and rights to avoid transfers). In particular, creditors should anticipate that the Reorganized Enterprise may object to any Claim asserted in an amount greater than the amount set forth in the Schedules. Notwithstanding anything else to the contrary herein, with respect to Class 10 Claims and Class 11 Claims, the Debtors and the Reorganized Enterprise may only object to a Claim if it is listed on Exhibit 8 (Schedule of Disputed Claims) hereto (as such exhibit may be subsequently amended through the date the Debtors serve the Disclosure Statement upon creditors and interest holders), (ii) not timely Filed, or (iii) duplicative of another Claim that is not objected to.

If you have any questions regarding whether the Debtors or the Reorganized Enterprise may assert claims, rights or causes of action, or any rights of subordination against you and/or with respect to your Claims against the Debtors or the Estates, or if you have any questions regarding potential objections to your Claims against the Debtors or the Estates, you may submit those questions in writing to:

Klee, Tuchin, Bogdanoff & Stern LLP

Attn: Brendt C. Butler, Esq.

2121 Avenue of the Stars, 33^rd Floor

Los Angeles, California 90067

Facsimile: (310) 407-9090

        9.    Cancellation of Interests.

On the Effective Date, all Interests in the Debtors other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors will be deemed cancelled or extinguished pursuant to Section IV.J of the Plan.

        10.    Full Satisfaction.

The Disbursing Agent shall make, and each holder of a Claim shall receive, the

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distributions provided for in the Plan in full satisfaction and discharge of such Claim.

11. Setoff, Recoupment, and Other Rights.

Notwithstanding anything to the contrary contained in the Plan, the Reorganized Enterprise may—but shall not be required to—setoff, recoup, assert counterclaims, or withhold against the distributions to be made pursuant to this Plan on account of any Allowed Claim, any claims that the Debtors, the Estates, or the Reorganized Enterprise may have against the entity holding the Allowed Claim; provided, however, that neither the failure to effect such a setoff or recoupment, nor the allowance of any Claim against the Debtors, the Estates, or the Reorganized Enterprise, nor any partial or full payment during the Reorganization Cases or after the Effective Date with respect to any Allowed Claim, shall constitute a waiver or release by the Debtors, the Estates, or the Reorganized Enterprise of any claim that they may possess against such holder.

12. Conditions to Effectiveness of the Plan.

a. Conditions.

The Plan shall not become binding unless and until the Effective Date occurs. The Effective Date is the first Business Day that, as determined by the Debtors in their reasonable discretion, is a Business Day (i) that is at least eleven days after the Confirmation Date; (ii) on which no stay of the Confirmation Order is in effect; and (iii) on which all of the following conditions have been satisfied or waived in writing in accordance with Section X.C.12.b below:

a.    The Confirmation Order shall be entered in a form reasonably acceptable to the Debtors and the lender providing the Exit Facility;

b.    All the conditions to the execution and enforceability of the Exit Facility Closing Documents and the Corporate Restructuring Closing Documents shall have been satisfied or waived and the Exit Facility lenders shall have funded the Exit Facility;

c.    The Collateral Agent shall have been duly appointed and qualified to serve and all the conditions to the execution and enforceability of the Collateral Agency Agreement (which shall be in a form reasonably acceptable to the Debtors and the Creditors’

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Committee) shall have been satisfied or waived; and

d. The indenture trustee for the New Public Notes shall have been duly appointed and qualified to serve under the indenture governing the New Public Notes (which shall be in a form reasonably acceptable to the Debtors and the Noteholders’ Committee).

b. Waiver of Conditions.

The requirement that the conditions to the occurrence of the Effective Date be satisfied, as specified above, may be waived in whole or in part, and the time within which any such conditions must be satisfied may be extended, in writing by the Debtors. To be effective, such written waiver or extension must be Filed with the Court, and in the case of condition (c) and (d) above, in a form reasonably acceptable to the Creditors’ Committee and the Noteholders’ Committee, respectively. The failure to satisfy or waive any of such conditions may be asserted by the Debtors regardless of the circumstances giving rise to the failure of such condition to be satisfied, including any action or inaction by the Debtors. The failure of the Debtors to exercise any of the foregoing rights shall not be deemed a waiver of any other rights and each such right shall be deemed ongoing and assertable at any time.

D. Miscellaneous Provisions.

1. Limitation of Liability.

a. For Solicitation or Participation.

Pursuant to section 1125(e) of the Code, entities that solicit acceptances or rejections of the Plan and/or participate in the offer, issuance, sale, or purchase of securities offered or sold under the Plan, in good faith and in compliance with the applicable provisions of the Code, shall not be liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of securities.

b. For Actions in Connection with Plan and Related Matters.

To the maximum extent permitted by law, none of the Debtors, the Estates, the Reorganized Enterprise, the Committees, or any of their employees, officers, directors, attorneys, agents, members, or representatives, or professional advisors employed or retained

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by any of them, whether or not pursuant to a Final Order of the Court, shall have or incur any liability to any entity for any act taken or omission made in good faith in connection with or related to formulating, implementing, or confirming the Plan, the Disclosure Statement, or any contract, instrument, release, or other agreement or document created in connection with the Plan.

c. No Admissions.

Notwithstanding anything to the contrary in the Plan, if the Plan is not confirmed or the Effective Date does not occur, the Plan will be null and void, and nothing contained in the Plan or the Disclosure Statement will: (i) be deemed to be an admission by any Debtor with respect to any matter set forth in the Plan, including, without limitation, liability on any Claim or the propriety of any Claim’s classification; (ii) constitute a waiver, acknowledgment, or release of any claims by or against, or any Interests in, any Debtor; or (iii) prejudice in any manner the rights of the Debtors, the Estates, or any creditors in any further proceedings.

2. Dissolution of Committees.

On the Effective Date, the Committees and any other committee appointed pursuant to Bankruptcy Code section 1102 shall be released and discharged from the rights and duties arising from or related to the Reorganization Cases, except with respect to final applications for professionals’ compensation and objections thereto. The professionals retained by the Committees and any other committee appointed pursuant to Bankruptcy Code section 1102 and the members thereof shall not be entitled to compensation or reimbursement of expenses for any services rendered or expenses incurred after the Effective Date, except for services rendered and expenses incurred in connection with any applications by any professionals or committee members for allowance of compensation and reimbursement of expenses pending on the Effective Date or timely Filed after the Effective Date and objections thereto as provided in the Plan, as approved by the Court.

3. Exemption from Certain Transfer Taxes.

In accordance with Bankruptcy Code section 1146(c), neither the issuance,

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transfer, exchange of a security, nor the delivery of an instrument of transfer under the Plan or the Corporate Restructuring Plan shall be taxed under any law imposing a stamp or similar tax. The Confirmation Order shall direct all governmental officials and agents to forego the assessment and collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without payment of such tax or other governmental assessment.

4. Modifications of the Plan.

Subject to the conditions and terms of the Exit Facility Closing Documents and restrictions set forth in Bankruptcy Code section 1127, the Debtors and the Reorganized Enterprise reserve the right to alter, amend, or modify the Plan before its substantial consummation.

5. Revocation of the Plan.

The Debtors reserve the right to revoke or withdraw the Plan prior to the Confirmation Date. If the Plan is not confirmed or the Effective Date does not occur—either because the Debtors revoked or withdrew the Plan or for any other reason—the Plan will be null and void, and nothing contained in the Plan or the Disclosure Statement will: (i) waive or release any claims by or against, or any Interests in, the Debtors; or (ii) prejudice in any manner any rights that the Debtors, the Estates, or any creditors or equity security holders have in any further proceedings.

E. Effect of Confirmation of the Plan.

1. Discharge and Injunction.

The rights afforded in the Plan and the treatment of all Claims and Interests therein shall be in exchange for and in complete satisfaction, discharge, and release of all Claims and Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Petition Date, against the Debtors, the Estates, or the Reorganized Enterprise, and any of their property; and holders of Claims or Interests are not allowed to enforce their rights with respect to prepetition Claims or Interests outside the terms of the Plan. Except as otherwise provided in the Plan or the Confirmation Order, on the Effective

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Date: (i) the Debtors, the Estates, and the Reorganized Enterprise, and their property shall be deemed discharged and released to the fullest extent permitted by section 1141 of the Bankruptcy Code from all Claims and Interests, including, demands, liabilities, Claims, and Interests that arose before the Confirmation Date and all debts of the kind specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, regardless of whether or not (a) a proof of Claim or proof of Interest based on such debt or Interest is filed or deemed filed; (b) a Claim or Interest based on such debt or Interest is allowed pursuant to section 502 of the Bankruptcy Code; or (c) the holder of a Claim or Interest based on such debt or Interest has or has not accepted the Plan; and (ii) all entities shall be precluded from asserting against the Debtors, the Estates, and the Reorganized Enterprise, and their property any other or further Claims or Interests based upon any act, omission, transaction, or other activity of any kind or nature that occurred prior to the Confirmation Date.

Except as otherwise provided in the Plan or the Confirmation Order, the Confirmation Order shall act as a discharge of any and all Claims against and all debts and liabilities of the Debtors, as provided in sections 524 and 1141 of the Bankruptcy Code. Such discharge shall void any judgment against the Debtors obtained at any time to the extent that such judgment is a determination of the personal liability of any of the Debtors.

Except as otherwise provided in the Plan or the Confirmation Order, on and after the Effective Date, all entities who have held, currently hold, or may hold a debt, Claim, or Interest discharged, pursuant to the terms of the Plan, are permanently enjoined from taking any of the following actions on account of any such discharged debt, Claim, or Interest: (i) commencing or continuing in any manner any action or other proceeding against the Debtors, the Estates, the Reorganized Enterprise, or their property in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan, the ADR Procedures, or the Confirmation Order; (ii) enforcing, attaching, collecting, or recovering in any manner any judgment, award, decree, or order against the Debtors, the Estates, the Reorganized Enterprise, or their property; (iii) creating, perfecting, or enforcing any lien or encumbrance against the Debtors, the Estates, the Reorganized Enterprise, or their property

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to enforce a Claim that arose prepetition; (iv) asserting any setoff, right of subrogation, or recoupment of any kind (other than as expressly provided by the Plan with respect to claims of setoff preserved pursuant to section 553 of the Code) against any obligation due to the Debtors, the Estates, the Reorganized Enterprise, or their property; (v) enforcing any contractual or legal right of subordination inconsistent with the terms of the Plan; and (vi) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan, the ADR Procedures, or the Confirmation Order. Any entity injured by any willful violation of such injunction shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages, from the willful violator.

2. Payment of Statutory Fees.

The Disbursing Agent shall pay all fees due under 28 U.S.C. § 1930 in accordance with Section II.B.1 of the Plan.

3. Retention of Jurisdiction.

Notwithstanding the entry of the Confirmation Order or occurrence of the Effective Date, the Court shall retain jurisdiction over the Reorganization Cases after the Effective Date to the fullest extent provided by law as set forth in Section VI.C of the Plan.

XI.    

FINANCIAL INFORMATION

A. Introduction.

This Section provides summary information concerning the actual financial performance of the Debtors from past audited financial statements and a summary of the Debtors’ projections for the next five years. Finally, the following discusses the estimated going concern valuation of the Debtors based on information available at the time of the preparation of this Disclosure Statement.

The financial projections assume that the Plan will be confirmed and consummated in accordance with its terms. The projections assume an Effective Date of July 31, 2003, with Allowed Claims and Interests treated in accordance with the Plan.

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Expenses incurred as a result of the Reorganization Cases are assumed to be paid upon the Effective Date of the Plan. If the Debtors do not emerge from chapter 11 by July 31, 2003, additional restructuring expenses will be incurred until such time as a plan of reorganization is effectuated. These expenses could impact the Debtors’ results of operations and cash flows.

B. Financial Projections and Feasibility.

Exhibit 3 hereto provides consolidated financial projections for the Debtors and the Reorganized Enterprise including projected balance sheets, cash flow statements, and income and expenses statements (collectively, the “Projections”). The Projections project financial information on an annual basis for fiscal years 2003 through 2007.

The Projections have been prepared by or under the direction of the Debtors. To the best of the Debtors’ knowledge, the projections present the projected financial results of the Debtors and the Reorganized Enterprise for the periods projected, subject to the various assumptions set forth therein. Readers are urged to review carefully all of the notes and assumptions included with the projections and to consult with their own financial and legal advisors regarding the same.

The Projections are based upon a variety of estimates and assumptions, which though considered reasonable at the time they were prepared, may not be realized and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond the Debtors’ control. The Debtors caution that no representations can be made as to the accuracy of the Projections or the Reorganized Enterprise’s ability to achieve the projected or illustrated results. As some assumptions inevitably will not materialize, events and circumstances occurring after the date on which the projections were prepared, but which were not then known to the Debtors, may differ materially from those assumed. The Projections, therefore, may not be relied upon as a guarantee or other assurance of actual results. See Section XIV for a more detailed explanation of the risk factors associated with the Projections.

The Debtors do not, as a matter of course, publish their projections, business

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plans or strategies, anticipated financial position or results of operations. Accordingly, the Debtors do not intend to, and disclaim any obligation to, furnish updated business plans or projections of the Reorganized Enterprise at any time prior to or after the Effective Date. The Projections and Plan feasibility are matters subject to continuing review and the parties’ right to assert objections on the ground that the Plan is likely to be followed by need for liquidation or a need for further financial reorganization other than as provided in the Plan are reserved and may be asserted in connection with the confirmation of the Plan.

To assist the reader in understanding the Debtors’ recent and projected operating performance, attached hereto as Exhibit 4 are the Debtors’ most recent audited financial statements.

C. Securities Laws Matters.

The securities law considerations detailed below pertain to the issuance of the New Public Notes, New Class A Common Stock, New Preferred Stock, and the new warrants (to the extent they are deemed issued under the Plan) (the “Securities”). The following discussion relates to certain securities laws that restrict transfers of securities and may be applicable to transfers of the Securities subsequent to their issuance under the Plan.

To the extent set forth herein, the Debtors will rely on Bankruptcy Code section 1145(a) to exempt from registration under the Securities Act of 1933 (the “Securities Act”) and any applicable state securities laws the issuance of the Securities pursuant to the Plan. The Debtors have not filed (and do not intend to file) a registration statement under the Securities Act or any other federal or state securities laws with respect to the issuance of any Securities. Generally, Bankruptcy Code section 1145(a)(1) exempts the offer and sale of securities pursuant to a plan of reorganization from such registration requirements if the following conditions are satisfied: (i) the securities are issued by a debtor (or an affiliate or successor to the debtor) under a plan of reorganization; (ii) the recipient of the securities holds a claim against, an interest in, or a claim for an administrative expense against the debtor; and (iii) the securities are issued entirely in exchange for the recipient’s claim against or interest in the debtor, or are issued “principally” in such exchange and “partly for cash or

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property.”

The Securities distributed under the Plan, pursuant to the exemption provided under Bankruptcy Code section 1145, may be resold by the holders thereof without violating the federal securities laws,²⁹ except for any such holder that is deemed to be an “underwriter” as defined in Bankruptcy Code section 1145(b)(1). Generally, Bankruptcy Code section 1145(b)(1) defines an “underwriter” as any person who (i) purchases a claim against, or an interest in, a debtor with a view towards distribution of any security to be received in exchange for such claim or interest; (ii) offers to sell securities issued pursuant to a plan of reorganization for the holders of such securities; (iii) offers to buy securities issued pursuant to a plan or reorganization from persons receiving such securities, if the offer to buy is made with a view towards distribution of such securities; or (iv) is an issuer within the meaning of Section 2(11) of the Securities Act. Section 2(11) of the Securities Act provides that the term “issuer” includes all persons who, directly or indirectly, through one or more intermediaries, control, or are controlled by, or are under common control with, an issuer of securities. Under Rule 405 of Regulation C under the Securities Act, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. Accordingly, an officer or director of a reorganized debtor (or its affiliate or successor) under a plan of reorganization may be deemed to “control” such debtor (and therefore be an underwriter for purposes of Bankruptcy Code section 1145), particularly if such management position is coupled with the ownership of a significant percentage of a debtor’s (or its affiliate’s or successor’s) voting securities. Any person that is an “underwriter” but not an “issuer” with respect to an issue of securities is entitled to engage in exempt “ordinary trading transactions” within the meaning of Bankruptcy Code section 1145(b).

Holders of Securities that are deemed to be “underwriters” within the meaning

²⁹    The New Class A Common Stock and/or New Preferred Stock will, however, be subject to certain contractual restrictions on transfer contained in the Stockholders’ Agreement and Reorganized Fountain View’s articles of incorporation.

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of Bankruptcy Code section 1145(b)(1) or that may otherwise be deemed to be “underwriters” of, or to exercise “control” over, Reorganized Fountain View within the meaning of Rule 405 of Regulation C under the Securities Act should, assuming all other conditions of Rule 144A promulgated under the Securities Act are met, be entitled to avail themselves of the safe harbor resale provisions thereof. Rule 144A provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act for resales to certain “qualified institutional buyers” of securities which are not securities of the same class of securities then listed on a national securities exchange or quoted in a U.S. automated interdealer quotation system (e.g., NASDAQ). Under Rule 144A, a “qualified institutional buyer” is defined to include, among other persons, any entity which purchases securities for its own account or for the account of another qualified institutional buyer and which (in the aggregate) owns and invests on a discretionary basis at least $100 million in the securities of unaffiliated issuers.

At the Confirmation Hearing, the Debtors will request that the exemption provided under Bankruptcy Code section 1145 from the requirements of Section 5 of the Securities Act, 15 U.S.C. § 77e, and any state or local law requiring registration or qualification for the offer or sale of a security, shall apply to the issuance by Reorganized Fountain View of Securities pursuant to the Plan.

Because of the complex, subjective nature of the question of whether a particular person may be an underwriter, the Debtors make no representation concerning the ability of any person to dispose of the Securities. The Debtors recommend that all recipients of the Securities consult with legal counsel concerning their ability to dispose of their Securities in light of the Stockholders’ Agreement and applicable laws (including, in particular, securities laws).

XII.

LIQUIDATION ANALYSIS

Bankruptcy Code section 1129(a)(7) requires that each holder of a Claim or Interest in an impaired Class either (i) accept the Plan; or (ii) receive or retain under the Plan

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cash or property of a value, as of the Effective Date, that is not less than the value such holder would receive or retain if the debtor were liquidated under chapter 7 of the Bankruptcy Code.

In a chapter 7 case, a trustee or trustees would be elected or appointed to liquidate the Debtors’ assets for distribution to creditors in accordance with the priorities set forth in the Bankruptcy Code. Secured creditors generally are paid from the proceeds of sale of the properties securing their validly perfected liens. If any assets are remaining after the satisfaction of secured claims, administrative expenses generally are next to receive payments, followed by priority claims. General unsecured claims are paid from any remaining sales proceeds according to their rights to priority. Finally, interest holders receive the balance that remains, if any, after all general unsecured creditors are paid with interest at the applicable federal judgment interest rate of 2.49% per annum.

Thus, for the Court to confirm the Plan, the Court must find that all creditors and shareholders who do not accept the Plan will receive at least as much under the Plan as such creditors and shareholders would receive under a hypothetical chapter 7 liquidation. The Debtors believe that the Plan satisfies this requirement.

The analysis of a forced liquidation by the Debtors is attached hereto as Exhibit 5 (the “Liquidation Analysis”). The Liquidation Analysis assumes the following:

• The Estates would be substantively consolidated under chapter 7 in light of the administrative difficulties of allocating trade payables recorded on the Debtors’ centralized ledger system, the Debtors’ centralized cash management system, and the fact that the Debtors are all liable jointly or as guarantors for approximately 95% of the total debt.

• The chapter 7 trustee would immediately cease the business operations of the Debtors;

• The ability of the Debtors to collect receivables would decrease substantially;

• The expenses involved in closing the Debtors’ businesses would be

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massive and would include employee severance costs; costs of rejecting executory contracts and leases; substantial expenses of the chapter 7 trustee; greatly increased administrative costs; and costs of transferring the care of patients to other providers;

• Although the Debtors might be able to recover certain payments as preferences, the Debtors would incur administrative expenses in recovering preferences;

The debt under the Prepetition Credit Agreement and the Indenture (an aggregate amount of approximately $214 million) would continue to be a liability of each individual Debtor.

Specifically, the Liquidation Analysis projects that all holders of Unsecured Claims and Interests (i.e., Classes 9, 10, 11, 12) would receive between zero and 34 cents on the dollar in the event that the Debtors were to be liquidated under chapter 7 of the Bankruptcy Code. As shown in the Liquidation Analysis, in a chapter 7 liquidation, the only assets that would be available to satisfy Unsecured Claims would result from the Debtors’ current assets (described in Section VIII.F). These entities would, however, be sharing with the Class 9 Claim of the holders of the 11¼% Notes (approximately $133 million) in a mid-case liquidation scenario, and only after the satisfaction of Administrative Claims (including U.S. Trustee fees, chapter 7 Administrative Claims, chapter 11 Administrative Claims), Secured Claims, Priority Claims, and Priority Tax Claims. In a chapter 7 scenario, Interests (Classes 14, 15, 16, 17, 18, and 19) would not receive any consideration.

In contrast, under the Plan, entities holding Allowed Claims will receive payment in full with postpetition interest, and entities holding Interests in Class 14, 15, 17, and 18 will retain their Interests or obtain other Interests in accordance with applicable law. Thus, as shown in Exhibit 5, the Liquidation Analysis projects that all creditors and Interest holders will receive at least as much under the Plan as they would receive under a chapter 7 liquidation and that, in fact, most creditors and Interest holders will receive far better treatment under the Plan than in a chapter 7 liquidation.

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The Debtors have estimated the liquidation values of their assets based upon the most accurate information that is currently available. Because those estimates are a prediction of what could be obtained in the future if such assets were liquidated, there is no way to guarantee that the estimates are accurate. It is possible that the actual liquidation of the assets would generate either more or less than the estimated values set forth in Exhibit 5.

XIII.

ASSETS AND LIABILITIES OF THE ESTATES

A. Assets.

Information regarding the Estates’ assets is set forth in Section VIII.F above.

B. Liabilities.

The estimated amount of the Estates’ liabilities is set forth in Section VIII.F.

C. Reorganization Value.

In connection with confirmation of the Plan, the Court may be requested to determine the “reorganization value” of the Reorganized Enterprise on the Effective Date. The reorganization value of an enterprise often is utilized for purposes of evaluating the consideration that creditors and stockholders will receive under the Plan. Reorganization value has been defined as follows:

a forecast of future earnings converted to present value by a capitalization or discount rate. This capitalization or discount rate reflects the expected annual rate of return on an investment and the choice of this rate is a question of judgment which must be reasonably related to the rates of return generally expected by investors from comparable investment opportunities.

In re Equity Funding Corp., 391 F.Supp. 768, 772 (C.D. Cal. 1974).

The estimated reorganization value of the Debtors on a consolidated going concern basis as of an assumed Confirmation Date of July 31, 2003 is set forth in Exhibit 6 hereto. The Debtors believe that a determination of reorganization value is the proper means of valuing the Debtors for purposes of confirmation, to the extent that such a valuation is

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necessary.

The valuation set forth in Exhibit 6 reflects a number of assumptions, including a successful reorganization of the Debtors’ businesses and finances in a timely manner, the achievement of the forecasts reflected in the Projections, the amount of available cash, and market conditions as of the date hereof continuing through the assumed Effective Date, and the Plan becoming effective in accordance with its terms on a basis consistent with the estimates and other assumptions discussed herein and set forth in Exhibit 6.

The estimated reorganization value assumes that the Reorganized Enterprise continues to operate independently as a going concern and the capital markets remain unchanged as of the Effective Date. This estimate was developed solely for purposes of formulation of a plan of reorganization and implied relative recoveries to creditors and interest holders thereunder. Such estimate does not purport to reflect or constitute an appraisal, liquidation value, or estimate of the actual market value that may be realized through the transactions contemplated in the Plan, which may be significantly different from the amount set forth herein. The value of an operating business is subject to uncertainties and contingencies that are difficult to predict and will fluctuate with changes in factors affecting the financial condition and prospects of such business. As a result, the estimate of reorganization value set forth in Exhibit 6 is not necessarily indicative of actual outcomes, which may be significantly more or less favorable than those set forth in this Disclosure Statement. Because such an estimate is inherently subject to uncertainties, neither the Debtors nor any other person assumes responsibility for its accuracy. Depending on the results of the Debtors’ operations or changes in financial markets, the valuation analysis as of the Effective Date may differ significantly from that discussed herein.

XIV.

RISK FACTORS

The Debtors’ ability to perform their obligations under the Plan is subject to various factors and contingencies, some of which are described in this Section. The

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following discussion summarizes only some material risks associated with the Plan and the Reorganized Enterprise and is not exhaustive. Moreover, this Section should be read in connection with the other disclosures contained in the Plan and this Disclosure Statement. Each Claim holder and Interest holder, in conjunction with its advisors, should supplement the following discussion by analyzing and evaluating the Plan and this Disclosure Statement together as a whole. The risks associated with the Plan should be carefully considered in determining whether to vote to accept the Plan.

This discussion assumes that the Plan is confirmed and the Effective Date occurs. However, the occurrence of the Effective Date of the Plan is subject to a number of conditions (set forth in Section IV.O.1 of the Plan), the failure of any one of which may delay the Effective Date, or prevent the Effective Date from occurring at all.

A. Variances from Projections.

The Projections included in this Disclosure Statement reflect numerous assumptions concerning the anticipated future performance of the Debtors and with respect to the prevailing market and economic conditions which are beyond the control of the Debtors and may not materialize. The Projections include assumptions concerning reimbursement rates with respect to third party payors and patient mix, occupancy, the collectability of accounts receivable, operating costs, and rent expense. The Debtors believe that the assumptions underlying the Projections are reasonable. However, events and circumstances occurring subsequent to the preparation of the Projections may affect the actual financial results of the Debtors. Therefore, the actual results achieved throughout the periods covered by the Projections may vary materially from the projected results.

B. General Factors Affecting the Reorganized Enterprise.

1. General Economic Slowdown.

The Debtors are exposed to risks related to the slowdown in the global economy, which is due to many factors, including decreased consumer confidence, concerns about inflation, and reduced corporate profits and capital spending. Continued concerns regarding terrorist activities and the war in Iraq appear to have further depressed economic

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activity and affected capital markets in the United States. If weak economic conditions continue or worsen, or if a wider global economic recession materializes, the Reorganized Enterprise’s businesses, financial condition, results of operations, and the market value of debt and equity securities issued by the Reorganized Enterprise may be materially and adversely affected.

2. General Risks of the Health Care Industry.

The health care industry, and markets within the health care industry in which the Debtors compete, are subject to various risks, including: (i) adverse changes in general economic conditions; (ii) adverse changes in governmental healthcare policy, adverse regulatory actions, and decreases in reimbursement rates; (iii) evolving consumer preferences; (iv) professional liability claims; and (v) the availability and expense of professional liability insurance.

The Reorganized Enterprise’s success will depend in part on management’s ability to effectively anticipate and respond to changing patient needs and demands and to translate market trends into appropriate service and product offerings. If the Reorganized Enterprise is unable successfully to anticipate, identify, or react to changing patient needs and demands, or misjudges the market for its services or products, revenues will be lower, and the Reorganized Enterprise may be faced with excess capacity in its facilities or other businesses. In response, the Reorganized Enterprise may be forced to increase marketing efforts or decrease prices, which would have a material adverse effect on the business.

The future performance of the Reorganized Enterprise will be affected by these factors, the other factors listed herein, and possibly other unanticipated factors that are beyond its control. These factors may have a material effect on the Reorganized Enterprise’s businesses.

C. Specific Risks Associated with the Reorganized Enterprise’s Future Operations.

1. Competition.

The Debtors operate in a highly competitive industry. The Debtors’ SNFs and

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ALFs are located in communities that are also served by facilities operated by the Debtors’ competitors. Some competing facilities provide services not offered by the Debtors, and some are operated by entities having greater financial and other resources than the Debtors. In addition, some competing facilities are operated by non-profit organizations or government agencies supported by endowments, charitable contributions, tax revenues, and other resources not available to the Debtors.

Furthermore, cost containment efforts, which encourage more efficient utilization of acute care hospital services, have resulted in decreased hospital occupancy in recent years. As a result, a significant number of acute care hospitals have converted portions of their facilities to other purposes, including specialty and sub-acute units. The competitiveness of the Debtors’ markets is further increased by the fact that within California and Texas, a certificate of need is no longer required in order to build or expand a SNF. However, in Texas, competition is limited by restrictions on the number of beds that can be enrolled in the Medicaid program.

The Debtors’ pharmacies, therapy, and durable medical equipment businesses also operate in highly competitive environments. They compete with regional and local pharmacies, therapies, and medical supply companies operated by other long-term care chains or by other companies ranging from small local operators to companies that are national in scope and distribution capability.

2. Governmental Regulations.

The Debtors’ businesses are heavily regulated at both the state and federal levels. This complex regulatory structure affects the Debtors’ ability to operate, facility standards, services offered, patient care reimbursements, and operating costs. The development and operation of SNFs and ALFs and the provision of health care services are subject to federal, state, and local laws relating to the adequacy of medical care, equipment, personnel, operating policies, rate-setting, and compliance with building codes and environmental laws. These facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with various standards, continued licensing

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under state law, and certification under the Medicare and Medicaid programs.

The SNFs and ALFs managed and operated by the Debtors are periodically licensed by state agencies and certified for participation in Medicare and Medicaid programs through various regulatory agencies which determine compliance with federal, state, and local laws. These legal requirements relate to the quality of nursing care provided, the qualifications of the administrative personnel and nursing staff, the adequacy of the physical plant and equipment, and continuing compliance with laws and regulations governing operations of these facilities. Federal regulations under the Omnibus Budget Reconciliation Act of 1997 affect the survey process for SNFs and the authority of state survey agencies and CMS to impose sanctions on facilities based on noncompliance with certain requirements. Available sanctions include imposition of civil monetary penalties, temporary suspension of new admissions, appointment of a temporary manager, suspension of payment for eligible patients, and suspension or decertification from participation in the Medicare and/or Medicaid programs.

The Debtors believe that all of the Debtors’ SNFs currently are in material compliance with applicable state laws and Medicare requirements for participation, and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing. Noncompliance with such laws and regulations could subject the Debtors to increased governmental review as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs. Each SNF is licensed by either the California Department of Health Services or the Texas Department of Human Services, as applicable. Each ALF is licensed by the California Department of Social Services, and the pharmacies are licensed by the California Board of Pharmacy or the Texas State Board of Pharmacy, as applicable. All licenses must be renewed annually, and failure to comply with applicable rules, laws, and regulations could lead to the revocation of licenses. In granting, monitoring and renewing licenses, these agencies consider, among other things, the physical condition of the facility, the qualifications of the administrative and nursing staffs, and the quality of care and compliance with applicable laws and regulations.

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Such regulatory and licensing requirements are subject to change, and there can be no assurance that the Debtors will continue to be able to maintain necessary licenses or that they will not incur substantial costs in doing so. Failure to comply with regulatory or licensing requirements could result in the loss of the right to reimbursement from the Medicare and/or Medicaid programs or the right to conduct business. Furthermore, the facilities that the Debtors operate are subject to periodic inspection by governmental and other regulatory authorities to assure continued compliance with various standards and to provide for their continued licensing under state law and certification under the Medicare and Medicaid programs.

From time to time, the Debtors receive notices from federal and state regulatory agencies relating to alleged deficiencies for failure to comply with applicable regulations. Facilities that are not in substantial compliance and do not correct deficiencies within a certain time frame may be subject to civil monetary penalties and/or terminated from the Medicare and/or Medicaid Programs. While the Debtors endeavor to comply with all applicable regulatory requirements, from time to time certain of their nursing facilities have been subject to various sanctions and penalties as a result of deficiencies alleged by the regulatory authorities. In certain instances, denial of certification or licensure revocation actions have occurred. There can be no assurance that the Debtors will not be subject to sanctions and/or penalties in the future.

3. Uncertainty of Future Reimbursement Levels.

There can be no assurance that payments under government and other third-party payor programs will remain at their present levels or will be sufficient to cover costs for patients eligible for such programs. In addition, there can be no assurance that facilities operated by, or services provided by, the Reorganized Enterprise will meet the requirements for participation in such programs. The Reorganized Enterprise could be adversely affected by continuing efforts of government and other third-party payors to contain the cost of reimbursement for healthcare services. In particular, budgetary pressures in the state of California have led to certain proposals from the Governor to limit reimbursement for certain

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services offered by the Debtors under the California Medi-Cal program. The Debtors believe that their current Projections make reasonable assumptions about the Medi-Cal, Medicaid, and Medicare programs and conservatively project future reimbursement rates to remain at the levels mandated by current law without assuming any reversal of the Medicare Cliff. There can be no assurance, however, that these reimbursement rates will not be reduced further.

4. Fiscal Intermediary Audits.

Fiscal intermediaries occasionally undertake a more in-depth audit of a SNF’s billing or other records. In 1999, one of the Debtors’ fiscal intermediaries performed focused audits as a part of the normal annual audit process at certain of the Debtors’ SNFs. The auditors identified certain matters that represented a departure from prior practices of the fiscal intermediary. In 2000, the Debtors received adverse adjustments on certain of these audits that totaled approximately $2.8 million. Substantially all of these amounts were repaid to the fiscal intermediary during 2000. The Debtors appealed these adjustments, and the ultimate resolution of these items did not have a material effect on the Debtors’ financial position or results of operations. While the Debtors do not believe that they (or the Reorganized Enterprise after the Effective Date) are subject to any other focused reviews or audits, there can be no assurance that the Reorganized Enterprise will not expend substantial monies in connection with any such audit or to defend allegations arising therefrom. If it were found that a significant number of the Medicare claims failed to comply with Medicare billing or other requirements, the Reorganized Enterprise could be materially adversely affected.

5. Therapy Regulation.

The Debtors furnish therapy services on a contract basis to certain affiliated and unaffiliated providers. For Medicare Part A patients, the providers bill the Medicare program for these services, and the providers pay the Debtors, in turn, a separate, negotiated amount for these services. CMS has the authority to establish limits on the amount Medicare reimburses for therapy services. For services other than inpatient hospital services, these

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limits are equivalent to the reasonable reimbursement that would have been paid if provider employees had furnished the services. CMS has exercised this authority by instituting “salary equivalency guidelines” for physical therapy, respiratory therapy, speech language pathology and occupational therapy services.

6. Pharmacy Regulation.

The Debtors’ 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, the Debtors are required to register their 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 Medicaid program reimburses pharmacies for drugs supplied to patients based on the cost of the drug plus a mark-up that varies depending on the type of drug supplied.

7. Referral Restrictions and Fraud and Abuse.

The Debtors are also subject to federal and state laws that govern financial and other arrangements between healthcare providers. Federal law, as well as the law in California, Texas, and other states, prohibits direct or indirect payments or fee-splitting arrangements between healthcare providers that are intended to induce or reward the referral of patients to, or the recommendation of, a particular provider for medical products and services. These laws include the federal Anti-Kickback Statute that prohibits, among other things, the offer, payment, solicitation, or receipt of any form of remuneration in return for, or to induce, the referral of federal health care program (Medicare and Medicaid) patients or recommending or arranging for the purchase of items or services covered by a federal health care program. A wide array of relationships and arrangements, including ownership interests in a company by persons who refer or are in a position to refer patients, as well as personal service agreements have, under certain circumstances, been alleged or been found to violate these provisions. Certain arrangements, such as the provision of services for less than fair

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market value compensation, may also violate such laws.

Because of the law’s broad reach, the federal government has published regulations, known commonly as “safe harbors,” which set forth the requirements under which certain relationships will not be considered to violate the law. One of these safe harbors protects payments for personal services or management services if the aggregate payment is set in advance at a fair market rate and does not vary with the value or volume of services referred, provided there is a written contract which meets certain requirements. A safe harbor for certain discounts, which focuses primarily on appropriate disclosure, is also available. A violation of the federal Anti-Kickback Statute could result in the loss of eligibility to participate in Medicare or Medicaid, criminal penalties of up to five years imprisonment and/or $25,000 in fines, as well as civil monetary penalties. Violations of similar state laws can result in comparable penalties.

In addition, the federal government and some states restrict certain business relationships between physicians and other providers of healthcare services. Effective January 1, 1995, the Omnibus Budget Reconciliation Act of 1993 (“Stark II”) prohibits any physician with a financial relationship (defined as a direct or indirect ownership or investment interest or compensation arrangement) with an entity from making any Medicare referrals for a broad array of “designated health services” to such entity. Violations of Stark II may result in the imposition of civil monetary penalties of up to $15,000 for each prohibited service provided and billed, as well as restitution of reimbursement for such services.

There are also various federal and state laws prohibiting other types of fraud by healthcare providers, including criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid. Violation of these provisions is a felony punishable by up to five years imprisonment and/or $25,000 in fines. Civil provisions prohibit the known filing of a false claim or the known use of false statements to obtain payment. The penalties for such a violation are fines of not less than $5,500 or more than $11,000, plus treble damages, for each claim filed.

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State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. The Accountability Act 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 the Debtors believe that their practices are consistent with Medicare and Medicaid guidelines, those guidelines are often vague and subject to interpretation. There can be no assurance that anti-fraud enforcement actions will not adversely affect the Debtors or the Reorganized Enterprise following the Effective Date.

8. Pending Legislation.

Government reimbursement programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative ceilings and government funding restrictions, all of which could materially decrease the rates paid to the Debtors (or the Reorganized Enterprise following the Effective Date) for their services. Since 1972, Congress has consistently attempted to restrain the growth in federal spending on healthcare programs. The Debtors expect that there will continue to be a number of state and federal proposals to limit Medicare and Medicaid reimbursement for healthcare services. The Debtors cannot, at this time, predict what healthcare reform legislation will ultimately be enacted and implemented or whether other changes in the administration or interpretation of the governmental healthcare programs will occur. There can be no assurance that future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs, if enacted, will not have a material adverse effect on the Reorganized Enterprise’s results of operations.

9. Environmental Regulation.

The Debtors are also subject to a wide variety of federal, state, and local environmental and occupational health and safety laws and regulations. Regulatory requirements faced by healthcare providers include the following areas: air and water quality control; waste management; asbestos, polychlorinated biphenyls, and radioactive

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substances; and requirements for providing notice to employees and members of the public about hazardous materials and wastes.

In the Debtors’ role as owner and/or operator of their facilities, the Debtors may be subject to liability for investigating and remediating any hazardous substances that are located on the property, including any such substances that may have migrated off, or emitted, discharged, leaked, escaped, or been transported from the property. Part of the Debtors’ operations may involve the handling, use, storage, transportation, disposal, and/or discharge of hazardous, infectious, toxic, radioactive, flammable, and other hazardous materials, waste, pollutants, or contaminants. Such activities may result in damage to individuals, property or the environment; may interrupt operations and/or increase costs; may result in legal liability, damages, injunctions, or fines; may result in investigations, administrative proceedings, penalties, or other governmental agency actions; and may not be covered by insurance. There can be no assurance that the Debtors (or the Reorganized Enterprise following the Effective Date) will not encounter such risks in the future, and that such risks will not result in material adverse consequences to the Reorganized Enterprise’s operations or financial condition.

10. Reliance on Key Personnel.

The Debtors depend on key personnel. The Debtors’ loss of current personnel or failure to hire and retain additional personnel could affect their business negatively. The Debtors depend on their ability to attract and retain highly skilled technical and managerial personnel and believe that their future success in providing their services and products and achieving a competitive position will depend in large part on the ability to identify, recruit, hire, train, retain, and motivate highly skilled personnel. The Reorganized Enterprise may not continue to retain, and may not be able to find qualified replacements for, members of the management team. The loss of services of one or more of them could have a material adverse effect on the Reorganized Enterprise’s business, financial condition, and operations. In addition, the Reorganized Enterprise may need to expend additional capital or issue equity incentives to attract and retain key personnel.

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11. The Reorganized Enterprise May Not Grow as Projected.

The Reorganized Enterprise’s future growth prospects are dependent on several factors including:

• the availability of suitable facility locations;

• the ability to deliver services at prices that are affordable to a broad range of customers and/or meet the requirements for reimbursement under various insurance and government programs;

• the ability to deliver services and products on a timely basis;

• the ability to maintain existing facilities and open new ones; and

• the ability to hire and train qualified employees.

The Reorganized Enterprise may not be able to grow rapidly or profitably or manage its growth effectively.

12. Tax Consequences.

Consummation of the Plan will have significant tax consequences that may adversely affect the Reorganized Enterprise and/or the value of distributions made to creditors under the Plan. See Section XV regarding a detailed discussion of the tax consequences attendant to the Plan.

13. Inherent Uncertainty in Projections.

The Projections set forth in Exhibit 3 attached to this Disclosure Statement cover the Reorganized Enterprise’s operations through fiscal year 2007. Projections are forward looking statements based on the Debtors’ current views and assumptions and, as a result, are subject to risks and uncertainties, including those described herein, which may be outside of the Debtors’ and the Reorganized Enterprise’s control and that could cause actual results to differ materially from those projected. These Projections are based on certain assumptions, including confirmation and consummation of the Plan in accordance with its terms, the anticipated future performance of the Reorganized Enterprise, industry performance, general business and economic conditions, and other matters; many of which are beyond the Debtors’ and the Reorganized Enterprise’s control and some or all of which

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may not materialize.

The Projections assume that the Reorganized Enterprise will realize certain go-forward cost savings relating to, among other things: (i) improved collections; (ii) labor costs; and (iii) corporate overhead. However, these savings could be largely offset by changes in government regulation as well as increases in professional liability claims, worker’s compensation and professional liability insurance costs. In addition, wage increases and wage competition may further hamper cost reductions. In any event, there is a risk that the Reorganized Enterprise may require additional capital in the future, and there is no assurance that it will be able to obtain additional capital on acceptable terms.

The Projections further assume that the Reorganized Enterprise will spend approximately $5 million in fiscal year 2003 on capital expenditures and $7 million in fiscal year 2004. The Debtors anticipate that their lessors may require that they upgrade and/or remodel the facilities as a condition to extending the leases. While the Debtors believe that they will have sufficient available funds to upgrade and/or remodel these facilities, if additional leases require remodels or upgrades during this period, the Reorganized Enterprise may not be able to devote the required capital expenditures to these facilities. This could force the Reorganized Enterprise to close or limit the operation of these facilities, which would negatively impact cash flow and profitability.

Furthermore, even if the Debtors’ projected capital expenditures are sufficient to upgrade and/or remodel their facilities, the Debtors cannot guarantee that these additional capital expenditures will generate additional revenues.

In addition, unanticipated events and circumstances occurring after the date hereof may affect the actual financial results of operations. These variations may be material and may adversely affect the Reorganized Enterprise’s ability to make payments with respect to indebtedness or adversely affect the value of the Securities issued by Reorganized Fountain View. Because the actual results achieved throughout the periods covered by the Projections may vary from the projected results, perhaps significantly, the Projections should not be relied upon as a guaranty or assurance that results will actually occur.

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14. Litigation.

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

From time to time, the Debtors have been a party to professional liability claims and other litigation arising in the ordinary course of business. In the management’s opinion, any liability in excess of amounts covered by insurance will not have a material adverse effect on the Debtors’ or the Reorganized Enterprise’s financial position or operations.

15. Substantial Leverage; Ability to Service Debt.

The Reorganized Enterprise will have substantial indebtedness upon emerging from chapter 11. On the Effective Date, after giving effect to the transactions contemplated by the Plan, the Reorganized Enterprise will have approximately $250 million in secured indebtedness. The Reorganized Enterprise’s operations will be required to generate significant positive cash flow to make payments of interest and repay the principal amount of this indebtedness. The Exit Facility bears interest at rates tied to market rates and, while the Reorganized Enterprise will be obligated to purchase a “LIBOR Cap” to hedge against the risk of increases in market rates of interest, the Reorganized Enterprise will remain subject to adverse changes in interest rates to the extent such risk has not been fully hedged.

The leveraged nature of the Reorganized Enterprise’s capital structure will have several important effects on future operations, including that the Reorganized Enterprise will continue to have significant cash requirements for mandatory debt service. The Reorganized Enterprise will have limited resources to expand into new facilities or develop other services and products for its businesses. Also, the Reorganized Enterprise’s ability to meet its

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obligations under the Plan will depend on its future performance, which in turn, would be subject to general economic conditions and to financial, business, and other factors affecting the Reorganized Enterprise’s operations, including factors beyond management’s reasonable control.

In addition, the terms and conditions governing the Exit Facility will contain restrictions concerning commitment limits, levels of collateral, financial covenants, and limitations on capital expenditures.

D. Risks Related to Plan Securities.

1. Lack of Market.

The equity Securities to be distributed under the Plan (the New Class A Common Stock, the new warrants, and the New Preferred Stock) are each a new security for which there is no market. Reorganized Fountain View does not intend to list the stock on any of the national securities exchanges or have it quoted on an inter-dealer quotation system. Moreover, the Securities will be subject to the Stockholders’ Agreement which imposes restrictions on transfer. Accordingly, no public market for the stock will develop, and the holders may not be able to sell or otherwise liquidate their securities. The value of the stock may decline in value for a number of reasons, including, for example, general business and economic conditions, industry performance, the Reorganized Enterprise’s performance, government health care policy, changes in requirements for reimbursement for health care services, competition, extraordinary professional liability judgments, and unanticipated events such as terrorist attacks.

2. Stockholders’ Agreement.

On March 27, 1998, the Fountain View, Inc. and its stockholders entered into the Stockholders’ Agreement. The Stockholders’ Agreement was amended on May 4, 1998 and will be further amended pursuant to the Plan, as described in Section X.C.3 above. All entities’ receipt of New Preferred Stock and New Class A Common Stock under the Plan is expressly conditioned upon such entities’ prior written agreement to be bound by the Stockholders’ Agreement as so amended. In addition to the transfer restrictions imposed by

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applicable securities laws (see Section XI.C), all holders of stock will be subject to the transfer restrictions contained in the Stockholders’ Agreement (and the stock will bear an appropriate legend indicating that the shares are subject to the Stockholders’ Agreement). Certain restrictions contained in the Stockholders’ Agreement may adversely affect the value of the Securities.

The Stockholders’ Agreement establishes the composition of the Board, establishes restrictions on the transfer of securities (including the stock) of Fountain View, Inc., and contains a termination clause in the event of an initial public offering. The Stockholders’ Agreement provides that Fountain View, Inc.’s Board will consist of directors nominated as follows: (i) two individuals (but not less than 25% of the total number of directors) will be designated by Robert Snukal, as long as he continues to hold any shares of Fountain View, Inc.’s common stock; (ii) one individual will be designated by William Scott, as long as he continues to hold any shares of the Fountain View, Inc.’s common stock; (iii) one individual will be designated by the Baylor Group, as long as it continues to hold any shares of Fountain View, Inc.’s common stock or any securities convertible into or exercisable for Fountain View, Inc.’s common stock; and (iv) all other directors will be designated by the holders of a majority of the shares of common stock of Fountain View, Inc. held by Heritage and certain co-investors (which designation is expected to be controlled by Heritage).

The Board currently includes 5 directors (of 10 total) designated by Heritage. Under the Stockholders’ Agreement, each stockholder of Fountain View, Inc. grants Heritage an irrevocable proxy to vote such stockholder’s securities of Fountain View, Inc., except with respect to matters the effect of which on such stockholder differs materially and adversely from the effect on Heritage. The practical effect of the grant of the proxy is that Heritage will control the outcome of most matters which come before the stockholders of Fountain View, Inc., except where such matters will result in significant harm to the other stockholders of Fountain View, Inc., but not to Heritage. The purpose of the limitation on Heritage’s exercise of the proxy is to protect the other stockholders from Heritage abusing its

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position of control. Board vacancies will be filled by a designee of the individual or group who originally designated the vacating director. Each individual or group entitled to designate a director will also be entitled to direct the removal of such director and designate a replacement director.

The Stockholders’ Agreement provides for certain transfer restrictions on Fountain View, Inc. securities. Fountain View, Inc. and certain stockholders have a right of first refusal on transfers of securities by a stockholder, other than certain estate planning transfers, transfers by Heritage, and certain transfers to affiliates. If Heritage transfers its securities, other than to its partners, the other stockholders will have the right to participate on a pro rata basis with Heritage in such transfers. Heritage will also have the right to require all other stockholders to transfer a pro rata portion of their shares in a transaction in which Heritage transfers its shares.

The Stockholders’ Agreement also (i) provides stockholders with pre-emptive rights in the event of certain future issuances of securities by Fountain View, Inc.; (ii) restricts the ability of Fountain View, Inc. to issue shares of capital stock having rights senior or on par with those of the New Preferred Stock, and of Fountain View, Inc.’s subsidiaries to issue shares of capital stock while any shares of New Preferred Stock are outstanding; and (iii) limits the amount of dividends or distributions which Fountain View, Inc. may pay with respect to its common stock while the New Preferred Stock remains outstanding. The Stockholders’ Agreement will terminate upon the consummation of an initial public offering by Fountain View, Inc. The Stockholders’ Agreement will be amended as set forth in Section X.C.3 above.

3. Dividends.

The Debtors do not anticipate that any dividends will be paid with respect to the New Class A Common Stock, the New Warrants, or the New Preferred Stock while the Exit Facility and New Public Notes are outstanding. The covenants in the Exit Facility and the indenture for the New Public Notes will limit the ability of Reorganized Fountain View to pay dividends.

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4. Potential Dilution of Stock.

In the future, the Reorganized Enterprise may need to issue additional equity securities in order to successfully implement its business plan, to implement an equity incentive program for employees, if the company does not achieve its projected results, or for other reasons. Any such issuance of securities could lead to dilution of the equity interests of the holders of the New Class A Common Stock, which could adversely affect the value of the New Class A Common Stock.

XV.

TAX CONSEQUENCES OF THE PLAN

The following discussion summarizes certain federal income tax consequences of the Plan to the Debtors, the holders of Claims, and the holders of Interests, based upon the Tax Code, the Treasury regulations promulgated thereunder, judicial authorities, and current administrative rulings and practices now in effect; all of which are subject to change at any time by legislative, judicial, or administrative action. Any such change could be retroactively applied in a manner that could adversely affect the Debtors, the Reorganized Enterprise, holders of Claims, and holders of Interests. In addition, certain aspects of the following discussion are based on proposed Treasury regulations.

The tax consequences of certain aspects of the Plan are uncertain due to the lack of applicable legal authority and may be subject to administrative or judicial interpretations that differ from the discussion below. The Debtors have not requested, nor do they intend to request, a tax ruling from the Internal Revenue Service (the “IRS”). Furthermore, the Debtors will not request an opinion of counsel with respect to the Plan. Consequently, there can be no assurance that the treatment set forth in the following discussion will be accepted by the IRS.

The Debtors will, however, obtain an opinion of counsel with respect to certain of the federal income tax consequences of the Corporate Restructuring Plan. This opinion is for the benefit of Debtors and may not be relied upon (or applicable to) any Claim holder. Further, the federal income tax consequences to the Debtors, holders of Claims, and holders

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of Interests may be affected by matters not discussed below. For example, the following discussion does not address state, local, or foreign tax considerations that may be applicable to the Debtors, the holders of Claims, or the holders of Interests, and the discussion does not address the tax consequences of the Plan to certain types of holders of Claims, holders of Interests, creditors, and stockholders (including foreign persons, financial institutions, life insurance companies, tax-exempt organizations, and taxpayers who may be subject to the alternative minimum tax) who may be subject to special rules not addressed herein.

THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY. THE DEBTORS, THEIR COUNSEL, AND THEIR TAX AND FINANCIAL ADVISORS ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES OF CONFIRMATION AND CONSUMMATION OF THE PLAN WITH RESPECT TO THE DEBTORS, HOLDERS OF CLAIMS, HOLDERS OF INTERESTS, OR THE REORGANIZED ENTERPRISE, NOR ARE THEY RENDERING ANY FORM OF LEGAL OPINION OR TAX ADVICE ON SUCH TAX CONSEQUENCES. THE TAX LAWS APPLICABLE TO CORPORATIONS IN BANKRUPTCY ARE EXTREMELY COMPLEX, AND THE FOLLOWING SUMMARY DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO THE DEBTORS OR HOLDERS OF ALLOWED CLAIMS OR INTERESTS. HOLDERS OF CLAIMS AND HOLDERS OF INTERESTS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE PLAN, INCLUDING FEDERAL, FOREIGN, STATE, AND LOCAL TAX CONSEQUENCES.

A. Federal Income Tax Consequences to the Debtors.

1. General Discussion.

In general, the Debtors do not expect to incur any substantial federal income tax liability as a result of implementation of the Plan. Up to the Effective Date, the Debtors’ common parent corporation, for purposes of filing consolidated returns, is Fountain View,

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Inc. After the Effective Date, Reorganized Fountain View will continue to be the common parent of the Fountain View, Inc. consolidated group of corporations. Based on the current state of the law and the facts known to Debtors at this time, it is contemplated that the Plan should result in no utilization of the accumulated net operating loss carryovers (“NOLs”) of the Debtors. Additionally, there should not be any limitations imposed by the Tax Code on any of Debtors’ NOLs. Accordingly, any such available NOLs should continue to be available to reduce the Reorganized Enterprise’s future taxable income, if any.

2. Cancellation of Debt.

In general, when a taxpayer realizes “cancellation of debt” (“COD”), the taxpayer must include the amount of canceled indebtedness in income to the extent that the indebtedness canceled exceeds any consideration given for such cancellation. However, where the taxpayer is in chapter 11 and the COD is pursuant to a plan approved by a bankruptcy court, such COD is not included in income, but the taxpayer must generally reduce tax attributes in the specified order described below after the determination of tax, if any, for the taxable year in which the COD is realized.

The Debtors do not expect to realize a material amount of COD income as a result of the Plan. Nevertheless, the Debtors may realize some COD income based on the terms of the Plan. With certain exceptions, to the extent that a debtor transfers amounts to a creditor in an amount less than such creditor’s claim, the debtor will realize COD income. However, if a debtor is in chapter 11, the debtor will not be required to include COD income in taxable income, but rather will be required to reduce its NOLs (and possibly certain other tax attributes, including tax basis of assets) by the amount of the COD income. Tax attributes generally must be reduced in the order specified as follows: (i) NOLs; (ii) general business credit carryovers; (iii) minimum tax credits; (iv) capital loss carryovers; (v) tax basis in assets; (vi) passive activity loss and credits carryovers; and (vii) foreign tax credit carryovers.

3. NOLs and Future Utilization.

Section 382 (in conjunction with Section 383) of the Tax Code imposes

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limitations upon the utilization of a corporation’s NOLs, built-in losses and credit carry forwards following a significant change in the corporation’s stock ownership, called an “ownership change.” Because no more than 5% of the ownership of Fountain View, Inc. is expected to change as a result of the Plan, Reorganized Fountain View should not experience an “ownership change” or “equity structure shift” under Section 382 of the Tax Code as a result of the Plan. Accordingly, the Reorganized Enterprise should not be subject to any limitation under Section 382 of the Tax Code as a result of the Plan and the NOLs should be available to offset future taxable income, if any, provided that no “ownership change” occurs in the future.

B. Federal Income Tax Consequences to Holders of Claims.

1. Realization and Recognition of Gain or Loss in General.

Generally, the holder of an Allowed Claim will realize a gain or loss on the exchange of the holder’s Allowed Claim for the consideration received by the holder under the Plan. The amount of realized gain or loss will be equal to the difference between (i) the sum of any cash received plus the fair market value (generally the issue price in the case of debt obligations received under the Plan, including the Purchaser Notes) of any other consideration received; and (ii) the adjusted basis of the Allowed Claim exchanged therefor.

The adjusted basis will generally be equal to the amount paid for the Allowed Claim, increased by any amounts previously included in income as accrued interest or original issue or market discount, and reduced to the extent that a bad debt deduction has previously been recognized for federal income tax purposes with respect to the Allowed Claim. Also, under current law, if the terms of an obligation are significantly modified, the modified obligation will be treated for federal income tax purposes as a new obligation issued in exchange for the original obligation. Thus, modifications to certain holders’ Claims that occurred prior to the Plan, if treated as significant, could cause such holder to be treated for federal income tax purposes as receiving new obligations in exchange for the Debtors’ original obligations. In such case, the adjusted basis of the Allowed Claim may be redetermined. However, the Debtors express no view with respect to whether any

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modifications to any Claim held by a particular holder will be treated as significant for federal income tax purposes. Each holder is urged to consult such holder’s own tax advisor in this regard. Each holder is also urged to consult such holder’s own tax advisor as to the treatment of any new obligations under the original discount rules.

Whether the gain or loss realized on the exchange of a holder’s Allowed Claim for the consideration received under the Plan is recognized (i.e., taken into account) for federal income tax purposes will depend in part upon whether such exchange qualifies as a “reorganization” as defined in the Tax Code. The Debtors do not expect any of these exchanges to be treated as a reorganization.

A holder of a Claim who exchanges an Allowed Claim will recognize gain or loss on the exchange in an amount equal to the difference between the holder’s tax basis in the Allowed Claim and the amount realized on the exchange. For tax purposes, the amount realized will be the amount of cash received, if any, plus the fair market value of any stock or other property received (in the case of debt obligations received, generally the issue price of such obligations). The tax basis of property received will be the fair market value of such property on the date of exchange, and the holding period for such property will begin on the day following such date.

2. Character of Gain or Loss.

Generally, an asset held by a taxpayer is a “capital asset” for federal income tax purposes unless such asset is specifically excluded. Accounts or notes receivable acquired in the ordinary course of trade or business for services rendered, or from the sale of property that is stock in trade of the taxpayer, are excluded assets. Generally, any gain or loss recognized with respect to the disposition of an asset that is not a capital asset will be ordinary gain or loss. Ordinary losses are generally fully deductible in the year recognized. Holders of Claims or Interests should consult their tax advisor to determine whether a specific Claim or Interest will be treated for federal income tax purposes as a capital asset or ordinary asset.

In general, except for market discount discussed below, and except to the

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extent that a bad debt deduction has been claimed (with corresponding tax benefit) with respect to the Allowed Claims, any gain or loss recognized on the exchange will be capital gain or loss if the Allowed Claims were capital assets in the hands of a holder, and such gain or loss will be long-term capital gain or loss if such holder’s holding period for the Allowed Claim surrendered exceeds one year at the time of the exchange. However, it should be noted that Section 582(c) of the Tax Code provides that the sale or exchange of a bond, debenture, note or certificate, or other evidence of indebtedness by a bank or certain other financial institutions, shall not be considered the sale or exchange of a capital asset. Accordingly, any gain recognized by such holders of Claims as a result of the implementation of the Plan will be ordinary income, notwithstanding the nature of the holders’ Allowed Claims.

Under current law, net long-term capital gains of individuals are subject to a maximum federal income tax rate of 20% (not taking into account any phase out of personal exemptions and certain itemized deductions), whereas the maximum federal income tax rate on ordinary income (and net short-term capital gains) of an individual is currently 38.6% (not taking into account any phase out of personal exemptions and certain itemized deductions). For corporations, capital gains and ordinary income are taxed at the same maximum rate of 35%. Capital losses are currently deductible only to the extent of capital gains plus, in the case of most taxpayers other than corporations, $3,000. In the case of individuals and other noncorporate taxpayers, capital losses that are not currently deductible may be carried forward to other years, subject to certain limitations. In the case of corporations, capital losses that are not currently deductible may generally be carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year, subject to certain limitations.

3. Claims for Accrued Interest.

Notwithstanding the general rules described above, holders of Claims who receive any consideration (including stock or securities) under the Plan in respect of Allowed Claims for accrued but not previously taxed interest must treat the amount of such

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consideration as ordinary income. A holder of a Claim whose Allowed Claim for accrued and previously taxed interest is not fully satisfied generally may take an ordinary deduction for the unsatisfied portion of such Allowed Claim, even if the underlying claim is held as a capital asset. The Debtors intend to take the position that such consideration is allocated to principal, to the extent thereof, before any amount is allocated to accrued but unpaid interest. Creditors should be aware, however, that the IRS may take a different position with respect to the proper allocation.

HOLDERS OF CLAIMS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE PROPER ALLOCATION OF CONSIDERATION BETWEEN PRINCIPAL AND INTEREST.

4. Original Issue Discount and Market Discount.

If the holder’s Claim is a debt instrument originally issued at a discount, and the original issue discount rules apply, such original issue discount (“OID”) is subject to special rules. For example, while gain realized on the exchange of a debt instrument is generally capital gain, in some cases such gain may be ordinary income to the extent of the OID, reduced by any OID previously included in gross income by the holder. The OID rules are complex and each holder of a Claim should consult its tax advisor to determine the extent to which the OID rules apply, if at all, to such Claim.

The Tax Code generally requires holders of “market discount bonds” to treat as interest income any gain recognized on the disposition of such bonds to the extent of the market discount accrued during the holder’s period of ownership. A “market discount bond” is a debt obligation purchased at a market discount, subject to certain exceptions, including a de minimis exception. For this purpose, a purchase at a market discount includes a purchase after the original issue at a price below the stated redemption price at maturity. The amount of market discount on a bond generally equals the excess of (i) the stated redemption price at maturity of a debt obligation (or, in the case of a debt instrument issued with original issue discount, its “revised issue price”) over (ii) the tax basis in the hands of the holder immediately after the bond’s acquisition. The accrued market discount generally equals a

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ratable portion of the bond’s market discount, based on the number of days the taxpayer has held the bond at the time of such disposition, as a percentage of the number of days from the date the taxpayer acquired the bond to its date of maturity (alternatively, a holder may elect to accrue market discount on an economic basis, using a constant interest rate). Also, holders of market discount bonds are required, under certain circumstances, to defer the deduction of all or a portion of the interest on any indebtedness incurred or maintained to acquire or carry market discount bonds. Neither the rule treating accrued market discount as ordinary income on a disposition nor the rule deferring interest deductions applies if the holder of a “market discount bond” elects to include the accrued market discount in income currently.

5. Back-Up Withholding.

The Reorganized Enterprise will withhold all required amounts and will comply with all applicable information reporting requirements with respect to distributions under the Plan. Under current federal income tax law, a 30% back-up withholding tax is applied to certain interest, original issue discount, dividend, and principal payments made to certain U.S. persons if they fail to supply Taxpayer Identification Numbers and other information. Amounts withheld under these rules are creditable against the holder’s federal income tax liability.

THE FOREGOING DISCUSSION IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN. WITH THESE CONSIDERATIONS IN MIND, HOLDERS OF CLAIMS AND HOLDERS OF INTERESTS ARE AGAIN STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC CONSEQUENCES TO THEM OF THE PLAN UNDER FEDERAL AND APPLICABLE STATE, LOCAL, AND FOREIGN TAX LAWS.

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XVI.

RECOMMENDATION AND CONCLUSION

The Debtors believe that Plan confirmation and implementation are preferable to any feasible alternative because the Plan will maximize the value of the Estates, provide entities holding Allowed Claims with payment in full, and provide certain holders of Interests with equity in Reorganized Fountain View in accordance with applicable law. Accordingly, the Debtors, with the support of the Creditors’ Committee, and the Noteholders’ Committee urge entities who hold impaired Claims and Interests to vote to accept the Plan by checking the box marked “Accept” on their Ballots and then returning the Ballots to the Debtors’ Counsel by June 6, 2003 at 5:00 p.m. Pacific Time at Shanda D. Ellingwood, Ballot Tabulator, Klee, Tuchin Bogdanoff & Stern LLP, 2121 Avenue of the Stars, 33^rd Floor, Los Angeles, California 90067, facsimile (310) 407-9090.

Dated: April 23, 2003	FOUNTAIN VIEW, INC. and its 22 CHAPTER 11 AFFILIATES
		/s/    BOYD HENDRICKSON
	By:	Boyd Hendrickson
	Title:	Chief Executive Officer

SUBMITTED BY:

/s/    BRENDT C. BUTLER FOR DANIEL J. BUSSEL

DANIEL J. BUSSEL, ESQ,

MICHAEL L. TUCHIN, ESQ., and

BRENDT C. BUTLER, ESQ., Attorneys with

KLEE, TUCHIN, BOGDANOFF & STERN LLP

Reorganization Counsel for

Debtors and Debtors in Possession

160

EX-99.(T)(3)(E-2)

EXHIBIT T3E-2

DANIEL J. BUSSEL (State Bar No. 121939),

MICHAEL L. TUCHIN (State Bar No. 150375), and

BRENDT C. BUTLER (State Bar No. 211273), Attorneys with

KLEE, TUCHIN, BOGDANOFF & STERN LLP

2121 Avenue of the Stars, 33rd Floor

Los Angeles, California 90067-5061

Telephone:   (310) 407-4000

Facsimile:    (310) 407-9090

Reorganization Counsel for

Debtors and Debtors in Possession

Debtors’ Mailing Address

27442 Portola Parkway, Suite 200

Foothill Ranch, CA 92610

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

In re:

FOUNTAIN VIEW, INC., a Delaware corporation, et al.

Debtors.

Case No.:	LA 01-39678 BB through
	LA 01-39697 BB
And	LA 01-45516 BB; LA 01-45520 BB; and LA 01-45525 BB

(Jointly Administered under Case No. LA 01-39678 BB)

Chapter 11

DEBTORS’ THIRD AMENDED JOINT PLAN OF REORGANIZATION DATED APRIL 22, 2003

Confirmation Hearing

Date:	July 3, 2003
Time:	11:00 a.m.
Place:	Courtroom 1475 Royal Federal Building 255 E. Temple Street Los Angeles, CA 90021

TABLE OF CONTENTS

I.	DEFINITIONS	1
	A.     Defined Terms	1
	B.     Rules of Construction	20
II.	DESIGNATION OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS	21
	A.     Summary of Classification of Claims	21
	B.     Allowance and Treatment of Unclassified Claims (Administrative Claims, Priority Tax Claims, and Priority Claims)	23
	1.      Administrative Claims	23
	2.      Priority Claims	26
	C.     Classification and Treatment of Secured Claims (Classes 1, 2, 3, 4, 5, 6, 7, & 8)	26
	1.      Class 1 (Bank Midwest—Impaired)	26
	2.      Class 2 (Woodlands Place Nursing Center, L.P.—Impaired)	27
	3.      Class 3 (Secured Tax Claims—Unimpaired)	28
	4.      Class 4 (Union Bank of California—Unimpaired)	28
	5.      Class 5 (Leonard and Catherine May—Unimpaired)	29
	6.      Class 6 (Bergen—Impaired)	29
	7.      Class 7 (Other Secured Claims Including Personal Property Lessors—Unimpaired)	30
	8.      Class 8 (Agent and Lenders—Unimpaired)	31
	D.     Classification and Treatment of Unsecured Claims (Classes 9, 10, 11, & 12)	32
	1.      Class 9 (11¼% Notes—Impaired)	32
	2.      Class 10 (General Unsecured Claims—Impaired)	35
	3.      Class 11 (Convenience Claims—Unimpaired)	39
	4.      Class 12 (Insured Professional Liability Claims—Impaired)	39
	5.      Class 13 (Other Subordinated Claims—Impaired)	40
	E.     Treatment of Interests (Classes 14, 15, 16, 17, 18, & 19)	40

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1.      Class 14 (Existing Preferred Stock—Impaired)	40
2.      Class 15 (Existing Class A Common Stock—Impaired)	41
3.      Class 16 (Existing Class B Common Stock—Impaired)	42
4.      Class 17 (Existing Class C Common Stock—Impaired)	42
5.      Class 18 (Existing Warrants—Impaired)	42
6.      Class 19 (Existing Management Incentives and Other Existing Interests—Impaired)	43
III.    TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES	43
A.     Assumption and Assignment of Contracts and Leases	43
1.      Schedule of Assumed or Assigned Agreements	43
2.      Cure Payments	44
3.      Objections to Assumption or Assignment or Proposed Cure Payments	45
4.      Liens with Respect to Assumed Contracts and Leases Pursuant to the Exit Facility and Plan	45
B.     Rejection of Contracts and Leases	46
1.      Schedule of Rejected Agreements	46
2.      Bar Date for Rejection Damage Claims	47
C.     Postpetition Contracts and Leases	47
IV.   MEANS OF EXECUTION AND IMPLEMENTATION OF THE PLAN AND OTHER PROVISIONS	48
A.     Substantive Consolidation	48
B.     Corporate Restructuring Plan	48
C.     Exit Facility	49
D.     Amendment to Articles of Incorporation	50
E.     The Claims Agent	50
1.      Designation of the Claims Agent	50
2.      Powers and Duties	50
F.      Revesting of Assets	51
G.     Preservation of Causes of Action	51

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H.     Objections to Claims and Interests	52
I.       Distribution of Property Under the Plan	53
1.      Manner of Cash Payments Under The Plan	53
2.      No De Minimis Distributions	53
3.      No Distribution with Respect to Disputed Claims	53
4.      Delivery of Distributions and Undeliverable or Unclaimed Distributions	54
a.      Delivery of Distributions in General	54
b.      Delivery of 11¼% Noteholder Distributions	54
c.      Distribution to Interest Holders Under the Plan	56
d.      Undeliverable and Unclaimed Distributions	57
J.      Cancellation of Interests	58
K.     Full Satisfaction	58
L.     Compliance With Tax Requirements	58
M.    Setoff, Recoupment and Other Rights	58
N.     Dissolution of the Debtors other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors	58
O.     Conditions to Effectiveness of the Plan	59
1.      Conditions	59
2.      Waiver of Conditions	59
V.     MISCELLANEOUS PROVISIONS	60
A.     Limitations of Liability	60
1.      For Solicitation or Participation	60
2.      For Actions in Connection with Plan and Related Matters	60
3.      No Admissions	61
B.     Dissolution of Committees	61
C.     Exemption from Certain Transfer Taxes	61
D.     Modifications of the Plan	62
E.     Revocation of the Plan	62

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F.      Post-Effective Date Effect of Evidences of Claims or Interests	62
G.     Nonapplicability of Local Rule 3020-1(2)	62
H.     Successors and Assigns	62
I.       Saturday, Sunday, or Legal Holiday	63
J.      Governing Law	63
K.     Severability of Plan Provisions	63
L.     Application of Code Section 1145	63
VI.   EFFECT OF CONFIRMATION OF THE PLAN	64
A.     Discharge and Injunction	64
B.     Payment of Statutory Fees	65
C.     Retention of Jurisdiction	65
VII.  RECOMMENDATION AND CONCLUSION	68

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Fountain View, Inc. and its 22 Chapter 11 affiliates, debtors and debtors in possession in the above-captioned jointly administered chapter 11 cases, hereby propose this Debtors’ Third Amended Joint Plan of Reorganization Dated April 22, 2003.

I.

DEFINITIONS

A. Defined Terms.

In addition to any other terms that are defined in the Plan, the following capitalized terms, when used in the Plan or the accompanying Disclosure Statement, have the meanings set forth below.

“Administrative Claim” means a Claim for administrative costs or expenses that are allowable under Code sections 503(b), 507(b), or 1114(e). These costs or expenses may include: (i) Administrative Tax Claims; (ii) Ordinary Course Administrative Claims; or (iii) Non-Ordinary Course Administrative Claims.

“Administrative Tax Claim” means a Claim that is not an Allowed Secured Claim and that a government unit asserts against a Debtor either for taxes or for related interest or penalties for any period of time that—in whole or in part—falls after the commencement of the Reorganization Cases through and including the Effective Date.

“ADR Procedures” means those procedures (as they may be modified by the Plan and Confirmation Order) supplementing the Claims adjudication procedures set forth in the Code and the Bankruptcy Rules for the liquidation of professional liability Claims established by the Order Establishing Alternative Dispute Resolution Procedures (the “ADR Order”) entered on the Court’s official docket on June 17, 2002. Pursuant to the ADR Procedures, all holders of prepetition personal injury or wrongful death claims and their attorneys, agents, employees, servants, and successors are stayed from proceeding against the Debtors and any successors (including the Estates and the Reorganized Enterprise), any other defendant or defendants with respect to such claims and their insurers. The Debtors’ primary and excess insurance carriers are also obligated to participate in good faith in the mediations provided for by the ADR Procedures. Those parties that submit to the ADR

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Procedures agree to participate in negotiations and mediate with the Debtors to attempt to reach a settlement. The Plan provides for the Court to enter an injunction pursuant to the Confirmation Order, providing that the commencement or continuation of all personal injury or wrongful death actions will be enjoined from proceeding except in conformity with the ADR Procedures (or, as applicable, the Code’s claim adjudication process). Pursuant to the Plan and the Confirmation Order, the ADR Procedures will apply to all personal injury or wrongful death actions that are based on Claims that arose prior to the Confirmation Date. Relief from the injunction implementing the ADR Procedures and established by the Confirmation Order will not be granted unless (i) both the entity seeking relief from the injunction and the Reorganized Enterprise certify in writing that they have attempted to settle their dispute in good faith pursuant to the ADR Procedures, and, notwithstanding the completion of the ADR Procedures, they have failed to reach a settlement; or (ii) the entity seeking relief from the injunction established by the Confirmation Order otherwise establishes good cause not to follow the ADR Procedures under the circumstances of the particular case.

“Agent” means Bank of Montreal, and its successors and assigns, as Agent for the Lenders pursuant to the Prepetition Credit Agreement.

“Allowed Administrative Claim” means an Administrative Claim that is allowed as set forth in Section II.B.1.

“Allowed Claim” or “Allowed Interest” means with respect to any of the Debtors, as the case may be, a Claim or Interest, other than an Administrative Claim, to the extent that:

(i) Either: (a) a proof of Claim or proof of Interest was timely Filed; or (b) a proof of Claim or proof of Interest is deemed timely Filed either under Bankruptcy Rule 3003(b)(1)-(2) or by a Final Order; and

(ii) Either: (a) the Claim or Interest is not a Disputed Claim or a Disputed Interest; or (b) the Claim or Interest is allowed either by a Final Order or under the Plan.

Unless otherwise specified in the Plan, an Allowed Claim does not include

2

interest on the Claim accruing after the Petition Date. Moreover, any portion of a Claim that is satisfied or released during the Reorganization Cases is not an Allowed Claim.

“Avoidance Actions” means any causes of action held by any of the Debtors or the Estates arising out of Code sections 542, 544, 545, 547, 548, 549, 550, 551, and 553.

“Ballot” means the form of ballot approved by the Court for parties in interest in the Reorganization Cases to cast votes and make appropriate elections under the Plan.

“Bank Midwest Advance” means the advance to Reorganized Fountain View in the amount of $630,000 from the holder of the Class 1 Claim to be made within five days after the Effective Date on the terms set forth in the Bank Midwest Stipulation.

“Bank Midwest Amended and Restated Note” means the amended and restated promissory note made by the New Woodlands Entity in a principal amount equal to (i) $4,927,126 (ii) Bank Midwest’s reasonable legal fees and expenses in an amount not to exceed $75,000, (iii) $630,000, and (iv) $1,206.13; payable in equal monthly installments of principal and interest at 6% based on a 300-month (25-year) amortization schedule (and monthly tax and insurance payments as required by the Deed of Trust Note held by the holder of the Class 1 Claim) commencing on the Effective Date, but maturing in full on the seventh anniversary of the Effective Date, and prepayable without premium or penalty at any time, and otherwise, except as may hereafter be expressly agreed by the Debtors and the holder of the Class 1 Claim, on the same terms as those of that certain Deed of Trust Note dated March 6, 1985 as subsequently renewed, modified, extended and consolidated pursuant to that certain Allonge thereto dated December 1, 1993.

“Bank Midwest Deed of Trust” means that certain Deed of Trust dated December 1, 1993 assigned to Bank Midwest by instrument dated July 17, 2001 recorded in the real property records of Montgomery County, Texas and constituting a first priority lien against the real property associated with the long-term care facility known as the “Woodlands” located in such county and owned and operated by the Debtors.

“Bank Midwest Security Agreement” means a new security agreement between the holder of the Class 1 Claim and the New Woodlands Entity that, except as may

3

be expressly agreed otherwise by the Debtors and the holder of the Class 1 Claim, shall be on the same terms as that certain Security Agreement dated December 1, 1993 between Bank Midwest’s predecessor in interest, the Secretary of Housing and Urban Development, and Woodlands Place Nursing Center, Inc., and that, when properly perfected, will constitute a first priority lien against the property subject to the Bank Midwest Security Agreement.

“Bank Midwest Stipulation” means that certain Stipulation Regarding Treatment Of Bank Midwest Claim Under Debtors’ Amended Joint Plan Of Reorganization dated April 14, 2003 between Bank Midwest, N.A. and the Debtors and approved by Order of the Court on April 15, 2003.

“Bankruptcy Code” or “Code” means title 11 of the United States Code, as applicable in the Reorganization Cases.

“Bankruptcy Rules” means the Federal Rules of Bankruptcy Procedure, as applicable in the Reorganization Cases.

“Bar Date” means August 30, 2002 or such later date as fixed by the Court, pursuant to the Court’s Order (1) Establishing Procedures And Deadlines For Filing Proofs Of Claim And Interest; (2) Establishing Ramifications For Failure To Comply Therewith; And (3) Approving Form And Scope Of Notice Thereof entered on the Court’s official docket on June 5, 2002.

“Bergen” means AmerisourceBergen Drug Corporation, formerly known as Bergen-Brunswig Drug Company, the holder of the Class 6 Claim.

“Bergen Note” means the secured promissory note in the form filed with the Court on or before the Exhibit Filing Date issued to Bergen (or, if applicable, any transferee of Bergen holding the Class 6 Claim) by Reorganized Summit Care Pharmacy.

“Business Assets” means the rights, titles, interests, licenses, permits, and property (constituting substantially all the assets related to the operations of the Debtors’ businesses) transferred or assigned to the Post-Effective Date Subsidiaries pursuant to the Corporate Restructuring Plan or retained by Reorganized Summit Care Pharmacy or the Other Reorganized Debtors.

4

“Business Day” means a day that is not a Saturday, Sunday, or legal holiday (as such term is defined in Bankruptcy Rule 9006(a)).

“Check-the-Box Election” means an election made under Section 301.7701-3 of the Tax Code.

“Claim” means a claim as defined in Code section 101(5) against any Debtor or any Estate.

“Class” means a group of Claims or Interests as classified under the Plan.

“Class 10 Deferred Obligation” means the secured obligation of Reorganized Fountain View under the Plan in the principal amount equal to 60% of the Allowed Claim of each holder of a Class 10 Allowed Claim electing payment option 10B who is not a Continuing Creditor.

“CMS Stipulation” means that certain stipulation, resolving certain alleged deficiencies cited in prepetition surveys conducted by the Texas Department of Human Services, between the Center for Medicare and Medicaid Services of the United States Department of Health and Human Services and Summit Care Texas, L.P. dated as of September 9, 2002 and approved by the Court by Order entered on its official docket October 7, 2002.

“General Claim Holder Agency Agreement” means the agency agreement between Reorganized Fountain View and the Claims Agent (and such related documents as are necessary to evidence and perfect the liens created to secure the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation and the Vendors’ Lien under otherwise applicable non-bankruptcy law) pursuant to which the Claims Agent shall be authorized to enforce the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation and the Vendors’ Lien, all such documents in a form to be submitted by the Debtors in the Plan Supplement and reasonably acceptable to the Creditors’ Committee.

“Claims Agent” means the agent under the General Claim Holder Agency Agreement.

“Committees” means the Creditors’ Committee and the Noteholders’

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Committee.

“Confirmation Date” means the date on which the Confirmation Order is entered on the Court’s official docket.

“Confirmation Hearing” means the hearing regarding Plan confirmation held pursuant to Bankruptcy Code section 1128.

“Confirmation Hearing Date” means the first date on which the Court holds the Confirmation Hearing.

“Confirmation Order” means the Court order under Code section 1129 confirming this Plan as it may be subsequently amended or modified.

“Continuing Creditor” means those holder of a Class 10 Claim designated on Exhibit 13 to the Disclosure Statement or as may otherwise be specifically designated in writing by the Debtors that have agreed to extend new credit in connection with providing goods or services to the Reorganized Enterprise in an amount and on terms no less favorable than the terms extended by such holder to the Debtors prior to the Petition Date or in an amount and on terms otherwise acceptable to the Reorganized Enterprise.

“Continuing Creditor Deferred Obligation” means the secured obligation of Reorganized Fountain View under the Plan in the principal amount equal to 35% of the Allowed Claim of each holder of a Class 10 Allowed Claim electing payment option 10B that is a Continuing Creditor.

“Convenience Claims” means Allowed Unsecured Claims, other than Claims for principal and interest arising under the 11¼% Notes, that are either: (i) less than or equal to $1,000; or (ii) voluntarily compromised by the holder pursuant to the Convenience Class Election.

“Convenience Class Election” means the timely election by the holder of an Allowed Unsecured Claim (other than Claims arising under the 11¼% Notes) in excess of $1,000 to receive $1,000 in cash on the Effective Date on account of all such holder’s Class 10 Allowed Claims, in lieu of the treatment otherwise afforded Class 10 Claims, and in full satisfaction thereof. Notwithstanding the foregoing, any holder that makes the Convenience

6

Class Election but holds aggregate Allowed Class 10 Claims in excess of $1,250 will be treated in Class 10 under payment option 10A as voting in favor of the Plan and will receive cash equal to 80% of such holder’s Allowed Claims without postpetition interest.

“Corporate Restructuring Plan” means the transactions pursuant to which the Business Assets of the Debtors (other than those retained by Reorganized Summit Care Pharmacy or the Other Reorganized Debtors) will be transferred to the Post-Effective Date Subsidiaries pursuant to the Plan and the Corporate Restructuring Closing Documents.

“Corporate Restructuring Closing Documents” means the final documentation for the Corporate Restructuring Plan to be Filed by the Debtors as part of the Plan Supplement.

“Court” means the United States Bankruptcy Court for the Central District of California or any other court that properly exercises jurisdiction over the Reorganization Cases.

“Creditors’ Committee” means the official committee of creditors holding unsecured Claims (other than Claims arising under the 11¼% Notes) that the U.S. Trustee appointed, pursuant to Bankruptcy Code section 1102, in the Reorganization Cases.

“Cure Payments” means amounts that Bankruptcy Code section 365(b)(1) requires be paid in order for the Debtors to cure defaults under the executory contracts and unexpired leases listed on the Schedule of Assumed or Assigned Agreements that will be assumed or assigned under the Plan.

“Debtor” means any of the Debtors, individually, as the case may be.

“Debtors” means, collectively, Fountain View, Inc., a Delaware corporation; Fountain View Holdings, Inc., a Delaware corporation; Fountain View Management, Inc., a California corporation; Summit Care Corporation, a California corporation; Summit Care Pharmacy, Inc., a California corporation; Summit Care Management Texas, Inc., a Texas corporation; Summit Care Texas, L.P., a Texas limited partnership; Summit Care Texas Equity, Inc., a California corporation; Summit Care Texas No. 2, Inc., a Texas corporation; Summit Care Texas No. 3, Inc., a Texas corporation; Summit Care California, Inc., a

7

California corporation; Elmcrest Convalescent Hospital, a California corporation; BIA Hotel Corp., a California corporation; AIB Corp., a California corporation; Fountainview Convalescent Hospital, a California corporation; Alexandria Convalescent Hospital, Inc., a California corporation; Rio Hondo Nursing Center, a California corporation; Sycamore Park Convalescent Hospital, a California corporation; Brier Oak Convalescent, Inc., a California corporation; I. ‘n O., Inc., a California corporation; Locomotion Therapy, Inc., a Delaware corporation; Locomotion Holdings, Inc., a Delaware corporation; and On-Track Therapy Center, Inc., a California corporation.

“Debtors’ Counsel” means Klee, Tuchin, Bogdanoff & Stern LLP.

“Disbursing Agent” means Reorganized Fountain View or any entity or entities employed by Reorganized Fountain View, in its sole discretion, to make disbursements in accordance with the Plan; provided, however, that, with respect to Claims for principal and interest arising under the 11¼% Notes, the Disbursing Agent means the Indenture Trustee.

“Disclosure Statement” means the Debtors’ Disclosure Statement Dated April 22, 2003, as it may be amended, Filed in connection with the Plan.

“Disputed Claim or Disputed Interest” means a Claim or Interest:

(i) As to which a proof of Claim is Filed or is deemed Filed under Bankruptcy Rule 3003(b)(1) or a proof of Interest is Filed or is deemed Filed under Bankruptcy Rule 3003(b)(2); and

(ii) As to which: (a) an objection has been timely Filed and has not been overruled by a Final Order or withdrawn; or (b) a Debtor has listed such Claim or Interest on its Schedules as disputed, contingent, or unliquidated.

“Distribution Date” means the date, occurring on or as soon as reasonably practicable (and in no event more than 30 days) after the Effective Date, on which the Disbursing Agent first makes distributions to holders of Allowed Claims and Allowed Interests under the Plan.

“Effective Date” means the first day that is a Business Day (i) that is at least

8

eleven days after the Confirmation Date, (ii) on which no stay of the Confirmation Order is in effect, and (iii) on which all of the conditions set forth in Section IV.O, below, have been satisfied or waived in accordance with the Plan.

“11¼% Notes” means the 11¼% Senior Subordinated Notes due 2008 issued by Fountain View, Inc. pursuant to that certain trust indenture dated April 16, 1998 between State Street Bank & Trust, N.A. and Fountain View, Inc. Claims for principal and interest arising under the 11¼% Notes shall be Allowed Claims in an aggregate amount equal to $133,012,500.

“Estates” means the estates created in the Reorganization Cases under Code section 541.

“Excess Cash Flow” means the amount (based on annual audited results, not projected cash flows) by which Reorganized Fountain View and the Post-Effective Date Subsidiaries, on a consolidated basis, generate cash in excess of their reasonable operating, financing, and investing needs (including, without limitation, scheduled amortization and mandatory prepayment of the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation) to be determined in accordance with the terms of the indenture governing the New Public Notes in a manner reasonably acceptable to the Debtors, the Noteholders’ Committee, and the lenders under the Exit Facility.

“Exhibit Filing Date” means the date that is the last Business Day that is at least ten days prior to the Confirmation Hearing Date.

“Existing Class A Common Stock” means the 1,000,000 shares of Class A Common Stock of Fountain View, Inc. issued and outstanding immediately prior to the Effective Date.

“Existing Class B Common Stock” means the 114,202 shares of Class B common stock of Fountain View, Inc. issued and outstanding immediately prior to the Effective Date.

“Existing Class C Common Stock” means the 20,742 shares of Class C common stock of Fountain View, Inc. issued and outstanding immediately prior to the

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Effective Date.

“Existing Management Incentives” means the options to purchase 23,793 shares of Existing Class C Common Stock issued to present and former directors, officers and employees.

“Existing Preferred Stock” means the 15,000 shares of preferred stock of Fountain View, Inc. issued and outstanding immediately prior to the Effective Date.

“Existing Warrants” means the warrants issued and outstanding immediately prior to the Effective Date to purchase 50,377 shares of Existing Class C Common Stock at a price of $.01 per share.

“Exit Facility” means the term loans and revolving loans and commitments to be made to the Reorganized Enterprise pursuant to the Exit Facility Closing Documents and Section IV.C as a condition to the occurrence of the Effective Date. The liens and security interests securing the Exit Facility shall be subject to prior liens and security interests retained by the holders of Class 1, Class 2, Class 3, Class 4 and Class 7 Claims pursuant to the Plan and contractually senior to the liens securing the Bergen Note, the Class 10 Deferred Obligation, the New Public Notes, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien.

“Exit Facility Closing Documents” means the final documentation contemplated by the Exit Facility Commitment Letters evidencing and establishing the Exit Facility in the form to be submitted by the Debtors in the Plan Supplement.

“Exit Facility Commitment Letters” means that certain commitment letter dated March 6, 2003, as it may thereafter be amended, between CapitalSource Finance LLC, Highbridge/Zwirn Opportunity Fund LP and the Debtors; and that certain commitment letter dated March 7, 2003, as it may thereafter be amended, between Column Financial, Inc. (an affiliate of Credit Suisse First Boston) and the Debtors. The Exit Facility Commitment Letters are attached as exhibits to the Disclosure Statement.

“Filed” means filed with the Court and reflected on the Court’s official docket.

“Final Order” means an order or judgment of the Court entered on the Court’s

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official docket:

(i) that has not been reversed, rescinded, or stayed;

(ii) that is in full force and effect; and

(iii) with respect to which: (a) the time to appeal or to seek review, remand, rehearing, or a writ of certiorari has expired and as to which no timely filed appeal or petition for review, rehearing, remand, or writ of certiorari is pending; or (b) any such appeal or petition has been dismissed, withdrawn, or resolved by the highest court to which the order or judgment was timely appealed, or from which review, rehearing, remand, or a writ of certiorari was timely sought.

“Indenture Trustee” means US Bank, N.A., in its capacity as successor indenture trustee for the 11¼% Notes pursuant to that certain trust indenture dated April 16, 1998 between State Street Bank & Trust, N.A. and Fountain View, Inc.

“Initial Cash Payment” means $50 million dollars plus an amount equal to the amount (if any) by which the Debtors’ cash, cash equivalents, and undrawn revolving commitments on the Effective Date exceed $30 million after giving effect to all payments required by the Plan.

“Interest” means the interest, whether or not asserted, of any holder of an equity security of the Debtors as defined in Code section 101(17), including the Existing Class A Common Stock, the Existing Class B Common Stock, the Existing Class C Common Stock, Existing Warrants, and Existing Management Incentives.

“Lenders” means the Agent, and those parties for whom the Agent acts, to wit, the Bank of Montreal, BNP Paribas, ING Capital Advisors LLC, PB Capital Corp., Heller Financial Corp., General Electric Capital Corp., Golden Tree High Yield Opportunity Fund I and II, Pilgrim America Prime Rate Trust, and Credit Suisse First Boston, and their respective successors and assigns, as lenders under the Prepetition Credit Agreement.

“New Class A Common Stock” means the Class A Common Stock of Reorganized Fountain View to be issued and outstanding as of the Effective Date.

“New Preferred Stock” means the preferred stock of Reorganized Fountain

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View to be issued and outstanding as of the Effective Date.

“New Public Notes” means notes issued under the Plan to holders of Class 9 Allowed Claims by Reorganized Fountain View and guaranteed by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries (except for any special purpose entities formed for insurance coverage purposes) to the extent permitted by the Exit Facility.

“New Woodlands Entity” means the Post-Effective Date Subsidiaries to be formed under the Plan to own and operate the long-term care facility owned by Summit Care Texas, L.P., located in Montgomery County, Texas and known as the “Woodlands.”

“Non-Ordinary Course Administrative Claims” means Administrative Claims that are not Ordinary Course Administrative Claims and include: (i) Professional Fee Claims; (ii) Cure Payments; (iii) U.S. Trustee fees under 28 U.S.C. § 1930; (iv) the reasonable trustee fees and expenses, and the reasonable attorneys’ fees and expenses, of the Indenture Trustee in the aggregate approximate amount of $125,000; and (v) any other Claim arising after the Petition Date and before the Effective Date that is not an Ordinary Course Administrative Claim.

“Noteholders’ Committee” means the official committee of holders of the 11¼% Notes that the U.S. Trustee appointed, pursuant to Code section 1102, in the Reorganization Cases.

“Noteholder Prepayment Percentage” means the ratio (expressed as a percentage) of the cumulative aggregate principal prepayments made on account of the New Public Notes to the aggregate principal amount of New Public Notes issued on the Effective Date.

“Noteholders’ Stock” or “Noteholders’ Stock Distribution” means 58,642 shares of New Class A Common Stock issued to holders of Class 9 Allowed Claims by Reorganized Fountain View.

“Ordinary Course Administrative Claims” means any Administrative Claim arising from the provision of goods or services to the Debtors in the ordinary course of

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business of the Debtors and the provider of goods or services after the Petition Date and before the Effective Date.

“Other Existing Interests” means, collectively, any Interests in any of the Debtors including options, warrants, and any other rights to purchase or otherwise acquire Interests, and any stock appreciation or similar rights, existing prior to the Effective Date, other than the Existing Class A Common Stock, Existing Class B Common Stock, Existing Class C Common Stock, Existing Preferred Stock, Existing Warrants, and Existing Management Incentives.

“Other Reorganized Debtors” mean those Debtors, if any, other than Reorganized Fountain View or Reorganized Summit Care Pharmacy that will not be dissolved as of the Effective Date pursuant to the Corporate Restructuring Plan.

“Other Secured Claims” means any Secured Claim (including without limitation the Secured Claims of personal property lessors), other than those Secured Claims in Classes 1, 2, 3, 4, 5, 6 or 8.

“Other Subordinated Claims” means any Claim that is subject to subordination to an Allowed Claim in Classes 9, 10 or 11, or Allowed Interest in any junior class, whether by contract, by operation of law, or in accordance with equitable principles, including by operation of Code sections 510 or 726, including without limitation any Claim for punitive damages, fines or penalties, and including without limitation Claims under Texas Revised Civil Statutes article 4590(i) section 11.02, Texas Civil Practice & Remedies Code section 41.008, California Welfare & Institutions Code section 15657(a), California Business & Professions Code section 17200, California Civil Code sections 3294 & 3345, and California Civil Procedure Code section 1021.5, as well as any predecessor or successor laws thereto, or any similar foreign, federal, or state law, regulation or common law, from any jurisdiction, giving rise to any such Claim.

“Petition Date” means (i) October 2, 2001 for all of the Debtors other than Summit Care Texas No. 3, Inc., Fountain View Management Inc., and On-Track Therapy, Inc.; and (ii) November 28, 2001 for Summit Care Texas No. 3, Inc., Fountain View

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Management Inc., and On-Track Therapy, Inc.

“Plan” means the Debtors’ Third Amended Joint Plan of Reorganization Dated April 22, 2003, as it may be subsequently modified or amended.

“Plan Supplement” means the forms of supporting documents necessary to implement the terms of the Plan to be Filed by the Debtors on or before the Exhibit Filing Date.

“Post-Effective Date Subsidiaries” means the directly and indirectly held subsidiaries of Reorganized Fountain View to be formed and become the successors (by sale, assignment, or merger) to the Business Assets not retained by Reorganized Summit Care Pharmacy or any Other Reorganized Debtor pursuant to the Plan and Corporate Restructuring Closing Documents.

“Prepetition Credit Agreement” means that certain Amended and Restated Credit Agreement dated April 16, 1998, as amended from time to time, between the Debtors and the Agent, as agent for the Lenders and any and all related documents, including all documents related to security interests, liens and secured claims of the Agent and Lenders.

“Prepetition Professional Liability Policies” mean (i) policy number B 1999CN00002000 subscribed by Certain Underwriters at Lloyds, London, including but not limited to St. Paul Syndicate Management Limited, American Re/Insurance Company and Great Lakes Reinsurance Company UK, each a subsidiary of Munich Re; (ii) policy number B2000CM00002004 subscribed by Certain Underwriters at Lloyds, London, including but not limited to St. Paul Syndicate Management Limited, American Re/Insurance Company and Great Lakes Reinsurance Company UK, each a subsidiary of Munich Re; (iii) policy number BE 357-94-52 issued by American International Specialty Lines; (iv) policy number BE 476-09-60 issued by American International Specialty Lines/AIU; (v) policy number 2004776 issued by Lexington Insurance Co./AIU; (vi) policy number P159392046 issued by CNA Health Pro; and (vii) policy number UP012395 issued by US Risk.

“Priority Claim” means an Allowed Claim entitled to priority against any Estate under Code section 507(a)(3), 507(a)(4), or 507(a)(6).

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“Priority Tax Claim” means an Allowed Claim entitled to priority against any Estate under Code section 507(a)(8).

“Pro Rata” means proportionately so that the ratio of (i) the amount of consideration distributed on account of a particular Allowed Claim or Allowed Interest to (ii) the Allowed Amount of the Allowed Claim or Allowed Interest, is the same as the ratio of (a) the amount of consideration available for distribution on account of all the Allowed Claims or Allowed Interests of the Class in which the particular Allowed Claim or Allowed Interest is included to (b) the amount of all Allowed Claims or Allowed Interests of that Class.

“Professional Fee Claim” means:

(a) A Claim under Code sections 327, 328, 330, 331, 503, or 1103 for compensation for professional services rendered or expenses incurred; or

(b) A Claim either under Code section 503(b)(4) for compensation for professional services rendered or under Code section 503(b)(3)(D) for expenses incurred in making a substantial contribution to the Estates.

“Record Date” means April 15, 2003, which is the date by which the record holders of the 11¼% Notes must be identified for purposes of the Plan.

“Rejection Damage Claim” means a Claim for rent, other obligations, or damages arising under an unexpired real property or personal property lease or executory contract rejected by any of the Debtors under Bankruptcy Code section 365.

“Reorganization Case” means any particular case commenced by a Debtor under chapter 11 of the Code on the Petition Date and pending before the Court.

“Reorganized Enterprise” means Reorganized Fountain View, Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries.

“Reorganized Fountain View” means Fountain View, Inc., after the Effective Date as reorganized pursuant to the Plan and the Confirmation Order.

“Reorganized Summit Care Pharmacy” means Summit Care Pharmacy,

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Inc., after the Effective Date as reorganized pursuant to the Plan and the Confirmation Order.

“Resident Agreements” means agreements between one or more of the Debtors and each of the patients and residents at their long-term care facilities defining the terms of the services and stay, which include, inter alia, authorization (such as consents for treatment) necessary for the Debtors to carry out their services and bill third-party payors as well as defining the payment obligations of the patients and residents, including all agreements relating to surety bonds issued in connection with resident trust accounts pursuant to general agreements of indemnity, including those certain general agreements of indemnity (Form F5556-11-2000) between Summit Care-California, Inc., Summit Care-Texas, L.P. and Fountain View, Inc., on the one hand, and Western Surety Company, on the other hand.

“Schedule of Assumed or Assigned Agreements” means the schedule, as it may be subsequently amended, to be Filed with the Court and served on all affected non-debtor parties of executory contracts and unexpired leases that: (i) have been or will be assumed by Reorganized Fountain View; or (ii) have been or will be assumed and assigned by one or more of the Debtors to one or more of the Post-Effective Date Subsidiaries.

“Schedule of Rejected Agreements” means the schedule, as it may be subsequently amended, to be filed with the Court and served on all affected non-debtor parties to the hearing on the Disclosure Statement, of executory contracts and unexpired leases to be rejected by one or more of the Debtors as of the Effective Date.

“Schedules” means the schedules of assets and liabilities filed by the Debtors pursuant to Code section 521(1), as amended.

“SEC” means the United States Securities and Exchange Commission.

“Secured Claim” means a Claim that is secured by a valid and unavoidable lien against property in which an Estate has an interest or that is subject to setoff under Code section 553. A Claim is a Secured Claim only to the extent of the value of the holder’s interest in an Estate’s interest in the collateral securing the Claim or to the extent of the amount subject to setoff, whichever is applicable, and as determined under Code section

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506(a).

“Secured Tax Claim” means a Secured Claim of a governmental unit for the payment of taxes.

“Stockholders’ Agreement” means that certain Stockholders’ Agreement dated March 27, 1998 among the holders of the Existing Class A Common Stock, Existing Class B Common Stock, Existing Class C Common Stock, and the Existing Preferred Stock, as subsequently amended on May 4, 1998 and as it shall be amended as of the Effective Date to provide, that: (i) the holders of the Noteholders’ Stock Distribution shall be aggregated for purposes of determining whether any of them is a “Qualified Stockholder” (capitalized terms between quotation marks in this paragraph carry the meaning set forth in the Stockholders’ Agreement) and all such holders shall be deemed to be entitled to all the rights and subject to all the obligations of a “Qualified Stockholder,” under the Stockholders’ Agreement; (ii) no waiver, modification or amendment of the Stockholders’ Agreement shall be valid or binding on the holders of the Noteholders’ Stock unless it is in writing and approved by a majority in interest of the holders of the Noteholders’ Stock if the effect of such waiver, modification or agreement (A) differs in a material and adverse manner from the effect on “Heritage” or (B) would eliminate any of the material rights of such holders of Noteholders’ Stock provided in the Stockholders’ Agreement or create any material additional obligations for the holders of Noteholders’ Stock; (iii) the last sentence of section 7.11 of the Stockholders’ Agreement shall provide that any waiver, modification or amendment which requires any “Investor,” “Management Stockholder” or holder of Noteholders’ Stock to make additional cash contributions shall require the consent of such “Investor,” “Management Stockholder” or holder of Noteholders’ Stock; and (iv) notwithstanding anything else to the contrary in the Stockholders Agreement no holder of Noteholders’ Stock shall be entitled to receive any report, securities filing or other information described in section 7.02 of the Stockholders’ Agreement except as otherwise provided in the indenture governing the New Public Notes or exercise the right of inspection afforded to “Qualified Stockholders” under section 7.03 of the Stockholders’ Agreement.

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“Tax Code” means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

“TDHS Settlement” means that certain settlement agreement, resolving certain alleged deficiencies cited in prepetition surveys conducted by the Texas Department of Human Services, between Summit Care Texas, L.P. and the Texas Department of Human Services dated as of April 14, 2003.

“Treasury Regulations” means regulations promulgated under the Tax Code by the United States Treasury Department.

“Union Bank Extension Agreement” means that certain First Amendment to Extension and Modification Agreement and Modification of Deed of Trust to be entered into between Union Bank of California, N.A. and the Debtors in the form filed with the Plan Supplement and effective upon the occurrence of the Effective Date.

“Unsecured Claim” means a Claim that is not an Administrative Claim, an Administrative Tax Claim, a Priority Claim, a Priority Tax Claim, a Secured Claim, a Secured Tax Claim, or an Other Subordinated Claim.

“U.S. Trustee” means the Office of the United States Trustee.

“Vendors’ Lien” means a junior lien in (i) the Debtors’ real property leases, and (ii) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy businesses in favor of Continuing Creditors, securing extensions of credit by Continuing Creditors in connection with the provision of goods or services to the Reorganized Enterprise in an aggregate amount not to exceed $8 million, in all cases limited to the extent required by the Exit Facility, such liens to be expressly subordinate to the Exit Facility, on terms reasonably acceptable to the Exit Facility lenders, subject to any prior valid and enforceable liens in such assets including those liens securing the Bergen Note and of equal rank with the liens securing the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the New Public Notes; provided, however, that the Vendors’ Lien shall be subject to the same “basket” and release provisions as the lien securing the New Public Notes. The Vendors’ Lien shall be administered by the Claims Agent pursuant to the

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General Claim Holder Agency Agreement between the Debtors and the Claims Agent. The Vendors’ Lien will expire on the date 18 months following the Effective Date unless there is a then-existing default in payment of the Continuing Creditor Deferred Obligation or other extension of maturity in which case the Vendors’ Lien will continue in force until such defaults are cured or the obligation satisfied.

“Woodlands Place Deed of Trust” means a new deed of trust between the holder of the Class 2 Claim and the New Woodlands Entity that, except as may be expressly agreed otherwise by the Debtors and the holder of the Class 2 Claim in accordance with the Woodlands Place Stipulation, shall be on the same terms as the Bank Midwest Deed of Trust provided however that such lien when properly perfected, will be junior to the lien of the Bank Midwest Deed of Trust and shall constitute a second priority lien against the property subject to the Bank Midwest Deed of Trust.

“Woodlands Place Note” means the secured promissory note in the form filed with the Court on or before the Exhibit Filing Date issued (i) to the holder of the Class 2 Claim; (ii) by the New Woodlands Entity; (iii) in a principal amount equal to $1,887,866.62 less the sum of all adequate protection payments received by the holder of the Class 2 Claim after June 6, 2003; (iv) bearing interest on the unpaid principal balance from and after December 1, 2003 at the rate of 9% per annum; (v) with principal and interest being payable monthly in arrears based on a 15-year amortization schedule commencing on the Effective Date; provided, however, that no interest shall be paid or accrued prior to December 1, 2003 and 100% of all monthly payments made prior to December 1, 2003 shall be credited entirely to principal and shall accordingly reduce the final payment due on maturity of the Woodlands Place Note; (v) shall mature in full upon the earlier of (y) the seventh anniversary of the Effective Date; or (z) the sale or other disposition of the Woodlands or the New Woodlands Entity to any person (“Subsequent Transferee”) that is not at least 80% owned or controlled directly or indirectly by Fountain View, Inc., unless the net worth of the Subsequent Transferee (or if the Subsequent Transferee is part of a consolidated group of affiliated entities, the net worth of the Subsequent Transferee’s consolidated group), as

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represented on its balance sheet, prepared in accordance with generally accepted accounting standards and provided to the holder of the Woodlands Place Note at least 15 days prior to the closing date of the transfer, is not less than that of the Reorganized Debtors on a consolidated basis as of the Effective Date, (vi) shall be prepayable without premium or penalty at any time and (vii) provide that the liens securing the Woodlands Place Note shall be subordinate to those of the holder of the Bank Midwest Amended and Restated Note (which, for the avoidance of doubt shall have been amended and restated to provide for, inter alia, repayment of the Bank Midwest Advance).

“Woodlands Place Security Agreement” means a new security agreement between the holder of the Class 2 Claim and the New Woodlands Entity that, except as may be expressly agreed otherwise by the Debtors and the holder of the Class 2 Claim in accordance with the Woodlands Place Stipulation, shall be on the same terms as the Bank Midwest Security Agreement provided however that such lien when properly perfected, will be junior to the lien of the Bank Midwest Security Agreement and will constitute a second priority lien against the property subject to the Bank Midwest Security Agreement.

“Woodlands Place Stipulation” means that certain Stipulation Regarding Treatment Of Woodlands Place Nursing Center L.P. Claim Under Debtors’ Joint Plan Of Reorganization dated June 9, 2003 between Woodlands Place Nursing Center L.P. and Filed with the Court.

B. Rules of Construction.

1. The rules of construction in Code section 102 apply to this Plan.

2. Except as otherwise provided in the Plan, Bankruptcy Rule 9006(a) applies when computing any time period under the Plan.

3. A term that is used in this Plan and that is not defined in this Plan has the meaning attributed to that term, if any, in the Code or the Bankruptcy Rules.

4. The definition given to any term or provision in the Plan supersedes and controls any different meaning that may be given to that term or provision in the Disclosure Statement.

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5. Whenever it is appropriate from the context, each term, whether stated in the singular or the plural, includes both the singular and the plural.

6. Any reference to a document or instrument being in a particular form or on particular terms means that the document or instrument will be substantially in that form or on those terms.

7. Any reference to an existing document means the document as it has been, or may be, amended or supplemented.

8. Unless otherwise indicated, the phrase “under the Plan” and similar words or phrases refer to this Plan in its entirety rather than to only a portion of the Plan.

9. Unless otherwise specified, all references to Sections or Exhibits are references to this Plan’s Sections or Exhibits.

10. Section captions and headings are used only as convenient references and do not affect this Plan’s meaning.

11. The words “herein,” “hereto,” “hereunder,” and other words of similar import refer to this Plan in its entirety rather than to only a particular portion hereof.

II.

DESIGNATION OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS

A. Summary of Classification of Claims.

This Section classifies Claims—except for Administrative Claims, Priority Claims, and Priority Tax Claims, which are not classified—for all purposes, including voting, confirmation, and distribution under the Plan. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest falls within the Class description. To the extent that part of the Claim or Interest falls within a different Class description, that part of the Claim or Interest is classified in that different Class. The following table summarizes the Classes of Claims and Interests under this Plan.

CLASS	DESCRIPTION	IMPAIRED/ UNIMPAIRED	VOTING STATUS
None	Administrative Claims, Priority Claims and Priority Tax Claims	Unimpaired	Deemed to Accept – Vote Not Solicited

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Class 1	Secured Claims of Bank Midwest (The Woodlands, TX)	Impaired	Entitled to Vote
Class 2	Secured Claims of Woodlands Place Nursing Center, L.P. (The Woodlands, TX)	Impaired	Entitled to Vote
Class 3	Secured Tax Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 4	Secured Claims of Union Bank of California, N.A.	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 5	Secured Claim of Leonard and Catherine May	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 6	Secured Claims of Bergen	Impaired	Entitled to Vote
Class 7	Other Secured Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 8	Secured Claims of the Agent and the Lenders	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 9	11 1/4% Note Claims	Impaired	Entitled to Vote
Class 10	General Unsecured Claims	Impaired	Entitled to Vote
Class 11	Convenience Claims	Unimpaired	Deemed to Accept – Vote Not Solicited
Class 12	Insured Professional Liability Claims	Impaired	Entitled to Vote
Class 13	Uninsured Punitive Damage Claims and Other Subordinated Liabilities	Impaired	Entitled to Vote
Class 14	Existing Preferred Stock	Impaired	Entitled to Vote
Class 15	Existing Class A Common Stock	Impaired	Entitled to Vote
Class 16	Existing Class B Common Stock	Impaired	Deemed to Reject – Vote Not Solicited
Class 17	Existing Class C Common Stock	Impaired	Entitled to Vote
Class 18	Existing Warrants	Impaired	Entitled to Vote
Class 19	Existing Management Incentives and Other Existing Interests	Impaired	Deemed to Reject – Vote Not Solicited

Notwithstanding anything to the contrary herein, no distributions will be

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made and no rights will be retained on account of any Claim (or Interest) that is not an Allowed Claim (or Allowed Interest).

The treatment in this Plan is in full and complete satisfaction of the legal, contractual, and equitable rights that each entity holding a Claim or an Interest may have in or against any Debtor, any Estate, or their respective property. This treatment supercedes and replaces any agreements or rights those entities have in or against any Debtor, any Estate, the Reorganized Enterprise, or their respective property. Except as otherwise specifically provided herein, all distributions under the Plan will be tendered to the entity holding the Allowed Claim or Allowed Interest.

B. Allowance and Treatment of Unclassified Claims (Administrative Claims, Priority Tax Claims, and Priority Claims).

Entities that hold Administrative Claims other than Ordinary Course Administrative Claims and that do not timely file and serve a proof of Claim or a motion seeking payment in accordance with this Section are forever barred from asserting those Administrative Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property.

1. Administrative Claims.

Allowance of Ordinary Course Administrative Claims: An entity holding an Ordinary Course Administrative Claim may, but need not, File a request for payment of its Claim. The Debtors or the Reorganized Enterprise may File an objection to an Ordinary Course Administrative Claim in their discretion. Unless the Debtors object to an Ordinary Course Administrative Claim, such Claim will be allowed in accordance with the terms and conditions of the particular transaction that gave rise to the Claim.

Allowance of Cure Payments: Cure Payments shall be allowed in accordance with the procedures set forth in Section III.A of the Plan.

Allowance of Non-Ordinary Course Administrative Claims (other than Professional Fee Claims and Cure Payments): Unless the Debtors or the Reorganized Enterprise otherwise agree or as otherwise expressly provided herein, Non-Ordinary Course

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Administrative Claims other than Professional Fee Claims will be allowed only if:

(i) On or before the sixtieth day after the Effective Date, the entity holding the Non-Ordinary Course Administrative Claim Files a request for payment of its Claim and serves the request on the Debtors’ Counsel, the U.S. Trustee, and counsel for the Committees; and

(ii) The Court allows the Claim by Final Order.

The Reorganized Enterprise or any other party in interest may File an objection to such request for payment within the time provided by the Bankruptcy Rules or within any other period that the Court establishes. Entities holding Non-Ordinary Course Administrative Claims that do not timely File and serve a request for payment will be forever barred from asserting those Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property.

Allowance of Professional Fee Claims: A Professional Fee Claim will be allowed only if:

(i) On or before the sixtieth day after the Effective Date, the entity holding the Professional Fee Claim both Files with the Court a final fee application or a motion requesting allowance and payment of the fees and serves the application or motion on the Debtors’ Counsel, the U.S. Trustee, and counsel to the Committees; and

(ii) The Court allows the Claim.

The Reorganized Enterprise or any other party in interest may File an objection to such application or motion within the time provided by the Bankruptcy Rules or within any other period that the Court establishes. Entities holding Professional Fee Claims who do not timely File and serve a fee application or motion for allowance and payment will be forever barred from asserting those Claims against the Debtors, the Estates, the Reorganized Enterprise, or their respective property.

Treatment of Allowed Ordinary Course Administrative Claims: Unless the entity holding an Allowed Ordinary Course Administrative Claim and the Debtors agree

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otherwise, the Claim will be paid by the Disbursing Agent in accordance with the terms and conditions of the particular transaction that gave rise to the Claim.

Treatment of Allowed Non-Ordinary Course Administrative Claims:

(i) Professional Fee Claims – Unless the entity holding a Professional Fee Claim allowed by the Court agrees to different treatment, the Disbursing Agent will pay to that entity cash in the full amount of the Professional Fee Claim, without interest, within five days after the date on which the Court allows such Claim.

(ii) Cure Payments – Cure Payments will be made to the non-debtor parties to the executory contracts or unexpired leases set forth on the Schedule of Assumed or Assigned Agreements, in accordance with Section III.A.2 of the Plan.

(iii) U.S. Trustee fees under 28 U.S.C. § 1930 – The Disbursing Agent will pay to the U.S. Trustee all fees due and owing under 28 U.S.C. § 1930 in cash on the Effective Date.

(iv) Indenture Trustee’s Fees and Expenses and Indenture Trustee’s Attorneys’ Fees and Expenses. The Disbursing Agent will pay the reasonable trustee fees and expenses and the reasonable attorneys’ fees and expenses of the Indenture Trustee in the aggregate approximate amount of $125,000, without interest, on or before the later of: (i) 30 days after the Effective Date; or (ii) 30 days after the date (I) on which Reorganized Fountain View receives from the Indenture Trustee a reasonably detailed itemized statement of the trustee fees and expenses and attorneys’ fees and expenses it has incurred in connection with acting as Indenture Trustee so long as Reorganized Fountain View does not, within such 30 day period, give written notice to the Indenture Trustee that it disputes the reasonableness of such fees and expenses or any part thereof, or (II) the Claim of the Indenture Trustee for reimbursement of its reasonable trustee fees and expenses and its reasonable attorneys’ fees and expenses becomes an Allowed Claim. If Reorganized Fountain View gives the Indenture Trustee timely written notice that it disputes the reasonableness of the trustee fees and expenses or the attorneys’ fees and expenses, or any part thereof, for which the Indenture Trustee seeks reimbursement, the amount of the Allowed Claim on account of such fees and

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expenses shall be determined by the Court as if such Claim were a Professional Fee Claim.

(v) Other Non-Ordinary Course Administrative Claims – Unless the entity holding an Allowed Non-Ordinary Course Administrative Claim (other than a Professional Fee Claim, Cure Payment, Indenture Trustee fee Claim, or U.S. Trustee fee Claim) and the Debtors agree otherwise, the Disbursing Agent will pay to that entity cash in the Allowed Claim’s full amount, without interest, on or before the latest of: (a) 30 days after the Effective Date; (b) 30 days after the date on which the Non-Ordinary Course Administrative Claim becomes an Allowed Claim; or (c) the date on which the Allowed Claim becomes due and payable in accordance with its terms.

2. Priority Claims.

Treatment of Priority Claims: Unless the entity holding an Allowed Priority Claim and the Debtors agree otherwise, the Disbursing Agent will pay to that entity cash in the full amount of the Allowed Priority Claims, without interest, on or before the latest of: (i) the Distribution Date; (ii) 30 days after the date on which the Priority Claim becomes an Allowed Priority Claim; or (iii) the date on which the Allowed Priority Claim becomes due and payable in accordance with its terms.

Treatment of Priority Tax Claims: Unless the entity holding an Allowed Priority Tax Claim and the Debtors agree otherwise, the Disbursing Agent will pay to that entity the amount of its Allowed Priority Tax Claim, together with interest from the Petition Date to the date of payment calculated at the federal judgment rate as of the Petition Date, on the latest of (i) the Distribution Date; (ii) 30 days after the date such Priority Tax Claim becomes an Allowed Claim; or (iii) the date on which the Allowed Priority Tax Claim becomes due and payable in accordance with its terms.

C. Classification and Treatment of Secured Claims (Classes 1, 2, 3, 4, 5, 6, 7, & 8).

1. Class 1 (Bank Midwest—Impaired).

Classification: Class 1 consists of all Claims held by Bank Midwest, N.A. as assignee and successor in interest to the Secretary of Housing and Urban Development,

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pursuant to that certain Deed of Trust Note dated as of March 6, 1985 as renewed, modified, extended and consolidated pursuant to that certain Allonge thereto dated as of December 1, 1993, and all documents collateral thereto.

Treatment: Unless the holder of the Class 1 Claim agrees to other treatment, on or as soon as reasonably practicable after the Effective Date, in accordance with the terms of the Bank Midwest Stipulation (which are incorporated by reference herein and thereby made a part of the Plan), the holder of the Class 1 Claim shall make the Bank Midwest Advance and shall receive the Bank Midwest Amended and Restated Note which shall be secured by the Bank Midwest Deed of Trust and the Bank Midwest Security Agreement.

2. Class 2 (Woodlands Place Nursing Center, L.P.—Impaired)

Classification: Class 2 consists of all Claims of Woodlands Place Nursing Center, L.P., and any successor thereto, on account of that certain Agreement of Purchase and Sale of Assets dated November 6, 1993 between Woodlands Place Nursing Center, Inc. and Summit Care Texas No. 3, Inc. and that certain Note dated as of December 1, 1993 which are secured pursuant to that certain Warranty Deed With Vendor’s Lien dated as of December 1, 1993 and recorded as instrument No. 9404875 in the Public Records of Montgomery County, Texas and any other documents ancillary thereto.

Treatment: Unless the holder of the Class 2 Claim agrees to other treatment, in accordance with the terms of the Woodlands Place Stipulation (which are incorporated by reference herein and thereby made a part of the Plan), the holder of the Class 2 Claim shall receive (i) reimbursement for its as yet unreimbursed actual, reasonable legal fees and expenses in an amount not to exceed $35,000 (a) upon the Effective Date if the amount of such fees and expenses is not then disputed in good faith by the Debtors, or (b) if the amount of the reasonable actual legal fees and expenses is disputed in good faith by the Debtors, upon the resolution by Final Order of such dispute; and (ii) as soon as reasonably practicable after the Effective Date, the Woodlands Place Note and shall, as security for the payment of the obligations thereunder, receive the Woodlands Place Deed of Trust and the Woodlands Place Security Agreement.

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3. Class 3 (Secured Tax Claims—Unimpaired).

Classification: Class 3 consists of the Secured Tax Claims.

Treatment: Unless the holder of an Allowed Class 3 Claim agrees to other treatment, the Disbursing Agent shall pay to such holder cash in the allowed amount of such holder’s Class 3 Allowed Claim on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Secured Tax Claim becomes an Allowed Secured Tax Claim; or (ii) the date such Allowed Secured Tax Claim becomes due and payable in accordance with its terms.

4. Class 4 (Union Bank of California—Unimpaired).

Classification: Class 4 consists of the Claims of Union Bank of California, N.A. under that certain Amended and Restated Commercial Promissory Note dated as of April 1, 2001 which are secured, pursuant to that certain Extension and Modification Agreement and Modification of Deed of Trust dated April 1, 2001, in the real property and personal property affixed thereto located at 730 North Frederick Street and 2600 West Magnolia Boulevard, Burbank, California, as such obligations shall be further modified and extended pursuant to the Union Bank Extension Agreement.

Treatment: Unless the holder of the Class 4 Claim agrees to other treatment, on or as soon as reasonably practicable after the Effective Date, Reorganized Fountain View shall (i) cure any default, other than a default of a kind specified in Bankruptcy Code section 365(b)(2), with respect to such holder’s Allowed Class 4 Claim, without recognition of any default rate of interest or similar penalty or charge, and upon such cure, no default shall exist; (ii) reinstate the maturity of such Allowed Class 4 Claim as the maturity existed before any default, without recognition of any default rate of interest or similar penalty or charge; and (iii) leave unaltered all other legal, equitable, and contractual rights of such holder with respect to such Allowed Class 4 Claim as such obligations shall be further modified by the Union Bank Extension Agreement. Notwithstanding the foregoing, the Confirmation Order shall constitute an order of the Court authorizing the sale of the property securing the Class 4 Claim free and clear of the liens of the holder of the Class 4 Claim in accordance with

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sections 363, 1123 and 1129 of the Bankruptcy Code, and all applicable Bankruptcy Rules, provided, however, that concurrently with any such sale the Class 4 Claim is satisfied by the payment from the proceeds of any such sale to the holder of the Class 4 Claim of cash in an amount equal to Allowed Class 4 Claim.

5. Class 5 (Leonard and Catherine May—Unimpaired).

Classification: Class 5 consists of all Claims of Leonard and Catherine May.

Treatment: The holders of the Class 5 Claim shall receive in full satisfaction of the Class 5 Allowed Claim cash in the amount of the Class 5 Allowed Claim (after crediting all adequate protection payments made by the Debtors) without recognition of any default rate of interest or similar penalty or charge.

6. Class 6 (Bergen—Impaired).

Classification: Class 6 consists of all Claims of Bergen, and any affiliates or successors thereto, secured by that certain Security Agreement dated March 29, 2001 between Bergen and Summit Care Pharmacy, Inc.

Treatment: The holder of the Class 6 Claims shall receive (i) cash in an amount equal to forty percent of (a) $1,710,562.10 plus interest thereon from the Petition Date to the Effective Date at the rate of 9½% per annum, and (b) Bergen’s reasonable, actual attorneys’ fees and expenses incurred in connection with the Reorganization Cases not to exceed $40,000; and (ii) the Bergen Note issued to (a) Bergen (or, if applicable, any transferee of Bergen holding the Class 6 Claim), (b) by Reorganized Summit Care Pharmacy, (c) in a principal amount equal to sixty percent of (x) $1,710,562.10 plus interest thereon from the Petition Date to the Effective Date at the rate of 9½% per annum, and (y) Bergen’s reasonable, actual attorneys’ fees and expenses incurred in connection with the Reorganization Cases not to exceed $40,000, (d) bearing interest from and after the Effective Date at the rate of 9½% per annum, (e) with interest only being payable in arrears for the first six monthly payments following the Effective Date, and, thereafter, with principal and interest being payable monthly in arrears and fully amortizing over the following eighteen months, and (f) with a final maturity date of the second anniversary of the Effective Date;

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provided, however, that the Bergen Note may be prepaid in part or in whole at any time without penalty or premium.

The Bergen Note shall be secured by a lien in all property of Reorganized Summit Care Pharmacy of the same nature and type as that previously securing the Class 6 Claim other than the accounts receivable of Reorganized Summit Care Pharmacy which accounts shall not be subject to any lien securing the obligations under the Bergen Note. The liens securing the Bergen Note shall be (i) expressly subordinated to the Exit Facility on terms reasonably acceptable to the Exit Facility lenders; and (ii) senior to all other liens in the property of Reorganized Summit Care Pharmacy subject to the liens securing the Bergen Note, including the liens securing the New Public Notes, the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien.

7. Class 7 (Other Secured Claims Including Personal Property Lessors—Unimpaired).

Classification: Class 7 consists of all Other Secured Claims including the Claims of personal property lessors.

Treatment: Unless the holder of the Class 7 Claim agrees to other treatment, on or as soon as reasonably practicable after the Effective Date, the Reorganized Enterprise shall at its option either (i) pay to such holder cash in the allowed amount of such holder’s Allowed Class 7 Claim plus interest calculated at 2.49%¹ per annum from the Petition Date through the date of payment on the later of (a) as soon as reasonably practicable after the Effective Date, or (b) 30 days after the date on which the Other Secured Claim becomes an Allowed Other Secured Claim; (ii) abandon the collateral securing such Class 7 Claim; or (iii) (a) cure any default, other than a default of a kind specified in Bankruptcy Code section 365(b)(2), with respect to such holder’s Allowed Class 7 Claim, without recognition of any default rate of interest or similar penalty or charge, and upon such cure, no default shall exist, (b) reinstate the maturity of such Allowed Class 7 Claim as the maturity existed before

¹ 2.49% is the federal judgment rate of interest as of October 2, 2001, the Petition Date for Fountain View, and 19 of its direct and indirect subsidiaries.

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any default, without recognition of any default rate of interest or similar penalty or charge, and (c) leave unaltered all other legal, equitable, and contractual rights of such holder with respect to such Allowed Class 7 Claim. Any defenses, counterclaims, rights of offset, or recoupment of the Debtors, the Estates, or the Reorganized Enterprise with respect to such Claims shall vest in and inure to the benefit of the Reorganized Enterprise.

8. Class 8 (Agent and Lenders—Unimpaired).

Classification: Class 8 consists of the Secured Claims of the Agent and the Lenders.

Treatment: The Disbursing Agent (i) shall pay to the Agent cash in an amount equal to the aggregate amount of all Class 8 Allowed Claims on the Effective Date (which shall include outstanding principal as of the Petition Date, plus interest as determined under the terms of the Prepetition Credit Agreement, plus all fees and expenses and costs of the Agent pursuant to the terms of the Prepetition Credit Agreement, less all adequate protection payments, all supplemental adequate protection payments, and all expense reimbursements pursuant to cash collateral orders); and (ii) shall, with respect to each outstanding letter of credit issued by any of the Lenders for the account of any of the Debtors, at the Debtors’ option, either (a) cause such letter of credit to be released undrawn by the beneficiary thereof, or (b) cash collateralize the reimbursement obligation under such letter of credit in an amount equal to 110% of the then outstanding contingent obligation under such letter of credit.

All Claims, liens, and security interests of the Agent and the Lenders under the Prepetition Credit Agreement, as well as any rights held by the Agent and the Lenders pursuant to any subordination agreement, including, without limitation, the subordination provisions of the Indenture, shall be extinguished upon the satisfaction in full of the Class 8 Allowed Claims as set forth in this Section II.C.8.

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D. Classification and Treatment of Unsecured Claims (Classes 9, 10, 11, & 12).

1. Class 9 (11 ¹/4% Notes—Impaired).

Classification: Class 9 consists of the 11 ¹/4% Notes.

Treatment: All Class 9 Claims shall be satisfied by the distribution as soon as reasonably practicable after the Effective Date, but in no event later than 10 days after the Effective Date, to the Indenture Trustee, who shall act as the Disbursing Agent for Class 9 and shall distribute to the holders of the 11 ¹/4% Notes, as of the Record Date, Pro Rata:

a. The Initial Cash Payment;

b. The Noteholders’ Stock Distribution; and

c. The New Public Notes.

Upon completion of all of its obligations as the Class 9 Disbursing Agent under the Plan, the Indenture Trustee shall be irrevocably released from all of its obligations under that certain indenture dated April 16, 1998 between the Indenture Trustee and Fountain View, Inc. On the Effective Date, such indenture shall be deemed terminated, and the liens granted to secure the obligations under such indenture shall be deemed to be discharged.

The Confirmation Order shall provide that each record holder of Noteholders’ Stock shall be entitled to all the rights and shall be subject to all the obligations otherwise applicable under the Stockholders’ Agreement to “Qualified Stockholders” as such term is defined therein. Fractional shares of New Class A Common Stock will not be issued. Holders of Class 9 Allowed Claims entitled to a fractional share distribution of New Class A Common Stock out of the Noteholders’ Stock Distribution equal to or greater than one-half of a share of New Class A Common Stock shall receive one whole share of New Class A Common Stock. No distribution shall be made on account of fractional entitlements of less than one-half of a share of New Class A Common Stock.

The New Public Notes shall be issued pursuant to a qualified trust indenture, in the form submitted by the Debtors in the Plan Supplement, in an aggregate principal amount equal to (i) $133,012,500, plus (ii) postpetition interest on $133,012,500 from the Petition

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Date to the Effective Date of the Plan at the rate of 9 ¹/2% per annum, less (iii) the Initial Cash Payment. The Debtors will use reasonable best efforts to have the New Public Notes rated by Standard & Poors Corp. and Moody’s Investors Service as soon as reasonably practicable, but, in any event, within three months of the Effective Date. The indenture governing the New Public Notes shall include provisions incorporating the following terms and conditions:

Maturity Date: A maturity date one Business Day after the date on which the final principal payment on the Exit Facility is due, but in no event beyond the sixth anniversary of the Effective Date.

Lien: A junior lien to secure the New Public Notes in (i) the Debtors’ real property leases, and (ii) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy businesses, in all cases limited to the extent required by the Exit Facility, such liens to be expressly subordinate to the Exit Facility, subject to any prior valid and enforceable liens in such assets including those liens securing the Bergen Note and of equal rank with the liens securing the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien; provided, however, that the New Public Notes shall contain “basket” and release provisions² in connection with such liens as may be customary in high-yield public trust indentures and to be negotiated in good faith and reasonably acceptable to the Debtors and the Noteholders’ Committee.

Covenants: The indenture shall contain such covenants as are customary in high-yield public trust indentures and agreed upon in good faith by the Debtors and the Noteholders’ Committee; provided, however, that the indenture will contain: (i) limitations on restricted payments (including a prohibition on dividends and distributions to shareholders, management fees (other than reimbursement of actual out of pocket expenses and, to the extent consistent with past practice, allocated expenses, which have historically averaged approximately $200,000 per year), stock repurchases, non-mandatory payments on

² “Basket and release provisions” permit limited substitution of collateral and sales free and clear of liens with respect to property pledged as a pool to support a secured obligation. Such provisions are customary in secured public trust indentures given the difficulty of obtaining transaction specific lien releases from the dispersed holders of public debt.

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account of debt subordinated to the New Public Notes, and investments other than investments permitted by the terms of the indenture governing the New Public Notes); and (ii) restrictive covenants regarding (a) debt incurrence (subject to tests and exceptions contained in the indenture), and (b) use of asset sale proceeds; provided, further, however, that any covenants in the indenture may be waived, amended, or modified with the consent of the holders of 60% in interest of the New Public Notes. So long as any New Public Notes remain outstanding, Reorganized Fountain View will furnish to the indenture trustee for distribution to the holders of the New Public Notes, and file with the SEC (unless such filing will not be accepted) and otherwise make such information available to securities analysts and prospective investors upon request, within the time periods specified by the rules and regulations of the SEC (whether or not Reorganized Fountain View is required by such rules or regulations to do so): (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if Reorganized Fountain View were required to file such forms, including a Management’s Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual financial information only, a report on the annual financial statements by an independent certified public accounting firm; and (ii) all current reports that would be required to be filed on Form 8-K if Reorganized Fountain View were required to file such reports. So long as any New Public Notes remain outstanding, Reorganized Fountain View shall comply with section 314(a) of the Trust Indenture Act and shall furnish the information required to be delivered pursuant to Rule 144(d)(4) under the Securities Act of 1933 upon the request of any holder of the New Public Notes, securities analysts, or prospective investors.

Interest: Interest will be payable semi-annually in arrears, at the rate of 9 ¹/4% per annum until the first anniversary of the Effective Date, 11 ¹/4% per annum between the first and second anniversaries of the Effective Date, 13 ¹/4% per annum between the second and third anniversaries of the Effective Date, and 15% per annum thereafter until maturity.

Call: The New Public Notes shall be callable at par plus accrued interest through the applicable record date, in whole or in part, at any time.

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Mandatory Prepayment: To the extent permitted by the Exit Facility, Reorganized Fountain View shall prepay the New Public Notes in an amount equal to 80% of Excess Cash Flow.

2. Class 10 (General Unsecured Claims—Impaired).

Classification: Class 10 consists of all Unsecured Claims other than (i) Claims in Classes 9, 11, 12, and 13, and (ii) Claims held by one of the Debtors extinguished pursuant to Section IV.A of the Plan. Claims that would otherwise be Class 10 Claims will be classified and treated as Class 11 Claims, if the holder makes the Convenience Class Election; provided, however, that any holder that makes the Convenience Class Election but holds aggregate Allowed Class 10 Claims in excess of $1,250 will be classified and treated in Class 10 under payment option 10A as voting to accept the Plan and will receive cash equal to 80% of such holder’s Allowed Claims without postpetition interest.

Treatment: Holders of Class 10 Claims must elect in writing payment option 10A or 10B on or before the last date fixed by the Court for the timely submission of Ballots; provided, however, that a holder of a Disputed Claim in Class 10 must make its election before the later of the deadline to submit Ballots and 14 days after the date upon which its Claim becomes an Allowed Claim. Holders who fail to make a timely and valid election in writing shall be afforded treatment under payment option 10B. The Disbursing Agent will make distributions to the holder of each Class 10 Allowed Claim, in accordance with such holder’s applicable payment option on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Claim becomes an Allowed Claim; or (iii) the date such Claim becomes due and payable in accordance with its terms.

Payment Option 10A is cash equal to 80% of the Allowed Claim without postpetition interest.

Payment Option 10B is:

(i) for all holders other than Continuing Creditors,

(a) cash equal to the sum of:

(y) 40% of the Allowed Claim, and

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(z) postpetition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date through the date of payment (provided, however, that notwithstanding anything to the contrary herein no prejudgment interest shall accrue or be paid with respect to any unliquidated Class 10 Claim prior to its liquidation except as provided by otherwise applicable non-bankruptcy law); and

(b) a Class 10 Deferred Obligation in a principal amount equal to 60% of the Allowed Claim; or

(ii) for Continuing Creditors,

(a) cash equal to the sum of:

(y) 65% of the Allowed Claim, and

(z) postpetition interest calculated at the rate of 9½% per annum on the full amount of the Allowed Claim from the Petition Date through the date of payment; and

(b) a Continuing Creditor Deferred Obligation in a principal amount equal to 35% of the Allowed Claim.

The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will be obligations of Reorganized Fountain View guaranteed by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries (except for any special purposes entities formed for insurance coverage purposes) to the extent permitted by the Exit Facility. The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will bear interest payable in arrears from and after the date of the initial cash payment under payment option 10B in respect of such Class 10 Claim at the rate of 9½% per annum; provided, however, that after maturity (whether by acceleration or otherwise) interest shall accrue at the rate of 11½% per annum. The Class 10 Deferred Obligation will be payable in five semiannual installments each of which shall consist of principal installments equal to one-fifth its original principal amount together with accrued interest on the remaining unpaid principal balance and the Continuing Creditor

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Obligation will be payable in three semiannual installments each of which shall consist of principal installments equal to one-third its original principal amount together with accrued interest on the remaining unpaid principal balance, such installments to commence on the first Business Day that is at least 180 days after the Effective Date; provided, however, that, should the Noteholder Prepayment Percentage exceed 50%, Reorganized Fountain View shall prepay the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation Pro Rata (to be credited against scheduled amortization payments relating to such Class 10 Deferred Obligation or Continuing Creditor Deferred Obligation in reverse order of maturity) in an amount equal to the initial amount of such Class 10 Deferred Obligation or the Continuing Creditor Deferred Obligation multiplied by the Noteholder Prepayment Percentage less all prior principal payments on account of such Class 10 Deferred Obligation or Continuing Creditor Deferred Obligation. The Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation will be secured by liens (which shall be expressly subordinated to those securing the Exit Facility on terms reasonably acceptable to the Exit Facility lenders as well as any prior perfected and valid liens retained under the Plan) against (a) the Debtors’ real property leases, and (b) the Business Assets of the Reorganized Enterprise’s pharmacy and therapy businesses, such liens to be of equal rank and otherwise subject to the same limitations as the liens securing the New Public Notes and the Vendors’ Lien. The lien securing the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation shall be subject to the same “basket” and release provisions as the lien securing the New Public Notes.³ The lien securing the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation shall be administered by the Claims Agent under a collateral trust agreement or similar agreement, which agreement (together with such ancillary documents as may be reasonably necessary to implement its terms) shall be in the form submitted by the Debtors in the Plan Supplement and shall provide for acceleration of

³ “Basket and release provisions” permit limited substitution of collateral and sales free and clear of liens with respect to property pledged as a pool to support a secured obligation. Such provisions are customary in secured public trust indentures given the difficulty of obtaining transaction specific lien releases from the dispersed holders of public debt.

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the Class 10 Deferred Obligation and the Continuing Creditor Deferred Obligation and enforcement of the lien by the Claims Agent in the event of (i) a payment default on the Class 10 Deferred Obligation and Continuing Creditor Deferred Obligation (in either case, following five business days written notice and failure to cure); (ii) upon the acceleration or any exercise of remedies by any party of the New Public Notes, the Exit Facility, or any comparable obligation following a default under such agreement; (iii) or the filing of a bankruptcy case by Reorganized Fountain View.

For the avoidance of doubt, the amount of any mandatory prepayment under the Noteholder Prepayment Percentage shall be calculated in accordance with the following:

Example 1: Class 10 Deferred Obligation:

Assume the Noteholder Prepayment Percentage is 60% on the date eight months following the Effective Date and the regularly scheduled amortization payment in an amount equal to 20% of the initial amount of the Class 10 Deferred Obligation has been made, such that its principal amount has been reduced from $1500 to $1200. A mandatory prepayment would then be due in the amount of $600 in order to further reduce the then outstanding principal balance to $600. This mandatory prepayment would be credited against the final two amortization payments. Assuming no further increase in the Noteholder Prepayment Percentage, the regularly scheduled amortization payment on the first anniversary of the Effective Date would, therefore, remain $300, and the third regularly scheduled amortization payment due one year after the first Business Day following 180 days after the Effective Date would extinguish the Class 10 Deferred Obligation.

Example 2: Continuing Creditor Deferred Obligation:

Assume the Noteholder Prepayment Percentage is 60% on the date eight months following the Effective Date and the regularly scheduled amortization payment in an amount equal to 33.33% of the initial amount of the Continuing Creditor Deferred Obligation has been made, such that its initial principal amount has been reduced from $1500 to $1000. A mandatory prepayment would then be due in the amount of $400 in order to further reduce the then outstanding principal balance to $600. This mandatory prepayment would be

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credited against the final amortization payment. Assuming no further increase in the Noteholder Prepayment Percentage, the regularly scheduled amortization payment on the first anniversary of the Effective Date would, therefore, remain $500, and upon final maturity the then remaining balance of $100 would be due.

3. Class 11 (Convenience Claims—Unimpaired).

Classification: Class 11 consists of Convenience Claims.

Treatment: The legal, equitable and contractual rights of the holders of Class 11 Claim are unaltered under the Plan. The Disbursing Agent will distribute to holders of Class 11 Allowed Claims cash equal to the allowed amount of the Convenience Claim plus interest calculated at 2.49%⁴ per annum from the Petition Date through the date of payment on the latest of (i) as soon as reasonably practicable after the Effective Date; (ii) 30 days after the date on which the Convenience Claim becomes an Allowed Claim; or (iii) the date such Convenience Claim becomes due and payable in accordance with its terms.

Holders of Class 10 Claims validly making the Convenience Class Election will be treated as follows: (i) if the aggregate amount of their Allowed Class 10 Claims is equal to or less than $1,250, they will be treated in Class 11, deemed to accept the Plan, and will receive $1,000 in full and final satisfaction of all of their Allowed Class 10 Claims; or (ii) if the aggregate amount of their Allowed Class 10 Claims is in excess of $1,250, they will be treated in Class 10 under payment option 10A, deemed to accept the Plan, and will receive cash equal to 80% of such holder’s Allowed Class 10 Claims without postpetition interest.

4. Class 12 (Insured Professional Liability Claims—Impaired).

Classification: Class 12 consists of Claims that are insured pursuant to the Debtors’ Prepetition Professional Liability Policies.

Treatment: Upon the later of (i) as soon as reasonably practicable after the Effective Date, and (ii) 30 days after the date upon which the Class 12 Claim (as liquidated

⁴ 2.49% is the federal judgment rate of interest as of October 2, 2001, the Petition Date for Fountain View, Inc. and 19 of its direct and indirect subsidiaries.

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through settlements, the ADR Procedures, Article IV.H of the Plan to the extent permitted by applicable law, or litigation) becomes an Allowed Claim, the applicable Class 12 Allowed Claim will be paid in full in cash exclusively from the applicable Prepetition Professional Liability Policy, except to the extent of any unexhausted self-insured retention thereunder. The uninsured portion of any Class 12 Allowed Claim, if any, shall, to that extent, be reclassified as a Class 10 Allowed Claim; provided, however, that the uninsured punitive damages portion of any Class 12 Allowed Claim shall be reclassified as a Class 13 Allowed Claim. The 14 day period to elect between payment option 10A or 10B under Class 10 treatment shall commence on the date the uninsured portion of any Class 12 Allowed Claim is reclassified as a Class 10 Claim.

5. Class 13 (Other Subordinated Claims—Impaired).

Classification: Class 13 consists of Other Subordinated Claims.

Treatment: When and if any Class 13 Claim becomes an Allowed Claim, the holder thereof will receive a promissory note in the form set forth in the Plan Supplement in the principal amount of such holder’s Allowed Claim issued by Reorganized Fountain View. The promissory note will accrue interest from the date the Class 13 Claim becomes an Allowed Claim at the current federal judgment rate in effect on the date the Class 13 Claim becomes an Allowed Claim and shall be subordinated in right of payment to the New Public Notes, the Vendors’ Lien, and the liens securing the Continuing Creditor Deferred Obligation and the Class 10 Deferred Obligation and the Exit Facility and mature on the eleventh anniversary of the Effective Date.

E. Treatment of Interests (Classes 14, 15, 16, 17, 18, & 19).

1. Class 14 (Existing Preferred Stock—Impaired).

Classification: Class 14 consists of the Existing Preferred Stock.

Treatment: The Existing Preferred Stock shall be cancelled and on the Distribution Date the holders thereof shall receive in exchange for each share of Existing Preferred Stock one share of New Preferred Stock; provided, however, no such holder shall receive any New Preferred Stock unless and until such holder agrees in writing to be bound

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by the Stockholders’ Agreement. The New Preferred Stock to be issued and reserved under the Plan shall have the same attributes as the Existing Preferred Stock except that Reorganized Fountain View’s articles of incorporation will be amended in the form provided in the Plan Supplement, and pursuant to those amended and restated articles of incorporation the holders of New Preferred Stock shall have one-tenth of a vote per share of New Preferred Stock on all matters requiring a shareholder vote. The New Preferred Stock shall not be convertible into New Class A Common Stock.

2. Class 15 (Existing Class A Common Stock—Impaired).

Classification: Class 15 consists of the Existing Class A Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto.

Treatment: The Existing Class A Common Stock and any Claims for rescission or damages related thereto shall be cancelled and on the Distribution Date the holders thereof will receive in exchange for each share of Existing Class A Common Stock 1.1142 shares of New Class A Common Stock of Reorganized Fountain View; provided, however, that no such holder shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement. The Class 15 Allowed Interests shall be diluted by the Noteholders’ Stock Distribution. Fractional shares of New Class A Common Stock will not be issued. Holders of Existing Class A Common Stock that would otherwise be entitled to a fractional share distribution of New Class A Common Stock equal to or greater than one-half of a share of New Class A Common Stock shall receive one whole share of New Class A Common Stock. No distribution shall be made on account of fractional entitlements of less than one-half of a share of New Class A Common Stock. The New Class A Common Stock to be issued and reserved under the Plan shall have the following attributes:

a. Authorization and Issuance. Reorganized Fountain View’s articles of incorporation will authorize the issuance of 1,500,000 shares of New Class A Common Stock (subject to further amendment after the Effective Date), of which approximately 1,193,586 shares will be outstanding as of the Effective Date.

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b. Par Value. The New Class A Common Stock shall have a par value of $.01 per share.

c. Rights. The New Class A Common Stock shall have such rights with respect to dividends, liquidations, voting, and other matters as are set forth in Fountain View, Inc.’s articles of incorporation, as amended and restated and filed with the Court in the Plan Supplement, and as otherwise provided by applicable law.

3. Class 16 (Existing Class B Common Stock—Impaired).

Classification: Class 16 consists of the Existing Class B Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto.

Treatment: Class 16 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 16 Allowed Interests will neither receive nor retain any property on account of the Plan.

4. Class 17 (Existing Class C Common Stock—Impaired).

Classification: Class 17 consists of the Existing Class C Common Stock and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto.

Treatment: Class 17 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 17 Allowed Interests shall receive on the Distribution Date the number of New Class A Common Stock in Reorganized Fountain View equal to the number of cancelled shares of Existing Class C Common Stock held by such entity; provided, however, that no holder of any Class 17 Interests shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement. The Class 17 Allowed Interests shall be diluted by the Noteholders’ Stock Distribution.

5. Class 18 (Existing Warrants—Impaired).

Classification: Class 18 consists of the Existing Warrants and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto.

Treatment: Class 18 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled. On the Distribution Date, the holders of Class 18

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Allowed Interests shall be issued new warrants, with substantially the same terms and conditions as the Existing Warrants and in the form provided in the Plan Supplement, for the number of shares of New Class A Common Stock in Reorganized Fountain View equal to the number of cancelled shares of Existing Class C Stock subject to issuance to that holder on account of the Existing Warrants; provided, however, that no holder of any Class 18 Interests shall receive any New Class A Common Stock unless and until such holder agrees in writing to be bound by the Stockholders’ Agreement.

6. Class 19 (Existing Management Incentives and Other Existing Interests—Impaired).

Classification: Class 19 consists of the Existing Management Incentives and Other Existing Interests and, pursuant to Code section 510(b), any Claims for rescission or damages related thereto.

Treatment: Class 19 Allowed Interests and any Claims for rescission or damages related thereto will be cancelled and the holders of Class 19 Allowed Interests will neither receive nor retain any property on account of the Plan.

III.

TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

A. Assumption and Assignment of Contracts and Leases.

1. Schedule of Assumed or Assigned Agreements.

On the Effective Date, the Debtors will assume (i) the Resident Agreements (including any general agreements of indemnity related to Resident Agreements) and (ii) the executory contracts and unexpired leases—except for any agreements that were previously assumed or rejected by Final Order or under Bankruptcy Code section 365—that are identified on the Schedule of Assumed or Assigned Agreements, and will assign those executory contracts and unexpired leases as further provided herein.

By the first business day that is at least twenty (20) days prior to the Confirmation Hearing Date, the Debtors will file an amended Schedule of Assumed or Assigned Agreements, and will serve the amended schedules on the non-debtor parties to the

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executory and unexpired leases whose treatment differs from that provided in the Exhibits attached to the Disclosure Statement. The Debtors reserve the right to amend the Schedule of Assumed or Assigned Agreements at any time before the Confirmation Date to: (i) delete any executory contract or unexpired lease and provide for its rejection under Section III.B below; or (ii) add any executory contract or unexpired lease and provide for its assumption or assignment under this Section. The Debtors will provide notice of any amendment to the Schedule of Assumed or Assigned Agreements to the party or parties to the agreement affected by the amendment and counsel to the Committees.

The Confirmation Order will constitute a Court order approving the assumption, and, as applicable, assignment, on the Effective Date, of the Resident Agreements and the executory contracts and unexpired leases then identified on the Schedule of Assumed or Assigned Agreements.

2. Cure Payments.

The Schedule of Assumed or Assigned Agreements also identifies any amounts that the Debtors believe Bankruptcy Code sections 365(b)(1)(A) or (B) require be paid in order to cure defaults under the executory contracts and unexpired leases to be assumed or assigned under the Plan. The Debtors will file an amended Schedule of Assumed or Assigned Agreements not later than 20 days before the Confirmation Hearing Date, setting forth any cure amounts under the executory contracts and unexpired leases to be assumed or assigned under Section III.A.1, above. The Debtors reserve the right to further amend the Schedule of Assumed or Assigned Agreements, including modifying the cure amounts, up to the Confirmation Date. There are no cure payments to be made with respect to the Resident Agreements.

As required by Code section 365(b)(1), any and all monetary defaults under each executory contract and unexpired lease to be assumed or assigned under this Plan will be satisfied in one of the following three ways: (i) the Disbursing Agent will pay to the non-debtor party to the executory contract or unexpired lease the Cure Payments, as set forth on the Schedule of Assumed or Assigned Agreements (as it may be amended), in cash within 10

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days after the Effective Date; (ii) the Disbursing Agent will satisfy any other terms that are agreed to by both the Debtors and the non-debtor party to an executory contract or unexpired lease that will be assumed or assigned, including, with respect to the applicable Medicare provider agreements, the terms of the CMS Stipulation and the TDHS Settlement; or (iii) if a dispute arises regarding (a) the amount of any proposed Cure Payments, (b) whether the Debtors have provided adequate assurance of future performance under an executory contract or unexpired lease to be assumed or assigned, or (c) any other matter pertaining to a proposed assumption or assignment, the proposed Cure Payments will be made within 30 days after entry of a Final Order resolving the dispute and approving the assumption or assignment.

3. Objections to Assumption or Assignment or Proposed Cure Payments.

Any party to an executory contract or unexpired lease that will be assumed or assigned under the Plan who either contends that the proposed Cure Payment specified on the Schedule of Assumed or Assigned Agreements is incorrect or otherwise objects to the contemplated assumption or assignment must File with the Court and serve upon the Debtors, Debtors’ Counsel, and counsel to the Committees, a written statement and supporting declaration stating the basis for its objection. This statement and declaration must be Filed and served by the later of: (i) twenty (20) days before the Confirmation Hearing Date; or (ii) with respect to objections relating to an executory contract or unexpired lease added to the Schedule of Assumed or Assigned Agreements by an amendment, or with respect to any changed cure amount, ten (10) days after the Debtors file and serve any amendments to the Schedule of Assumed or Assigned Agreements Any entity that fails to timely File and serve such a statement and declaration will be deemed to waive any and all objections to the proposed assumption or assignment and the proposed Cure Payments.

4. Liens with Respect to Assumed Contracts and Leases Pursuant to the Exit Facility and Plan.

As of the Effective Date, the Reorganized Enterprise is authorized to grant

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liens to secure the Exit Facility, the New Public Notes, the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation, and the Vendors’ Lien, in accordance with the terms of the Exit Facility Closing Documents, the indenture pursuant to which the New Public Notes are to be issued, and the agreement between the Claims Agent and Reorganized Fountain View, in the Debtors’ interests in all unexpired real property leases (and, as applicable, executory contracts) included on the Schedule of Assumed or Assigned Agreements, notwithstanding anything to the contrary in otherwise applicable law or in any such lease. The Debtors and the Reorganized Enterprise are authorized to execute such documents and memoranda and record such instruments as may be appropriate to perfect such liens under otherwise applicable law.

B. Rejection of Contracts and Leases.

1. Schedule of Rejected Agreements.

On the Effective Date, the Debtors will reject all executory contracts and unexpired leases on the Schedule of Rejected Agreements—except for any agreements that were previously assumed or rejected by Final Order or under Bankruptcy Code section 365 or that will be assumed under Section III.A of the Plan—but only to the extent that these agreements constitute executory contracts or unexpired leases under Bankruptcy Code section 365. (Listing an agreement on the Schedule of Rejected Agreements is not an admission that the agreement is an executory contract or unexpired lease or that the Debtors have any liability under the agreement.)

The Debtors reserve the right to amend the Schedule of Rejected Agreements at any time before the Confirmation Date to: (i) delete any executory contract or unexpired lease and provide for its assumption or assignment under Section III.A, above; or (ii) add any executory contract or unexpired lease and provide for its rejection under this Section III.B. The Debtors will provide notice of any amendment to the Schedule of Rejected Agreements to the party or parties to the executory contracts or unexpired leases affected by the amendment and counsel to the Committees.

The Confirmation Order will constitute a Court order approving the rejection,

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on the Effective Date, of any and all of the agreements that the Debtors executed before the Petition Date—except for any agreements that were previously assumed or rejected either by a Final Order or under Bankruptcy Code section 365 or that will be assumed under Section III.A—including without limitation the executory contracts or unexpired leases identified on the Schedule of Rejected Agreements.

2. Bar Date for Rejection Damage Claims.

Any Rejection Damage Claim or other Claim for damages arising from the rejection under the Plan of an executory contract or unexpired lease must be filed with the Court and served upon the Debtors’ Counsel and the Reorganized Enterprise within 30 days after the mailing of notice of entry of the Confirmation Order at which time the holder of the Claim may elect between payment option 10A or 10B, if applicable, by delivering to the Debtors’ counsel and the Reorganized Enterprise a written notice of election of option 10A or 10B. Holders of Class 10 Claims failing to make a timely election between payment option 10A or 10B shall be deemed to elect payment option 10B. Any such damage Claims that are not timely Filed and served will be forever barred and unenforceable against the Debtors, the Estates, the Reorganized Enterprise, and their respective property; and Entities holding these Claims will be barred from receiving any distributions under the Plan on account of their Rejection Damage Claims or other damage Claims. Nothing herein extends the bar date applicable to any contract or lease rejected otherwise than under the Plan or for any Claim other than one arising directly as a result of the rejection of a contract or lease under the Plan.

C. Postpetition Contracts and Leases.

Except as expressly provided in the Plan or the Confirmation Order, each contract, lease, or other agreement that any of the Debtors entered into after the Petition Date will either revest in Reorganized Fountain View, Reorganized Summit Care Pharmacy or the Other Reorganized Debtors, or be assigned to a Post-Effective Date Subsidiary pursuant to the terms of the Corporate Restructuring Closing Documents. These agreements will then become obligations solely of the entities so designated in the Corporate Restructuring

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Closing Documents and will remain in full force and effect after the Confirmation Date and the Effective Date. The CMS Stipulation and the TDHS Settlement will be binding on the Reorganized Enterprise in accordance with their terms notwithstanding anything else to the contrary in the Plan.

IV.

MEANS OF EXECUTION AND IMPLEMENTATION

OF THE PLAN AND OTHER PROVISIONS

Except as otherwise specifically provided herein, Fountain View, Inc., and, after the Effective Date, Reorganized Fountain View, shall serve as the duly authorized agent of the Debtors, the Estates, and the Reorganized Enterprise for the purposes of performing and consummating the Plan pursuant to the Bankruptcy Code.

A. Substantive Consolidation.

As of the Effective Date, solely for the purposes of the Plan, the assets, claims, and affairs of the Debtors and the Estates shall be substantively consolidated pursuant to Bankruptcy Code section 105(a). As a result of the substantive consolidation, on the Effective Date, all property, rights, and claims of the Debtors and the Estates, and all Claims against the Debtors and the Estates shall be deemed pooled for purposes of allowance, treatment, and distributions under the Plan and multiple proofs of Claim on account of any Claim upon which any of the Debtors are co-obligors or guarantors or otherwise may be contingently liable shall without necessity of objection by any party be deemed to constitute a single proof of Claim entitled to a single satisfaction from the substantively consolidated Estates in accordance with the terms of the Plan; the duplicative Claims being otherwise deemed disallowed. Further, as a result of this substantive consolidation, all Claims between and among the Debtors and the Estates shall be cancelled without being entitled to any distribution under the Plan.

B. Corporate Restructuring Plan.

On the Effective Date, the Debtors will consummate the transactions contemplated in the Corporate Restructuring Plan. Upon consummation of the Corporate

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Restructuring Plan, all of the Business Assets, free and clear of all liens, Claims, encumbrances, and Interests, except as otherwise provided in the Plan, shall be held by Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries in accordance with the Corporate Restructuring Plan. Reorganized Fountain View will own directly or indirectly 100% of the equity interests in Reorganized Summit Care Pharmacy, the Other Reorganized Debtors, and the Post-Effective Date Subsidiaries. The Debtors (other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors) will, following consummation of the Corporate Restructuring Plan, cease their independent existence through dissolution or merger.

C. Exit Facility.

On the Effective Date, the Debtors will consummate the transactions contemplated in the Exit Facility Commitment Letters. The Disbursing Agent shall use the proceeds of the Exit Facility together with the Bank Midwest Advance and the Debtors’ cash and cash equivalents on hand to fund payments under the Plan as follows:

• Payments in satisfaction of Allowed Administrative Claims, Allowed Priority Claims, and Allowed Priority Tax Claims and any required cure payments with respect to unimpaired Claims;

• Payments in satisfaction of Allowed Claims in Classes 3, 5, 7, 8, and 11;

• Payments in partial satisfaction of Allowed Claims in Class 6;

• Payments in satisfaction of Allowed Claims in Class 10 electing payment option 10A;

• Payments in partial satisfaction of Allowed Claims in Class 10 electing (or deemed to elect) payment option 10B;

• Payment of the Initial Cash Payment in partial satisfaction of Allowed Claims in Class 9; and

• Retention of sufficient funds to meet the Reorganized Enterprise’s working capital needs after the Effective Date.

The closings of the Exit Facility and the Corporate Restructuring Plan are

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integral and necessary conditions and terms of the Plan.

D. Amendment to Articles of Incorporation.

Reorganized Fountain View’s articles of incorporation will be amended in the form provided in the Plan Supplement to eliminate Class B Common Stock and Class C Common Stock and prohibit the issuance of nonvoting equity securities. Reorganized Summit Care Pharmacy’s and the Other Reorganized Debtors’ articles of incorporation will be amended in the form Filed with the Plan Supplement to, inter alia, prohibit the issuance of nonvoting equity securities.

E. The Claims Agent.

1. Designation of the Claims Agent.

The Claims Agent shall be designated by the Creditors’ Committee with the prior consent of the Debtors, which consent shall not be unreasonably withheld, pursuant to the terms and conditions of the General Claim Holder Agency Agreement submitted by the Debtors in the Plan Supplement. The General Claim Holder Agency Agreement shall provide that financial and business information concerning Reorganized Fountain View provided to the indenture trustee for the New Public Notes that is not otherwise publicly available shall be concurrently provided to the Claims Agent so long as any Class 10 Deferred Obligation remains outstanding.

2. Powers and Duties.

The Claims Agent shall have the following rights, powers and duties under the General Claim Holder Agency Agreement pursuant to which it serves:

a. The Claims Agent may employ counsel reasonably acceptable to the Debtors. The reasonable costs, fees, and expenses of counsel for the Claims Agent shall be paid by Reorganized Fountain View;

b. The Claims Agent may exercise rights and remedies in accordance with the terms of the General Claim Holder Agency Agreement upon (i) default by Reorganized Fountain View in the

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payment of the Class 10 Deferred Obligation, the Continuing Creditor Deferred Obligation or the obligations secured by the Vendors’ Lien (in any case, following five (5) business days written notice and failure to cure); (ii) acceleration or any exercise of remedies by any party under the Exit Facility, the New Public Notes, or any comparable obligation following a default under such agreement; or (iii) the filing of a bankruptcy case by Reorganized Fountain View; and

c. The Claims Agent may file suit or any appropriate motion for relief in the Court or in any other court of competent jurisdiction to exercise his rights, powers, or duties, or to receive compensation or its counsel’s compensation under the General Claim Holder Agency Agreement.

All functions and procedures applicable to the Claims Agent and the power and duties of the Claims Agent not expressly set forth in the Plan shall be governed by the provisions of the General Claim Holder Agency Agreement.

F. Revesting of Assets.

Except as otherwise provided in the Plan, the Corporate Restructuring Closing Documents, the Exit Facility Closing Documents, or in any other agreements contemplated under the Plan, on the Effective Date, all property of the Estates shall vest in the Reorganized Enterprise, free and clear of all Claims, liens, encumbrances, and other Interests. From and after the Effective Date, the Reorganized Enterprise may operate the businesses and use, acquire, and dispose of property without supervision by the Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan and the Confirmation Order.

G. Preservation of Causes of Action.

Except as expressly released pursuant to the Plan, pursuant to section 1123(b) of the Bankruptcy Code, the Reorganized Enterprise shall be vested with and shall retain and

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may enforce any claims, rights, and causes of action that the Debtors or the Estates may hold or have against any entity, including without limitation, the Avoidance Actions.

Any such rights shall be retained by the Reorganized Enterprise free and clear of all Claims and Interests, and the Reorganized Enterprise may pursue the Avoidance Actions or any other such claims, rights, and causes of action that Debtors or the Estates may hold or have against any entity, in accordance with its best interests.

H. Objections to Claims and Interests.

Except as otherwise provided in Section II.B, above (regarding allowance of Administrative Claims), objections to any Claims or Interests shall be filed and served upon the holder of such Claim or Interest no later than the date that is the later of (i) nine months after the Effective Date, unless extended by the Court; or (ii) nine months after the date on which a proof of Claim or Interest has been filed, unless extended by the Court. After the Effective Date, only the Reorganized Enterprise shall have the authority to file, settle, compromise, withdraw, or litigate to judgment objections to Claims and Interests. The Reorganized Enterprise may file, settle, compromise, withdraw, or litigate to judgment such objections without further order of the Court.

Holders of debts that arise prior to the Confirmation Date involving personal injury or wrongful death shall be enjoined by the injunction established by the Confirmation Order from commencing or continuing any action to collect such Claim except in conformity with the ADR Procedures applicable after the Effective Date (or, as applicable, the Code’s claim adjudication procedures).

In voting on the Plan, creditors may not rely on the absence of an objection to their proofs of Claim as any indication that the Debtors, the Committees or other parties in interest, ultimately will not object to the amount, priority, security or allowability of their Claims. Moreover, except as otherwise expressly provided in the Plan or by written stipulation Filed with the Court, the Debtors reserve, and intend that the Reorganized Enterprise shall prosecute, claims of the Debtors and the Estates (including rights to affirmative recovery, rights to subordinate claims, and rights to avoid transfers). In

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particular, creditors should anticipate that the Reorganized Enterprise may object to any Claim asserted in an amount greater than the amount set forth in the Schedules. Notwithstanding anything else to the contrary herein, with respect to Class 10 Claims and Class 11 Claims, the Debtors and the Reorganized Enterprise may only object to a Claim if it is (i) listed on Exhibit 8 (Schedule of Disputed Claims) to the Disclosure Statement (as such exhibit may be subsequently amended through the date the Debtors serve the Disclosure Statement upon creditors and interest holders), (ii) not timely Filed, or (iii) duplicative of another Claim that is not objected to.

I. Distribution of Property Under the Plan.

The following procedures set forth in this Section IV.I shall apply to distributions made pursuant to this Plan by the Disbursing Agent, and, where applicable, any such agents as they may appoint to effectuate such distributions.

1. Manner of Cash Payments Under The Plan.

Payments to domestic entities holding Allowed Claims will be tendered in U.S. Dollars and will be made by checks drawn on a domestic bank selected by the party making such distribution or, at its option, by wire transfer from a domestic bank. Payments made to foreign creditors holding Allowed Claims may be paid, at the option of the Disbursing Agent, as set forth in the preceding sentence or in such funds and by such means as are necessary or customary in the particular foreign jurisdiction.

2. No De Minimis Distributions.

Notwithstanding anything to the contrary in this Plan, no cash payment of less than $25 will be made by the Disbursing Agent to any entity holding an Allowed Claim. No consideration will be provided in lieu of the de minimis distributions that are not made under this Section.

3. No Distribution with Respect to Disputed Claims

Notwithstanding any other provisions of the Plan, no payments of cash or distributions of other property or other consideration of any kind shall be made on account of any Disputed Claim unless and until such Claim becomes an Allowed Claim or is deemed to

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be such for purposes of distribution, and then only to the extent that the Claim becomes, or is deemed to be for distribution purposes, an Allowed Claim. The presence of a Disputed Claim in any Class will not be a cause to delay distribution to Allowed Claims in that Class or in other Classes. Any holder of a Claim that becomes an Allowed Claim after the Effective Date will receive its distribution (including, as applicable, interest from the Effective Date through the date of payment) within 30 days from the date that such Claim becomes an Allowed Claim.

4. Delivery of Distributions and Undeliverable or Unclaimed Distributions.

a. Delivery of Distributions in General.

The Disbursing Agent shall make distributions to each holder of an Allowed Claim as follows: (i) by mail at the addresses set forth on the respective proof of Claim filed by such holder of an Allowed Claim; (ii) by mail at the address set forth in any written notice of address change delivered to the Disbursing Agent after the date of any related proof of Claim; (iii) by mail at the address reflected in the Schedules if no proof of Claim is filed and the Disbursing Agent has not received a written notice of a change of address; (iv) with respect to the holders of Class 8 Allowed Claims to the Agent in such manner as the Agent may reasonably instruct the Disbursing Agent in writing; and (v) with respect to holders of Class 9 Allowed Claims, at the last known address of record holders of such Allowed Claims as of the close of business on the Effective Date, as determined by the Indenture Trustee or applicable transfer agent.

As set forth in Section IV.I.1 above, the Disbursing Agent may, at its option make a distribution to a holder of an Allowed Claim by wire transfer pursuant to the wire transfer instructions provided by the holder of such Allowed Claim.

b. Delivery of 11 ¹/4% Noteholder Distributions.

As soon as reasonably practicable after the Effective Date, but in no event later than 10 days after the Effective Date, Reorganized Fountain View shall make the distributions called for in Part II.D.1 of the Plan on account of the Claims for principal and

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interest arising under the 11 ¹/4% Notes to the Indenture Trustee. The Indenture Trustee will receive such cash and securities for the benefit of the record holders, as of the Record Date, of the Claims for principal and interest arising under the 11 ¹/4 Notes and will deliver, as soon as reasonably practicable after the Effective Date, such cash and securities to each record holder, as of the Record Date, of a Claim for principal and interest arising under the 11¼ Notes in accordance with the Indenture, or applicable law, and the Plan. The reasonable fees and expenses of the Indenture Trustee for making distributions under the Plan shall be paid by Reorganized Fountain View.

As a condition to the receipt of any Pro Rata share of the Noteholders’ Stock Distribution, a holder of a Claim for principal and interest arising under the 11 ¹/4% Notes shall agree in writing to be bound by the Stockholders’ Agreement. As a further condition to participation under the Plan, a holder of a Claim for principal and interest arising under the 11 ¹/4% Notes that desires to receive property to be distributed on account of such Claim shall surrender the security representing such Claim to the Indenture Trustee in accordance with the procedures set forth in the Indenture, to the extent applicable, or in accordance with such other procedures as shall be established by the Indenture Trustee as may be reasonably acceptable to Reorganized Fountain View. Following confirmation of the Plan, record holders of such securities shall receive specific instructions regarding the time and manner in which the 11 ¹/4% Notes are to be surrendered, which instructions shall be given by Reorganized Fountain View, the Disbursing Agent, or the Indenture Trustee to such record holders as soon practicable after the Effective Date. Pending such surrender, such securities shall be cancelled and represent only the right to receive the distributions to which the holder is entitled under the Plan.

Any Claims for principal and interest arising under the 11 ¹/4% Notes represented by a security which is lost, stolen, mutilated, or destroyed shall be deemed surrendered when the holder of the Claim based thereon delivers to the Indenture Trustee (i) evidence satisfactory to the Indenture Trustee of the loss, theft, mutilation, or destruction of

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such instrument, and (ii) such security or indemnity as may be required by the Indenture Trustee to hold it harmless with respect thereto.

c. Distribution to Interest Holders Under the Plan.

As soon as reasonably practicable after the Effective Date, Reorganized Fountain View shall make the distributions called for in Part II.E of the Plan on account of the Class 14, Class 15, Class 17, and Class 18 Interests to the record holders of those respective Interests, in accordance with applicable law and the Plan.

As a condition to participation under the Plan, a holder of an Interest entitled to distributions of New Class A Common Stock, New Warrants, or New Preferred Stock under the Plan that desires to receive property to be distributed on account of such Interest shall agree in writing to be bound by the Stockholders’ Agreement and shall surrender the security representing such Interest to Reorganized Fountain View or its designee in accordance with procedures as shall be established by Reorganized Fountain View. Record holders of such Interests shall receive specific instructions regarding the time and manner in which the securities representing such Interests are to be surrendered, which instructions shall be given by Reorganized Fountain View to such record holders as soon as practicable after the Effective Date. Pending such surrender, such securities shall be cancelled and represent only the right to receive the distributions to which the holder is entitled under the Plan.

Any Interests represented by a security which is lost, stolen, mutilated, or destroyed shall be deemed surrendered when the holder of the Interest based thereon delivers to Reorganized Fountain View (i) evidence satisfactory to Reorganized Fountain View of the loss, theft, mutilation, or destruction of such instrument, and (ii) such security or indemnity as may be required by Reorganized Fountain View to hold it harmless with respect thereto. All equity securities issued under the Plan shall be deemed to be issued subject to the Stockholders’ Agreement notwithstanding the failure of any holder thereof to have agreed in writing to be bound by the terms of the Stockholders’ Agreement and the securities issued shall be legended with a notation to the effect that such securities are issued subject to the terms and restrictions, including restrictions on transfer, set forth in the Stockholders’

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Agreement as well as any restrictions on transfer imposed by applicable securities law.

Securities issued in accordance with the Plan will not be registered pursuant to the Securities Act of 1933. Such securities are issued pursuant to the exemption from the registration requirements of the Securities Act of 1933 under Code section 1145.

d. Undeliverable and Unclaimed Distributions.

If the distribution to the holder of any Allowed Claim is returned to the Disbursing Agent as undeliverable, no further distribution shall be made to such holder unless and until the Disbursing Agent is notified in writing of such holder’s then current address. Subject to the other provisions of the Plan, undeliverable distributions shall remain in the possession of the Disbursing Agent pursuant to this Section until such time as a distribution becomes deliverable. The Disbursing Agent will hold undeliverable cash distributions in an unsegregated, interest-bearing bank account for the benefit of the entities entitled to the distributions. These entities will be entitled to any interest actually earned on account of the undeliverable distributions. The bank account will be maintained in the name of the Disbursing Agent, but it will be accounted for separately.

Notwithstanding any otherwise applicable laws regarding unclaimed distributions including the law of escheat, any holder of an Allowed Claim who does not assert a claim in writing for an undeliverable distribution held by the Disbursing Agent within one year after the Effective Date shall no longer have any claim to or interest in such undeliverable distribution, and shall be forever barred from receiving any distributions under this Plan, or from asserting a Claim against the Debtors, the Estates, the Reorganized Enterprise, the Claims Agent, the Indenture Trustee or their respective property, and the Claim giving rise to the undeliverable distribution will be discharged.

Any undeliverable distributions that are not claimed under this Section will be retained by or returned to Reorganized Fountain View, free from any restrictions thereon. Nothing contained in the Plan shall require the Debtors, the Estates, the Disbursing Agent, the Reorganized Enterprise, the Claims Agent, or the Indenture Trustee, as the case may be, to attempt to locate any holder of an Allowed Claim.

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This section V.H.4.d shall not apply to the Class 8 Claims, the distributions on account of which shall be made in their entirety to the Agent upon the Effective Date or the date upon which the Class 8 Claims shall become Allowed Claims.

J. Cancellation of Interests.

On the Effective Date, all Interests in the Debtors other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors will be deemed cancelled or extinguished pursuant to Section IV.A hereof.

K. Full Satisfaction.

The Disbursing Agent shall make, and each holder of a Claim shall receive, the distributions provided for in the Plan in full satisfaction and discharge of such Claim.

L. Compliance With Tax Requirements.

The Disbursing Agent shall comply with all withholding and reporting requirements imposed on it by governmental units, and all distributions pursuant to the Plan shall be subject to such withholding and reporting requirements, if any.

M. Setoff, Recoupment and Other Rights.

Notwithstanding anything to the contrary contained in the Plan, the Reorganized Enterprise may, but shall not be required to, setoff, recoup, assert counterclaims, or withhold against the distributions to be made pursuant to this Plan on account of any Allowed Claim, any claims that the Debtors, the Estates, and the Reorganized Enterprise may have against the entity holding the Allowed Claim; provided, however, that neither the failure to effect such a setoff or recoupment, nor the allowance of any Claim against the Debtors, the Estates, and the Reorganized Enterprise, nor any partial or full payment during the Reorganization Cases or after the Effective Date in respect of any Allowed Claim, shall constitute a waiver or release by Debtors, the Estates, and the Reorganized Enterprise of any claim that they may possess against such holder.

N. Dissolution of the Debtors other than Fountain View, Inc., Summit Care Pharmacy, Inc., and the Other Reorganized Debtors.

As of the Effective Date, the Debtors other than Fountain View, Inc., Summit

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Care Pharmacy, Inc., and the Other Reorganized Debtors (i) will be dissolved or merged; (ii) their assets distributed to the Reorganized Enterprise as provided for in this Plan and the Corporate Restructuring Plan; and (iii) their liabilities will be discharged except as otherwise provided for in this Plan. The Reorganized Enterprise is authorized to file all documents and instruments necessary to effectuate dissolution of any of the Debtors in accordance with otherwise applicable law.

O. Conditions to Effectiveness of the Plan.

1. Conditions.

The Plan shall not become binding unless and until the Effective Date occurs. The Effective Date is the first Business Day that, as determined by Debtors in their reasonable discretion, is a Business Day (i) that is at least eleven days after the Confirmation Date; (ii) on which no stay of the Confirmation Order is in effect; and (iii) on which all of the following conditions have been satisfied or waived by Debtors in writing:

a. The Confirmation Order shall be entered in a form reasonably acceptable to the Debtors and the lenders providing the Exit Facility;

b. All the conditions to the execution and enforceability of the Exit Facility Closing Documents and the Corporate Restructuring Closing Documents shall have been satisfied or waived and the Exit Facility lenders shall have funded the Exit Facility;

c. The Claims Agent shall have been duly appointed and qualified to serve and all the conditions to the execution and enforceability of the General Claim Holder Agency Agreement (which shall be in a form reasonably acceptable to the Debtors and the Creditors’ Committee) have been satisfied or waived; and

d. The indenture trustee for the New Public Notes shall have been duly appointed and qualified to serve under the indenture governing the New Public Notes (which shall be in a form reasonably acceptable to the Debtors and the Noteholders’ Committee).

2. Waiver of Conditions.

The requirement that the conditions to the occurrence of the Effective Date, as specified in Section IV.O.1, above, be satisfied may be waived in whole or in part, and the

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time within which any such conditions must be satisfied may be extended, in writing by the Debtors or, in the case of Section IV.O.1.c and IV.O.1.d above, with the consent of the Creditors’ Committee and the Noteholders’ Committee, respectively. To be effective, such written waiver or extension must be filed with the Court. The failure to satisfy or waive any of such conditions may be asserted by the Debtors regardless of the circumstances giving rise to the failure of such condition to be satisfied, including any action or inaction by the Debtors. The failure of the Debtors to exercise any of the foregoing rights shall not be deemed a waiver of any other rights and each such right shall be deemed ongoing and assertable at any time.

V.

MISCELLANEOUS PROVISIONS

A. Limitations of Liability.

1. For Solicitation or Participation.

Pursuant to section 1125(e) of the Bankruptcy Code, entities that solicit acceptances or rejections of the Plan and/or that participate in the offer, issuance, sale, or purchase of securities offered or sold under the Plan, in good faith and in compliance with the applicable provisions of the Bankruptcy Code, shall not be liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of securities.

2. For Actions in Connection with Plan and Related Matters.

To the maximum extent permitted by law, none of the Debtors, the Estates, the Reorganized Enterprise, the Committees, or any of their employees, officers, directors, attorneys, agents, members, or representatives, or professional advisors employed or retained by any of them, whether or not pursuant to a Final Order of the Court, shall have or incur any liability to any entity for any act taken or omission made in good faith in connection with or related to formulating, implementing, or confirming the Plan, the Disclosure Statement, or any contract, instrument, release, or other agreement or document created in connection with

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the Plan.

3. No Admissions.

Notwithstanding anything to the contrary in the Plan, if the Plan is not confirmed or the Effective Date does not occur, the Plan will be null and void, and nothing contained in the Plan or the Disclosure Statement will: (i) be deemed to be an admission by any Debtor with respect to any matter set forth in the Plan, including, without limitation, liability on any Claim or the propriety of any Claim’s classification; (ii) constitute a waiver, acknowledgment, or release of any Claims by or against, or any Interests in, any Debtor; or (iii) prejudice in any manner the rights of the Debtors, the Estates, or any creditors in any further proceedings.

B. Dissolution of Committees.

On the Effective Date, the Committees and any other committee appointed pursuant to Bankruptcy Code section 1102 shall be released and discharged from the rights and duties arising from or related to the Reorganization Cases, except with respect to final applications for professionals’ compensation and objections thereto. The professionals retained by the Committees and any other committee appointed pursuant to Bankruptcy Code section 1102 and the members thereof shall not be entitled to compensation or reimbursement of expenses for any services rendered or expenses incurred after the Effective Date, except for services rendered and expenses incurred in connection with any applications by such professionals or committee members for allowance of compensation and reimbursement of expenses pending on the Effective Date or timely Filed after the Effective Date as provided in the Plan and objections thereto, as approved by the Court.

C. Exemption from Certain Transfer Taxes.

In accordance with Bankruptcy Code section 1146(c), neither the issuance, transfer, exchange of a security, nor the delivery of an instrument of transfer under this Plan or the Corporate Restructuring Plan shall be taxed under any law imposing a stamp or similar tax. The Confirmation Order shall direct all governmental officials and agents to forego the assessment and collection of any such tax or governmental assessment and to accept for

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filing and recordation any of the foregoing instruments or other documents without payment of such tax or other governmental assessment.

D. Modifications of the Plan.

Subject to the conditions and terms of the Exit Facility Closing Documents and restrictions set forth in Code section 1127, the Debtors and Reorganized Fountain View reserve the right to alter, amend, or modify the Plan before its substantial consummation.

E. Revocation of the Plan.

The Debtors reserve the right to revoke or withdraw the Plan prior to the Confirmation Date. If the Plan is not confirmed or the Effective Date does not occur—either because the Debtors revoked or withdrew the Plan or for any other reason—the Plan will be null and void, and nothing contained in the Plan or the Disclosure Statement will: (i) waive or release any Claims by or against, or any Interests in, the Debtors; or (ii) prejudice in any manner any rights that the Debtors, the Estates, or any creditors or equity security holders have in any further proceedings.

F. Post-Effective Date Effect of Evidences of Claims or Interests.

Except as otherwise provided in the Plan, commencing on the Effective Date, notes, stock certificates, warrants, and other evidences of Claims against, or Interests in, a Debtor will represent only the right to receive the distributions contemplated under the Plan.

G. Nonapplicability of Local Rule 3020-1(2).

Neither the Debtors nor the Reorganized Enterprise will be required to comply with Local Bankruptcy Rule 3020-1(2), which otherwise requires the filing of certain status reports after the Confirmation Date, or otherwise file reports after the Confirmation Date with the Court, except as expressly provided in the Confirmation Order.

H. Successors and Assigns.

The rights, benefits, and obligations of any entity named or referred to in this Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor, or assign of such entity.

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I. Saturday, Sunday, or Legal Holiday.

If any payment or act under the Plan is required to be made or performed on a day that is not a Business Day, then the payment or act may be completed on the next day that is a Business Day, in which event the payment or act will be deemed to have been completed on the required day.

J. Governing Law.

Unless a rule of law or procedure is supplied by (i) federal law (including the Bankruptcy Code and Bankruptcy Rules), or (ii) an express choice of law provision in any agreement, contract, instrument, or document provided for, or executed in connection with, the Plan, the rights and obligations arising under the Plan and any agreements, contracts, documents, and instruments executed in connection with the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of California without giving effect to the principles of conflict of laws thereof.

K. Severability of Plan Provisions.

If, before confirmation, the Court holds that any Plan term or provision is invalid, void, or unenforceable, the Court may alter or interpret that term or provision so that it is valid and enforceable to the maximum extent possible consistent with the original purpose of that term or provision. That term or provision will then be applicable as altered or interpreted. Notwithstanding any such holding, alteration, or interpretation, the Plan’s remaining terms and provisions will remain in full force and effect and will in no way be affected, impaired, or invalidated. The Confirmation Order will constitute a judicial determination providing that each Plan term and provision, as it may have been altered or interpreted in accordance with this Section, is valid and enforceable under its terms.

L. Application of Code Section 1145.

The exemption from the requirements of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and any state or local law requiring registration or qualification for the offer or sale of a security, provided under Bankruptcy Code section 1145, shall apply to the securities distributed under the Plan.

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VI.

EFFECT OF CONFIRMATION OF THE PLAN

A. Discharge and Injunction.

The rights afforded in the Plan and the treatment of all Claims and Interests herein shall be in exchange for and in complete satisfaction, discharge, and release of all Claims and Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Petition Date, against the Debtors, the Reorganized Enterprise, and any of their property; and holders of Claims or Interests are not allowed to enforce their rights with respect to prepetition Claims or Interests outside the terms of the Plan. Except as otherwise provided in the Plan or the Confirmation Order, on the Effective Date: (i) the Debtors, the Estates, the Reorganized Enterprise, and their property shall be deemed discharged and released to the fullest extent permitted by section 1141 of the Code from all Claims and Interests, including, demands, liabilities, Claims, and Interests that arose before the Confirmation Date and all debts of the kind specified in Code sections 502(g), 502(h), or 502(i), regardless of whether or not (a) a proof of Claim or Interest based on such debt or Interest is filed or deemed filed; (b) a Claim or Interest based on such debt or Interest is allowed pursuant to section 502 of the Code; or (c) the holder of a Claim or Interest based on such debt or Interest has or has not accepted the Plan; and (ii) all entities shall be precluded from asserting against the Debtors, the Estates, the Reorganized Enterprise, and their property any other or further Claims or Interests based upon any act or omission, transaction, or other activity of any kind or nature that occurred prior to the Confirmation Date.

Except as otherwise provided in the Plan or the Confirmation Order, the Confirmation Order shall act as a discharge of any and all Claims against and all debts and liabilities of the Debtors, as provided in sections 524 and 1141 of the Code, and such discharge shall void any judgment against any of the Debtors obtained at any time to the extent that such judgment is a determination of the personal liability of any of the Debtors.

Except as otherwise provided in the Plan or the Confirmation Order, on and after the Effective Date, all entities who have held, currently hold, or may hold a debt,

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Claim, or Interest discharged pursuant to the terms of the Plan are permanently enjoined from taking any of the following actions on account of any such discharged debt, Claim, or Interest: (i) commencing or continuing in any manner any action or other proceeding against the Debtors, the Estates, the Reorganized Enterprise, or their property in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan, the ADR Procedures, or the Confirmation Order; (ii) enforcing, attaching, collecting, or recovering in any manner any judgment, award, decree, or order against the Debtors, the Estates, the Reorganized Enterprise, or their property; (iii) creating, perfecting, or enforcing any lien or encumbrance against the Debtors, the Estates, the Reorganized Enterprise, or their property to enforce a claim that arose preconfirmation; (iv) terminating or canceling any Resident Agreement on account of its assumption or assignment hereunder; (v) asserting any setoff, right of subrogation, or recoupment of any kind (other than as expressly provided by the Plan with respect to claims of setoff preserved pursuant to section 553 of the Code) against any obligation due to the Debtors, the Estates, the Reorganized Enterprise, or their property; (vi) enforcing any contractual or legal right of subordination inconsistent with the terms of the Plan; and (vii) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan, the ADR Procedures, or the Confirmation Order. Any entity injured by any willful violation of such injunction shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages, from the willful violator.

B. Payment of Statutory Fees.

The Disbursing Agent shall pay all fees due under 28 U.S.C. § 1930 in accordance with Section II.B.1 of the Plan.

C. Retention of Jurisdiction.

Notwithstanding the entry of the Confirmation Order or the occurrence of the Effective Date, the Court shall retain jurisdiction over the Reorganization Cases after the Effective Date to the fullest extent provided by law, including the jurisdiction to:

1. Allow, disallow, determine, liquidate, classify, establish the priority or

65

secured or unsecured status of, estimate, or limit any Claim, Interest, or Administrative Claim, and with respect to Claims based on personal injury or wrongful death, continue to enforce the ADR Procedures;

2. Rule on applications for allowance of compensation or reimbursement of expenses authorized pursuant to the Code or the Plan, for periods ending on or before the Effective Date;

3. Resolve any motions pending on the Effective Date to assume, assume and assign, or reject any executory contract or unexpired lease to which any of the Debtors is a party or with respect to which any of the Debtors may be liable and to hear, determine and, if necessary, liquidate, any and all Claims arising therefrom;

4. Ensure that distributions to holders of Allowed Claims, Administrative Claims, and Interests are accomplished pursuant to the provisions of the Plan;

5. Resolve any and all applications, motions, adversary proceedings, and other matters involving the Debtors that may be pending on the Effective Date or that may be instituted thereafter in accordance with the terms of the Plan;

6. Enter such orders as may be necessary or appropriate to implement or consummate the provisions of the Plan and all contracts, instruments, releases, and other agreements or documents entered into in connection with the Plan;

7. Resolve any and all controversies, suits, or issues that may arise in connection with the consummation, interpretation, or enforcement of the Plan or any person’s rights or obligations in connection with the Plan;

8. Modify the Plan before or after the Effective Date pursuant to Code section 1127, or modify the Disclosure Statement or any contract, instrument, release, or other agreement created in connection with the Plan or Disclosure Statement; or remedy any defect or omission or reconcile any inconsistency in any order of the Court, the Plan, the Disclosure Statement, or any contract, instrument, release, or other agreement or document created in connection with the Plan or Disclosure Statement, in such manner as may be necessary or appropriate to consummate the Plan, to the extent authorized by the Code;

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9. Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to enforce the Plan or restrain interference by any entity with consummation or enforcement of the Plan;

10. Enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

11. Determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, the Avoiding Actions or any contract, instrument, release, or other agreement or document created in connection with the Plan, Plan Supplement or the Disclosure Statement or approved by the Court; and

12. Enter an order closing the Reorganization Cases.

If the Court abstains from exercising jurisdiction or is otherwise without jurisdiction over any matter, this Section shall have no effect upon and shall not control, prohibit, or limit the exercise of jurisdiction by any other court having competent jurisdiction with respect to such matter.

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VII.

RECOMMENDATION AND CONCLUSION

The Debtors believe that Plan confirmation and implementation are preferable to any feasible alternative because the Plan will maximize the value of the Estates. Creditors will receive payment in full of their Allowed Claims and preferred and common shareholders in Classes 14, 15, 17, and 18 will receive equity interests in Reorganized Fountain View in exchange for their Interests.

Dated: June 30, 2003	FOUNTAIN VIEW, INC. and its 22 CHAPTER 11 AFFILIATES
	/s/    BOYD HENDRICKSON
	By:	BOYD HENDRICKSON
	Title:	Chief Executive Officer

SUBMITTED BY:

/s/    BRENDT C. BUTLER        

DANIEL J. BUSSEL, ESQ.,

MICHAEL L. TUCHIN, ESQ., and

BRENDT C. BUTLER, ESQ., Attorneys with

KLEE, TUCHIN, BOGDANOFF & STERN LLP

Reorganization Counsel for Debtors and Debtors in Possession

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EX-99.(T)(3)(F)

Exhibit T3F

Cross Reference Sheet

Trust Indenture Act Section	Indenture Section
310(a)(1)	7.10
(a)(2)	7.10
(a)(3)	N.A.
(a)(4)	N.A.
(a)(5)	7.10
(b)	7.10
(c)	N.A.
311(a)	7.11
(b)	7.11
(c)	N.A.
312(a)	2.05
(b)	13.03
(c)	13.03
313(a)	7.06
(b)(1)	7.06
(b)(2)	7.06; 7.07
(c)	7.06; 13.02
(d)	7.06
314(a)	4.03; 4.04; 13.05
(b)	10.03
(c)(1)	13.04
(c)(2)	10.03; 13.04
(c)(3)	N/A
(d)	10.02
(e)	13.05
(f)	N.A.
315(a)	7.01
(b)	7.05
(c)	7.01
(d)	7.01
(e)	6.14
316(a)(last sentence)	2.08
(a)(1)(A)	6.05
(a)(1)(B)	6.04
(a)(2)	N.A.
(b)	6.07
(c)	2.12
317(a)(1)	6.08
(a)(2)	6.09
(b)	2.04
318(a)	13.01

N.A. means not applicable.

EX-25.1

EXHIBIT 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM T-1

STATEMENT OF ELIGIBILITY UNDER

THE TRUST INDENTURE ACT OF 1939 OF A

CORPORATION DESIGNATED TO ACT AS TRUSTEE

Check if an Application to Determine Eligibility of

a Trustee Pursuant to Section 305(b)(2)

U.S. BANK NATIONAL ASSOCIATION

(Exact name of Trustee as specified in its charter)

31-0841368

I.R.S. Employer Identification No.

180 East Fifth Street St. Paul, Minnesota	55101
(Address of principal executive offices)	(Zip Code)

Paula Oswald

U.S. Bank National Association

550 South Hope Street, 5^th Floor

Los Angeles, CA 90071

(213) 533-8418

(Name, address and telephone number of agent for service)

Fountain View, Inc.

(Issuer with respect to the Securities)

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

27442 Portola Parkway, Suite 200 Foothill Ranch, CA	92610
(Address of Principal Executive Offices)	(Zip Code)

Secured Increasing Rate Notes

(Title of the Indenture Securities)

FORM T-1

Item 1. GENERAL INFORMATION.     Furnish the following information as to the Trustee.

a) Name and address of each examining or supervising authority to which it is subject.

Comptroller of the Currency

Washington, D.C.

b) Whether it is authorized to exercise corporate trust powers.

Trustee is authorized to exercise corporate trust powers.

Item 2. AFFILIATIONS WITH OBLIGOR.    If the obligor is an affiliate of the Trustee, describe each such affiliation.

None

In answering this item, the trustee has relied, in part, upon information furnished by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The trustee has also examined its own books and records for the purpose of answering this item.

Items 3-15     Items 3-15 are not applicable because to the best of the Trustee’s knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee.

Item 16. LIST OF EXHIBITS:    List below all exhibits filed as a part of this statement of eligibility and qualification.

1. A copy of the Articles of Association of the Trustee.*

2. A copy of the certificate of authority of the Trustee to commence business.*

3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers.*

4. A copy of the existing bylaws of the Trustee.*

5. A copy of each Indenture referred to in Item 4. Not applicable.

6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6.

7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.

* Incorporated by reference to Registration Number 333-67188.

A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as an Exhibit with corresponding exhibit number to the Form T-1 of Structured Obligations Corporation, filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939, as amended (the “Act”), on November 16, 2001 (Registration No. 333-67188), and is incorporated herein by reference.

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NOTE

The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Los Angeles, State of California on the 10th day of July, 2003.

U.S. BANK NATIONAL ASSOCIATION
By:	/s/    PAULA OSWALD
	Paula Oswald Vice President

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Exhibit 6

CONSENT

In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.

Dated: July 10, 2003

U.S. BANK NATIONAL ASSOCIATION
By:	/s/    PAULA OSWALD
	Paula Oswald Vice President

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Exhibit 7

U.S. Bank National Association

Statement of Financial Condition

As of 3/31/2003

($000’s)

	3/31/2003
Assets
Cash and Due From Depository Institutions	$	9,084839
Federal Reserve Stock		0
Securities		30,038,992
Federal Funds		833,567
Loans & Lease Financing Receivables		115,894,797
Fixed Assets		1,462,006
Intangible Assets		9,080,815
Other Assets		11,583,795
Total Assets	$	177,978,811
Liabilities
Deposits	$	121,508,878
Fed Funds		3,820,981
Treasury Demand Notes		0
Trading Liabilities		454,575
Other Borrowed Money		21,082,000
Acceptances		139,821
Subordinated Notes and Debentures		5,694,952
Other Liabilities		5,164,656
Total Liabilities	$	157,865,863
Equity
Minority Interest in Subsidiaries	$	993,907
Common and Preferred Stock		18,200
Surplus		11,015,123
Undivided Profits		8,085,718
Total Equity Capital	$	20,112,948
Total Liabilities and Equity Capital	$	177,978,81

To the best of the undersigned’s determination, as of the date hereof, the above financial information is true and correct.

U.S. BANK NATIONAL ASSOCIATION
By:	/s/    PAULA OSWALD
	Vice President

Date: July 10, 2003

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