-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PXqd74exJSxiwVVv4DZJGqWxaa2pt1b5vweHiUUHSARB/6aVyDMfMikbR4GTzchM OTzsbhB8I1fCpV7WTG4FFA== 0000950109-96-001865.txt : 19960401 0000950109-96-001865.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950109-96-001865 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 54 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENCOR INC CENTRAL INDEX KEY: 0000740260 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 611055020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10989 FILM NUMBER: 96541394 BUSINESS ADDRESS: STREET 1: 3300 CAPITAL HOLDING CENTER STREET 2: 400 WEST MARKET STREET CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025697300 MAIL ADDRESS: STREET 1: 3300 PROVIDIAN CENTER STREET 2: 400 WEST MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NUMBER: 1-10989 ---------------- VENCOR, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 61-1055020 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3300 PROVIDIAN CENTER 40202 400 WEST MARKET STREET (ZIP CODE) LOUISVILLE, KY (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (502) 596-7300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $.25 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [X] As of March 1, 1996, there were 69,915,086 shares of the Registrant's Common Stock, $.25 par value, outstanding. The aggregate market value of the shares of Registrant held by non-affiliates of the Registrant, based on the closing price of such stock on the New York Stock Exchange on March 1, 1996, was approximately $2,491,379,000. For purposes of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. DOCUMENTS INCORPORATED BY REFERENCE A portion of Part III is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 1996. A portion of Part II is incorporated by reference from the Registrant's Annual Report to Shareholders for the year ended December 31, 1995. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 23 Item 3. Legal Proceedings........................................... 23 Item 4. Submission of Matters to a Vote of Security Holders......... 23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................ 25 Item 6. Selected Financial Data..................................... 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 27 Item 8. Financial Statements and Supplementary Data................. 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................... 30 PART III Item 10. Directors and Executive Officers of the Registrant.......... 30 Item 11. Executive Compensation...................................... 30 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................. 30 Item 13. Certain Relationships and Related Transactions.............. 30 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................ 31
2 PART I ITEM 1. BUSINESS GENERAL On September 28, 1995, The Hillhaven Corporation ("Hillhaven") merged into Vencor, Inc. (the "Company") (the "Hillhaven Merger"), creating one of the nation's largest providers of healthcare services primarily focusing on the needs of the elderly. At December 31, 1995, the Company's operations included 36 long-term intensive care hospitals containing 3,263 licensed beds, 311 nursing centers containing 39,480 licensed beds, 55 retail and institutional pharmacy outlets and 23 retirement housing communities with 3,122 apartments. Healthcare services provided through this network of facilities included long- term intensive hospital care, long-term nursing care, contract respiratory therapy services, acute cardiopulmonary care, subacute and post-operative care, inpatient and outpatient rehabilitation therapy, specialized care for Alzheimer's disease, hospice care, pharmacy services and retirement and assisted living. At December 31, 1995, the Company was providing subacute, rehabilitation and respiratory therapy services to 2,008 nursing and subacute care centers through its contract services business ("Vencare"). Through its subsidiary, Ventech Systems, Inc. ("Ventech"), the Company is developing and maintaining ProTouch(TM), a comprehensive paperless clinical information system designed to increase the operating efficiencies of the Company's facilities. The Company was incorporated in Kentucky in 1983 as Vencare, Inc. and commenced operations in 1985. It was reorganized as a Delaware corporation in 1987. The Company changed its name to Vencor, Incorporated in 1989 and to Vencor, Inc. in 1993. Initially following the Hillhaven Merger in September 1995, the Company conducted business through its hospital, nursing center and contract services divisions. During the first quarter of 1996, the Company reorganized on the basis of regional integrated service areas. This Report contains a number of forward-looking statements. These statements are qualified by reference to the cautionary statements set forth under "Business--Additional Company Information--Cautionary Statements." VENCOR STRATEGY The healthcare system of the United States remains in a period of significant change. Factors affecting the healthcare system include cost containment, the expansion of managed care, improved medical technology and an increased focus on measurable medical outcomes. The Company believes that these factors will lead to more patient-focused care in lower cost alternate sites by providers who are able to demonstrate high quality, cost-effective care. At the same time, the Company believes that the need for long-term care is increasing. Improved medical care and advancements in medical technology increase the survival rates for victims of disease and trauma of all ages. Many of these patients never fully recover and require long-term care. The incidence of chronic problems increases with age, particularly in connection with certain degenerative conditions. As the average age of the United States population increases, the Company believes there will be an increase in the need for long-term care at all levels of the continuum of care. Accordingly, the Company is developing full-service integrated networks to meet the needs of patients requiring long-term care. The Company's full- service capability should enable it to match the appropriate acuity of care with each patient's needs. The Company is continuing to integrate and expand the operations of its intensive care hospitals and nursing centers. The Company is also continuing to investigate and develop related healthcare services. The Company is exploring other ways in which it can transfer its expertise in the efficient delivery of cardiopulmonary and other long-term care to other healthcare businesses. Such efforts may include affiliating with or acquiring other healthcare businesses. 3 The Company's strategy for implementing full-service integrated networks for long-term care is set forth below. Focus on Long-Term Care Continuum. The Company intends to continue expanding its long-term care network. The Company conducts market research prior to entering new markets, which research may address (i) the need for placement of long-term patients or residents, (ii) existing provider referral patterns, (iii) the presence of competitors, (iv) payor mix and (v) the political and regulatory environment. Although the Company is continually considering opportunities for future growth and is actively negotiating to acquire additional facilities and related healthcare businesses, as of March 21, 1996, the Company had not entered into any agreements regarding future acquisitions. From time to time, the Company may also sell all or a portion of its interest in a facility or business where such disposition would be in the best interest of the Company. Expand Specialty Care Services. The Company intends to continue to expand the specialty care programs and services at its nursing centers. These services generally produce higher revenues than do routine nursing care services and serve to differentiate the Company's facilities from others in a given market. The Company is focusing on the expansion of its subacute, medical and rehabilitation services, including physical, occupational and speech therapies, wound care, oncology treatment, brain injury care, stroke therapy and orthopedic therapy. Expand Vencare Contract Services. In 1993, the Company initiated its Vencare program of providing respiratory therapy and subacute care services in nursing and hospital facilities owned by third parties. The Vencare program also currently includes hospice care, management of cardiopulmonary hospital departments and rehabilitation therapy services. Vencare services are provided pursuant to contracts with nursing and subacute care centers and hospitals. Vencare enables the Company to provide its services to lower acuity, subacute patients in cost-efficient sites and facilitates patient referrals between its hospitals and contract-affiliated nursing centers as medical conditions warrant. The Company intends to continue to expand its Vencare program. Implement Ventech Patient Information System. In 1993, the Company formed Ventech Systems, Inc. ("Ventech") to develop the ProTouch(TM) electronic patient medical record system. ProTouch(TM) is a software application which allows nurses, physicians and other clinicians to access and manage clinical information utilized in the delivery of patient care. The Company had installed ProTouch(TM) in all of its hospitals as of the end of 1995 and plans to complete the installation of ProTouch(TM) in its nursing centers by the end of 1997. HOSPITAL OPERATIONS The Company's hospitals primarily provide long-term acute hospital care to medically complex, chronically ill patients. The Company's hospitals have the capability to treat patients who suffer from multiple systemic failures or conditions such as neurological disorders, head injuries, brain stem and spinal cord trauma, cerebral vascular accidents, chemical brain injuries, central nervous system disorders, developmental anomalies and cardiopulmonary disorders. Chronic patients are often dependent on technology for continued life support, such as mechanical ventilators, total parenteral nutrition, respiration or cardiac monitors and dialysis machines. Generally, approximately 60% of the Company's chronic patients are ventilator-dependent for some period of time during their hospitalization. The Company's patients suffer from conditions which require a high level of monitoring and specialized care, yet may not necessitate the continued services of an intensive care unit. Due to their severe medical conditions, the Company's hospital patients generally are not clinically appropriate for admission to a skilled nursing facility or rehabilitation hospital. The medical condition of most of the Company's hospital patients is periodically or chronically unstable. By combining general acute care services with the ability to care for chronic patients, the Company believes that its long-term hospitals provide its patients with high quality, cost-effective care. During 1995, the average length of stay for chronic patients in the Company's long-term hospitals was approximately 55 days. Although the Company's patients range in age from pediatric to geriatric, typically more than 70% of the Company's chronic hospital patients are over 65 years of age. 4 HOSPITAL FACILITIES The following table lists by state the number of hospitals and related licensed beds owned and leased by the Company as of December 31, 1995:
NUMBER OF FACILITIES LICENSED ----------------------- STATE BEDS OWNED LEASED TOTAL ----- -------- ------ ------- ------ Arizona.................................... 110 2 - 2 California................................. 544 6 - 6 Colorado................................... 68 1 - 1 Florida.................................... 278 3 1 4 Georgia.................................... 72 - 1 1 Illinois................................... 365 3 - 3 Indiana.................................... 121 2 - 2 Kentucky................................... 374 1 - 1 Massachusetts.............................. 40 1 - 1 Michigan................................... 160 1 - 1 Missouri................................... 227 2 - 2 North Carolina............................. 124 1 - 1 Oklahoma................................... 59 1 - 1 Pennsylvania............................... 101 2 - 2 Tennessee.................................. 49 1 - 1 Texas...................................... 365 5 1 6 Virginia................................... 206 1 - 1 ----- ------ ------ ------ Total.................................... 3,263 33 3 36 ===== ====== ====== ======
SERVICES PROVIDED BY COMPANY HOSPITALS Chronic. The Company has devised a comprehensive program of care for its chronic patients that draws upon the talents of interdisciplinary teams, including licensed pulmonary specialists. The teams evaluate chronic patients upon admission to determine an appropriate treatment plan. Where appropriate, the treatment programs may involve the services of several disciplines, such as pulmonary and physical therapy. Individual attention to patients who have the cognitive and physical abilities to respond to therapy is emphasized. Patients who successfully complete treatment programs are discharged to skilled nursing facilities, rehabilitation hospitals or home care settings. General Acute Care. The Company operates two general acute care hospitals. Certain of the Company's long-term hospitals also provide general acute care and outpatient services in support of their long-term care services. Certain of the Company's hospitals maintain subacute units. General acute care and outpatient services may include inpatient services, diagnostic services, emergency services, CT scanning, one-day surgery, hospice services, laboratory, X-ray, respiratory therapy, cardiology and physical therapy. The Company may expand its general acute care and outpatient services as its long- term hospitals mature. Major factors contributing to the growth in demand for the Company's intensive care hospital services include the following: Increased Patient Population. Improved medical care and advancements in medical technology have increased the survival rates for infants born with severe medical problems, as well as victims of disease and trauma of all ages. Many of these patients never fully recover and require long-term hospital care. The incidence of chronic respiratory problems increases with age, particularly in connection with certain degenerative conditions. As the average age of the United States population increases, the Company believes there will be an increase in the need for long-term hospital care. Typically more than 70% of the Company's hospital patients are over 65 years of age. 5 Medically Displaced Patients. The Company's hospital patients require a high level of monitoring and specialized care, yet may not require the continued services of an intensive care unit. Due to their extended recovery period, the Company's hospital patients generally would not receive specialized multidisciplinary treatment focused on the unique aspects of a long-term recovery program in a general acute care hospital and yet cannot qualify for admission to a skilled nursing facility or rehabilitation hospital. Economically Displaced Patients. Historically, reimbursement policies and practices designed to control healthcare costs have made it difficult to place medically complex, chronically ill patients in an appropriate healthcare setting. Under the Medicare program, general acute care hospitals are reimbursed under the prospective payment system ("PPS"), a fixed payment system which provides an economic incentive to general acute care hospitals to minimize the length of patient stay. As a result, these hospitals generally receive less than full cost for providing care to patients with extended lengths of stay. Furthermore, PPS does not provide for reimbursement more frequently than once every 60 days, placing an additional economic burden on a general acute care hospital providing long-term care. The Company's long-term hospitals, however, are exempt from PPS and thus receive reimbursement on a more favorable basis for providing long-term hospital care to Medicare patients. Commercial reimbursement sources, such as insurance companies and health maintenance organizations ("HMOs"), some of which pay based on established hospital charges, typically seek the most economical source of care available. The Company believes that its emphasis on long-term hospital care allows it to provide high quality care to chronic patients on a cost- effective basis. HOSPITAL PATIENT ADMISSION Substantially all of the chronic patients admitted to the Company's hospitals are transferred from other healthcare providers. Patients are referred from general acute care hospitals, rehabilitation hospitals, skilled nursing facilities and home care settings. Referral sources include discharge planners, case managers of managed care plans, social workers, physicians, third-party administrators, HMOs and insurance companies. The Company employs case managers who educate healthcare professionals from other hospitals as to the unique nature of the services provided by the Company's long-term hospitals. The case managers develop an annual admission plan for each hospital, with assistance from the hospital's administrator. To identify specific service opportunities, the admission plan for each hospital is based on a variety of factors, including population characteristics, physician characteristics and incidence of disability statistics. Admission plans involve ongoing education of local physicians, utilization review and case management personnel, HMOs, acute care hospitals and preferred provider organizations ("PPOs"). The Company maintains a centralized pre-admission certification system at its corporate headquarters to assess certain clinical and other information in determining the appropriateness of each patient referral to its hospitals. PROFESSIONAL STAFF Each of the Company's hospitals is staffed with a multidisciplinary team of healthcare professionals, including nurses, therapists and physicians. A professional nursing staff trained to care for the long-term acute patient is on duty 24 hours each day in the Company's hospitals. Other professional staff includes respiratory therapists, physical therapists, occupational therapists and registered dietitians. The physicians at the Company's hospitals generally are not employees of the Company and may also be members of the medical staff of other hospitals. Each of the Company's hospitals has a fully credentialled, multispecialty medical staff to meet the needs of the patients. Each patient is visited at least once a day by a staff physician. Typically, the Company does not enter into exclusive contracts with physicians to provide services to 6 its hospital patients. The Company's hospitals and physicians enter into service contracts providing for pulmonary, radiology, pathology, infection control and anesthesiology services, most of which are cancellable on no more than 90 days' notice. The Company believes that its future success will depend in large part upon its continued ability to hire and retain qualified personnel. The Company seeks the highest quality of professional staff within each market. CENTRALIZED MANAGEMENT AND OPERATIONS A hospital administrator supervises and is responsible for the day-to-day operations at each of the Company's hospitals. Each hospital also employs a controller who monitors the financial matters of each hospital, including the measurement of actual operating results compared to goals established by the Company. In addition, each hospital employs an assistant administrator to oversee the clinical operations of the hospital and a quality assurance manager to direct an integrated quality assurance program. The Company's corporate headquarters provides services in the areas of system design and development, training, human resource management, reimbursement expertise, legal advice, technical accounting support, purchasing and facilities management. Financial control is maintained through fiscal and accounting policies that are established at the corporate level for use at each hospital. The Company has standardized operating procedures and monitors its hospitals to assure consistency of operations. MANAGEMENT INFORMATION SYSTEM The financial information for each Company hospital is centralized at the corporate headquarters through its management information system. The Company uses a customized hospital financial reporting system which enables it to monitor, on a daily basis, certain key financial data at each hospital such as payor mix, admissions and discharges, cash collections, revenues and staffing. In addition, the financial reporting system provides monthly budget analysis, financial comparisons to prior periods and comparisons among the Company's hospitals. The Company has installed an electronic patient medical record system in all of its hospitals and intends to complete such installations in its nursing centers by the end of 1997. See "Ventech Systems, Inc." QUALITY ASSESSMENT AND IMPROVEMENT The Company maintains a strategic outcomes program which includes a centralized pre-admission evaluation program and concurrent review for all of its patient population against utilization and quality screens, as well as quality of life outcomes data collection and patient and family satisfaction surveys. In addition, each hospital has an integrated quality assessment and improvement program administered by a quality review manager which encompasses utilization review, quality improvement, infection control and risk management. The objective of these programs is to ensure that patients are appropriately admitted to the Company's hospitals and that quality healthcare is rendered to them in a cost-effective manner. The Company has implemented a program whereby its hospitals will be reviewed annually by internal quality auditors for compliance with standards of the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). The purposes of this internal review process are to (i) ensure ongoing compliance with industry recognized standards for hospitals, (ii) assist management in analyzing each hospital's operations and (iii) provide consulting and educational opportunities for each hospital to identify opportunities to improve patient care. 7 SELECTED HOSPITAL OPERATING DATA The following table sets forth certain operating data for the Company's hospitals:
YEAR ENDED DECEMBER 31, ------------------------- 1995 1994 1993 ------- ------- ------- Hospitals in operation at end of period........... 36 33 26 Number of licensed beds at end of period.......... 3,263 2,511 2,198 Patient days...................................... 489,612 403,623 293,367 Average daily census.............................. 1,341 1,123 875 Occupancy percentage.............................. 47.6% 48.8% 44.1%
As used in the above table, the term "licensed beds" refers to the maximum number of beds permitted in the hospital under its license regardless of whether the beds are actually available for patient care. "Patient days" refers to the total number of days of patient care provided by the Company's hospitals for the periods indicated. "Average daily census" is computed by dividing each hospital's patient days by the number of calendar days the respective hospital is in operation. "Occupancy percentage" is computed by dividing average daily census by the number of licensed beds, adjusted for the length of time each facility was in operation during each respective period. SOURCES OF HOSPITAL REVENUES The Company receives payment for hospital services from third-party payors, including government reimbursement programs such as Medicare and Medicaid and nongovernment sources such as commercial insurance companies, HMOs, PPOs and contracted providers. Payments from government programs are generally based upon cost and payments from nongovernment payors are generally based upon charges. Patients covered by nongovernment payors are generally more profitable to the Company than those covered by Medicare and Medicaid programs. The following table sets forth the approximate percentages of the Company's hospital revenues derived from the specified payor sources indicated:
YEAR ENDED DECEMBER 31, --------------------------- 1995 1994 1993 ------- ------- ------- Medicare....................................... 57% 56% 51% Medicaid....................................... 12 11 9 Private and other.............................. 31 33 40
For the year ended December 31, 1995, hospital revenues totaled approximately $456 milion, or 19.6% of the Company's consolidated revenues. HOSPITAL COMPETITION As of December 31, 1995, the hospitals owned or leased by the Company were located in 32 geographic markets in 17 states. In each geographic market, there are general acute care hospitals which provide services comparable to those offered by the Company's hospitals. In addition, as of February 6, 1996, there were 180 hospitals in the United States certified by Medicare as general long-term hospitals, some of which provide similar cardiopulmonary services to those provided by the Company's hospitals. Many of these short-term and long- term hospitals are larger and more established than the Company's hospitals. Certain hospitals that compete with the Company's hospitals are operated by not-for-profit, nontaxpaying or governmental agencies, which can finance capital expenditures on a tax-exempt basis, and which receive funds and charitable contributions unavailable to the Company's hospitals. Cost containment efforts by federal and state governments and other third-party payors designed to encourage more efficient utilization of hospital services have generally resulted in lower hospital industry occupancy rates in recent years. As a result of these efforts, a number of acute care hospitals have converted to specialized care facilities. Some hospitals are developing step- down units which attempt to serve the needs of patients who require care at a level between that provided by an intensive care unit 8 and a general medical/surgical unit. This trend is expected to continue due to the current oversupply of acute care hospital beds and the increasing consolidation and affiliation of free-standing hospitals into larger systems. As a result, the Company may experience increased competition from existing hospitals and converted facilities. Competition for patients covered by nongovernment reimbursement sources is intense. The primary competitive factors in the long-term intensive care business include quality of services, charges for services and responsiveness to the needs of patients, families, payors and physicians. Other companies have entered the long-term intensive care market with licensed hospitals that compete with the Company's hospitals. Some skilled nursing facilities, while not licensed as hospitals, have developed units which provide a greater intensity of care than that typically provided by a skilled nursing facility. The condition of patients in these skilled nursing facility units is less acute than the condition of patients cared for in the Company's hospitals. The competitive position of any hospital, including the Company's hospitals, is also affected by the ability of its management to negotiate contracts with purchasers of group healthcare services, including private employers, PPOs and HMOs. Such organizations attempt to obtain discounts from established hospital charges. The importance of obtaining contracts with PPOs, HMOs and other organizations which finance healthcare, and its effect on a hospital's competitive position, vary from market to market, depending on the number and market strength of such organizations. The Company also competes with other healthcare companies for hospital and other healthcare acquisitions. HOSPITAL REGULATION The healthcare industry is subject to regulation by a number of government and private agencies. Regulatory activities affect the Company's business activities by controlling its growth, requiring licensure and certification for its hospitals, regulating the use of its properties and controlling reimbursement to the Company for services provided. Certificates of Need and State Licensing. Certificate of Need ("CON") regulations control the development and expansion of healthcare services and facilities in certain states. CON laws generally provide that approval must be obtained from the designated state health planning agency prior to the expansion of existing facilities, construction of new facilities, addition of beds, acquisition of major items of equipment or introduction of new services. The stated objective of the CON process is to promote quality healthcare at the lowest possible cost and avoid unnecessary duplication of services, equipment and facilities. Recently, some states (including Florida, Massachusetts and Tennessee) have amended their CON regulations to require CON approval prior to the conversion of a hospital from a general short-term facility to a general long-term facility. Of the seventeen states in which the Company's hospitals were located as of December 31, 1995, Florida, Georgia, Illinois, Kentucky, Massachusetts, Michigan, Missouri, North Carolina, Pennsylvania, Tennessee and Virginia have CON programs. With one exception, the Company was not required to obtain a CON in connection with its previous acquisitions, due to relatively low renovation costs and the absence of additional licensed beds or changes in services. CONs may be required in connection with the Company's future hospital and contract services expansion. There can be no assurance that the Company will be able to obtain the CONs necessary for any or all such projects. If the Company is unable to obtain the requisite CONs, its growth and business could be adversely affected. State licensing of hospitals is a prerequisite to the operation of each hospital and to participation in government programs. Once a hospital becomes licensed and operational, it must continue to comply with federal, state and local licensing requirements in addition to local building and life-safety codes. All of the Company's hospitals in operation have obtained the necessary licenses to conduct business. 9 Medicare and Medicaid. Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over and certain disabled persons. Medicaid is a medical assistance program administered by each state pursuant to which hospital benefits are available to certain indigent patients. Within the Medicare and Medicaid statutory framework, there are substantial areas subject to administrative rulings, interpretations and discretion which may affect payments made under Medicare and Medicaid. A substantial portion of the Company's hospital revenues is derived from patients covered by Medicare and Medicaid. See "Hospital Operations--Sources of Hospital Revenues." In order to receive Medicare reimbursement, each hospital must meet the applicable conditions of participation set forth by the Department of Health and Human Services ("HHS") relating to the type of hospital, its equipment, personnel and standard of medical care, as well as comply with state and local laws and regulations. The Company has developed a management system to ensure compliance with the various standards and requirements. Each of the Company's hospitals employs a person who is responsible for an on-going quality assessment and improvement program. Hospitals undergo periodic on-site Medicare certification surveys, which are generally limited if the hospital is accredited by JCAHO. As of December 31, 1995, all the Company's hospitals were certified as Medicare providers, and thirty-three of its hospitals were also certified by their respective state Medicaid programs. Applications are pending for Medicaid certification with respect to the Company's other hospitals. A loss of certification could adversely affect a hospital's ability to receive payments under the Medicare and Medicaid programs. Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and indirect cost of the services provided to beneficiaries. The Social Security Amendments of 1983 implemented PPS as a means of controlling healthcare costs. Under PPS, Medicare inpatient costs are reimbursed based upon a fixed payment amount per discharge using diagnosis related groups ("DRGs"). The DRG payment under PPS is based upon the national average cost of treating a Medicare patient's condition. Although the average length of stay varies for each DRG, the average stay for all Medicare patients subject to PPS is approximately six days. An additional outlier payment is made for patients with unusually extended lengths of stay or higher treatment costs. Outlier payments are only designed to cover marginal costs. Additionally, PPS payments can only be made once every 60 days. Thus, PPS creates an economic incentive for general short- term hospitals to discharge chronic Medicare patients as soon as clinically possible. Hospitals that are certified by Medicare as general long-term hospitals are excluded from PPS. Management believes that the incentive for short-term hospitals to discharge chronic medical patients as soon as clinically possible creates a substantial referral source for the Company's general long-term hospitals. The Social Security Amendments of 1983 exempted psychiatric, rehabilitation, cancer, children's and general long-term hospitals from PPS. A general long- term hospital is defined as a hospital which has an average length of stay greater than 25 days. Inpatient operating costs for general long-term hospitals are reimbursed under the cost-based reimbursement system, subject to a computed target rate (the "Target") per discharge for inpatient operating costs established by the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). Until October 1991, Medicare operating costs per discharge in excess of the Target were not reimbursed. Effective October 1, 1991, Medicare operating costs in excess of the Target are reimbursed at the rate of 50% of the excess up to 10% of the Target. Hospitals whose operating costs are lower than the Target are reimbursed their actual costs plus an incentive. The incentive is equal to 50% of the difference between their actual costs and the Target and may not exceed 5% of the Target. New hospitals may apply for an exemption from the TEFRA Target provisions. For hospitals certified prior to October 1, 1992, the exemption was optional and, if granted, lasted for three years. For certifications after October 1, 1992, the exemption is automatic and is effective for two years. As of December 31, 1995, twenty-seven of the Company's hospitals were subject to TEFRA Target provisions. The Company's other hospitals were not subject to TEFRA because they had qualified for the new hospital exemptions described above. During 1996, five more of the Company's hospitals will become subject to TEFRA Target provisions. The TEFRA limits have not had a material adverse effect on the Company's results of operations, and the Company does not expect that the TEFRA limits will have a material effect on the Company's results of operations in 1996. 10 Medicare and Medicaid reimbursements are generally determined from annual cost reports filed by the Company which are subject to audit by the respective agency administering the programs. Management believes that adequate provisions for loss have been recorded to reflect any adjustments which could result from audits of these cost reports. Adjustments to the Company's cost reports have not had a material adverse effect on the Company's hospital operating results. Federal regulations provide that admission to and utilization of hospitals by Medicare and Medicaid patients must be reviewed by peer review organizations ("PROs") in order to ensure efficient utilization of hospitals and services. A PRO may conduct such review either prospectively or retroactively and may, as appropriate, recommend denial of payments for services provided to a patient. Such review is subject to administrative and judicial appeal. Each of the Company's hospitals employs a clinical professional to administer the hospital's integrated quality assurance and improvement program, including its utilization review program. PRO denials have not had a material adverse effect on the Company's hospital operating results. Medicare and Medicaid antifraud and abuse amendments codified under Section 1128B(b) of the Social Security Act (the "Antifraud Amendments") prohibit certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare and Medicaid. Sanctions for violating the Antifraud Amendments include criminal and civil penalties and exclusion from the Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Patient and Program Protection Act of 1987, HHS and the Office of the Inspector General ("OIG") specified certain "safe harbors" which describe conduct and business relationships permissible under the Antifraud Amendments. These "safe harbor" regulations may result in more aggressive enforcement of the Antifraud Amendments by HHS and the OIG. Section 1877 of the Social Security Act (commonly known as "Stark I") states that a physician who has a financial relationship with a clinical laboratory is generally prohibited from referring patients to that laboratory. The Omnibus Budget Reconciliation Act of 1993 contains provisions ("Stark II") amending Section 1877 to greatly expand the scope of Stark I. Effective January 1995, Stark II broadened the referral limitations of Stark I to include, among other designated health services, inpatient and outpatient hospital services. Under Stark I and Stark II (collectively referred to as the "Stark Provisions"), a "financial relationship" is defined as an ownership interest or a compensation arrangement. If such a financial relationship exists, the entity is generally prohibited from claiming payment for such services under the Medicare or Medicaid programs. Compensation arrangements are generally exempted from the Stark Provisions if, among other things, the compensation to be paid is set in advance, does not exceed fair market value and is not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties. The Company expects that business practices of providers and financial relationships between providers will be subject to increased scrutiny as healthcare reform efforts continue at federal and state levels. Healthcare Reform. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures which could effect major changes in the healthcare system. In October 1993, the Clinton Administration submitted comprehensive healthcare reform legislation to Congress designed to provide, among other things, for universal access to healthcare. Neither the Clinton Administration's plan nor other healthcare reform legislation was enacted by Congress. More recently, a significant effort has been initiated in Congress and the Clinton Administration to balance the federal budget in seven years. This effort could result in significant reductions in Medicare and Medicaid spending, which may be achieved through restrictions on growth of healthcare costs, implementation of various aggregate cost limits, or a restructuring of Medicaid through block grants to the states. The Company believes that implementation of block grants to the states could add incentives to provide an increased amount of healthcare services through managed care health plans. A number of legislative proposals have included a moratorium on the designation of additional long-term hospitals for Medicare reimbursement purposes. However, the Company cannot predict the form of any healthcare or budget reform legislation which may be proposed in Congress or in state legislatures in the future, 11 and whether such legislation, if any, will be adopted. Accordingly, the Company is unable to assess the effect of any such legislation on its business. There can be no assurance that any such legislation will not have a material adverse impact on the Company's future growth, revenues and earnings. Gramm-Rudman. The Company's Medicare revenues may be adversely affected by the Balanced Budget and Emergency Deficit Control Act of 1985, as amended ("Gramm-Rudman"). Under Gramm-Rudman, if the Office of Management and Budget and the Congressional Budget Office determines that the federal deficit will exceed certain specified levels for a federal fiscal year through 1998, sufficient reductions in federal spending must be made to remove the excess deficit. One-half of these reductions must be made in nondefense programs. Although Medicaid funding is exempt from reductions under Gramm-Rudman, the Medicare program is not. If reductions are made in the Medicare program, each payment to providers that is paid on a reasonable cost basis may be reduced. Payment reductions under Gramm-Rudman in federal fiscal years through 1998 could have an adverse effect on the Company's revenues and earnings. However, because the actual amount of the reduction for any fiscal year may vary according to the federal deficit, the financial impact of Gramm-Rudman on the Company's results of operations cannot be predicted. JCAHO Accreditation. Hospitals receive accreditation from JCAHO, a nationwide commission which establishes standards relating to the physical plant, administration, quality of patient care and operation of medical staffs of hospitals. Generally, hospitals and certain other healthcare facilities are required to have been in operation at least six months in order to be eligible for accreditation by JCAHO. After conducting on-site surveys, JCAHO awards accreditation for up to three years to hospitals found to be in substantial compliance with JCAHO standards. Accredited hospitals are periodically resurveyed, at the option of JCAHO, upon a major change in facilities or organization and after merger or consolidation. As of December 31, 1995, thirty-three of the Company's hospitals were accredited by JCAHO. The Company intends to apply for JCAHO accreditation for its other hospitals within the next year. The Company intends to seek and obtain JCAHO accreditation for any additional facilities it may purchase or lease and convert into long-term hospitals. The Company does not believe that the failure to obtain JCAHO accreditation at any hospital would have a material adverse effect on its results of operations. State Regulatory Environment. The Company currently operates four hospitals and manages a chronic unit in Florida, a state which regulates hospital rates. These operations contribute a significant portion of the Company's revenues and operating income from its hospitals. Accordingly, the Company's hospital revenues and operating income could be materially adversely affected by Florida rate setting laws or other cost containment efforts. The Company also operates six hospitals in Texas and six hospitals in California which contribute a significant portion of the Company's revenues and operating income from its hospitals. Although Texas and California do not currently regulate hospital rates, the adoption of such legislation or other cost containment measures in these or other states could have a material adverse effect on the Company's hospital revenues and operating income. The Company is unable to predict whether and in what form any such legislation will be adopted. The Company's revenues and operating income could be adversely affected by other state rate setting laws. Certain other states in which the Company operates hospitals require hospitals to disclose specified financial information. In evaluating markets for expansion, the Company considers the regulatory environment, including but not limited to, any mandated rate setting. VENCARE OPERATIONS In 1993, the Company initiated its Vencare contract services business. Through Vencare, the Company has expanded the scope of its cardiopulmonary care by providing subacute care, rehabilitation therapy and respiratory care services and supplies to nursing and subacute care centers. The Company also manages cardiopulmonary departments for other hospitals. The Company provides hospice services to nursing center patients, hospital patients and persons in private residences. For the year ended December 31, 1995, revenues from Vencare totaled approximately $110 million, or 4.7% of the Company's consolidated revenues. 12 RESPIRATORY CARE SERVICES The Company provides respiratory care services and supplies to nursing and subacute center patients pursuant to contracts between the Company and the nursing center or subacute center. The services are provided by respiratory therapists based at the Company's hospitals. These respiratory therapists perform a wide variety of procedures, including oxygen therapy, bronchial hygiene, nebulizer and aerosol treatments, tracheostomy care, ventilator management and patient respiratory education. Pulse oximeters and arterial blood gas machines are used to evaluate the patient's condition, as well as the effectiveness of the treatment. The Company also provides respiratory equipment and supplies to nursing and subacute centers. The Company receives payments from the nursing centers and subacute centers for services rendered and these facilities, in turn, receive payments from the appropriate provider. Respiratory therapy and supplies are covered under the Medicare program and reimbursed as an ancillary service when the service is provided by hospital-based respiratory therapists. Many commercial insurers and managed care providers are seeking hospital discharge options for lower acuity respiratory patients. Management believes that the Company's pricing and successful clinical outcomes make its respiratory care program attractive to commercial insurers and managed care providers. At December 31, 1995, the Company had entered into contracts to provide contract respiratory therapy services and supplies to 1,590 nursing and subacute care centers. SUBACUTE SERVICES At December 31, 1995, the Company had entered into contracts to provide subacute care services to 13 nursing and subacute care centers. These services, which are also an extension of the cardiopulmonary services provided by the Company's hospitals, may include ventilator management, tracheostomy care, continuation of airway restoration programs, enteral and parenteral nutritional support, IV therapy for hydration and medication administration, progressive wound care, chronic chest tube management, laboratory, radiology, pharmacy and dialysis services and customized rehabilitation services. Subacute patients generally require assisted ventilation through mechanical devices. REHABILITATION THERAPY SERVICES The Company provides physical, occupational and speech therapies to nursing and subacute care center patients. At December 31, 1995, the Company had entered into contracts to provide rehabilitation therapy services to patients at 405 facilities. HOSPICE SERVICES The Company provides hospice services to nursing center patients, hospital patients and persons in private residences. CONTRACT SERVICES COMPETITION Although the respiratory therapy services, rehabilitation services, subacute services and hospice care markets are fragmented, significant competition exists for the Company's contract services. The primary competitive factors for the contract services business are quality of services, charges for services and responsiveness to the needs of patients, families and the facilities in which the services are provided. Certain hospitals are establishing and managing their own step-down and subacute facilities. Other hospital companies have entered the contract services market through affiliation agreements and management contracts. 13 VENTECH SYSTEMS, INC. In 1993, the Company formed Ventech to develop the ProTouch(TM) electronic patient medical records system. ProTouch(TM) is a software application which allows nurses, physicians and other clinicians to manage clinical information utilized in the patient care delivery process. Among the features of ProTouch(TM) are on-line access and update of an electronic patient chart, on-line trend analysis using electronic flowsheets and graphs, and remote access for authorized users. The system is designed to decrease administrative time, reduce paper and support the delivery of quality patient care. The Company completed the installation of ProTouch(TM) in all of its hospitals during 1995, and plans to install ProTouch(TM) in all of its nursing centers by the end of 1997. NURSING CENTER, PHARMACY AND RETIREMENT HOUSING COMMUNITY OPERATIONS The Company's nursing center operations provide long-term care and subacute medical and rehabilitation services in 311 nursing centers containing 39,480 licensed beds located in thirty-three states. At December 31, 1995, the Company owned 216 nursing centers and leased 79 nursing centers. The Company also managed 16 nursing centers, including 7 centers owned by Tenet Healthcare Corporation ("Tenet"), which holds a greater than 10% interest in the Company. The Company is a leading provider of rehabilitation services, including physical, occupational and speech therapies. The majority of patients in rehabilitation programs stay for eight weeks or less. Patients in rehabilitation programs generally provide for higher revenues than other nursing center patients because they require a higher level of ancillary services. In addition, management believes that the Company is one of the leading providers of care for patients with Alzheimer's disease. At December 31, 1995, the Company offered treatment in approximately 2,239 beds in 71 nursing centers for patients suffering from Alzheimer's disease. Most of these patients reside in separate units within the nursing centers and are cared for by teams of professionals specializing in the unique problems experienced by Alzheimer's patients. NURSING CENTER MARKETING The factors which affect consumers' selection of a nursing center vary by community and include a nursing center's competitive position and its relationships with local referral sources. Competition creates the standards against which nursing centers in a given market are judged by various referral sources, which include physicians, hospital discharge planners, community organizations and families. Therefore, the Company's nursing center sales efforts are conducted at the local market level by the nursing center administrators, admissions coordinators and others. Nursing center personnel are assisted in carrying out their marketing strategies by regional marketing staffs. The Company's sales efforts are directed toward improving the payor mix at the nursing centers by increasing the census of private pay patients, patients covered by managed care contracts and Medicare patients. Accordingly, the Company's sales efforts focus on the value of its nursing centers as a lower cost alternative for subacute medical and rehabilitation services compared to similar care provided by acute care and rehabilitation hospitals. NURSING CENTER OPERATIONS Each nursing center is managed by a state-licensed administrator who is supported by other professional personnel, including a director of nursing, staff development professional (responsible for employee training), activities director, social services director, licensed dietician, business office manager and, in general, physical, occupational and speech therapists. The directors of nursing are state-licensed nurses who supervise nursing staffs which include registered nurses, licensed practical nurses and nursing assistants. Staff size and composition 14 vary depending on the size and occupancy of each nursing center and on the level of care provided by the nursing center. The nursing centers contract with physicians who serve as medical directors and serve on quality assurance committees. The nursing centers are supported by regional staff in the areas of nursing, dietary and rehabilitation services, maintenance, sales and financial services. In addition, corporate staff provide other services in the areas of sales assistance, human resource management, state and federal reimbursement, state licensing and certification, legal, finance and accounting support. Financial control is maintained principally through fiscal and accounting policies established at the corporate level for use at the nursing centers. Quality of care is monitored and enhanced by quality assurance committees and family satisfaction surveys. The quality assurance committees oversee patient healthcare needs and resident and staff safety. Additionally, physicians serve on the quality assurance committees as medical directors and advise on healthcare policies and practices. Nursing professionals visit each nursing center periodically to review practices and recommend improvements where necessary in the level of care provided and to assure compliance with requirements under applicable Medicare and Medicaid regulations. Surveys of residents' families are conducted from time to time in which the families are asked to rate various aspects of service and the physical condition of the nursing centers. These surveys are reviewed by nursing center administrators to help ensure quality care. The Company provides training programs for nursing center administrators, managers, nurses and nursing assistants. These programs are designed to provide career opportunities for employees and to maintain high levels of quality patient care. Substantially all of the nursing centers are currently certified to provide services under the Medicare and Medicaid programs. A nursing center's qualification to participate in such programs depends upon such factors as accommodations, equipment, services, safety, personnel, physical environment and adequate policies and procedures. SELECTED NURSING CENTER OPERATING DATA The following table sets forth certain operating data for the Company's owned and leased nursing centers:
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- Number of nursing centers in operation at end of period............................ 295 294 308 Number of licensed beds at end of period.. 37,383 37,336 38,496 Patient days.............................. 12,770,435 12,654,016 12,569,600 Average daily census...................... 34,987 34,669 34,437 Occupancy percentage...................... 92.2% 92.9% 93.3%
SOURCES OF NURSING CENTER REVENUES Nursing center revenues are derived principally from Medicare and Medicaid programs and from private pay patients. Consistent with the nursing home industry generally, changes in the mix of the Company's patient population among these three categories significantly affect the profitability of the Company's operations. Although the level of cost reimbursement for Medicare and other high acuity patients generally produces the most revenue per patient day, profitability is reduced by the costs associated with the higher level of nursing care and other services required by such patients. The Company believes that private pay patients generally constitute the most profitable and Medicaid patients generally constitute the least profitable category. 15 The following table sets forth certain percentages related to the payor mix of the Company's owned and leased nursing centers:
MEDICARE MEDICAID PRIVATE AND OTHER --------------------- --------------------- --------------------- YEAR PATIENT DAYS REVENUES PATIENT DAYS REVENUES PATIENT DAYS REVENUES - ---- ------------ -------- ------------ -------- ------------ -------- 1995......... 12% 27% 65% 45% 23% 28% 1994......... 11 25 65 46 24 29 1993......... 8 18 68 53 24 29
The following table sets forth certain percentages related to the mix of patient services of the Company's owned and leased nursing centers:
SUBACUTE MEDICAL LONG- AND REHABILITATION SERVICES TERM NURSING CARE --------------------------------- --------------------- YEAR PATIENT DAYS REVENUES PATIENT DAYS REVENUES - ---- --------------- ------------- ------------ -------- 1995............... 14% 31% 86% 69% 1994............... 12 27 88 73 1993............... 8 19 92 81
For the year ended December 31, 1995, nursing center revenues totaled approximately $1.5 billion, or 66.3% of the Company's consolidated revenues. Both governmental and private third-party payors have employed cost containment measures designed to limit payments made to healthcare providers. Those measures include the adoption of initial and continuing recipient eligibility criteria which may limit payment for services, the adoption of coverage criteria which limit the services that will be reimbursed and the establishment of payment ceilings which set the maximum reimbursement that a provider may receive for services. Furthermore, government reimbursement programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative rulings and government funding restrictions, all of which may materially increase or decrease the rate of program payments to the Company for its services. There can be no assurance that payments under governmental and private third-party payor programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. In addition, there can be no assurance that facilities owned, leased or managed by the Company, or the provision of services and supplies by the Company, will meet the requirements for participation in such programs. The Company could be adversely affected by the continuing efforts of governmental and private third-party payors to contain the amount of reimbursement for healthcare services. In an attempt to limit the federal budget deficit, there have been, and the Company expects that there will continue to be, a number of proposals to limit Medicare and Medicaid reimbursement for healthcare services. Medicare. The Medicare Part A program provides reimbursement for extended care services furnished to Medicare beneficiaries who are admitted to skilled nursing centers after at least a three-day stay in an acute care hospital. Covered services include nursing care, room and board, social services, physical and occupational therapies, pharmaceuticals, supplies and other necessary services provided by skilled nursing centers. Under the Medicare program, skilled nursing center reimbursement is based upon reasonable direct and indirect costs of services provided to beneficiaries. Routine costs are subject to a routine cost limit ("RCL"). The RCL is a national average cost per patient day which is adjusted for variations in local wages. Revenues under this program are subject to audit and retroactive adjustment. Management believes that adequate provisions for loss have been recorded to reflect any adjustments which could result from such audits. Settlements of Medicare audits have not had a material adverse effect on the Company's nursing center operating results. Medicaid. Medicaid is a state-administered program financed by state funds and matching federal funds. The program provides for medical assistance to the indigent and certain other eligible persons. Although administered under broad federal regulations, states are given flexibility to construct programs and payment methods consistent with their individual goals. Accordingly, these programs differ from state to state in many respects. 16 Federal law requires Medicaid programs to pay rates that are reasonable and adequate to meet the costs incurred by an efficiently and economically operated nursing center providing quality care and services in conformity with all applicable laws and regulations. However, despite these federal requirements, disagreements frequently arise between nursing centers and states regarding the adequacy of Medicaid payments. In addition, the Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations of policy by the state agencies and certain government funding limitations, all of which may materially increase or decrease the level of program payments to nursing centers operated by the Company. Management believes that the payments under these programs are not sufficient on an overall basis to cover the costs of serving residents participating in these programs. Furthermore, OBRA mandates an increased emphasis on ensuring quality patient care, which has resulted in additional expenditures by nursing centers. There can be no assurance that the payments under Medicaid programs will remain at levels comparable to current levels or, in the future, will be sufficient to cover the costs incurred in serving residents participating in such programs. The Company provides to eligible individuals Medicaid-covered services consisting of nursing care, room and board and social services. In addition, states may at their option cover other services such as physical, occupational and speech therapies and pharmaceuticals. Private Pay and Managed Care. The Company's nursing centers seek to increase the number of private pay patients and those covered under private insurance and managed care health plans. Such patients typically have financial resources to pay for their monthly services and do not rely generally on government programs for support. NURSING CENTER COMPETITION The Company's nursing centers compete on a local and regional basis with other nursing centers. The Company's competitive position varies within each community served. The Company believes that the quality of care provided, reputation, location and physical appearance of its nursing centers and, in the case of private pay patients, the charges for services, are significant competitive factors. Although there is limited, if any, price competition with respect to Medicare and Medicaid patients (since revenues received for services provided to such patients are based on fixed rates or cost reimbursement regulations), there is significant competition for both private pay and Medicare patients. The long-term care industry is divided into a variety of competitive areas which market similar services. These competitors include nursing centers, hospitals, extended care centers, retirement housing facilities and communities, home health agencies and similar institutions. The industry includes government-owned, church-owned, secular not-for-profit and for-profit institutions. 17 NURSING CENTER FACILITIES The following table lists by state the number of nursing centers and related licensed beds operated by the Company as of December 31, 1995:
NUMBER OF FACILITIES LICENSED -------------------------- STATE BEDS OWNED LEASED MANAGED TOTAL - ----- -------- ----- ------ ------- ----- Alabama(1).................................. 447 3 - - 3 Arizona..................................... 970 5 2 - 7 Arkansas.................................... 174 1 - - 1 California.................................. 4,473 21 16 3 40 Colorado.................................... 935 4 3 - 7 Connecticut(1).............................. 716 6 - - 6 Florida(1).................................. 2,011 12 1 3 16 Georgia(1).................................. 370 3 - - 3 Hawaii...................................... 60 1 - - 1 Idaho....................................... 903 7 2 - 9 Indiana(1).................................. 4,071 15 13 - 28 Kentucky(1)................................. 2,014 13 3 - 16 Louisiana................................... 258 - - 2 2 Maine(1).................................... 882 11 - - 11 Massachusetts(1)............................ 4,246 33 3 2 38 Minnesota................................... 159 1 - - 1 Mississippi................................. 120 - 1 - 1 Montana(1).................................. 456 2 1 - 3 Nebraska.................................... 167 - 1 - 1 Nevada(1)................................... 314 3 - - 3 New Hampshire............................... 622 3 - 1 4 North Carolina(1)........................... 3,241 20 9 - 29 Ohio(1)..................................... 1,935 9 4 1 14 Oklahoma(1)................................. 226 1 - 1 2 Oregon(1)................................... 468 2 2 - 4 Tennessee(1)................................ 2,669 5 11 - 16 Texas....................................... 180 - - 1 1 Utah........................................ 740 5 - 1 6 Vermont(1).................................. 260 1 - 1 2 Virginia(1)................................. 764 4 1 - 5 Washington.................................. 1,521 10 3 - 13 Wisconsin(1)................................ 2,657 11 3 - 14 Wyoming(1).................................. 451 4 - - 4 ------ --- --- --- --- Total(2).................................... 39,480 216 79 16 311 ====== === === === ===
- -------- (1) These states have CON regulations. See "Governmental Regulation of Nursing Centers, Retirement Centers and Pharmacies." (2) Of the 39,480 nursing center licensed beds operated by the Company at December 31, 1995, 26,933 were owned, 10,450 were leased and 2,097 were managed by the Company. PHARMACIES Through its subsidiary, Medisave Pharmacies, Inc. ("Medisave"), the Company provides institutional and retail pharmacy services. As of December 31, 1995, Medisave operated 35 institutional pharmacies and 20 retail pharmacies in 18 states. For the year ended December 31, 1995, Medisave revenues totaled approximately $178 million, or 7.7% of the Company's consolidated revenues. The institutional pharmacy division focuses on providing a full array of pharmacy services to approximately 735 nursing centers and specialized care centers. Institutional pharmacy sales encompass a wide variety of 18 products including prescription medication, prosthetics, respiratory and infusion services and enteral therapies. In addition, Medisave provides a variety of pharmaceutical consulting services designed to assist nursing centers in program administration. Institutional pharmacy operations accounted for substantially all of Medisave's pharmacy revenues and operating income in 1995. Medisave's retail pharmacy operations consist of discount retail pharmacy and optical stores in leased facilities. In 1993 and 1994, the Company terminated leases of 36 retail outlets in Wal-Mart stores. The leases of the remaining 14 Wal-Mart outlets were terminated in the first quarter of 1995. The termination of these leases has not had a material effect on pharmacy operating income. The following table lists by state the number of pharmacies operated by Medisave as of December 31, 1995:
STATE INSTITUTIONAL RETAIL TOTAL ----- ------------- ------ ----- Arizona......................................... 1 - 1 California...................................... 14 - 14 Florida......................................... 2 - 2 Idaho........................................... 1 - 1 Illinois........................................ - 3 3 Kansas.......................................... - 2 2 Louisiana....................................... - 3 3 Massachusetts................................... 1 - 1 Mississippi..................................... - 6 6 Missouri........................................ 1 - 1 Nevada.......................................... 2 - 2 North Carolina.................................. 4 - 4 Ohio............................................ 1 1 2 Tennessee....................................... 2 - 2 Texas........................................... - 5 5 Utah............................................ 1 - 1 Virginia........................................ 2 - 2 Wisconsin....................................... 3 - 3 --- --- --- Total......................................... 35 20 55 === === ===
RETIREMENT HOUSING COMMUNITIES As of December 31, 1995, the Company's retirement housing operations consisted of 23 retirement housing communities. These centers included 3,122 apartment units and were located in 15 states. Of the total number of retirement housing centers, 11 are owned by the Company, one is leased by the Company, three are managed by the Company for a third party and eight are owned by partnerships in which the Company has an equity interest. For the year ended December 31, 1995, retirement housing community revenues totaled approximately $46 million, or 2% of the Company's consolidated revenues. Retirement housing communities serve more independent and self-sufficient residents than do the nursing centers. A retirement housing community consists of studio, one-bedroom and two-bedroom apartment units. Residents typically receive weekly housekeeping and linen service, local transportation, 24-hour emergency call service and daily food service. Residents are responsible for monthly fees which typically are paid by the resident or the resident's family members. Retirement housing operations do not presently qualify for reimbursement under Medicare, Medicaid or Veterans Administration healthcare programs because they do not offer the levels of care required under such programs. Monthly fees paid by residents are based upon the resident's apartment size, the number of meals the resident elects to purchase and the level of personal care required by the resident. 19 The following table lists by state the number of retirement housing communities and related apartments operated by the Company as of December 31, 1995:
NUMBER OF FACILITIES NUMBER OF ----------------------------- STATE APARTMENTS OWNED(1) LEASED MANAGED TOTAL ----- ---------- -------- ------ ------- ----- Arizona.......................... 522 4 - - 4 California....................... 212 1 - - 1 Colorado......................... 99 1 - - 1 Florida.......................... 660 3 - 1 4 Idaho............................ 115 1 - - 1 Indiana.......................... 136 1 - 1 2 Kansas........................... 155 1 - - 1 Massachusetts.................... 555 1 - 1 2 Missouri......................... 173 1 - - 1 New Hampshire.................... 28 1 - - 1 Ohio............................. 80 - 1 - 1 Oklahoma......................... 35 1 - - 1 Oregon........................... 33 1 - - 1 Utah............................. 120 1 - - 1 Washington....................... 199 1 - - 1 ----- --- --- --- --- Total.......................... 3,122 19 1 3 23 ===== === === === ===
- -------- (1) Includes retirement housing communities owned by partnerships in which the Company has a limited and/or general partnership interest that are managed by the Company for such partnerships. GOVERNMENTAL REGULATION OF NURSING CENTERS, RETIREMENT CENTERS AND PHARMACIES The federal government and all states in which the Company operates regulate various aspects of the Company's nursing center business. In particular, the development and operation of nursing centers and retirement communities and the provision of healthcare services are subject to federal, state and local laws relating to the adequacy of medical care, distribution of pharmaceuticals, equipment, personnel, operating policies, fire prevention, rate-setting and compliance with building codes and environmental laws. Nursing centers are subject to periodic inspection by governmental and other authorities to assure continued compliance with various standards, their continued licensing under state law, certification under the Medicare and Medicaid programs and continued participation in the Veterans Administration program. Retirement communities and their owners are subject to periodic inspection by governmental authorities to assure compliance with various standards including standards relating to the financial condition of the owners of such communities. The failure to obtain or renew any required regulatory approvals or licenses could adversely affect the Company's operations. Effective October 1, 1990, the Omnibus Budget Reconciliation Act of 1987, as amended ("OBRA"), increased the enforcement powers of state and federal certification agencies. Additional sanctions were authorized to correct noncompliance with regulatory requirements, including fines, temporary suspension of admission of new patients to nursing centers and, in extreme circumstances, decertification from participation in the Medicare or Medicaid programs. Nursing centers managed and operated by the Company are licensed either on an annual or bi-annual basis and certified annually 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 the nursing care provided, the qualifications of the administrative personnel and nursing staff, the adequacy of the physical plant and equipment and continuing compliance with the laws and regulations governing the operation of nursing centers. From time to time the Company's nursing centers receive statements of deficiencies 20 from regulatory agencies. In response, the Company implements plans of correction with respect to these nursing centers to address the alleged deficiencies. The Company believes that its nursing centers are in material compliance with all applicable regulations or laws. In certain circumstances, federal law mandates that conviction of certain abusive or fraudulent behavior with respect to one nursing center may subject other facilities under common control or ownership to disqualification for participation in Medicare and Medicaid programs. In addition, some state regulations provide that all nursing centers under common control or ownership within a state are subject to delicensure if any one or more of such facilities are delicensed. Revised federal regulations under OBRA, which became effective in 1995, affect the survey process for nursing centers and the authority of state survey agencies and the Health Care Financing Administration to impose sanctions on facilities based upon noncompliance with applicable requirements. Available sanctions include imposition of civil monetary penalties, temporary suspension of payment for new patient 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 process of implementing these regulatory changes has only recently been addressed by the federal and state regulators. Each state will be allowed some discretion in its implementation of the changes, but the scope of this discretion is evolving through instructions issued by federal regulators and is not yet finalized. The Company is unable to project how these regulatory changes and their implementation will affect the Company. In addition to license requirements, many states in which the Company operates have statutes that require a CON to be obtained prior to the construction of a new nursing center, the addition of new beds or services or the incurring of certain capital expenditures. Certain states also require regulatory approval prior to certain changes in ownership of a nursing center. Certain states in which the Company operates have eliminated their CON programs and other states are considering alternatives to their CON programs. To the extent that CON or other similar approvals are required for expansion of Company operations, either through facility acquisitions or expansion or provision of new services or other changes, such expansion could be adversely affected by the failure or inability to obtain the necessary approvals, changes in the standards applicable to such approvals or possible delays and expenses associated with obtaining such approvals. Pharmaceutical operations are subject to regulation by the various states in which the Company conducts its business as well as by the federal government. The Company's pharmacies are regulated under the Food, Drug and Cosmetic Act and the Prescription Drug Marketing Act, which are administered by the United States Food and Drug Administration. Under the Comprehensive Drug Abuse Prevention and Control Act of 1970, which is administered by the United States Drug Enforcement Administration ("DEA"), dispensers of controlled substances must register with the DEA, file reports of inventories and transactions and provide adequate security measures. Failure to comply with such requirements could result in civil or criminal penalties. The Company's operations are also subject to federal and state laws which govern financial and other arrangements between healthcare providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. Such laws include the anti- kickback provisions of the federal Medicare and Medicaid Patients and Program Protection Act of 1987. These provisions prohibit, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for the referral of Medicare and Medicaid patients. In addition, some states restrict certain business relationships between physicians and pharmacies, and many states prohibit business corporations from providing, or holding themselves out as a provider of, medical care. Possible sanctions for violation of any of these restrictions or prohibitions include loss of licensure or eligibility to participate in reimbursement programs as well as civil and criminal penalties. These laws vary from state to state and have seldom been interpreted by the courts or regulatory agencies. 21 ADDITIONAL COMPANY INFORMATION EMPLOYEES As of December 31, 1995, the Company had approximately 43,643 full-time and 16,375 part-time and per diem employees. The Company was a party to 25 collective bargaining agreements covering approximately 3,700 employees as of December 31, 1995. LIABILITY INSURANCE The Company maintains professional liability and general liability insurance for substantially all its hospitals in amounts per hospital totaling up to $1 million per claim and $3 million in the aggregate. In addition, $25 million in umbrella coverage is also maintained for hospital operations. The nursing center, retirement housing community and pharmaceutical operations are insured by the Company's wholly owned captive insurance company for professional liability losses per facility up to $500,000 per claim and $8 million in the aggregate. Coverages for losses in excess of various limits are maintained through unrelated commercial insurance carriers. An additional $105 million of umbrella coverage is maintained for all operations of the Company. The Company believes that its insurance is adequate in amount and coverage. However, there can be no assurance that in the future such insurance will be available to the Company at a reasonable cost or that the Company will be able to maintain adequate levels of insurance coverages. CAUTIONARY STATEMENTS Information provided herein by the Company contains, and from time to time the Company may disseminate materials and make statements which may contain "forward-looking" information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act"). These cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including, but not limited to, the following: (i) In recent years, an increasing number of legislative proposals have been introduced or proposed by Congress and in some state legislatures which would effect major changes in the healthcare system. However, the Company cannot predict the form of healthcare reform legislation which may be proposed or adopted by Congress or by state legislatures. Accordingly, the Company is unable to assess the effect of any such legislation on its business. There can be no assurance that any such legislation will not have a material adverse impact on the future growth, revenues and net income of the Company. (ii) The Company derives substantial portions of its revenues from third- party payors, including government reimbursement programs such as Medicare and Medicaid, and nongovernment sources, such as commercial insurance companies, HMOs, PPOs and contract services. Both government and nongovernment payors have undertaken cost-containment measures designed to limit payments to healthcare providers. There can be no assurance that payments under governmental and nongovernmental payor programs will be sufficient to cover the costs allocable to patients eligible for reimbursement. The Company cannot predict whether or what proposals or cost-containment measures will be adopted or, if adopted and implemented, what effect, if any, such proposals might have on the operations of the Company. (iii) The Company is subject to extensive federal, state and local regulations governing licensure, conduct of operations at existing facilities, construction of new facilities, purchase or lease of existing facilities, addition of new services, certain capital expenditures, cost- containment and reimbursement for services rendered. The failure to obtain or renew required regulatory approvals or licenses, the delicensing of facilities owned, leased or operated by the Company or the disqualification of the Company from 22 participation in certain federal and state reimbursement programs could have a material adverse effect upon the operations of the Company. (iv) There can be no assurance that the Company will be able to continue its substantial growth or be able to fully implement its strategy to develop and expand its long-term care networks. ITEM 2. PROPERTIES Information related to the number, location and ownership of the Company's hospitals, nursing centers, pharmacies and retirement housing communities is included in "Hospital Operations" and "Nursing Center, Pharmacy and Retirement Housing Community Operations." The Company believes that its facilities are adequate for the Company's future needs in such locations. ITEM 3. LEGAL PROCEEDINGS On January 25, 1995, Horizon Healthcare Corporation ("Horizon") made a proposal to acquire Hillhaven in a stock merger valued by Horizon at $28 per share. On February 5, 1995, a Special Committee of Hillhaven's Board of Directors (the "Special Committee") considered the proposal with its advisors and concluded that the proposal was inadequate. On March 7, 1995, Horizon made another offer to acquire Hillhaven in a stock merger valued by Horizon at $31 per share. In light of the March 7, 1995 Horizon proposal and expressions of interest received by Hillhaven from other parties desiring to explore an acquisition transaction, on March 20, 1995, the Special Committee instructed Merrill Lynch, Pierce, Fenner and Smith Incorporated to explore strategic alternatives, including the possible sale of Hillhaven to a third party. The Special Committee established a process to evaluate all alternatives available to Hillhaven. As part of this process, Hillhaven engaged in discussions with certain parties interested in acquiring Hillhaven, and invited Horizon to participate in this process. Horizon announced that its proposal expired on March 21, 1995. On April 24, 1995, Hillhaven announced that it had entered into a definitive merger agreement with the Company. A number of legal actions resulted from Horizon's January and March proposals to acquire Hillhaven, all of which have been resolved except as set forth below. Hillhaven and its directors are named as defendants in a number of putative class action complaints filed on behalf of Hillhaven's stockholders in Nevada state court (the "Nevada State Court Actions") and California state court (the "California State Court Actions"). These complaints raise allegations that Hillhaven and its directors have breached their fiduciary duties to Hillhaven's stockholders in connection with the consideration of Horizon's acquisition proposal and certain corporate actions also cited in Horizon's counterclaim. These actions seek declaratory and injunctive relief and, in California, compensatory damages in unspecified amounts. The Hillhaven Merger rendered moot the issues raised in the Nevada State Court Actions and California State Court Actions, with the exception of the plaintiffs' request for an award of attorneys' fees and costs, which has yet to be decided by the court. As is typical in the healthcare industry, the Company is subject to claims and legal actions by patients and others in the ordinary course of business. The Company believes that all such claims and actions currently pending against it either are adequately covered by insurance or would not have a material adverse effect on the Company if decided in a manner unfavorable to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 23 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the present executive officers of the Company, their ages (as of January 1, 1996), their positions with the Company and the year in which they first became an executive officer of the Company:
FIRST ELECTED NAME AGE POSITION EXECUTIVE OFFICER ---- --- -------- ----------------- Michael R. Barr......... 46 Chief Operating Officer and 1985(1) Executive Vice President Jill L. Force........... 43 Vice President, General Counsel and 1995(2) Corporate Secretary James H. Gillenwater, 38 Vice President, Planning and 1995(3) Jr. ................... Development Thomas T. Ladt.......... 45 Executive Vice President, Operations 1993(4) Richard A. Lechleiter... 37 Vice President, Finance and 1995(5) Corporate Controller W. Bruce Lunsford....... 48 Chairman of the Board, President and 1985(6) Chief Executive Officer Carl J. Napoli.......... 58 Chief Executive Officer, Chief 1995(7) Operating Officer and President of Medisave Pharmacies, Inc. W. Earl Reed, III....... 44 Chief Financial Officer and 1987(8) Executive Vice President
- -------- (1) Mr. Barr, a founder of the Company, physical therapist and certified respiratory therapist, has served as Chief Operating Officer and Executive Vice President of the Company since February 1996. From November 1995 to February 1996, he was Executive Vice President of the Company and Chief Executive Officer of the Company's Hospital Division. Mr. Barr served as Vice President of Operations for the Company from 1985 to November 1995. (2) Ms. Force, a certified public accountant and attorney, has served as Vice President, General Counsel and Corporate Secretary of the Company since November 1995. From 1989 to 1995, she was General Counsel and Corporate Secretary of the Company. (3) Mr. Gillenwater has served as Vice President, Planning and Development of the Company since November 1995. From 1989 to November 1995, he was Director of Planning and Development of the Company. (4) Mr. Ladt has served as Executive Vice President, Operations of the Company since February 1996. From November 1995 to February 1996, he served as President of the Company's Hospital Division. From 1993 to November 1995, Mr. Ladt was Vice President of the Company's Hospital Division. From 1989 to December 1993, Mr. Ladt was a Regional Director of Operations for the Company. (5) Mr. Lechleiter, a certified public accountant, has served as Vice President, Finance and Corporate Controller of the Company since November 1995. From June 1995 to November 1995, he was Director of Finance of the Company. Prior thereto, Mr. Lechleiter served as Vice President and Controller at each of (i) Columbia/HCA Healthcare Corporation (September 1993 to May 1995), (ii) Galen Health Care, Inc. (March 1993 to August 1993) and (iii) Humana Inc. (September 1990 to February 1993). (6) Mr. Lunsford, a founder of the Company, certified public accountant and attorney, has served in this position since the Company commenced operations in 1985. (7) Mr. Napoli has served as President, Chief Executive Officer and Chief Operating Officer of Medisave Pharmacies, Inc., a subsidiary of the Company, since July 1994. From May 1992 to July 1994, Mr. Napoli was President and Chief Operating Officer of Medisave Pharmacies, Inc. He was Executive Vice President of Operations of Medisave Pharmacies, Inc. from September 1984 to May 1992. (8) Mr. Reed, a certified public accountant, has served as Chief Financial Officer and Executive Vice President of the Company since November 1995. From 1987 to November 1995, Mr. Reed served as Vice President, Finance and Development of the Company. 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 of this Report appears on the inside back cover of the 1995 Annual Report to Shareholders and is incorporated by reference in this Report. 25 ITEM 6. SELECTED FINANCIAL DATA VENCOR, INC. SELECTED FINANCIAL DATA AS OF AND FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS)
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- OPERATIONS: Revenues................ $2,323,956 $2,032,827 $1,727,436 $1,575,225 $1,425,629 ---------- ---------- ---------- ---------- ---------- Salaries, wages and benefits............... 1,360,018 1,167,181 985,163 921,508 847,261 Supplies................ 188,754 162,053 126,473 117,940 110,566 Rent.................... 79,476 79,371 74,323 85,942 112,196 Other operating expenses............... 416,969 366,621 330,014 299,813 268,465 Depreciation and amortization........... 89,478 79,519 69,126 56,408 39,179 Interest expense........ 60,918 62,828 73,559 62,532 48,364 Investment income....... (13,444) (13,126) (16,056) (12,820) (17,013) Non-recurring transactions........... 109,423 (4,540) 5,769 113,265 - ---------- ---------- ---------- ---------- ---------- 2,291,592 1,899,907 1,648,371 1,644,588 1,409,018 ---------- ---------- ---------- ---------- ---------- Income (loss) from operations before income taxes........... 32,364 132,920 79,065 (69,363) 16,611 Provision for income taxes.................. 24,001 46,781 10,089 12,051 7,138 ---------- ---------- ---------- ---------- ---------- Income (loss) from operations............. 8,363 86,139 68,976 (81,414) 9,473 Reinstatement of discontinued operations............. - - - 24,743 4,379 Extraordinary gain (loss) on extinguishment of debt, net of income taxes .......... (23,252) (241) (2,217) 380 - Cumulative effect on prior years of a change in accounting for income taxes....... - - (1,103) - - ---------- ---------- ---------- ---------- ---------- Net income (loss).... $ (14,889) $ 85,898 $ 65,656 $ (56,291) $ 13,852 ========== ========== ========== ========== ========== Earnings (loss) per common and common equivalent share: Primary: Income (loss) from operations............ $ .21 $ 1.37 $ 1.22 $ (1.57) $ .19 Reinstatement of discontinued operations............ - - - .47 .09 Extraordinary gain (loss) on extinguishment of debt.................. (.37) - (.04) .01 - Cumulative effect on prior years of a change in accounting for income taxes...... - - (.02) - - ---------- ---------- ---------- ---------- ---------- Net income (loss).... $ (.16) $ 1.37 $ 1.16 $ (1.09) $ .28 ========== ========== ========== ========== ========== Fully diluted: Income (loss) from operations............ $ .29 $ 1.28 $ 1.22 $ (1.57) $ .19 Reinstatement of discontinued operations............ - - - .47 .09 Extraordinary gain (loss) on extinguishment of debt.................. (.32) - (.04) .01 - Cumulative effect on prior years of a change in accounting for income taxes...... - - (.02) - - ---------- ---------- ---------- ---------- ---------- Net income (loss).... $ (.03) $ 1.28 $ 1.16 $ (1.09) $ .28 ========== ========== ========== ========== ========== Shares used in computing earnings (loss) per common and common equivalent share: Primary................ 62,318 57,037 54,555 52,820 49,138 Fully diluted.......... 71,967 69,014 60,640 52,820 49,138 FINANCIAL POSITION: Working capital......... $ 239,666 $ 129,079 $ 114,339 $ 114,695 $ 150,392 Assets.................. 1,912,454 1,656,205 1,563,350 1,515,812 1,004,093 Long-term debt.......... 778,100 746,212 784,801 988,998 481,080 Stockholders' equity.... 772,064 596,454 485,550 283,791 302,074 OPERATING DATA: Number of hospitals..... 36 33 26 18 14 Number of hospital licensed beds.......... 3,263 2,511 2,198 1,717 1,250 Number of hospital patient days........... 489,612 403,623 293,367 223,483 150,564 Number of nursing centers................ 311 310 325 369 380 Number of nursing center licensed beds.......... 39,480 39,423 40,759 45,419 46,808 Number of nursing center patient days........... 12,569,600 12,654,016 12,770,435 13,709,222 14,563,082 Number of Vencare contracts.............. 2,008 948 128 - - Number of pharmacy outlets................ 55 60 88 131 118 Number of retirement centers................ 23 22 24 29 29 Number of retirement center apartments...... 3,122 3,049 3,254 3,565 3,514
26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Selected Financial Data in Item 6 and the consolidated financial statements included in this Form 10-K set forth certain data with respect to the financial position, results of operations and cash flows of Vencor, Inc. ("Vencor") which should be read in conjunction with the following discussion and analysis. HILLHAVEN AND NATIONWIDE MERGERS The merger with The Hillhaven Corporation ("Hillhaven") (the "Hillhaven Merger") was consummated on September 28, 1995. At the time of the Hillhaven Merger, Hillhaven operated 311 nursing centers, 56 retail and institutional pharmacies and 23 retirement communities with 3,122 apartments. Annualized revenues approximated $1.7 billion. Prior to its merger with Vencor, Hillhaven completed a merger with Nationwide Care, Inc. ("Nationwide") (the "Nationwide Merger") on June 30, 1995. At the time of the Nationwide Merger, Nationwide operated 23 nursing centers containing 3,257 licensed beds and four retirement communities with 442 apartments. Annualized revenues approximated $125 million. As discussed in the Notes to Consolidated Financial Statements, the Hillhaven and Nationwide Mergers have been accounted for by the pooling-of- interests method. Accordingly, the accompanying consolidated financial statements and financial and operating data included herein give retroactive effect to these transactions and include the combined operations of Vencor, Hillhaven and Nationwide for all periods presented. ANTICIPATED MERGER SYNERGIES AND IMPLEMENTATION OF NETWORK STRATEGY As a result of the Hillhaven Merger, Vencor has become one of the nation's largest diversified healthcare providers, offering a broad continuum of specialized respiratory, rehabilitation and pharmacy services through its network of hospitals, nursing centers, Vencare contract services, institutional and retail pharmacies, and retirement communities. Management believes that Vencor will achieve significant operational synergies in connection with the Hillhaven Merger through (i) growth in revenues from increased patient referrals and expansion of ancillary services within the integrated continuum of healthcare services and (ii) reductions in operating costs from the elimination of duplicative services, improved purchasing power of the combined entity, and refinancing of higher rate long- term debt. The estimated effect of these synergies could increase pretax income approximately $100 million per year by 1997. There can be no assurances, however, that Vencor will successfully develop and expand its long-term care networks. The Hillhaven Merger substantially changed the nature, scope and size of Vencor's business, and significant efforts required to integrate the operations and management of the combined entity could have an adverse effect on Vencor's ability to realize the operating synergies described above. 27 RESULTS OF OPERATIONS A summary of revenues follows (dollars in thousands):
1995 1994 -------------------- -------------------- 1993 AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT ---------- -------- ---------- -------- ---------- Hospitals................. $ 456,486 26.4 $ 361,111 29.5 $ 278,826 ---------- ---------- ---------- Nursing centers: Long-term care........... 1,073,413 5.5 1,017,592 3.1 987,271 Subacute medical and rehabilitation care..... 492,912 28.7 383,097 64.3 233,133 ---------- ---------- ---------- 1,566,325 11.8 1,400,689 14.8 1,220,404 Non-recurring transactions............ (24,500) - - ---------- ---------- ---------- 1,541,825 10.1 1,400,689 14.8 1,220,404 ---------- ---------- ---------- Ancillary services: Vencare.................. 110,350 183.6 38,907 1,041.3 3,409 Pharmacies............... 178,363 (7.6) 193,104 (0.9) 194,935 Retirement communities... 46,371 17.7 39,390 31.9 29,862 ---------- ---------- ---------- 335,084 23.5 271,401 18.9 228,206 ---------- ---------- ---------- Elimination............... (9,439) (374) - ---------- ---------- ---------- $2,323,956 14.3 $2,032,827 17.7 $1,727,436 ========== ========== ==========
Hospital revenue increases in both 1995 and 1994 resulted from the acquisition of facilities in each of the last two years and growth in same- store patient days. Hospital patient days rose 21% to 489,612 in 1995 and 38% to 403,623 in 1994. Excluding the effect of non-recurring transactions, nursing center revenue increases resulted primarily from significant growth in subacute medical and rehabilitation therapy services. Patient days related to these services grew 16% to 1,699,500 in 1995 and 37% to 1,469,624 in 1994. Patient days related to long-term and custodial care declined 3% to 10,870,100 in 1995 and 4% to 11,184,392 in 1994. Growth in ancillary services revenues in both 1995 and 1994 was primarily attributable to the expansion of the Vencare contract services business. Vencare, which commenced operations in 1993, provides respiratory and rehabilitation therapy services and subacute care primarily to nursing centers. The number of Vencare contracts grew from 128 at the end of 1993 to 948 and 2,008 at December 31, 1994 and 1995, respectively. In the third quarter of 1995, Vencor recorded pretax charges aggregating $128.4 million ($89.9 million net of tax) primarily in connection with the Hillhaven Merger. The charges included (i) $23.2 million of investment advisory and professional fees, (ii) $53.8 million of employee benefit plan and severance costs, (iii) $26.9 million of losses associated with the planned disposition of certain nursing center properties and (iv) $24.5 million of charges to reflect Vencor's change in estimates of accrued revenues recorded in connection with certain prior-year nursing center third-party reimbursement issues. Operating results for 1995 also include pretax charges of $5.5 million ($3.7 million net of tax) recorded in the second quarter related primarily to the Nationwide Merger. Non-recurring transactions related primarily to sales of assets and nursing center restructuring activities increased pretax income by $4.5 million ($2.7 million net of tax) in 1994. Operating results in 1993 include a pretax charge of $5.8 million ($3.7 million net of tax) related to the restructuring of certain nursing centers held for sale. In addition, provision for income taxes includes a credit of approximately $19 million related to deferred income taxes. Income from operations for 1995 totaled $8.3 million, compared to $86.1 million and $69 million for 1994 and 1993, respectively. Excluding the effect of non-recurring transactions, 1995 income from operations increased 22% to $101.9 million ($1.45 per share--fully diluted) and 55% to $83.4 million ($1.24 per share-- fully diluted) in 1994. The improvement in both periods resulted primarily from growth in (i) hospital patient 28 days, (ii) Vencare contracts and (iii) higher margin subacute and rehabilitation therapy services in the nursing center business. For more information concerning the provision for income taxes as well as information regarding differences between effective income tax rates and statutory rates, see Note 6 of the Notes to Consolidated Financial Statements. LIQUIDITY Cash provided by operations totaled $113.6 million for 1995 compared to $133 million for 1994 and $105.2 million for 1993. Cash payments in 1995 related to non-recurring transactions reduced cash flows from operations by approximately $32 million. In addition, certain non-recurring transaction costs for employee benefits and consolidation activities related to the Hillhaven Merger are expected to reduce cash flows from operations in 1996. Growth in cash flows in 1994 was primarily attributable to growth in net income. During each of the past three years, cash flows from operations have been adversely impacted by growth in the outstanding days of revenues in accounts receivable. Growth in accounts receivable has been primarily related to the integration of acquired hospital facilities and delays in payments from certain state Medicaid programs and managed care plans. Management believes that these factors will continue to have an adverse effect on cash flows from operations in 1996. Concurrent with the consummation of the Hillhaven Merger, Vencor established a $1 billion credit facility (the "Credit Facility") to finance the redemption of Hillhaven preferred stock, repay certain Hillhaven higher rate debt and borrowings under prior revolving credit agreements, and provide sufficient credit for future expansion. At December 31, 1995, available borrowings under the Credit Facility approximated $300 million. Working capital totaled $239.7 million at December 31, 1995 compared to $129.1 million at December 31, 1994. Management believes that cash flows from operations and amounts available under the Credit Facility are sufficient to meet future expected liquidity needs. CAPITAL RESOURCES Excluding acquisitions, capital expenditures totaled $136.9 million for 1995 compared to $111.5 million for 1994 and $74.1 million for 1993. Planned capital expenditures in 1996 (excluding acquisitions) are expected to approximate $175 million and include significant expenditures related to the expansion of Vencor's retirement community and assisted living operations. Management believes that its capital expenditure program is adequate to expand, improve and equip existing facilities. Vencor also expended $59.3 million, $36.4 million and $44.1 million for acquisitions of new facilities (and related healthcare businesses) and previously leased nursing centers during 1995, 1994 and 1993, respectively, of which $44.2 million, $32.4 million and $25.1 million related to additional hospital and related ancillary facilities. Management intends to acquire additional hospitals, nursing centers and related healthcare businesses in the future. Capital expenditures during the last three years were financed primarily through internally generated funds and, in 1995, from the public offering of 2.2 million shares of common stock, the proceeds from which aggregated $66.5 million. Vencor intends to finance a substantial portion of its capital expenditures with internally generated and borrowed funds. Sources of capital include available borrowings under the Credit Facility, public or private debt and equity. As discussed in Note 8 of the Notes to Consolidated Financial Statements, Vencor called for redemption all of its outstanding convertible debt securities in the fourth quarter of 1995, resulting in the issuance of approximately 7,259,000 shares of common stock. Approximately $34.4 million of the convertible securities were redeemed in exchange for cash equal to 104.2% of face value plus accrued interest. These transactions had 29 no material effect on earnings per common and common equivalent share. Had these transactions occurred on December 31, 1994, the ratio of debt to debt plus stockholders' equity would have improved from approximately 57% to 46%. As discussed in Note 8 of the Notes to Consolidated Financial Statements, Vencor entered into certain interest rate swap agreements in the fourth quarter of 1995 to eliminate the impact of changes in interest rates on $400 million of floating rate debt outstanding under the Credit Facility. The agreements expire in April 1997 ($100 million), October 1997 ($200 million) and April 1998 ($100 million) and provide for fixed rates at 5.7% plus 1/2% to 1 1/4%. HEALTH CARE LEGISLATION Congress is currently considering various proposals which could reduce expenditures under certain government health and welfare programs, including Medicare and Medicaid. Management cannot predict whether such proposals will be adopted, or if adopted, what effect, if any, such proposals would have on its business. Medicare revenues as a percentage of consolidated revenues were 30%, 27% and 21% for 1995, 1994 and 1993, respectively, while Medicaid percentages of revenues approximated 33%, 36% and 41% for the respective periods. OTHER INFORMATION Various lawsuits and claims arising in the ordinary course of business are pending against Vencor. As discussed in Note 10 of the Notes to Consolidated Financial Statements, Vencor is a party to certain litigation involving the proposed acquisition of Hillhaven by Horizon Health Corporation in January 1995. Resolution of such litigation and other loss contingencies is not expected to have a material adverse effect on Vencor's liquidity, financial position or results of operations. The Credit Facility contains covenants which require maintenance of certain financial ratios and limit amounts of additional debt and purchases of common stock. Vencor was in compliance with all such covenants at December 31, 1995. The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. The provisions of this statement, which will be adopted in 1996, are not expected to have a material impact on the consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is included in appendix pages F-1 through F-19 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by these Items other than the information set forth above under Part I, "Executive Officers of the Registrant," is omitted because the Company is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report. The required information contained in the Company's proxy statement is incorporated herein by reference. 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Index to Consolidated Financial Statements and Financial Statement Schedule:
PAGE NO. -------- Report of Independent Auditors.................................. F-2 Consolidated Statement of Operations for the years ended December 31, 1995, 1994 and 1993............................... F-3 Consolidated Balance Sheet, December 31, 1995 and 1994.......... F-4 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993............................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993............................... F-6 Notes to Consolidated Financial Statements...................... F-7 Quarterly Consolidated Financial Information (Unaudited)........ F-18 Financial Statement Schedule (a): Schedule II--Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993....................... F-19
- -------- (a) All other schedules have been omitted because the required information is not present or not present in material amounts. (a)(2) Index to Exhibits: EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 3.1 Certificate of Incorporation of the Company, as amended. Exhibit 3 to the Company's Form 10-Q for the quarterly period ended September 30, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference. 3.2 Second Amended and Restated Bylaws of the Company. 4.1 Specimen Common Stock Certificate. 4.2 Article IV of the Certificate of Incorporation of the Company is included in Exhibit 3.1. 4.3 $1 Billion Credit Agreement dated September 11, 1995 (conformed to include Amendment No. 1) among the Company, various banks and other financial institutions, Morgan Guaranty Trust Company of New York (as Documentation Agent), Nationsbank, N.A. (as Administrative Agent) and J.P. Morgan Delaware (as Collateral Agent). Exhibit 4(b) to the Company's Form 10-Q for the quarterly period ended September 30, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference. 4.4 Amendment No. 2 to the $1 Billion Credit Agreement dated as of September 11, 1995 among the Company, the other Borrowers referred to therein and the Banks, Co-Agents, LC Issuing Banks and Agents referred to therein. Exhibit 4(c) to the Company's Form 10-Q for the quarterly period ended September 30, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference. 4.5 Amendment No. 3 to the $1 Billion Credit Agreement dated as of November 27, 1995 among the Company, the other Borrowers referred to therein and the Banks, Co-Agents, LC Issuing Banks and Agents referred to therein. 4.6 Warrant and Registration Rights Agreement among Hillhaven, Tenet and Manufacturers Hanover Trust Company of California, dated as of January 31, 1990.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 4.7 Form of Indenture between Hillhaven and State Street Bank and Trust Company, as Trustee with respect to the 10 1/8% Senior Subordinated Notes due 2001. 4.8 Form of 10 1/8% Senior Subordinated Note due 2001. 4.9 First Supplemental Indenture dated September 27, 1995, among the Company, Hillhaven and State Street Bank and Trust Company, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2001. Exhibit 4(a) to the Company's Form 10-Q for the quarterly period ended September 30, 1995 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.1* Directors and Officers Insurance and Company Reimbursement Policies. 10.2* Vencor, Incorporated Retirement Savings Plan as amended and restated as of January 1, 1989. Exhibit 10.13 to the Company's Registration Statement on Form S-1 (Reg. No. 33-36703) is hereby incorporated by reference. 10.3* Amendment No. 1 to the Vencor, Incorporated Retirement Savings Plan dated December 7, 1990. Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Reg. No. 33-38188) is hereby incorporated by reference. 10.4* Amendment No. 2 to the Vencor, Incorporated Retirement Savings Plan dated May 15, 1991. Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Reg. No. 33-43097) is hereby incorporated by reference. 10.5* Amendment No. 3 to the Vencor, Incorporated Retirement Savings Plan dated November 26, 1991. Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.6* Amendment No. 4 to the Vencor, Incorporated Retirement Savings Plan dated January 15, 1992. Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.7* Amendment No. 5 to the Vencor, Incorporated Retirement Savings Plan dated January 15, 1992. Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.8* Amendment No. 6 to the Vencor, Incorporated Retirement Savings Plan dated December 22, 1992. Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.9* Amendment No. 7 to the Vencor, Incorporated Retirement Savings Plan, dated May 20, 1994. 10.10* Amendment No. 8 to the Vencor, Incorporated Retirement Savings Plan, dated August 13, 1995. 10.11* Vencor, Incorporated Retirement Savings Plan Trust Agreement dated July 10, 1990 by and between the Company and First Kentucky Trust Company, Trustee. Exhibit 10.14 to the Company's Registration Statement on Form S-1 (Reg. No. 33-36703) is hereby incorporated by reference. 10.12* 1987 Non-Employee Directors Stock Option Plan. Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Reg. No. 33-30212) is hereby incorporated by reference. 10.13* 1987 Incentive Compensation Program. Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Reg. No. 33-30212) is hereby incorporated by reference. 10.14* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program dated May 15, 1991. Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Reg. No. 33-40949) is hereby incorporated by reference.
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EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.15* Amendments to the Vencor, Inc. 1987 Incentive Compensation Program dated May 18, 1994. Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1994 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.16* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program dated February 15, 1995. Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1994 (Comm. File No. 1-10989) is hereby incorporated by reference. 10.17* Amendment to the Vencor, Inc. 1987 Incentive Compensation Program dated September 27, 1995. 10.18* Form of Vencor, Inc. Incentive Compensation Program Performance Share Award, as amended. 10.19* Vencor, Incorporated Non-Employee Directors Deferred Compensation Plan. 10.20* Amendment to Vencor, Incorporated Non-Employee Directors Deferred Compensation Plan dated September 26, 1995. 10.21* Vencor, Inc. Employee Benefit Trust Agreement dated December 27, 1990 by and between the Company and First Kentucky Trust Company. Exhibit 10.20 to the Company's Registration Statement on Form S-1 (Reg. No. 33-39017) is hereby incorporated by reference. 10.22* Form of Severance Agreement between Hillhaven and certain of its officers. 10.23* Form of Amendment to Severance Agreement between Hillhaven and certain of its officers. 10.24* Form of Indemnification Agreement between Hillhaven and certain of its executive officers. 10.25* The Amended Hillhaven Corporation Board of Directors Retirement Plan. 10.26* Deferred Savings Plan of The Hillhaven Corporation. 10.27* The Hillhaven Corporation Annual Incentive Plan, amended as of December 6, 1994. 10.28* The Amended and Restated Hillhaven Corporation Deferred Compensation Plan. 10.29* The Hillhaven Corporation Supplemental Executive Retirement Plan. 10.30* Hillhaven Individual Retirement Annuity Plan. 10.31* Form of Indemnification Agreement between Vencor, Inc. and certain of its officers and employees. 10.32* Form of Vencor, Inc. Change-in-Control Severance Agreement. 10.33 Services Agreement between Hillhaven and Tenet, dated as of January 31, 1990. 10.34 Government Programs Agreement between Hillhaven and Tenet, dated January 31, 1990. 10.35 Insurance Agreement between Hillhaven and Tenet, dated as of January 31, 1990. 10.36* Employee and Employee Benefits Agreement between Hillhaven and Tenet, dated as of January 31, 1990. 10.37 Form of Assignment and Assumption of Lease Agreement between Hillhaven and certain subsidiaries, on the one hand, and Tenet and certain subsidiaries on the other hand, together with the related Guaranty by Hillhaven, dated on or prior to January 31, 1990. 10.38 Form of Management Agreement between First Healthcare Corporation and certain Tenet subsidiaries, dated as of January 31, 1990. 10.39 Reorganization and Distribution Agreement between Hillhaven and Tenet, dated as of January 8, 1990, as amended on January 30, 1990.
33
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.40 Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of January 31, 1990. 10.41 First Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of October 30, 1990. 10.42 First Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of May 30, 1991. 10.43 Second Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of October 2, 1991. 10.44 Third Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of April 1, 1992. 10.45 Fourth Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of November 12, 1992. 10.46 Fifth Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of February 19, 1993. 10.47 Sixth Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of May 28, 1993. 10.48 Seventh Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of May 28, 1993. 10.49 Eighth Amendment to Guarantee Reimbursement Agreement between Hillhaven and Tenet, dated as of September 2, 1993. 10.50 Facility Agreement among First Healthcare Corporation and Certain Limited Partnerships, dated as of April 23, 1992 relating to the sale of thirty-two nursing centers. 10.51 First Amendment to Facility Agreement among First Healthcare Corporation and Certain Limited Partnerships, dated as of July 31, 1992 relating to the sale of thirty-two nursing centers. 10.52 Forebearance Agreement among First Healthcare Corporation, Medisave Pharmacies, Inc. and Certain Limited Partnerships, dated as of August 25, 1995. 10.53 Letter of Intent dated June 22, 1993 between Hillhaven and Tenet. 10.54 Agreement and Waiver, dated as of September 2, 1993, by and among Hillhaven, First Healthcare Corporation, Tenet and certain Tenet subsidiaries. 10.55 Trust Agreement between The Hillhaven Corporation and Wachovia Bank of North Carolina, N.A., as Trustee, dated as of January 16, 1995. 10.56 Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests dated as of February 27, 1995 by and among The Hillhaven Corporation, Nationwide Care, Inc., Phillippe Enterprises, Inc., Meadowvale Skilled Care Center, Inc. and Specified Partners of Camelot Care Centers, Evergreen Woods, Ltd. and Shangri-La Partnership. 10.57 Amended and Restated Agreement and Plan of Merger. Exhibit 2 to Amendment No. 3 to Registration Statement on Form S-4 of Vencor, Inc. (Reg. No. 33-59345) is hereby incorporated by reference. 10.58 Other Debt Instruments--Copies of debt instruments for which the related debt is less than 10% of total assets will be furnished to the Commission upon request. 11 Statement Regarding Computation of Earnings Per Share.
34
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 13.1 Annual Report to Shareholders--Market Prices and Dividend Information (for the year ended December 31, 1995). No portion of this Annual Report shall be deemed to be filed with the Commission except to the extent that information is specifically incorporated herein by reference. 21 Subsidiaries of the Company. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule (included only in filings under the Electronic Data Gathering, Analysis, and Retrieval System).
- -------- * Compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K. During the fourth quarter of 1995, the Company filed a Report on Form 8-K dated November 30, 1995 which disclosed the consolidated results of operations of the Company for the period from October 1, 1995 through October 31, 1995. (c) Exhibits. The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. 35 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Date: March 29, 1996 Vencor, Inc. By: /s/ W. BRUCE LUNSFORD -------------------------------------- W. BRUCE LUNSFORD CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ MICHAEL R. BARR Executive Vice March 29, 1996 - ------------------------------------- President, Chief MICHAEL R. BARR Operating Officer and Director /s/ WILLIAM C. BALLARD JR. Director March 29, 1996 - ------------------------------------- WILLIAM C. BALLARD JR. /s/ WALTER F. BERAN Director March 29, 1996 - ------------------------------------- WALTER F. BERAN /s/ DONNA R. ECTON Director March 29, 1996 - ------------------------------------- DONNA R. ECTON /s/ GREG D. HUDSON Director March 29, 1996 - ------------------------------------- GREG D. HUDSON /s/ RICHARD A. LECHLEITER Vice President, March 29, 1996 - ------------------------------------- Finance and Corporate RICHARD A. LECHLEITER Controller (Principal Accounting Officer) /s/ WILLIAM H. LOMICK Director March 29, 1996 - ------------------------------------- WILLIAM H. LOMICKA /s/ W. BRUCE LUNSFORD Chairman of the Board, March 29, 1996 - ------------------------------------- President, Chief W. BRUCE LUNSFORD Executive Officer (Principal Executive Officer) and Director 36 SIGNATURE TITLE DATE /s/ W. EARL REED, III Executive Vice March 29, 1996 - ------------------------------------- President, Chief W. Earl Reed, III Financial Officer (Principal Financial Officer) and Director /s/ R. GENE SMITH Vice Chairman of the March 29, 1996 - ------------------------------------- Board and Director R. Gene Smith /s/ JACK O. VANCE Director March 29, 1996 - ------------------------------------- Jack O. Vance 37 VENCOR, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ----- Report of Independent Auditors........................................... F-2 Consolidated Financial Statements: Consolidated Statement of Operations for the years ended December 31, 1995, 1994 and 1993.................................................... F-3 Consolidated Balance Sheet, December 31, 1995 and 1994.................. F-4 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993............................................................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993.................................................... F-6 Notes to Consolidated Financial Statements.............................. F-7 Quarterly Consolidated Financial Information (Unaudited)................ F-18 Financial Statement Schedule (a): Schedule II--Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993....................................... F-19
- -------- (a) All other schedules have been omitted because the required information is not present or not present in material amounts. F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Vencor, Inc. We have audited the accompanying consolidated balance sheet of Vencor, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the index to Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vencor, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 6 to the consolidated financial statements, effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." LOGO Louisville, Kentucky March 1, 1996 F-2 VENCOR, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 ---------- ---------- ---------- Revenues.................................. $2,323,956 $2,032,827 $1,727,436 ---------- ---------- ---------- Salaries, wages and benefits.............. 1,360,018 1,167,181 985,163 Supplies.................................. 188,754 162,053 126,473 Rent...................................... 79,476 79,371 74,323 Other operating expenses.................. 416,969 366,621 330,014 Depreciation and amortization............. 89,478 79,519 69,126 Interest expense.......................... 60,918 62,828 73,559 Investment income......................... (13,444) (13,126) (16,056) Non-recurring transactions................ 109,423 (4,540) 5,769 ---------- ---------- ---------- 2,291,592 1,899,907 1,648,371 ---------- ---------- ---------- Income from operations before income taxes.................................... 32,364 132,920 79,065 Provision for income taxes................ 24,001 46,781 10,089 ---------- ---------- ---------- Income from operations.................... 8,363 86,139 68,976 Extraordinary loss on extinguishment of debt, net of income tax benefit of $14,839 in 1995, $125 in 1994 and $1,279 in 1993....................... (23,252) (241) (2,217) Cumulative effect on prior years of a change in accounting for income taxes......................... - - (1,103) ---------- ---------- ---------- Net income (loss)..................... (14,889) 85,898 65,656 Preferred stock dividend requirements and other items.............................. (5,280) (7,753) (2,344) Gain on redemption of preferred stock..... 10,176 - - ---------- ---------- ---------- Income (loss) available to common stockholders......................... $ (9,993) $ 78,145 $ 63,312 ========== ========== ========== Earnings (loss) per common and common equivalent share: Primary: Income from operations.................. $ .21 $ 1.37 $ 1.22 Extraordinary loss on extinguishment of debt................................... (.37) - (.04) Cumulative effect on prior years of a change in accounting for income taxes....................... - - (.02) ---------- ---------- ---------- Net income (loss)..................... $ (.16) $ 1.37 $ 1.16 ========== ========== ========== Fully diluted: Income from operations.................. $ .29 $ 1.28 $ 1.22 Extraordinary loss on extinguishment of debt................................... (.32) - (.04) Cumulative effect on prior years of a change in accounting for income taxes....................... - - (.02) ---------- ---------- ---------- Net income (loss)..................... $ (.03) $ 1.28 $ 1.16 ========== ========== ========== Shares used in computing earnings (loss) per common and common equivalent share: Primary............................... 62,318 57,037 54,555 Fully diluted......................... 71,967 69,014 60,640
See accompanying notes. F-3 VENCOR, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 ---------- ---------- ASSETS Current assets: Cash and cash equivalents............................. $ 35,182 $ 39,018 Accounts and notes receivable less allowance for loss of $16,785--1995 and $12,856--1994.................................... 360,147 272,119 Inventories........................................... 24,862 23,387 Income taxes.......................................... 77,997 24,736 Other................................................. 26,491 27,018 ---------- ---------- 524,679 386,278 Property and equipment, at cost: Land.................................................. 111,232 94,514 Buildings............................................. 992,992 913,266 Equipment............................................. 403,338 302,133 Construction in progress (estimated cost to complete and equip after December 31, 1995--$32,000).......... 44,731 57,542 ---------- ---------- 1,552,293 1,367,455 Accumulated depreciation.............................. (362,199) (284,964) ---------- ---------- 1,190,094 1,082,491 Notes receivable less allowance for loss of $15,305-- 1995 and $15,409--1994................................ 78,090 84,133 Intangible assets less accumulated amortization of $22,149--1995 and $32,439--1994....................... 42,580 51,492 Other.................................................. 77,011 51,811 ---------- ---------- $1,912,454 $1,656,205 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable...................................... $ 99,887 $ 76,575 Salaries, wages and other compensation................ 99,937 72,130 Other accrued liabilities............................. 75,617 57,393 Income taxes.......................................... - 7,612 Long-term debt due within one year.................... 9,572 43,489 ---------- ---------- 285,013 257,199 Long-term debt......................................... 778,100 746,212 Deferred credits and other liabilities................. 77,277 56,340 Contingencies Stockholders' equity: Preferred stock, $1.00 par value; authorized 1,000 shares; issued and outstanding 98 shares--1994....... - 15 Common stock, $.25 par value; authorized 180,000 shares; issued 72,158 shares--1995 and 59,178 shares--1994... 18,040 14,794 Capital in excess of par value........................ 684,377 472,661 Retained earnings..................................... 102,865 136,614 ---------- ---------- 805,282 624,084 Common treasury stock; 2,025 shares--1995 and 2,174 shares--1994......................................... (33,218) (27,630) ---------- ---------- 772,064 596,454 ---------- ---------- $1,912,454 $1,656,205 ========== ==========
See accompanying notes. F-4 VENCOR, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SHARES PAR VALUE --------------------------- ----------------- COMMON CAPITAL IN RETAINED COMMON PREFERRED COMMON TREASURY PREFERRED COMMON EXCESS OF EARNINGS TREASURY STOCK STOCK STOCK STOCK STOCK PAR VALUE (DEFICIT) STOCK TOTAL --------- ------- -------- --------- ------- ---------- --------- -------- -------- Balances, December 31, 1992................... 35 52,925 (621) $ 5 $13,231 $314,410 $(43,439) $ (416) $283,791 Adjustments to reflect change in fiscal year of acquired entities: Net income............ 41,862 41,862 Issuance of preferred stock................ 122 18 119,982 120,000 Other................. 39 9 9,915 (2,070) 7,854 ---- ------- ------ ---- ------- -------- -------- -------- -------- Balances, December 31, 1992, as adjusted...... 157 52,964 (621) 23 13,240 444,307 (3,647) (416) 453,507 Net income............. 65,656 65,656 Cash dividends on preferred stock ($82.50 per share) and provision for redemption value...... (2,888) (47) (2,935) Cash dividends paid by acquired entities..... (3,613) (3,613) Issuance of common stock in connection with employee benefit plans................. 244 16 62 1,142 158 1,362 Issuance of stock by acquired entities..... 5,024 909 5,933 Purchase of common stock................. (2,388) (37,455) (37,455) Other.................. 3,442 (347) 3,095 ---- ------- ------ ---- ------- -------- -------- -------- -------- Balances, December 31, 1993................... 157 53,208 (2,993) 23 13,302 451,027 58,911 (37,713) 485,550 Net income............. 85,898 85,898 Cash dividends on preferred stock ($82.50 per share) and provision for redemption value...... (3,066) (3,066) In-kind dividend on preferred stock....... 4 2 4,506 (4,508) - Issuance of common stock in connection with employee benefit plans................. 360 121 89 5,458 1,518 7,065 Issuance of common stock in connection with acquisitions..... 698 9,089 8,565 17,654 Exercise of common stock purchase warrants.............. 5,610 1,403 61,897 63,300 Tender of preferred stock in connection with exercise of common stock purchase warrants.............. (63) (10) (63,290) (63,300) Other.................. 3,974 (621) 3,353 ---- ------- ------ ---- ------- -------- -------- -------- -------- Balances, December 31, 1994................... 98 59,178 (2,174) 15 14,794 472,661 136,614 (27,630) 596,454 Net loss............... (14,889) (14,889) Cash dividends on preferred stock ($67.98 per share) and provision for redemption value...... (2,380) (2,380) In-kind dividend on preferred stock....... 3 2,900 (2,900) - Issuance of common stock in connection with employee benefit plans................. 664 (150) 166 24,111 (11,098) 13,179 Issuance of common stock in connection with acquisitions..... 439 (3,227) 5,498 2,271 Increase in value of common stock purchase warrants of acquired entities.............. 9,810 (9,810) - Public offering of common stock.......... 2,200 550 65,944 66,494 Conversion of long-term debt.................. 7,260 1,815 149,645 151,460 Issuance of common stock to grantor trust................. 3,927 (3,927) 982 87,297 (88,279) - Hillhaven merger: Issuance of common stock and related income tax benefits.......... 2,732 683 51,561 52,244 Termination of grantor trust................. (3,786) 3,786 (946) (87,146) 88,279 187 Redemption of preferred stock................. (101) (15) (91,253) (91,268) Other.................. (17) 1 (4) 2,074 (3,770) 12 (1,688) ---- ------- ------ ---- ------- -------- -------- -------- -------- Balances, December 31, 1995................... - 72,158 (2,025) $ - $18,040 $684,377 $102,865 $(33,218) $772,064 ==== ======= ====== ==== ======= ======== ======== ======== ========
See accompanying notes. F-5 VENCOR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
1995 1994 1993 --------- -------- --------- Cash flows from operating activities: Net income (loss)............................. $ (14,889) $ 85,898 $ 65,656 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................ 89,478 79,519 69,126 Deferred income taxes........................ (23,570) 5,526 (11,594) Extraordinary loss on extinguishment of debt........................................ 38,091 366 3,496 Change in accounting for income taxes........ - - 1,103 Non-recurring transactions................... 102,166 2,500 - Other........................................ 14,809 (1,575) (4,979) Change in operating assets and liabilities: Accounts and notes receivable............... (107,761) (63,247) (25,203) Inventories and other assets................ (3,478) 12,385 (5,296) Accounts payable............................ 22,157 4,718 2,788 Other accrued liabilities................... (3,366) 6,946 10,142 --------- -------- --------- Net cash provided by operating activities............................... 113,637 133,036 105,239 --------- -------- --------- Cash flows from investing activities: Purchase of property and equipment............ (136,893) (111,486) (74,111) Acquisition of healthcare businesses and previously leased facilities................. (59,343) (36,391) (44,055) Sale of assets................................ 899 6,530 22,341 Collection of notes receivable................ 4,715 8,965 22,590 Net change in investments..................... (12,779) 14,046 79,778 Other......................................... (8,241) 3,032 (12,926) --------- -------- --------- Net cash used in investing activities..... (211,642) (115,304) (6,383) --------- -------- --------- Cash flows from financing activities: Net change in borrowings under revolving lines of credit.................................... 161,600 21,000 (13,000) Issuance of long-term debt.................... 438,052 18,599 137,149 Repayment of long-term debt................... (474,896) (75,124) (153,456) Public offering of common stock............... 66,494 - - Other issuances of common stock............... 6,520 1,289 430 Purchase of common stock...................... - - (37,455) Redemption of preferred stock................. (91,268) - - Payment of dividends.......................... (2,779) (3,070) (6,501) Other......................................... (9,554) (2,338) (2,376) --------- -------- --------- Net cash provided by (used in) financing activities............................... 94,169 (39,644) (75,209) --------- -------- --------- Change in cash and cash equivalents............ (3,836) (21,912) 23,647 Adjustment to reflect change in fiscal year of acquired entities............................. - - (30,388) Cash and cash equivalents at beginning of period........................................ 39,018 60,930 67,671 --------- -------- --------- Cash and cash equivalents at end of period..... $ 35,182 $ 39,018 $ 60,930 ========= ======== ========= Supplemental information: Interest payments............................. $ 69,916 $ 59,733 $ 66,285 Income tax payments........................... 42,218 37,332 19,072
See accompanying notes. F-6 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--ACCOUNTING POLICIES REPORTING ENTITY Vencor, Inc. ("Vencor") operates an integrated network of healthcare services in forty-one states primarily focused on the needs of the elderly. At December 31, 1995, Vencor operated 36 hospitals (3,263 licensed beds), 311 nursing centers (39,480 licensed beds), a contract services business ("Vencare") which provides respiratory therapy and subacute medical services primarily to nursing centers, 55 retail and institutional pharmacy outlets and 23 retirement communities with 3,122 apartments. On September 28, 1995, Vencor consummated a merger with The Hillhaven Corporation ("Hillhaven") in a tax-free, stock-for-stock transaction (the "Hillhaven Merger"). See Note 2. Prior to its merger with Vencor, Hillhaven consummated a merger with Nationwide Care, Inc. ("Nationwide") on June 30, 1995 in a tax-free, stock- for-stock transaction (the "Nationwide Merger"). See Note 3. BASIS OF PRESENTATION The consolidated financial statements include all subsidiaries. Significant intercompany transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based upon the estimates and judgements of management. Actual amounts may differ from these estimates. The Hillhaven and Nationwide Mergers have been accounted for by the pooling- of-interests method. Accordingly, the consolidated financial statements included herein give retroactive effect to these transactions and include the combined operations of Vencor, Hillhaven and Nationwide for all periods presented. For the years 1995 and 1994, the historical financial information of Hillhaven and Nationwide (previously reported for fiscal years ending May 31 and September 30, respectively) have been recast to conform to Vencor's annual reporting period ending December 31. For 1993, Hillhaven and Nationwide financial data for the year ended May 31, 1993 and September 30, 1993, respectively, have been combined with Vencor's calendar year information. REVENUES Revenues are recorded based upon estimated amounts due from patients and third-party payors for healthcare services provided, including anticipated settlements under reimbursement agreements with Medicare, Medicaid and other third-party payors. A summary of revenues by payor type follows (dollars in thousands):
1995 1994 1993 ---------- ---------- ---------- Medicare..................................... $ 691,297 $ 554,443 $ 365,046 Medicaid..................................... 776,278 731,491 714,147 Private and other............................ 865,820 747,267 648,243 ---------- ---------- ---------- 2,333,395 2,033,201 1,727,436 Elimination.................................. (9,439) (374) - ---------- ---------- ---------- $2,323,956 $2,032,827 $1,727,436 ========== ========== ==========
F-7 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments. ACCOUNTS RECEIVABLE Accounts receivable consist primarily of amounts due from the Medicare and Medicaid programs, other government programs, managed care health plans, commercial insurance companies and individual patients. INVENTORIES Inventories consist primarily of medical supplies and are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Depreciation expense, computed by the straight-line method, was $79.7 million in 1995, $71.6 million in 1994 and $61.1 million in 1993. Depreciation rates for buildings range generally from 20 to 45 years. Estimated useful lives of equipment vary from 5 to 15 years. The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", effective for fiscal years beginning after December 15, 1995. The provisions of this statement, which will be adopted in 1996, are not expected to have a material impact on the consolidated financial statements. INTANGIBLE ASSETS Intangible assets consist primarily of costs in excess of the fair value of identifiable net assets of acquired entities and are amortized using the straight-line method over periods ranging from 10 to 15 years. Noncompete agreement and debt issuance costs are amortized based upon the lives of the respective contracts or loans. PROFESSIONAL LIABILITY RISKS Provisions for loss for professional liability risks are based upon actuarially determined estimates. To the extent that subsequent claims information varies from management's estimates, earnings are charged or credited. EARNINGS PER COMMON SHARE Share and per share amounts have been retroactively restated to reflect a three-for-two stock split distributed in October 1994. The computation of earnings per common and common equivalent share gives retroactive effect to the Hillhaven and Nationwide Mergers and is based upon the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock equivalents (consisting primarily of stock options) and convertible debt securities. During 1995 all convertible debt securities were redeemed in exchange for cash or converted into Vencor common stock. Accordingly, the computation of fully diluted earnings per common share assumes that the equivalent number of common shares underlying such debt securities were outstanding during the entire year even though the result thereof is antidilutive. F-8 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--ACCOUNTING POLICIES (CONTINUED) EARNINGS PER COMMON SHARE (CONTINUED) In connection with the Hillhaven Merger, Vencor realized a gain of approximately $10.2 million upon the cash redemption of Hillhaven preferred stock. Although the gain had no effect on net income, fully diluted earnings per common and common equivalent share were increased by $.14. NOTE 2--HILLHAVEN MERGER On September 27, 1995, the stockholders of both Vencor and Hillhaven approved the Hillhaven Merger, effective September 28, 1995. In connection with the Hillhaven Merger, each share of Hillhaven common stock was converted on a tax-free basis into 0.935 of a share of Vencor common stock, resulting in the issuance of approximately 31,651,000 Vencor common shares. The Hillhaven Merger has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements give retroactive effect to the Hillhaven Merger and include the combined operations of Vencor and Hillhaven for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the Hillhaven Merger (dollars in thousands):
NON-RECURRING VENCOR HILLHAVEN TRANSACTIONS ELIMINATION CONSOLIDATED -------- ---------- ------------- ----------- ------------ Nine months ended Sep- tember 30, 1995 (unaudited): Revenues.............. $411,233 $1,322,873 $(24,500) $(3,775) $1,705,831 Income (loss) from op- erations............. 31,566 41,367 (93,561) - (20,628) Net income (loss)..... 30,711 20,235 (93,561) - (42,615) 1994: Revenues.............. $400,018 $1,633,183 $ - $ (374) $2,032,827 Income from opera- tions................ 31,416 51,976 2,747 - 86,139 Net income............ 31,416 51,735 2,747 - 85,898 1993: Revenues.............. $282,235 $1,445,201 $ - $ - $1,727,436 Income from opera- tions................ 22,924 30,718 15,334 - 68,976 Net income............ 22,924 27,398 15,334 - 65,656
As discussed in Note 1, financial data for Hillhaven and Nationwide for the year ended May 31, 1993 and September 30, 1993, respectively, have been combined with Vencor's 1993 calendar year information. Summarized operating results for Hillhaven and Nationwide for the respective periods not included in the accompanying consolidated statement of operations follow (dollars in thousands): Hillhaven: Seven months ended December 31, 1993 (unaudited): Revenues............................................................ $859,603 Income from operations.............................................. 41,435 Net income.......................................................... 40,422 Nationwide: Three months ended December 31, 1993 (unaudited): Revenues............................................................ $ 29,272 Income from operations.............................................. 1,440 Net income.......................................................... 1,440
F-9 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--NATIONWIDE MERGER Prior to its merger with Vencor, Hillhaven completed the Nationwide Merger on June 30, 1995. In connection therewith, 4,675,000 shares of common stock (effected for the Hillhaven Merger exchange ratio) were issued in exchange for all of the outstanding shares of Nationwide. The Nationwide Merger has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements give retroactive effect to the Nationwide Merger and include the combined operations of Hillhaven and Nationwide for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the Nationwide Merger (dollars in thousands):
NON-RECURRING HILLHAVEN NATIONWIDE TRANSACTIONS CONSOLIDATED ---------- ---------- ------------- ------------ Six months ended June 30, 1995 (unaudited): Revenues................... $ 803,793 $ 66,800 $ - $ 870,593 Income from operations..... 23,837 2,147 (3,686) 22,298 Net income (loss).......... 23,459 (266) (3,686) 19,507 1994: Revenues................... $1,509,729 $123,454 $ - $1,633,183 Income from operations..... 47,178 4,798 2,747 54,723 Net income................. 46,937 4,798 2,747 54,482 1993: Revenues................... $1,378,466 $ 66,735 $ - $1,445,201 Income from operations..... 25,573 5,145 15,334 46,052 Net income................. 23,905 3,493 15,334 42,732
NOTE 4--NON-RECURRING TRANSACTIONS 1995 In the third quarter of 1995, Vencor recorded pretax charges aggregating $128.4 million primarily in connection with the Hillhaven Merger. The charges included (i) $23.2 million of investment advisory and professional fees, (ii) $53.8 million of employee benefit plan and severance costs, (iii) $26.9 million of losses associated with the planned disposition of certain nursing center properties and (iv) $24.5 million of charges to reflect Vencor's change in estimates of accrued revenues recorded in connection with certain prior- year nursing center third-party reimbursement issues (recorded as a reduction of revenues). Pretax charges aggregating $5.5 million were recorded in the second quarter primarily in connection with the Nationwide Merger. 1994 In the first quarter of 1994, Vencor recorded a pretax charge of $2.5 million in connection with the prior disposition of certain nursing centers. Operating results in the fourth quarter of 1994 include a pretax gain of $7 million on the sale of assets. 1993 Operating results include a pretax charge of $5.8 million related to the restructuring of certain nursing centers held for sale. As disclosed in Note 6, provision for income taxes includes a credit of approximately $19 million related to deferred income taxes. F-10 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--BUSINESS COMBINATIONS OTHER THAN HILLHAVEN AND NATIONWIDE Vencor has acquired a number of healthcare facilities (including certain previously leased facilities) and other related businesses, substantially all of which have been accounted for by the purchase method. Accordingly, the aggregate purchase price of these transactions has been allocated to tangible and identifiable intangible assets acquired and liabilities assumed based upon their respective fair values. The consolidated financial statements include the operations of acquired entities since the respective acquisition dates. The pro forma effect of these acquisitions on Vencor's results of operations prior to consummation was not significant. The following is a summary of acquisitions consummated during the last three years under the purchase method of accounting (dollars in thousands):
1995 1994 1993 -------- -------- -------- Fair value of assets acquired..................... $ 78,893 $ 54,045 $ 72,687 Fair value of liabilities assumed................. (16,475) - (28,632) -------- -------- -------- Net assets acquired............................. 62,418 54,045 44,055 Cash received from acquired entities.............. (804) - - Issuance of common stock.......................... (2,271) (17,654) - -------- -------- -------- Net cash paid for acquisitions.................. $ 59,343 $ 36,391 $ 44,055 ======== ======== ========
The purchase price paid in excess of the fair value of identifiable net assets of acquired entities aggregated $9.7 million in 1995, $8.3 million in 1994 and $2.8 million in 1993. NOTE 6--INCOME TAXES Provision for income taxes consists of the following (dollars in thousands):
1995 1994 1993 -------- ------- -------- Current: Federal........................................ $ 40,008 $34,697 $ 17,281 State.......................................... 7,563 6,558 4,402 -------- ------- -------- 47,571 41,255 21,683 Deferred......................................... (23,570) 5,526 (11,594) -------- ------- -------- $ 24,001 $46,781 $ 10,089 ======== ======= ======== Reconciliation of federal statutory rate to effective income tax rate follows: 1995 1994 1993 -------- ------- -------- Federal statutory rate........................... 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit......................................... 4.3 4.0 2.7 Merger costs..................................... 34.6 - - Targeted jobs tax credits........................ - (4.5) - Valuation allowance.............................. - - (24.0) Other items, net................................. .3 .7 (.9) -------- ------- -------- Effective income tax rate...................... 74.2% 35.2% 12.8% ======== ======= ========
F-11 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--INCOME TAXES (CONTINUED) Effective January 1, 1993, Vencor adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires, among other things, recognition of deferred income taxes using the liability method rather than the deferred method. The cumulative effect of this change reduced net income by $1.1 million. A summary of deferred income taxes by source included in the consolidated balance sheet at December 31 follows (dollars in thousands):
1995 1994 ------------------- ------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------- ----------- Depreciation............................ $ - $40,912 $ - $35,982 Insurance............................... 10,269 - 10,429 - Doubtful accounts....................... 26,723 - 12,003 - Property................................ 10,148 - - - Compensation............................ 19,133 - 11,424 - Other................................... 16,127 8,584 16,631 4,395 ------- ------- ------- ------- $82,400 $49,496 $50,487 $40,377 ======= ======= ======= =======
Management believes that the deferred tax assets in the table above will ultimately be realized. Management's conclusion is based primarily on the existence of sufficient taxable income within the allowable carryback periods to realize the tax benefits of deductible temporary differences recorded at December 31, 1995. Deferred income taxes totaling $54.7 million and $24.7 million at December 31, 1995 and 1994, respectively, are included in other current assets. Noncurrent deferred income taxes, included principally in deferred credits and other liabilities, totaled $21.8 million and $14.6 million at December 31, 1995 and 1994, respectively. NOTE 7--PROFESSIONAL LIABILITY RISKS Vencor has insured a substantial portion of its nursing center professional liability risks through a wholly owned insurance subsidiary since June 1, 1994. Provisions for such risks underwritten by the subsidiary were $11.1 million for 1995 and $6.9 million for 1994. Amounts funded for the payment of claims and expenses incident thereto, included principally in cash and cash equivalents and other assets, aggregated $17.5 million and $9.4 million at December 31, 1995 and 1994, respectively. Allowances for professional liability risks, included principally in deferred credits and other liabilities, were $15.9 million and $9.1 million at December 31, 1995 and 1994, respectively. F-12 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--LONG-TERM DEBT CAPITALIZATION A summary of long-term debt at December 31 follows (dollars in thousands):
1995 1994 -------- -------- Senior collateralized debt, 4.3% to 12.3% (rates generally floating) payable in periodic installments through 2025..................... $174,157 $194,654 Bank revolving credit agreements due 2001 (floating rates averaging 6.9%)........................................... 205,600 44,000 Bank term loans (floating rates averaging 6.9%) payable in periodic installments through 2001................................. 400,000 173,100 10 1/8% Senior Subordinated Notes due 2001................. 3,289 174,453 12 1/2% Senior Subordinated Notes due 2000................. - 8,258 6% Convertible Subordinated Notes due 2002................. - 115,000 7 3/4% Convertible Subordinated Debentures due 2002........ - 74,750 Other...................................................... 4,626 5,486 -------- -------- Total debt, average life of seven years (rates averaging 6.4%).................................................... 787,672 789,701 Amounts due within one year................................ (9,572) (43,489) -------- -------- Long-term debt............................................ $778,100 $746,212 ======== ========
CREDIT FACILITY Concurrent with the consummation of the Hillhaven Merger, Vencor entered into a five and one-half year $1 billion credit facility (the "Credit Facility") comprising a $400 million term loan and a $600 million revolving credit facility. The Credit Facility was established to finance the redemption of Hillhaven preferred stock, repay certain higher rate debt and borrowings under prior revolving credit agreements discussed below, and provide sufficient credit for future expansion. Interest is payable at rates up to either (i) the prime rate plus 1/4% or the daily federal funds rate plus 3/4%, (ii) LIBOR plus 1 1/4% or (iii) the bank certificate of deposit rate plus 1 3/8%. Outstanding borrowings under the $400 million term loan are payable in various installments beginning in 1997. The Credit Facility is collateralized by the capital stock of certain subsidiaries and contains covenants which require maintenance of certain financial ratios and limit amounts of additional debt and purchases of common stock. REFINANCING ACTIVITIES During 1995 Vencor recorded $23.3 million of after-tax losses from refinancing of long-term debt, substantially all of which was incurred in connection with the Hillhaven Merger. Amounts refinanced in 1995 included $171 million of 10 1/8% Senior Subordinated Notes due 2001 (the "10 1/8% Notes"), $112 million of outstanding borrowings under prior revolving credit agreements, and $173 million of other senior debt. In the fourth quarter of 1995, Vencor called for redemption its $115 million of 6% Convertible Subordinated Notes due 2002 (the "6% Notes") and $75 million of 7 3/4% Convertible Subordinated Debentures due 2002 (the "7 3/4% Debentures") which were convertible into Vencor common stock at the rate of $26.00 and $17.96 per share, respectively. Approximately $80.6 million principal amount of the 6% Notes were converted into approximately 3,098,000 shares of common stock and the remainder were redeemed in exchange for cash equal to 104.2% of face value plus accrued interest. All outstanding 7 3/4% Debentures were converted into approximately 4,161,000 shares of common stock. These transactions had no material effect on earnings per common and common equivalent share. F-13 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--LONG-TERM DEBT (CONTINUED) REFINANCING ACTIVITIES (CONTINUED) In September 1993 Vencor substantially modified its relationship with a significant stockholder, Tenet Healthcare Corporation ("Tenet"), through a recapitalization plan in which Vencor (i) purchased from Tenet twenty-three previously leased nursing centers for $111.8 million, (ii) repaid $147.2 million of debt owed to Tenet, (iii) released Tenet from guarantees related to $400 million of debt and limited amounts payable to Tenet under remaining guarantee commitments and (iv) eliminated Tenet's obligation to provide additional financing to Vencor. The recapitalization was financed through (i) issuance to Tenet of $120 million of Series D Preferred Stock, (ii) $175 million of borrowings under a secured bank term loan, (iii) issuance of $175 million of the 10 1/8% Notes, (iv) $30 million of borrowings under an accounts receivable-backed credit facility and (v) payment of $39 million in cash. OTHER INFORMATION On October 30, 1995, Vencor entered into certain interest rate swap agreements to eliminate the impact of changes in interest rates on $400 million of floating rate debt outstanding under the Credit Facility. The agreements expire in April 1997 ($100 million), October 1997 ($200 million) and April 1998 ($100 million) and provide for fixed rates at 5.7% plus 1/2% to 1 1/4%. Maturities of long-term debt in years 1997 through 2000 are $54 million, $79 million, $103 million and $153 million, respectively. The estimated fair value of Vencor's long-term debt was $777 million and $819 million at December 31, 1995 and 1994, respectively, compared to carrying amounts aggregating $788 million and $790 million. The estimate of fair value includes the effect of the interest rate swap agreement and is based upon the quoted market prices for the same or similar issues of long-term debt, or on rates available to Vencor for debt of the same remaining maturities. NOTE 9--LEASES Vencor leases real estate and equipment under cancelable and non-cancelable arrangements. Future minimum payments and related sublease income under non- cancelable operating leases are as follows (dollars in thousands):
MINIMUM SUBLEASE PAYMENTS INCOME -------- -------- 1996.......................................................... $46,409 $7,548 1997.......................................................... 40,011 7,106 1998.......................................................... 32,708 6,077 1999.......................................................... 26,677 5,049 2000.......................................................... 23,998 4,888 Thereafter.................................................... 59,051 10,280
Sublease income aggregated $13.7 million, $13.2 million and $10.4 million for 1995, 1994 and 1993, respectively. NOTE 10--CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as certain third-party reimbursements and deductions that continue to be claimed in current cost reports and tax returns. F-14 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--CONTINGENCIES (CONTINUED) Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Vencor's liquidity, financial position or results of operations. Principal contingencies are described below: Revenues--Certain third-party payments are subject to examination by agencies administering the programs. Vencor is contesting certain issues raised in audits of prior year cost reports. Professional liability risks--Vencor has provided for loss for professional liability risks based upon actuarially determined estimates. Actual settlements may differ from the provisions for loss. Interest rate swap agreements--Vencor is a party to certain agreements which reduce the impact of changes in interest rates on $400 million of its floating rate long-term debt. In the event of nonperformance by other parties to these agreements, Vencor may incur a loss to the extent that market rates exceed contract rates. Guarantees of indebtedness--Letters of credit and guarantees of indebtedness aggregated $28 million at December 31, 1995. Income taxes--Vencor is contesting adjustments proposed by the Internal Revenue Service for 1991. Litigation--Various suits and claims arising in the ordinary course of business are pending against Vencor. Vencor and certain former Hillhaven officers and directors are parties to various legal actions brought by Horizon Health Corporation ("Horizon") and certain Hillhaven stockholders in connection with Horizon's proposed acquisition of Hillhaven initiated in January 1995. F-15 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--CAPITAL STOCK In September 1995 Vencor common stockholders voted to increase the number of authorized shares of common stock from 60 million to 180 million and increase the number of common shares issuable under certain employee benefit plans from approximately 3.2 million to 6.9 million. At December 31, 1995, approximately 6 million shares of common stock were reserved for issuance under Vencor's stock compensation plans. Vencor has plans under which options to purchase common stock may be granted to officers, employees and certain directors. Options have been granted at not less than market price on the date of grant. Exercise provisions vary, but most options are exercisable in whole or in part beginning one to four years after grant and ending ten years after grant. Activity in the plans is summarized below:
SHARES UNDER OPTION PRICE OPTION PER SHARE --------- ---------------- Balances, December 31, 1992........................ 1,535,588 $ .53 to $24.13 Granted.......................................... 358,350 14.17 to 24.25 Exercised........................................ (211,066) .53 to 16.80 Canceled or expired.............................. (22,046) 4.97 to 22.09 --------- Balances, December 31, 1993........................ 1,660,826 .53 to 24.25 Granted.......................................... 536,239 11.53 to 22.75 Exercised........................................ (102,230) .53 to 22.09 Canceled or expired.............................. (48,185) 5.35 to 22.09 --------- Balances, December 31, 1994........................ 2,046,650 .53 to 24.25 Granted.......................................... 1,537,820 11.50 to 32.50 Exercised........................................ (593,918) .53 to 29.14 Canceled or expired.............................. (51,151) 5.35 to 28.50 --------- Balances, December 31, 1995........................ 2,939,401 $ .53 to $32.50 =========
At December 31, 1995, options for 1,021,168 shares were exercisable. Shares of common stock available for future grants were 2,470,066 at December 31, 1995 and 1,805,263 at December 31, 1994. In 1993 Vencor adopted a Shareholder Rights Plan under which common stockholders have the right to purchase Series A Preferred Stock in the event of accumulation of or tender offer for 15% or more of Vencor's common stock. The rights will expire in 2003 unless redeemed earlier by Vencor. NOTE 12--EMPLOYEE BENEFIT PLANS Vencor maintains defined contribution retirement plans covering employees who meet certain minimum eligibility requirements. Benefits are determined as a percentage of a participant's contributions and are generally vested based upon length of service. Retirement plan expense was $9.7 million for 1995, $7 million for 1994 and $5.9 million for 1993. Amounts equal to retirement plan expense are funded annually. F-16 VENCOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--ACCRUED LIABILITIES A summary of other accrued liabilities at December 31 follows (dollars in thousands):
1995 1994 ------- ------- Interest.................................................... $ 3,582 $10,843 Taxes other than income..................................... 22,000 18,111 Patient accounts............................................ 13,319 10,101 Merger costs................................................ 19,071 - Other....................................................... 17,645 18,338 ------- ------- $75,617 $57,393 ======= =======
NOTE 14--SPIN-OFF AND RELATED TRANSACTIONS Hillhaven became an independent public company in January 1990 as a result of a spin-off transaction with Tenet (formerly National Medical Enterprises, Inc.). The following is a summary of significant transactions with Tenet. Financing--Certain long-term debt was financed by Tenet at the time of the spin-off. As part of the recapitalization discussed in Note 8, Hillhaven repaid all debt due Tenet in the aggregate amount of $147.2 million. In addition, debt which had been guaranteed by Tenet totaling $266.7 million was also retired. Interest expense paid to Tenet totaled $7.1 million in 1993. Debt guarantees--Tenet and Hillhaven are parties to a guarantee agreement under which Hillhaven pays a fee to Tenet in consideration for Tenet's guarantee of certain Hillhaven obligations. Such fees totaled $3.8 million in 1995, $5 million in 1994 and $9.6 million in 1993. Insurance--Prior to June 1, 1994, substantially all of the professional and general liability risks of Hillhaven were insured by a subsidiary of Tenet. Provisions for loss were $3.1 million in 1994 and $7.3 million in 1993. Leases--At the time of the spin-off, 115 nursing centers were leased by Hillhaven from Tenet. By the end of 1993, all such properties had been purchased by Hillhaven. Interest expense related to these leases totaled $19.9 million in 1993. Vencor also leases certain nursing centers from a joint venture in which Tenet has a minority interest. Lease payments to the joint venture aggregated $9.9 million, $9.3 million and $9.7 million for 1995, 1994 and 1993, respectively. Equity ownership--At December 31, 1995, Tenet owned 8,301,067 shares of Vencor common stock. Prior to the Hillhaven Merger, Tenet also owned all of the outstanding Series C and Series D Preferred Stock. Management agreements--Fees paid by Tenet for management, consulting and advisory services in connection with the operations of seven nursing centers owned or leased by Tenet aggregated $2.7 million in 1995, $2.5 million in 1994 and $2.4 million in 1993. NOTE 15--FAIR VALUE DATA A summary of fair value data at December 31 follows (dollars in thousands):
1995 1994 ----------------- ----------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Cash and cash equivalents.............. $ 35,182 $ 35,182 $ 39,018 $ 39,018 Notes receivable....................... 88,729 89,992 85,071 78,171 Long-term debt, including amounts due within one year....................... 787,672 777,090 789,701 819,439
F-17 VENCOR, INC. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Revenues....................... $552,178 $578,314 $575,339 $618,125 Net income (loss): Income (loss) from operations (a).......................... 21,172 21,087 (62,887) 28,991 Extraordinary loss on extin- guishment of debt............ (66) (2,725) (19,196) (1,265) Net income (loss)........... 21,106 18,362 (82,083) 27,726 Per common share: Primary earnings (loss): Income (loss) from opera- tions....................... .33 .32 (.91) .43 Extraordinary loss on extin- guishment of debt........... - (.05) (.32) (.02) Net income (loss)........... .33 .27 (1.23) .41 Fully diluted earnings (loss): Income (loss) from operations (a)......................... .31 .30 (.91) .41 Extraordinary loss on extin- guishment of debt........... - (.04) (.32) (.02) Net income (loss)........... .31 .26 (1.23) .39 Market prices (b): High......................... 37 38 36 1/8 33 3/4 Low.......................... 27 1/8 28 1/2 28 1/4 26 1994 -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Revenues....................... $479,822 $502,582 $519,117 $531,306 Net income: Income from operations (c).... 15,607 23,440 20,515 26,577 Extraordinary loss on extin- guishment of debt............ (15) (156) (58) (12) Net income.................. 15,592 23,284 20,457 26,565 Per common share: Primary earnings: Income from operations....... .24 .38 .32 .43 Extraordinary loss on extin- guishment of debt........... - - - - Net income.................. .24 .38 .32 .43 Fully diluted earnings: Income from operations (c)... .24 .35 .31 .38 Extraordinary loss on extin- guishment of debt........... - - - - Net income.................. .24 .35 .31 .38 Market prices (b): High......................... 24 7/8 24 30 3/8 30 5/8 Low.......................... 19 1/8 20 22 3/8 25 3/4
- -------- (a) Second quarter results include $3.7 million ($.05 per share) of costs related to the Nationwide Merger. Third quarter loss includes $89.9 million ($1.50 per share) of costs related to the Hillhaven Merger. See Note 4 of the Notes to Consolidated Financial Statements. (b) Vencor common stock is traded on the New York Stock Exchange (ticker symbol--VC). (c) First quarter results include $1.5 million ($.02 per share) of costs incurred in connection with the prior disposition of certain nursing centers. Fourth quarter results include a $4.2 million ($.06 per share) gain on the sale of assets. See Note 4 of the Notes to Consolidated Financial Statements. F-18 VENCOR, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF PERIOD EXPENSES ACCOUNTS OR PAYMENTS OF PERIOD ---------- ---------- ---------- ----------- --------- Allowances for loss on accounts and notes receivable: Year ended December 31, 1993............. $ 22,803 $ 4,735 $ - $ (6,222) $21,316 Year ended December 31, 1994............. 21,316 9,055 (344)(a) (1,762) 28,265 Year ended December 31, 1995............. 28,265 7,851 - (4,026) 32,090 Allowances for loss on assets held for disposition: Year ended December 31, 1993............. $103,074 $ - $ - $(46,428) $56,646 Year ended December 31, 1994............. 56,646 - (56,646)(a)(b) - - Year ended December 31, 1995............. - 26,900(c) - - 26,900
- -------- (a) Adjustment to reflect change in fiscal year of acquired entities. (b) Includes $54.6 million related to reinstatement of assets previously held for disposition. (c) Reflects provision for loss associated with the planned disposition of certain nursing center properties recorded in connection with the Hillhaven Merger. F-19 EX-3.2 2 SECOND AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 SECOND AMENDED AND RESTATED BY-LAWS OF VENCOR, INC. ARTICLE I OFFICES ------- 1.1. REGISTERED OFFICE. The registered office of the Corporation shall ----------------- be in the City of Wilmington, County of New Castle, State of Delaware. 1.2. OTHER OFFICES. The Corporation may also have offices at such other ------------- places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. 1.3. FISCAL YEAR. The Board of Directors of the Corporation shall have ----------- the power to fix, and from time to time change, the fiscal year of the Corporation. ARTICLE II STOCKHOLDERS ------------ 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the -------------- Corporation, for the election of directors, the consideration of financial statements and other reports, and the transaction of such other business as may properly be brought before such meeting, shall be held no later than six months following the end of the Corporation's fiscal year. The meeting shall be held at such time and on such date as may be designated by the Board of Directors of the Corporation. In the event the annual meeting is not held or if directors are not elected at the annual meeting, a special meeting may be called and held for that purpose. 2.2. BUSINESS TO BE CONDUCTED. At an annual meeting of stockholders, ------------------------ only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board of Directors or (b) by a stockholder of the Corporation who complies with the procedures set forth in Article II. For business or a proposal to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the scheduled date of the annual meeting, regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of the meeting was mailed or (ii) the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a description, in 500 words or less, of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, (iv) a description, in 500 words or less, of any interest of the stockholder in such proposal, and (v) a representation that the stockholder is a holder of record of stock of the Corporation and intends to appear in person or by proxy at the meeting to present the proposal specified in the notice. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Article II. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by this Article II, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, nothing in this Article II shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the Board of Directors. 2.3. SPECIAL MEETINGS. Special meetings of stockholders, unless ---------------- otherwise prescribed by statute, may be called at any time only by the Board of Directors or the Chairman of the Board of the Corporation. 2.4. PLACE OF MEETING. All meetings of the stockholders for the election ---------------- of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place either within or without the State of Delaware as shall be stated in the notice of such meeting. 2.5. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of the ----------------------------------------- annual meeting or a special meeting stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.6. STOCKHOLDERS LIST. The officer who has charge of the stock ledger ----------------- of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of 2 each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.7. QUORUM AND ADJOURNMENT. At any meeting of stockholders, the holder ---------------------- of a majority of the issued and outstanding shares of stock entitled to vote present in person or represented by proxy shall constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority of the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be presented or represented. 2.8. VOTING. When a quorum is present or represented at any meeting, the ------ vote of the holders of a majority of the shares of stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the Delaware General Corporation Law or of the Certificate of Incorporation or of these By-Laws a different vote is required, in which case such express provision shall govern and control the decision of such question. 2.9. PROXIES. At each meeting of the stockholders, each stockholder ------- shall, unless otherwise provided by the Certificate of Incorporation, be entitled to one vote in person or by proxy for each share of stock held by him which has voting power upon the matter in question, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. 2.10. ACTION OF STOCKHOLDERS WITHOUT A MEETING. ---------------------------------------- A. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, whether by any provision of the Delaware General Corporation Law or of the Certificate of Incorporation or these By-Laws or otherwise, such corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of eighty percent of outstanding stock. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. B. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to 3 consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of stockholders meetings are recorded, to the attention of the Secretary of the Corporation. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. ARTICLE III BOARD OF DIRECTORS ------------------ 3.1. MANAGEMENT OF CORPORATION. The business affairs of the Corporation ------------------------- shall be managed by its Board of Directors. 3.2. NUMBER OF DIRECTORS. The number of directors of the Corporation ------------------- (exclusive of directors to be elected by the holders of one or more series of the Preferred Stock of the Corporation which may be outstanding, voting separately as a series or class) shall be fixed from time to time by action of not less than a majority of the members of the Board of Directors then in office, but in no event shall be less than three nor more than eleven. 3.3. ELECTION OF DIRECTORS. The directors shall be elected at the annual --------------------- meeting of stockholders, or if not so elected, at a special meeting of stockholders called for that purpose; provided, however, that if the Corporation shall have no stockholders, directors may be appointed by the incorporators. At any meeting of stockholders at which directors are to be elected, only persons nominated as candidates shall be eligible for election, and the candidates receiving the greatest number of votes shall be elected. 3.4. TERM. Each director shall hold office until the next annual meeting ---- of the stockholders and until his successor has been elected or until his earlier resignation, removal from office, or death. 3.5. REMOVAL. Any director or the entire Board of Directors may be ------- removed with or without cause, at any time, by the affirmative vote of the holders of record of a majority of the outstanding shares of stock entitled to vote in the election of directors, at a special meeting of the stockholders called for the purpose. 3.6. VACANCIES. Any vacancy occurring on the Board of Directors for any --------- reason, including, but not limited to, the resignation, removal, or death of a director or an increase in the number of authorized directors, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his successor is elected and qualified. 3.7. ANNUAL MEETING. After each annual election of directors, on the -------------- same day, the Board of Directors may meet for the purpose of organization, the election of officers and the 4 transaction of such other business at the place where the annual meeting of the stockholders for the election of directors is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors. 3.8. REGULAR MEETINGS. Regular meetings of the Board of Directors may be ---------------- held at such places either within or without the State of Delaware and at such time as the Board shall by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at such place at the same hour and on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. 3.9. SPECIAL MEETINGS. Special meetings of the Board of Directors shall ---------------- be held whenever called by the Chairman of the Board, Chief Executive Officer, a majority of the directors or stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Notice of each such meeting shall be given to each director, at least 24 hours before the day on which the meeting is to be held, in accordance with Article IV of these By-Laws. Each such notice shall state the time and place either within or without the State of Delaware of the meeting but need not state the purpose thereof, except as otherwise provided by the Delaware General Corporation Law or by these By-Laws. Notice of any meeting of the Board need not be given to any director who is present at such meeting; and any meeting of the Board shall be a legal meeting without any notice thereof having been given if all of the directors then in office are present at the meeting unless a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 3.10. QUORUM. Except as otherwise provided by the Delaware General ------ Corporation Law or by the Certificate of Incorporation, a majority of the total number of directors shall be required to constitute a quorum for the transaction of business at any meeting, and the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be necessary for the adoption of any resolution or the taking of any other action. 3.11. TELEPHONE COMMUNICATIONS. Members of the Board of Directors or any ------------------------ committee thereof may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. 3.12. ACTION OF DIRECTORS WITHOUT A MEETING. Any action required or ------------------------------------- permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes of proceedings of the Board or such committee. 3.13. COMPENSATION. By resolution of the Board of Directors, each ------------ director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a stated annual stipend as director or a fixed sum for attendance at each meeting of the Board of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 5 3.14. COMMITTEES. The Board of Directors may, by resolution passed by a ---------- majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution and not prohibited by the Delaware General Corporation Law, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it, and shall have the power and authority to declare a dividend, to authorize the issuance of stock, and to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 3.15. GOVERNING BODIES. Each hospital owned or operated by the ---------------- Corporation shall have a governing body consisting of three persons (the "Governing Board"). Unless the Board of Directors otherwise directs, the Governing Board for each hospital operated or owned by the Corporation shall be comprised of the Corporation's Vice President, Finance; Vice President, Operations; and the local hospital administrator. To the extent not prohibited by Delaware law or by resolution of the Board of Directors, the Governing Board of each hospital shall have the authority, and shall be responsible for, the day-to-day operations and conduct of the hospital as an institution. Additionally, the Governing Board shall carry out, with respect to the hospital, the functions specified in 42 C.F.R. Part 482, as may be amended from time to time or any successor section thereto, as such section may pertain to the governing bodies of the hospitals. ARTICLE IV NOTICES ------- 4.1. NOTICES. Whenever, under the provisions of the Delaware General ------- Corporation Law or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, such notice shall be in writing, and shall be hand-delivered or sent by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon pre-paid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or, in the case of notice mailed from the United States to an overseas address, ten (10) days after the same is deposited in the United States mail. Notice to directors may also be given orally, in person or by telephone, or by telegram or telex, and such notice shall be deemed to be given upon transmission, in the case of a notice by telegram, or upon receipt of the answer back of the telex machine of the receiving party, in the case of a notice by telex. 4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under ---------------- the provisions of the Delaware General Corporation Law or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 6 ARTICLE V OFFICERS -------- 5.1. OFFICERS. The officers of the Corporation shall be a Chairman of -------- the Board, Vice Chairman, Chief Executive Officer, President, one or more Vice Presidents, a Secretary, a Treasurer, and, if the Board shall so determine, an Assistant Secretary and an Assistant Treasurer. Any two or more offices may be held by the same person. 5.2. ELECTION OF OFFICERS. The officers shall be elected by the Board of -------------------- Directors and each shall hold office at the pleasure of the Board of Directors until his successor shall have been duly elected and qualified, or until his death, or until he shall resign or until he shall have been removed in the manner hereinafter provided. 5.3. OTHER OFFICERS. In addition to the officers named in Article I, the -------------- Corporation may have such other officers and agents as may be deemed necessary by the Board of Directors. Such other officers and agents shall be appointed in such manner, have such duties and hold their offices for such terms, as may be determined by resolution of the Board of Directors. 5.4. RESIGNATION. Any officer may resign at any time by giving written ----------- notice of his resignation to the Board of Directors or to the Chairman of the Board of the Corporation. Any such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.5. REMOVAL. Any officer may be removed, either with or without cause, ------- by action of the Board of Directors. 5.6. VACANCY. A vacancy in any office because of death, resignation, ------- removal or any other cause shall be filled by the Board of Directors. 5.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at --------------------- all meetings of the stockholders and of the Board of Directors. Unless the Board of Directors designates otherwise, the Chairman shall be the Chief Executive Officer of the Corporation. He may sign certificates for shares of stock of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The Chairman of the Board shall, in general, perform all duties incident to the office of chairman of the board and such other duties as may be set forth in the By-Laws or may be prescribed by the Board of Directors from time to time. 5.8. PRESIDENT. In the absence of the Chairman of the Board, the --------- President shall preside at meetings of the stockholders and of the Board of Directors. If the Board of Directors does not appoint a Chairman of the Board, the President shall have the authority given the Chairman of the Board in these By-Laws and shall be considered the Chief Executive Officer of the Corporation unless the Board of Directors otherwise designates. The President may sign, with the Secretary or an Assistant Secretary, certificates for shares of stock of the Corporation; and shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. 7 5.9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have ----------------------- direct charge of the business of the Corporation, subject to the general control of the Board of Directors, and shall be the chief executive officer of the Corporation unless otherwise determined by the Board of Directors. The Chief Executive Officer shall have direct charge of the daily operational aspects of the Corporation's business, unless otherwise determined by the Board of Directors, and shall have such other duties as may be assigned to him from time to time by the Board of Directors or its Chairman. 5.10. VICE PRESIDENT. In the absence of the President, or in the event of -------------- his inability or refusal to act, the Vice President (or, in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election), shall perform all the duties of the President and such other duties as from time to time may be assigned by the Board of Directors. The Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of stock of the Corporation. 5.11. TREASURER. The Treasurer shall have charge and custody of and be --------- responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies and other depositories as shall be selected in accordance with the provisions of Section 6.3; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board, the Chief Executive Officer or the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 5.12. SECRETARY. The Secretary shall (a) keep the minutes of the --------- stockholders' meetings and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal, if any, of the Corporation; (d) keep a register of the mailing address of each stockholder; (e) sign with the Chairman of the Board or Vice-Chairman or President or Vice President certificates for shares of stock of the Corporation; (f) have general charge of the stock transfer books of the Corporation; and, in general, perform all duties as from time to time may be assigned to him by the Chairman of the Board, the Chief Executive Officer or by the Board of Directors. 5.13. POWERS AND DUTIES. In the absence of any officer of the ----------------- Corporation, or for any reason the Board of Directors may deem sufficient, the Board of Directors may delegate for the time being, the powers or duties of such officer, or any of them, to any other officer or to any director. The Board of Directors may from time to time delegate to any officer authority to appoint and remove subordinate officers and to prescribe their authority and duties. 5.14. COMPENSATION. The compensation of the officers shall be fixed from ------------ time to time by the Board of Directors. Nothing contained herein shall preclude any officer from serving the Corporation in any other capacity, including that of director, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity, and receiving proper compensation therefor. 8 ARTICLE VI LOANS, CHECKS, DEPOSITS, ETC. ----------------------------- 6.1. GENERAL. All checks, drafts, bills of exchange or other orders for ------- the payment of money, issued in the name of the Corporation, shall be signed by such person or persons and in such manner as may from time to time be designated by the Board of Directors, which designation may be general or confined to specific instances. 6.2. LOANS AND EVIDENCES OF INDEBTEDNESS. No loan shall be contracted on ----------------------------------- behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Loans so authorized by the Board of Directors may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors shall authorize. When so authorized by the Board of Directors, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligation or evidences of indebtedness of the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation. 6.3. BANKING. All funds of the Corporation not otherwise employed shall ------- be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may authorize. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-Laws, as it may deem expedient. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation shall be endorsed, assigned and delivered by such person or persons and in such manner as may from time to time be authorized by the Board of Directors. 6.4. SECURITIES HELD BY THE CORPORATION. Unless otherwise provided by ---------------------------------- resolution adopted by the Board of Directors, the Chairman of the Board may from time to time appoint an attorney or attorneys, or an agent or agents, to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation to vote or to consent in respect of such stock or other securities; and the Chairman of the Board may instruct the person or persons so appointed as to the manner of exercising such powers and rights and the Chairman of the Board may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other written instruments as he may deem necessary in order that the Corporation may exercise such powers and rights. 9 ARTICLE VII STOCK CERTIFICATES ------------------ 7.1. STOCK CERTIFICATES. Every stockholder shall be entitled to have a ------------------ certificate certifying the number of shares of stock of the Corporation owned by him, signed by, or in the name of the Corporation by the Chairman of the Board, or Vice-Chairman, President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation (except that when any such certificate is countersigned by a transfer agent other than the Corporation or its employee or by a registrar other than the Corporation or its employee the signature of any such officers may be facsimiles). If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except in the case of restrictions on transfer of securities which are required to be noted on the certificate, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 7.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may -------------------------------------- direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 7.3. RECORD DATES. In order that the Corporation may determine the ------------ stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 7.4. PROTECTION OF CORPORATION. The Corporation shall be entitled to ------------------------- recognize the exclusive right of a person registered on its books as the owner of stock to receive dividends and shall not be bound to recognize any equitable or other claim to or interest in such stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. 10 ARTICLE VIII CORPORATE SEAL -------------- The Corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX EMERGENCY REGULATIONS --------------------- The Board of Directors may adopt, either before or during an emergency, as that term is defined by the Delaware General Corporation Law, any emergency regulations permitted by the Delaware General Corporation Law which shall be operative only during an emergency. In the event the Board of Directors does not adopt any such emergency regulations, the special rules provided in the Delaware General Corporation Law shall be applicable during an emergency as therein defined. ARTICLE X AMENDMENTS ---------- These By-Laws may be amended or repealed or new by-laws adopted (a) by the affirmative vote of the holders of at least 66 2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class or (b) by action of the Board of Directors at a regular or special meeting thereof. Any by-law made by the Board of Directors may be amended or repealed by action of the stockholders at any annual or special meeting of stockholders. 11 EX-4.1 3 SPECIMEN COMMON STOCK CERTIFICATE EXHIBIT 4.1 COMMON STOCK NUMBER INCORPORATED UNDER THE LAWS SHARES CU OF THE STATE OF DELAWARE THIS CERTIFICATE IS TRANSFERABLE CUSIP 922602 10 7 IN CLEVELAND, OHIO OR IN NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS VENCOR, INC. This Certifies that is the owner of FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF CERTIFICATE OF STOCK Vencor, Inc., transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney [SEAL] upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the signatures of the duly authorized officers of the Corporation. Dated 9-14-95 Countersigned and Registered: NATIONAL CITY BANK (Cleveland, Ohio) Transfer Agent By and Registrar, [ILLEGIBLE] Secretary President Authorized Signature. VENCOR, INC. TERMS AND PROVISIONS OF AUTHORIZED STOCK THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian __________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gifts to Minors Act of survivorship and not as _________________________________ tenants in common (State)
Additional abbreviations may also be used though not in the above list. For value received, ____________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint ----------- _______________________________________________________________________ attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated: ____________________________ _________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever. _________________________________________ The signature should be guaranteed by an eligible guarantor institution pursuant to S.E.C. Rule 17Ad-15. This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Vencor, Inc. and National City Bank, as Rights Agent, dated as of July 20, 1993 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Vencor, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Vencor, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and certain related persons, whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. EX-4.5 4 AMENDMENT #3 TO CREDIT AGREEMENT DATED 11/27/95 EXHIBIT 4.5 AMENDMENT NO. 3 TO CREDIT AGREEMENT AMENDMENT NO. 3 dated as of November 27, 1995 to the Credit Agreement dated as of September 11, 1995 among Vencor, Inc., the other Borrowers referred to therein and the Banks, Co-Agents, LC Issuing Banks and Agents referred to therein, as heretofore amended (the "Credit Agreement"). WHEREAS terms defined in the Credit Agreement have the same respective meanings when used herein; WHEREAS Vencor desires to (i) purchase shares of its own common stock and/or (ii) purchase securities of Tenet Healthcare Corporation convertible into or exchangeable for shares of Vencor's common stock; and WHEREAS Vencor has asked the Banks to amend Section 5.11 of the Credit Agreement to permit Vencor to make the foregoing purchases for an aggregate purchase price up to $50,000,000 without restricting Vencor's ability to make any other Restricted Payments; NOW, THEREFORE, the undersigned parties hereto agree as follows: SECTION 1. Restricted Payments. Section 5.11 of the Credit Agreement ------------------- is amended as follows: 1. Clause (d) of Section 5.11 is redesignated as clause (e) and the word "and" at the end of clause (c) is deleted. 2. The following new clause (d) is added to Section 5.11 immediately after clause (c): (d) payments after November 27, 1995 to (i) purchase common stock of Vencor and/or (ii) purchase securities of Tenet Healthcare Corporation convertible into or exchangeable for common stock of Vencor; provided that -------- the aggregate purchase price for all such common stock and securities purchased pursuant to this clause (d) shall not exceed $50,000,000; and 3. The reference in the proviso at the end of Section 5.11 to "clause (c) or (d)" is changed to "clause (c), (d) or (e)". 4. The first page of the exhibit entitled "Calculation of Compliance with Financial Covenants" included in Exhibit E to the Credit Agreement is deleted and replaced by the first page of such exhibit attached hereto. SECTION 2. Transactions with Affiliates. The undersigned parties ---------------------------- hereby waive compliance with the provisions of Section 5.13 of the Credit Agreement to the extent (and only to the extent) required to permit Vencor to purchase directly from Tenet Healthcare Corporation any or all of the securities convertible into or exchangeable for Vencor's common stock permitted to be purchased pursuant to Section 5.11(d) of the Credit Agreement as amended hereby. SECTION 3. Rights Otherwise Unaffected. This Amendment is limited --------------------------- to the matters expressly set forth herein. Except to the extent specifically amended or waived hereby, all terms of the Credit Agreement shall remain in full force and effect. SECTION 4. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Amendment may be signed in any number ------------ of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. Effectiveness. This Amendment shall become effective ------------- when the Documentation Agent shall have received from each of the Required Banks and each of the Borrowers either a counterpart hereof signed by such party or telegraphic, telex or other written confirmation from such party that it has signed a counterpart hereof. IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to be duly executed as of the date first above written. BORROWERS --------- VENCOR, INC. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer FIRST HEALTHCARE CORPORATION By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer 2 NORTHWEST HEALTH CARE, INC. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer MEDISAVE PHARMACIES, INC. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer HILLHAVEN PROPERTIES, LTD. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer HILLHAVEN OF CENTRAL FLORIDA, INC. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer NATIONWIDE CARE, INC. By: /s/ Robert K. Schneider -------------------------------- Name: Robert K. Schneider Title: Treasurer 3 BANKS ----- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Ruth Z. Edwards -------------------------------- Name: Ruth Z. Edwards Title: Vice President THE BANK OF NEW YORK By: /s/ Douglas Ober -------------------------------- Name: Douglas Ober Title: Vice President CHEMICAL BANK By: /s/ Peter C. Eckstein -------------------------------- Name: Peter C. Eckstein Title: Vice President CREDIT SUISSE By: /s/ Harry R. Olsen -------------------------------- Name: Harry R. Olsen Title: Member of Senior Management By: /s/ Kristinn R. Kristinsson -------------------------------- Name: Kristinn R. Kristinsson Title: Associate MELLON BANK, N.A. By: /s/ Marsha Wicker -------------------------------- Name: Marsha Wicker Title: Vice President 4 PNC BANK, KENTUCKY, INC. By: /s/ Todd D. Munson -------------------------------- Name: Todd D. Munson Title: Vice President TORONTO-DOMINION (TEXAS), INC. By: /s/ Lisa Allison -------------------------------- Name: Lisa Allison Title: Vice President WACHOVIA BANK OF NORTH CAROLINA, N.A. By: /s/ Robert G. Brookby -------------------------------- Name: Robert G. Brookby Title: Executive Vice President BANK OF LOUISVILLE AND TRUST COMPANY By: /s/ Roy L. Johnson, Jr. -------------------------------- Name: Roy L. Johnson, Jr. Title: Senior Vice President BANK ONE, COLUMBUS, NA By: /s/ James Zook -------------------------------- Name: James Zook Title: Vice President 5 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ Joseph H. Towell -------------------------------- Name: Joseph H. Towell Title: Senior Vice President FLEET BANK OF MASSACHUSETTS By: /s/ Ginger Stolzenthaler -------------------------------- Name: Ginger Stolzenthaler Title: Vice President LTCB TRUST COMPANY By: /s/ Rene O. LeBlanc -------------------------------- Name: Rene O. LeBlanc Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Diana H. Imhof -------------------------------- Name: Diana H. Imhof Title: Vice President NATIONAL CITY BANK, KENTUCKY By: /s/ Deroy Scott -------------------------------- Name: Deroy Scott Title: Vice President 6 NATIONSBANK, N. A. By: /s/ Ashley M. Crabtree -------------------------------- Name: Ashley M. Crabtree Title: Vice President NBD BANK By: /s/ Randall K. Stephens -------------------------------- Name: Randall K. Stephens Title: Vice President U.S. BANK OF WASHINGTON NATIONAL ASSOCIATION By: /s/ Arnold J. Conrad ------------------------------ Name: Arnold J. Conrad Title: Vice President 7 CALCULATION OF COMPLIANCE WITH FINANCIAL COVENANTS (Dollars in Thousands) [Date] RESTRICTED PAYMENTS [Section 5.11] - ---------------------------------- Restricted Payments Made Pursuant to Section 5.11(d): Cumulative amount in prior periods $___________ Current fiscal quarter $___________ Total cumulative amount $___________ Restricted Payments Allowed Pursuant to Section 5.11(d): $50,000,000 Restricted Payments Made Pursuant to Section 5.11(e): Cumulative amount in prior periods $___________ Current fiscal quarter $___________ Total cumulative amount $___________ Restricted Payments Allowed Pursuant to Section 5.11(e): Base amount $20,000,000 10% of cumulative Consolidated Net Income from October 1, 1995 $___________ Net cash proceeds of common stock sold after Closing Date $___________ Total allowable amount $___________ 8 EX-4.6 5 WARRANT AND REGISTRATION RIGHTS AGMT (1/31/90) EXHIBIT 4.6 ================================================================================ WARRANT AND REGISTRATION RIGHTS AGREEMENT dated as of January 31, 1990 among NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION and MANUFACTURERS HANOVER TRUST COMPANY OF CALIFORNIA, Warrant Agent ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I - WARRANTS............................................ 2 Section 1. Issuance of Warrants; Registration of New Hillhaven Common Stock; Form of Warrant Certificates........................... 2 Section 2. Appointment of Warrant Agent................... 2 Section 3. Countersignature and Registration.............. 3 Section 4. Transfer, Split Up, Combination and Exchange of Warrant Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates........................... 3 Section 5. Subsequent Issue of Warrant Certificates................................... 4 Section 6. Exercise of Warrants; Purchase Price........... 4 Section 7. Cancellation and Destruction of Warrant Certificates........................... 5 Section 8. Reservation and Availability of Shares of New Hillhaven Common Stock; Legending...................................... 6 Section 9. Common Stock Record Date....................... 7 Section 10. Adjustment of Purchase Price or Number of Shares............................... 7 Section 11. Certification of Adjusted Purchase Price and Number of Shares Issuable............ 12 Section 12. Consolidation, Merger or Sale of Assets......................................... 12 Section 13. Fractional Shares.............................. 13 Section 14. Right Of Action................................ 13 Section 15. Agreement Of Warrant Certificate Holders........................................ 13 Section 16. Concerning the Warrant Agent................... 14 Section 17. Merger or Consolidation Or Change of Name of Warrant Agent.......................... 14 Section 18. Duties of Warrant Agent........................ 15 Section 19. Change of Warrant Agent........................ 17 Section 20. Issuance of New Warrant Certificates........... 18 Section 21. Notice of Proposed Actions..................... 19 ARTICLE II - REGISTRATION RIGHTS................................ 20 Section 1. Demand Registrations........................... 20 Section 2. Participation Registrations.................... 21 Section 3. Certain Covenants of New Hillhaven ............ 22 Section 4. Expenses....................................... 24 Section 5. Indemnification................................ 25 Section 6. Modification of Certain Registration Rights......................................... 27
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Page ---- ARTICLE III - GENERAL........................................... 28 Section 1. Notices, etc................................... 28 Section 2. Supplements and Amendments..................... 29 Section 3. Successors and Assigns......................... 29 Section 4. Governing Law.................................. 29 Section 5. Assignment..................................... 29 Section 6. Titles and Headings............................ 29 Section 7. Entire Agreement............................... 29 Section 8. Counterparts................................... 30 Exhibit A Form of Warrant Certificate....................A-I
ii WARRANT AND REGISTRATION RIGHTS AGREEMENT dated as of January 31, 1990 (this "Agreement") among NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME"), THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven"), and MANUFACTURERS HANOVER TRUST COMPANY OF CALIFORNIA, a California corporation, as Warrant Agent (the "Warrant Agent") __________________________ WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement (as amended to the date hereof, the "Distribution Agreement") providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share ("New Hillhaven Common Stock"), of New Hillhaven (the "Distribution") on January 31, 1990 (the "Distribution Date") and, in connection therewith, NME will retain approximately 14.4 million shares, or approximately 15%, of such stock; and WHEREAS, in connection with the Distribution, New Hillhaven will issue to NME warrants (the "Warrants") to purchase shares of New Hillhaven Common Stock upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, NME and New Hillhaven acknowledge that subsequent to the Distribution NME may wish to dispose of all or part of the New Hillhaven Common Stock retained by it or acquired by it pursuant to the exercise of all or part of the Warrants (such New Hillhaven Common Stock so retained or acquired being hereinafter referred to as the "Covered Common Stock"); and WHEREAS, NME and New Hillhaven wish to set forth herein certain agreements and understandings relating to the terms and conditions of the issuance and exercise of the Warrants and the registration under the Securities Act of 1933, as amended (the "Act"), of the Covered Common Stock. NOW, THEREFORE, in consideration of the mutual covenants made herein and of the mutual benefits to be derived here from, the parties hereby agree as follows: ARTICLE I WARRANTS Section 1. Issuance of Warrants; Registration of New Hillhaven Common ---------------------------------------------------------- Stock; Form of Warrant Certificates. In partial consideration of the assets to - ----------------------------------- be transferred to New Hillhaven pursuant to the Distribution Agreement between NME and New Hillhaven, New Hillhaven hereby agrees to issue on the date of the Distribution, to NME or its designees, Warrants to purchase an aggregate of 30 million shares of New Hillhaven Common Stock. New Hillhaven covenants and agrees that, as long as the Warrants are outstanding, it will use its best efforts to (i) maintain the listing of the New Hillhaven Common Stock on the American Stock Exchange ("ASE") and (ii) make publicly available (within the meaning of Rule 144 promulgated under the Act) the information referred to in paragraph (c) of such Rule, as from time to time amended. Certificates evidencing the Warrants (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit A hereto (the "Warrant Certificates") and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as New Hillhaven may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation Of any stock exchange on which the Warrants may from time to time be listed, or to conform to usage; provided, however, that no addition to the Warrant Certificates shall substantially change the nature of or increase the duties, obligations or liabilities of the Warrant Agent hereunder without the consent of the Warrant Agent. Subject to the provisions of Section 20, the Warrant Certificates shall be dated as of the date of issuance thereof by the Warrant Agent, either upon initial issuance or upon transfer or exchange, and on their face shall entitle the holders thereof to purchase one share each of New Hillhaven Common Stock at the price per share set forth therein ("Purchase Price") for each Warrant represented thereby, but the number of such shares and the Purchase Price per share shall be subject to adjustments as provided herein. Section 2. Appointment of Warrant Agent. New Hillhaven hereby ---------------------------- appoints the Warrant Agent to act as its agent in accordance with the terms and conditions 2 hereinafter set forth, and the Warrant Agent hereby accepts such appointment. New Hillhaven may from time to time appoint such Co-Warrant Agents as it may deem necessary or desirable. Section 3. Countersignature and Registration. The Warrant --------------------------------- Certificates shall be executed on behalf of New Hillhaven by its Chairman and Chief Executive Officer, its Vice Chairman and Deputy Chief Executive Officer, its President, any Executive Vice President or any Senior Vice President, by manual or facsimile signature, and have affixed thereto a facsimile of New Hillhaven's seal which shall be attested by the Secretary or any Assistant Secretary of New Hillhaven by manual or facsimile signature. The Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned in case any officer of New Hillhaven who shall have signed any of the Warrant Certificates shall cease to be such officer of New Hillhaven before countersignature by the Warrant Agent and issuance and delivery by New Hillhaven, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of New Hillhaven; and any Warrant Certificate may be signed on behalf of New Hillhaven by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of New Hillhaven to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such an officer. The Warrant Agent will keep or cause to be kept, at its principal office in San Francisco, books for registration and transfer of the Warrant Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Warrant Certificates, and the date of each of the Warrant Certificates. Section 4. Transfer, Split Up, Combination and Exchange of Warrant ------------------------------------------------------- Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates. - ----------------------------------------------------------------------- Subject to the provisions of Section 13, any Warrant Certificate, with or without other Warrant Certificates, may be transferred, split up, combined or exchanged for another Warrant Certificate or Warrant Certificates, entitling the registered holder to purchase a like number of shares of New Hillhaven Common Stock as the Warrant Certificate or Warrant Certificates surrendered then entitled him to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Warrant Certificate shall make such request in writing delivered to the Warrant Agent, and shall surrender the Warrant Certificate or Warrant Certificates to be trans- 3 ferred, split up, combine or exchanged at the office of the Warrant Agent referred to in Section 3. Thereupon (subject to receipt of payment of any sum referred to in the next sentence) the Warrant Agent shall countersign and deliver to the person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. New Hillhaven or the Warrant Agent may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Warrant Certificates. Upon receipt by New Hillhaven and the Warrant Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to New Hillhaven and the Warrant Agent of all reasonable expenses incidental thereto and upon surrender and cancellation of the Warrant Certificate if mutilated, Hillhaven will make and deliver a new Warrant Certificate of like tenor to the Warrant Agent for delivery to the registered owner in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated. The Warrant Agent shall not be required to transfer any Warrant Certificate(s) unless in connection therewith there shall have been furnished to the Warrant Agent by the transferor an opinion of counsel, reasonably satisfactory to the Warrant Agent, to the effect that no registration of the Warrants represented by the Warrant Certificate(s) proposed to be transferred is required under the Act. Section 5. Subsequent Issue Of Warrant Certificates. Subsequent to ---------------------------------------- their original issuance, no Warrant Certificates shall be issued except (a) Warrant Certificates issued upon any transfer, split up, combination or exchange of Warrants pursuant to Section 4, (b) Warrant Certificates issued in replacement of mutilated, destroyed, lost or stolen Warrant Certificates pursuant to Section 4, (c) Warrant Certificates issued pursuant to Section 6 upon the partial exercise of any Warrant Certificate to evidence the unexercised portion of such Warrant Certificate or (d) Warrant Certificates issued pursuant to Section 20. Section 6. Exercise of Warrants; Purchase Price. (a) The registered ------------------------------------ holder of any Warrant Certificate may exercise the Warrants evidenced thereby in whole or in part at any time after the date hereof and prior to 5:00 p.m., San Francisco time, on the tenth anniversary of the Distribution Date, upon surrender of the Warrant Certificate, with the form of election to purchase on the Warrant duly executed, to the Warrant Agent at the office of 4 the Warrant Agent referred to in Section 3, together with payment of the Purchase Price for each share of New Hillhaven Common Stock as to which the Warrants are exercised and an amount equal to any applicable transfer tax. (b) The Purchase Price for each share Of New Hillhaven Common Stock pursuant to the exercise of a Warrant shall initially be 125% of the fair market value of a share of New Hillhaven Common Stock on the Distribution Date. For the purposes hereof such value shall be the fair market value on the Distribution Date as determined by the Board of Directors of NME or a committee thereof for purposes of adjusting the exercise price Of Outstanding NME Options or convertible securities, as conclusively set forth in a certificate of the Secretary or an Assistant Secretary of NME delivered to New Hillhaven and the Warrant Agent as soon as practicable after the Distribution Date. The Purchase Price shall be subject to adjustment as provided in Section 10 and shall be payable in lawful money Of the United States of America. (c) Upon receipt of a Warrant Certificate, with the form of election to purchase duly executed, accompanied by payment, in cash or by certified or official bank check payable to the order of New Hillhaven, of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax, the Warrant Agent shall thereupon promptly (i) requisition from any transfer agent for the New Hillhaven Common Stock certificates for the number of whole shares of New Hillhaven Common Stock to be purchased and New Hillhaven hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) when appropriate, requisition from New Hillhaven the amount of cash to be paid in lieu of issuance of fractional shares and (iii) promptly after receipt of such certificates cause the same to be delivered to or upon the order of the registered holder of such Warrant Certificate, registered in such name or names as may be designated by such holder, and, when appropriate, after receipt promptly deliver such cash to or upon the order of the registered holder of such Warrant Certificate. (d) In case the registered holder of any Warrant Certificate shall exercise less than all the Warrants evidenced thereby, a new Warrant Certificate evidencing Warrants equivalent to the Warrants remaining unexercised shall be issued by the Warrant Agent to the registered holder of such Warrant Certificate or to his duly authorized assigns subject to the provisions of Sections 4 and 13. Section 7. Cancellation and Destruction of Warrant Certificates. All ---------------------------------------------------- Warrant Certificates surrendered for the purpose of exercise, exchange, substitution or 5 transfer shall, if surrendered to New Hillhaven or to any of its agents, be delivered to the Warrant Agent for cancellation or in cancelled form, or if surrendered to the Warrant Agent shall be cancelled by it, and no Warrant Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. New Hillhaven shall deliver to the Warrant Agent for cancellation and retirement, and the Warrant Agent shall so cancel and retire, any other Warrant Certificate purchased or acquired by New Hillhaven otherwise than upon the exercise thereof. The Warrant Agent shall deliver all cancelled Warrant Certificates to New Hillhaven, or shall, at the written request of New Hillhaven, destroy such cancelled Warrant Certificates, and in such case shall deliver a certificate of destruction thereof to New Hillhaven. Section 8. Reservation and Availability of Shares of New Hillhaven ------------------------------------------------------- Common Stock; Legending. New Hillhaven shall cause to be reserved and kept - ----------------------- available out of its authorized and unissued shares of New Hillhaven Common Stock or its authorized and issued shares of New Hillhaven Common Stock held in its treasury, the number of shares of New Hillhaven Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants. So long as the New Hillhaven Common Stock issuable upon the exercise of Warrants may be listed on any national securities exchange, New Hillhaven shall use its best efforts to cause all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. New Hillhaven shall also take all such action as may be necessary to ensure that all shares of New Hillhaven Common Stock delivered upon exercise of Warrants shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. In addition, New Hillhaven shall pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Warrant Certificates or of any shares of New Hillhaven Common Stock upon the exercise of Warrants. New Hillhaven shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer involved in the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates for New Hillhaven Common Stock in a name other than that of the registered holder of the Warrant Certificate evidencing Warrants surrendered for exercise or to issue or deliver any 6 certificates for shares of New Hillhaven Common Stock upon the exercise of any Warrants until any such tax shall have been paid (any such tax being payable by the holder of such Warrant Certificate at the time of surrender) or until it has been established to New Hillhaven's satisfaction that no such tax is due. All shares of New Hillhaven Common Stock issuable upon exercise of the Warrants shall contain a legend, substantially similar to the legend set forth in the Warrant Certificates, with respect to the transferability of such shares, until such time as New Hillhaven shall have been advised by its counsel that such legend is no longer required by law. Section 9. Common Stock Record Date. Each person in whose name any ------------------------ certificate for shares of New Hillhaven Common Stock is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the New Hillhaven Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Warrant Certificate evidencing such Warrants was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such -------- ------- surrender and payment is a date upon which the New Hillhaven Common Stock transfer books are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding business day on which the New Hillhaven Common Stock transfer books are open. Prior to the exercise of the Warrants evidenced thereby, the holder of a Warrant Certificate shall not be entitled to any rights of a stockholder of New Hillhaven as such with respect to shares for which the Warrants shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of New Hillhaven, except as provided herein. Section 10. Adjustment of Purchase Price or Number of Shares. The ------------------------------------------------ Purchase Price, the number of shares of New Hillhaven Common Stock covered by each Warrant and the number of Warrants outstanding are subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 10. (a) In case New Hillhaven shall at any time after the date of this Agreement (i) declare a dividend on the Hillhaven Common Stock payable in shares of New Hillhaven Common Stock, (ii) subdivide the outstanding New Hillhaven Common Stock, (iii) combine the outstanding New Hillhaven Common Stock into a smaller number of shares, or (iv) issue 7 any shares of its capital stock in a reclassification of the New Hillhaven Common Stock (including any such reclassification in connection with a consolidation or merger in which New Hillhaven is the continuing corporation other than a consolidation or merger in respect of which an adjustment is made pursuant to Section 12), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and/or the number and kind of shares of capital stock issuable on such dates, shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Warrant had been exercised immediately prior to such date and at a time when the New Hillhaven Common Stock transfer books of New Hillhaven were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In case New Hillhaven shall fix a record date for the issuance of rights or warrants to all holders of New Hillhaven Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase New Hillhaven Common Stock (or securities convertible into New Hillhaven Common Stock) at a price per share of New Hillhaven Common Stock (or having a conversion price per share of New Hillhaven Common Stock, if a security convertible into New Hillhaven Common Stock) less than the current market price per share of New Hillhaven Common Stock (as defined in Section 10(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the number of shares of New Hillhaven Common Stock outstanding on such record date plus the number of shares of New Hillhaven Common Stock which the aggregate offering price of the total number of shares of New Hillhaven Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and of which the denominator shall be the number of shares of New Hillhaven Common Stock outstanding on such record date plus the number of additional shares of New Hillhaven Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash the value of such consideration shall be as determined by the Board of Directors of New Hillhaven, whose determination shall be conclusive, and described in a statement filed with the 8 Warrant Agent. Shares of New Hillhaven Common Stock owned by or held for the account of New Hillhaven shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case New Hillhaven shall fix a record date for the making of a distribution to all holders of New Hillhaven Common Stock (including any such distribution made in connection with a consolidation or merger in which New Hillhaven is the continuing corporation other than a consolidation or merger in respect of which an adjustment is made pursuant to Section 12) or evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in New Hillhaven Common Stock) or subscription rights or warrants (excluding those referred to in Section 10(b) and any rights issued pursuant to the Rights Agreement dated as of January 31, 1990 between New Hillhaven and Manufacturers Hanover Trust Company of California, as Rights Agent (the "Rights Agreement")), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the current market price per share of New Hillhaven Common Stock (as defined in Section 10(d)) on such record date, less the fair market value (as determined by the Board of Directors of Hillhaven, whose determination shall be conclusive, and described in a statement filed with the Warrant Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of New Hillhaven Common Stock and of which the denominator shall be such current market price per share of New Hillhaven Common Stock. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation under Section 10(b) or (c), the current market price per share of New Hillhaven Common Stock on any date shall be deemed to be the average of the daily closing prices per share of New Hillhaven Common Stock for the 30 consecutive trading days as reported on the ASE Composite Tape commencing 45 days before such date. The closing price for each day shall be the last sale price regular way or, in case no such, sale takes place on such day, the average of the closing bid and 9 asked prices regular way, in either case as reported on the ASE, or if the New Hillhaven Common Stock is not reported on the ASE, on the principal national securities exchange on which the New Hillhaven Common Stock is listed or admitted to trading, or if the New Hillhaven Common Stock is not listed or admitted to trading on any national securities exchange, the average of the highest reported bid and lowest reported asked prices as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information. If on any such date the shares of New Hillhaven Common Stock are not quoted by any such organization, the fair value of such shares on such date as determined by the Board of Directors of New Hillhaven shall be used. The term "trading day" shall mean a day on which the principal national securities exchange on which the shares of New Hillhaven Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of such stock are not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of California are not authorized or obligated by law or executive order to close. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 10(e) - -------- ------- are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 10 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (f) In the event that at any time, as a result of an adjustment made pursuant to Section 10(a), the holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of New Hillhaven other than shares of New Hillhaven Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of New Hillhaven Common Stock contained in Section 10(a) through (c), inclusive, and the provisions of Sections 6, 8, 9 and 13 with respect to the shares of New Hillhaven Common Stock shall apply on like terms to any such other shares. (g) All Warrants originally issued by New Hillhaven subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of New Hillhaven Common Stock purchasable from time to time 10 hereunder upon exercise of Warrants, all subject to further adjustment as provided herein. (h) Upon each adjustment of the Purchase Price as a result of the calculations made in Section 10(a), (b) or (c) each Warrant outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the Adjusted Purchase Price, that number of shares (calculated to the nearest hundredth) obtained by (i) multiplying the number of shares covered by a Warrant immediately prior to this adjustment of the number of shares by the Purchase Price in effect immediately prior Co such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) Irrespective of any adjustment or change in the Purchase Price or the number of shares of New Hillhaven Common Stock issuable upon the exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed upon the initial Warrant Certificates issued hereunder. (j) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of New Hillhaven Common Stock issuable upon exercise of the Warrants, New Hillhaven shall take any corporate action which may, in the opinion of its counsel, be necessary in order that New Hillhaven may validly and legally issue fully paid and nonassessable shares of such New Hillhaven Common Stock at such adjusted Purchase Price. (k) In any case in which this Section 10 shall require that an adjustment in the Purchase Price be made effective as of the record date for a specified event, New Hillhaven may elect to defer until the occurrence of such event the issuing to the holder of any Warrant exercised after such record date the shares of New Hillhaven Common Stock and other capital stock of New Hillhaven, if any, issuable upon such exercise over and above the shares of New Hillhaven Common Stock, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that New -------- ------- Hillhaven shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (l) Anything in this Section 10 to the contrary notwithstanding, New Hillhaven shall be entitled to make such reductions in the Purchase Price, in addition to those 11 adjustments required by this Section 10, as it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the New Hillhaven Common Stock, issuance wholly for cash of any New Hillhaven Common Stock at less than the current market price, issuance wholly for cash of New Hillhaven Common Stock or securities which by their terms are convertible into or exchangeable for New Hillhaven Common Stock, stock dividend, issuance of rights, options or warrants referred to hereinabove in this Section 10, hereinafter made by New Hillhaven to its common stockholders shall not be taxable to them. Section 11. Certification of Adjusted Purchase Price and Number of ------------------------------------------------------ Shares Issuable. Whenever the Purchase Price or the number of shares of New - --------------- Hillhaven Common Stock issuable upon the exercise of each Warrant are adjusted as provided in Section 10, New Hillhaven shall (a) promptly obtain a certificate of a firm of independent public accountants, which shall be an accounting firm which is known as one of the "Big Six" accounting firms and which may be the regular auditors of New Hillhaven, selected by the Board of Directors, setting forth the Purchase Price as so adjusted, the number of shares of New Hillhaven Common Stock issuable upon the exercise of each Warrant as so adjusted and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Warrant Agent and with each transfer agent for the New Hillhaven Common Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Warrant Certificate in accordance with Section 21. Section 12. Consolidation, Merger or Sale of Assets. If New --------------------------------------- Hillhaven shall at any time Consolidate with or merge into another corporation, the holder of any Warrants will thereafter receive, upon the exercise thereof in accordance with the terms of this Agreement, the securities or property to which the holder of the number of shares of New Hillhaven Common Stock then deliverable upon the exercise of such Warrants would have been entitled upon such consolidation or merger and New Hillhaven shall take such steps in connect ion with such consolidation or merger as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property (including cash) thereafter deliverable upon the exercise of the Warrants; provided, however, that if upon -------- ------- any such consolidation or merger different holders of New Hillhaven Common Stock shall be entitled to receive different forms of consideration, the form of such consideration thereafter deliverable upon the exercise of the Warrants shall be as determined by the Board of Directors of New Hillhaven as constituted immediately prior to such consolidation or merger. New Hillhaven or the successor corporation, as the 12 case may be, shall execute and deliver to the Warrant Agent a supplemental agreement so providing. A sale or transfer of all or substantially all the assets of New Hillhaven for a consideration (apart from the assumption of obligations) consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. The provisions of this Section 12 shall similarly apply to successive mergers or consolidations or sales or other transfers. Section 13. Fractional Shares. ----------------- (a) Notwithstanding an adjustment pursuant to Section 10(h) in the number of shares covered by a Warrant, New Hillhaven shall not be required to issue fractional shares upon exercise of the Warrants or to distribute certificates which evidence fractional shares. In lieu of fractional shares, there shall be paid to the registered holders of Warrant Certificates at the time such Warrant Certificates are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share of New Hillhaven Common Stock. For purposes of this Section 13(a), the current market value of a share of New Hillhaven Common Stock shall be the closing price of a share of New Hillhaven Common Stock (as determined pursuant to the second sentence of Section 10(d)), for the trading day immediately prior to the date of such exercise. (b) The holder of a Warrant, by the acceptance of the Warrant, expressly waives his right to receive any fractional Warrant or any fractional share upon exercise of a Warrant. Section 14. Right of Action. All rights of action in respect of this --------------- Agreement (except for the rights of action of the Warrant Agent hereunder) are vested in the respective registered holders of the Warrant Certificates; and any registered holder of any Warrant Certificate, without the consent of the Warrant Agent or of the holder of any other Warrant Certificate, may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against New Hillhaven to enforce, or otherwise act in respect of, his right to exercise the Warrants evidenced by such Warrant Certificate in the manner provided in such Warrant Certificate and in this Agreement. Section 15. Agreement of Warrant Certificate Holders. Every holder ---------------------------------------- of a Warrant Certificate by accepting the same consents and agrees with New Hillhaven and the Warrant Agent and with every other holder of a Warrant Certificate that: 13 (a) the Warrant Certificates are transferable only on the registry books of the Warrant Agent if surrendered at the office of the Warrant Agent referred to in Section 3, duly endorsed or accompanied by a proper instrument of transfer in accordance with the provisions hereof; and (b) New Hillhaven and the Warrant Agent may deem and treat the person in whose name the Warrant Certificate is registered as the absolute owner thereof and of the Warrants evidenced thereby (notwithstanding any notations of ownership or writing on the Warrant Certificates made by anyone other than Hillhaven or the Warrant Agent) for all purposes whatsoever, and neither New Hillhaven nor the Warrant Agent shall be affected by any notice to the contrary. Section 16. Concerning the Warrant Agent. New Hillhaven agrees to ---------------------------- pay to the Warrant Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Warrant Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. New Hillhaven also agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability or expense, incurred without negligence or bad faith on the part of the Warrant Agent, for any action taken, suffered or omitted by the Warrant Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken; suffered, or omitted by it in connection with its administration of this Agreement in reliance upon any Warrant Certificate or certificate for New Hillhaven Common Stock or for other securities of New Hillhaven, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document reasonably believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. Section 17. Merger or Consolidation or Change of Name of Warrant ---------------------------------------------------- Agent. Any corporation into which the Warrant Agent or any successor Warrant - ----- Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent or any successor Warrant Agent shall be a party, or any corporation succeeding to the corporate trust 14 business of the Warrant Agent or any successor Warrant Agent, shall be the successor to the Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Warrant Agent under the provisions of Section 19. In case at the time each successor Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrant Certificates shall have been countersigned but not delivered, any such successor Warrant Agent may adopt the countersignature of the predecessor Warrant Agent and deliver such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor Warrant Agent may countersign such Warrant Certificates either in the name of the Predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force Provided in the Warrant Certificates and in this Agreement. Section 18. Duties of Warrant Agent. The Warrant Agent shall have ----------------------- only the duties and obligations expressly set forth in this Agreement There shall be no implied duties or obligations of the Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which New Hillhaven and the holders of Warrant Certificates, by their acceptance thereof, shall be bound: (a) The Warrant Agent may consult with legal counsel (who may be legal counsel for New Hillhaven), and the opinion of such counsel shall be full and complete authorization and protection to the Warrant Agent as to any action taken, suffered or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that, any fact or matter proved or established by New Hillhaven prior to taking 15 or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the President, any Executive Vice President, any Senior Vice President or the Secretary or any Assistant Secretary of New Hillhaven and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Warrant Agent shall be liable hereunder only for its own negligence or bad faith. (d) The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by New Hillhaven only. (e) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except its countersignature thereof); nor shall it be responsible for any breach by New Hillhaven of any covenant or condition contained in this Agreement or in any Warrant Certificate; nor shall it be responsible for the adjustment of the Purchase Price or the making of any change in the number of shares of New Hillhaven Common Stock required under the provisions of Section 10 or responsible for the manner, method or amount of any such change or the ascertaining of the existence of facts that would require any such adjustment or change (except with respect to the exercise of Warrants evidenced by Warrant Certificates after actual notice of any adjustment of the Purchase Price); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of New Hillhaven Common Stock to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any shares of New Hillhaven Common Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. 16 (f) New Hillhaven shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Agreement (g) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the President, any Executive Vice President, any Senior Vice President or the Secretary of New Hillhaven, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with the instructions of any such officer. (h) The Warrant Agent and any Shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of New Hillhaven or become Pecuniarily interested in any transaction in which New Hillhaven may be interested, or contract with or lend money to New Hillhaven or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for New Hillhaven or for any other legal entity. (i) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Warrant Agent shall not be Answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to New Hillhaven resulting from such neglect or misconduct, provided reasonable care had been exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights unless it shall have been first indemnified therefor to its satisfaction. Section 19. Change of Warrant Agent. The Warrant Agent may resign ----------------------- and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to New 17 Hillhaven and to each transfer agent of the New Hillhaven Common Stock by registered or certified mail, and to the holders of the Warrant Certificates by first class mail. New Hillhaven may remove the Warrant Agent or any successor Warrant Agent upon 30 days' notice in writing, mailed to the Warrant Agent or successor Warrant Agent, as the case may be, and to each transfer agent of the New Hillhaven Common Stock by registered or certified mail, and to the holders of the Warrant Certificates by first-class mail. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, New Hillhaven shall appoint a successor to the Warrant Agent. If New Hillhaven shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the holder of a Warrant Certificate (who shall, with such notice, submit his Warrant Certificate for inspection by New Hillhaven), then the registered holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant Agent. Any successor Warrant Agent, whether appointed by New Hillhaven or by such a court, shall be a corporation organized and doing business under the laws of the United States or of any state thereof, in good standing, having its principal office in Boston, Massachusetts, Chicago, Illinois, Los Angeles, California, New York, New York, San Francisco, California or Seattle, Washington, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by a federal or state authority and which has at the time of its appointment as Warrant Agent a combined capital and surplus of at least $250,000,000. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the predecessor Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, New Hillhaven shall file notice thereof in writing with the predecessor Warrant Agent and each transfer agent for New Hillhaven Common Stock, and mail a notice thereof in writing to the registered holders of the Warrant Certificates. Failure to give any notice provided for in this Section 19, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. Section 20. Issuance of New Warrant Certificates. Notwithstanding any ------------------------------------ of the provisions of this Agreement or of the Warrants to the contrary, New Hillhaven may, at its 18 option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the several Warrant Certificates made in accordance with the provisions of this Agreement. Section 21. Notice of Proposed Actions. In case New Hillhaven shall -------------------------- propose (a) to pay any dividend payable in stock of any class to the holders of New Hillhaven Common Stock or to make any other distribution to the holders of New Hillhaven Common Stock (other than a cash dividend), or (b) to offer to the holders of New Hillhaven Common Stock rights or warrants to subscribe for or to purchase any additional shares of New Hillhaven Common Stock or shares of stock of any class of any other securities, rights or options (other than the rights contemplated to be distributed to stockholders pursuant to the Rights Agreement), or (c) to effect any reclassification of New Hillhaven Common Stock (other than a reclassification involving only the subdivision or combination of outstanding shares of New Hillhaven Common Stock), or (d) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of New Hillhaven, or (e) to effect the liquidation, dissolution or winding up of New Hillhaven, then in each such case New Hillhaven shall give to each holder of a Warrant, in accordance with Section 1 of Article III of this Agreement, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, disposition, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of New Hillhaven Common Stock, if any such date is to be fixed. Such notice shall be so given in the case of any action covered by clause (a) or (b) above at least ten days prior to the record date for determining holders of New Hillhaven Common Stock for purposes of such action, and in the case of any other such action, at least ten days prior to the date of the proposed taking of such action or the date of participation therein by the holders of New Hillhaven Common Stock, whichever shall be the earlier. The failure to give notice required by this Section 21 or any defect therein shall not affect the legality or validity of the action taken by New Hillhaven or the vote upon any such action. 19 ARTICLE II REGISTRATION RIGHTS Section 1. Demand Registrations. (a) At any time from the -------------------- Distribution Date through the fifteenth anniversary thereof, upon the written request of NME that New Hillhaven register all or part of the Covered Common Stock then held by NME or any affiliate of NME (which request shall satisfy the requirements of paragraph (c) of this Section 1) under the Act, New Hillhaven shall, subject in all cases to the provisions of paragraph (b) of this Section 1, thereupon cause the Covered Common Stock specified in such request to be so registered. (b) New Hillhaven's obligation to register all or part of the Covered Common Stock pursuant to paragraph (a) of this Section 1 shall in all cases be subject to the following limitations and qualifications: (i) New Hillhaven shall not be obligated to file more than one registration statement during any six-month period, or to file a registration statement with respect to less than 100,000 shares of Covered Common Stock, or to file a registration statement at any time if a special audit of New Hillhaven would be required by the rules and regulations of the Securities and Exchange Commission (the "Commission") in connection therewith (for purposes of the preceding sentence, "special audit" shall mean an audit other than a fiscal year-end audit, requiring an opinion of New Hillhaven's independent public accountants); and (ii) New Hillhaven shall be entitled to postpone for a reasonable period of time not to exceed 90 days the filing of any registration statement otherwise required to be prepared and filed by it if, at the time it receives a request for registration, New Hillhaven determines, in its reasonable judgment, that such registration would materially interfere with any financing, acquisition, corporate reorganization or other material transaction then being contemplated by its Board of Directors, involving New Hillhaven or any of its affiliates (other than NME), and promptly gives NME written notice of such determination and the reasons therefor. In such event, NME shall have the right to withdraw the request for registration by giving written notice to New Hillhaven within 30 days after receipt of the notice of postponement (and, in the event of such withdrawal, such request shall be ignored for purposes of determining the number of 20 registrations to which NME is entitled to have New Hillhaven pay all out-of-pocket expenses pursuant to Section 4(a)). (c) Any written request of NME made pursuant to paragraph (a) of this Section 1 shall: (i) specify the number of shares of Covered Common Stock which NME or any affiliate of NME intends to offer and sell; (ii) state the intention of NME or such affiliate to offer such shares for sale; (iii) describe the intended method of distribution of such shares; and (iv) contain an undertaking on the part of NME to provide all such information and materials concerning NME or such affiliate and take all such action as may be required on NME's part to permit New Hillhaven to comply with all applicable requirements of the Commission and to obtain acceleration of the effective date of the registration statement. Section 2. Participation Registrations. (a) If, at any time from the --------------------------- Distribution Date through the fifteenth anniversary thereof, New Hillhaven shall propose to register under the Act an offering by New Hillhaven or any stockholder(s) of New Hillhaven (other than NME) of any New Hillhaven securities, it shall give written notice of such proposed registration to NME as promptly as possible and shall, subject in all cases to paragraph (b) of this Section 2, include in such registration (and offering if so requested by NME) such number of shares of Covered Common Stock then owned by NME or any affiliate of NME as NME shall request, within 10 days after the receipt of such notice. (b) New Hillhaven's obligation to include Covered Common Stock owned by NME or any affiliate of NME in any offering pursuant to paragraph (a) of this Section 2 shall in all cases be subject to the following limitations and qualifications: (i) New Hillhaven shall not be required to give notice to NME or include such shares in any such registration if the proposed registration is (A) a registration of a stock option or compensation plan or of New Hillhaven securities issued or issuable pursuant to any such plan or (B) a registration of New Hillhaven securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation; 21 (ii) New Hillhaven may, in its sole discretion and without the consent of NME, withdraw such registration statement and abandon the proposed offering in which NME had requested to participate; and (iii) If the proposed registration is to be underwritten (whether on a "best efforts" or a "firm commitment" basis), the managing underwriter shall have the right to exclude shares of Covered Common Stock from such registration if such underwriter advises New Hillhaven in writing that such exclusion is necessary to avoid interfering with the successful marketing of the underwritten portion of the offering, provided that (A) such -------- ---- exclusion applies on a proportional basis not only to the shares of Covered Common Stock but also to all other shares of New Hillhaven Common Stock proposed to be included other than those for which New Hillhaven initiated the registration and which are being sold by New Hillhaven and (B) in no event shall any shares of Covered Common Stock be excluded if, following such exclusion, the number of shares of Covered Common Stock included in the registration would be less than 10% of the total number of shares of New Hillhaven Common Stock covered by the registration. (c) There shall be no limit on the number of registrations in which NME or any affiliates of NME may participate pursuant to Section 2. Section 3. Certain Covenants of New Hillhaven. (a) In connection ---------------------------------- with any registration of Covered Common Stock undertaken by New Hillhaven pursuant to Section l and, if and to the extent appropriate, Section 2, New Hillhaven shall: (i) prepare and file with the Commission a registration statement with respect to such shares and use its best efforts to cause such registration statement to become effective; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement current for such period not to exceed 90 days as NME shall request and to comply with the provisions of the Act with respect to the sale of all New Hillhaven Common Stock covered by such registration statement during such period; (iii) provide NME and its counsel a reasonable opportunity to review and, in the case of registrations 22 effected pursuant to Section 1, approve prior to filing (A) any registration statement filed by New Hillhaven in connection with a registration effected pursuant to Section 1 or in which NME or any affiliate is participating pursuant to Section 2 and (B) any amendment to supplements to such registration statement and an prospectus used in connection therewith; (iv) furnish to NME and its counsel such of conformed copies of such registration statement of each such amendment and supplement thereto (in case including all exhibits), such number of copies the prospectus included in such registration stat (including each preliminary prospectus and prospectus supplement), in conformity with the requirements of the Act, and such other documents as NME or its counsel may reasonably request in order to facilitate the sale of the Covered Common Stock covered by such registration statement; (v) use its best efforts to register or qualify the Covered Common Stock to which such registration statement relates under such other securities or blue sky laws of such jurisdictions as NME or its counsel shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable NME to consummate the sale in such jurisdictions of such shares; provided that New Hillhaven -------- shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Paragraph (v) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (vi) notify NME, at any time when a prospectus relating to the Covered Common Stock to which such registration statement relates is required to be delivered under the Securities Act, of New Hillhaven's becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of NME promptly prepare and furnish to NME a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the 23 statements therein not misleading in light of the circumstances then existing; (vii) use its best efforts to cause all the Covered Common Stock to which such registration statement relates to be listed on each securities exchange on which such stock is then listed or, if there shall then be no such listing, to be accepted for quotation on NASDAQ; (viii) provide a transfer agent and registrar for the Covered Common Stock to which such registration statement relates not later than the effective date of such registration statement; and (ix) enter into such agreements (including an underwriting agreement in customary form) and take such other actions as NME reasonably requests in order to expedite or facilitate the disposition of such shares; provided that (A) in respect of a registration effected pursuant to -------- Section 1, New Hillhaven and NME shall each select one managing underwriter (with NME determining which of such managing underwriters shall "run the books") and (B) in respect of a registration in which NME or any affiliate participates pursuant to Section 2, New Hillhaven shall select the managing underwriter or underwriters. (b) For as long as NME or any affiliate of NME shall continue to hold any Covered Common Stock, New Hillhaven shall use reasonable efforts to file, on a timely basis, all annual, quarterly and other reports required to be filed by it under Sections 13 and 15(d) of the Securities Exchange Act of 1934 and the rules and regulations of the Commission thereunder, as amended from time to time. In the event of any proposed sale of Covered Common Stock by NME or any affiliate of NME pursuant to Rule 144 (or any successor rule) promulgated under the Act, New Hillhaven shall cooperate with NME or such affiliate so as to enable such sales to be made in accordance with applicable laws, rules and regulations, the requirements of New Hillhaven's transfer agents, and the reasonable requirements of the broker through which the sales are proposed to be executed. Section 4. Expenses. (a) New Hillhaven shall pay all out-of-pocket -------- expenses incurred by it in connection with any three registrations of Covered Common Stock pursuant to Section 1 which are designated by NME as a registration with respect to which New Hillhaven's obligations in this sentence shall apply. As to any other registrations of Covered Common Stock pursuant to Section 1, NME or any transferee of Warrants from NME shall reimburse New Hillhaven for all its out-of-pocket expenses in 24 connection therewith. For the purposes of this Section 4, out-of-pocket expenses shall include, without limitation, all registration and filing fees, printing expenses and expenses, fees and disbursements of New Hillhaven's legal counsel and accountants, transfer agents' and registrars' fees, and expenses incidental to any post-effective amendment to any such registration statement. For purposes of this Section 4, "out-of-pocket expenses" shall not include salaries of New Hillhaven employees or expenses attributable to New Hillhaven's corporate overhead. (b) In connection with any registration pursuant to Section 2, New Hillhaven shall pay all registration and filing fees, underwriting discounts, commissions and expenses (other than those attributable to Covered Common Stock proposed to be sold by NME or any affiliate of NME), printing expenses, fees and disbursements of New Hillhaven's legal counsel and accountants, transfer agents' and registrars' fees and expenses incidental to any post-effective amendment to any such registration statement. NME shall pay all other out-of-pocket expenses attributable to the inclusion in the registration of the Covered Common Stock being registered on its behalf, including, without limitation, registration and filing fees and underwriting discounts, commissions and expenses attributable thereto and fees and disbursements of NME's legal counsel and accountants. Section 5. Indemnification. (a) In the case of each registration --------------- effected by New Hillhaven pursuant to Section 1 or Section 2, New Hillhaven agrees to indemnify and hold harmless NME, its affiliates, its officers and directors, each underwriter of the Covered Common Stock so registered and each person who controls any such underwriter within the meaning of Section 15 of the Act, against any and all losses, claims, damages or liabilities to which they or any of them may become subject under the Act or any other statute or common law, including any amount paid in settlement of any litigation, commenced or threatened, if such settlement is effected with the written consent of New Hillhaven, which consent shall not be unreasonably withheld, and to reimburse them for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to the sale of Covered Common Stock, or any post-effective amendment thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement,or alleged untrue statement of a material fact contained in any 25 preliminary prospectus, if used prior to the effective date of such registration statement, or contained in the final prospectus (as amended or supplemented if Hillhaven shall have filed with the Commission any amendment thereof or supplement thereto) if used within the period during which New Hillhaven is required to keep the registration statement to which such prospectus relates current pursuant to the terms of Section 3(a) (ii), or the omission or alleged omission to state therein (if so used) a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the indemnification agreement -------- ------- contained in this paragraph (a) shall not (x) apply to such losses, claims, damages, liabilities or actions arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to New Hillhaven by NME or such underwriter for use in connection with the preparation of the registration statement, any preliminary prospectus or final prospectus contained in the registration statement, or any amendment or supplement thereto, or (y) inure to the benefit of any underwriter or any person controlling such underwriter, if such underwriter failed to send or give a copy of the final prospectus to the person asserting the claim at or prior to the written confirmation of the sale of Covered Common Stock to such person and if the untrue statement or omission concerned had been corrected in such final prospectus. (b) In the case of each registration effected by New Hillhaven pursuant to Section 1 or Section 2, NME, any affiliate of NME participating in any such registration and each underwriter of the Covered Common Stock to be registered (each such party and such underwriters being referred to~severally in this paragraph (b) as the "indemnifying party") shall agree in the same manner and to the same extent as set forth in paragraph (a) of this Section 5 to indemnify and hold harmless New Hillhaven, each person who controls Hillhaven, the directors of New Hillhaven and those of its officers who shall have signed any such registration statement, with respect to any untrue statement or alleged untrue statement in, or omission or alleged omission from, such registration statement or any post-effective amendment thereto or any preliminary prospectus or final prospectus (as amended or as supplemented, if amended or supplemented as aforesaid) contained in such registration statement, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to New Hillhaven by such indemnifying party for use in connection with the preparation of such registration statement or any 26 preliminary prospectus or final prospectus contained in such registration statement Or any such amendment or supplement thereto. (c) Each indemnified party shall, with reasonable promptness after its receipt of written notice of the commencement of any action against such indemnified party in respect of which indemnity may be sought from an indemnifying party on account of an indemnity agreement contained in this Section 5, notify the indemnifying party in writing of the commencement thereof. In case any such action shall be brought against any indemnified party and it shall so notify an Indemnifying party of the commencement thereof; the indemnifying party shall be entitled to participate therein and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action -------- ------- include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are likely to be substantial legal defenses available to it and/or the other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and the approval of such counsel, the indemnifying party shall (except as provided in the preceding sentence) not be liable to such indemnified party under this Section 5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnity agreements in this Section 5 shall be in addition to any liabilities which the indemnifying parties may have pursuant to law. Section 6. Modification of Certain Registration Rights. If NME shall ------------------------------------------- transfer to any entity other than in a public offering all or any part of (i) the Covered Common Stock or (ii) the Warrants, the transferee of such Covered Common Stock and/or Warrants shall be entitled to the same registration rights as NME is entitled to under this Agreement unless the number of shares of New Hillhaven Common Stock held by such transferee, or the number of shares of New Hillhaven Common Stock issuable upon the exercise of Warrants held by such transferee, is less than 100,000 shares; provided, however that New Hillhaven -------- ------- shall not be obligated to effect in the aggregate more than three registrations pursuant to Section 1 without reimbursement for its out-of-pocket expenses. 27 ARTICLE III GENERAL Section 1. Notices, etc. All notices, consents, requests, ------------ instructions, approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other parties in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Attention: Treasurer Telecopy No.: (213) 315-6507 with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Attention: General Counsel Telecopy No.: (213) 315-6688 If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Attention: President Telecopy No.: (206) 756-4714 with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Attention: General Counsel Telecopy No.: (206) 756-4845 28 If to the Warrant Agent, Manufacturers Hanover Trust Company of California 50 California Street, 10th Floor San Francisco, California 94111 Attention: Corporate Trust Department Section 2. Supplements and Amendments. New Hillhaven and the Warrant -------------------------- Agent may from time to time supplement or amend Article I or Article III of this Agreement without the approval of any holders of Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained therein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising thereunder which New Hillhaven and the Warrant Agent may deem necessary or desirable and which shall not adversely affect the interest of the holders of Warrant Certificates. Article II of this Agreement may be supplemented or amended only by NME and New Hillhaven. Section 3. Successors and Assigns. This Agreement and all of the ---------------------- provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Section 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. Section 5. Assignment. This Agreement may not be assigned in whole ---------- or in part without the prior written consent of the parties hereto, provided -------- that NME may assign its rights under Articles I and II of this Agreement. Section 6. Titles and Headings. Titles and headings to sections ------------------- herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 7. Entire Agreement. This Agreement sets forth the entire ---------------- agreement and understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by any party hereto which is not embodied in this Agreement or the Exhibit hereto, or the written statements or other documents delivered pursuant hereto, and no party hereto shall be bound by or liable for 29 any alleged representation, promise, inducement or statement of intention not so set forth. Section 8. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By /s/ Marcus E. Powers --------------------------- Name: MARCUS E. POWERS Title: SENIOR VICE PRESIDENT THE HILLHAVEN CORPORATION By /s/ Christopher J. Marker --------------------------- Name: CHRISTOPHER J. MARKER Title: PRESIDENT MANUFACTURERS HANOVER TRUST COMPANY OF CALIFORNIA, as Warrant Agent By /s/ Carol Antos --------------------------- Name CAROL ANTOS Title: ASSISTANT VICE PRESIDENT 30 Exhibit A Form of Warrant Certificate THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND APPLICABLE STATE SECURITIES LAWS. VOID AFTER JANUARY 31, 2000 This certificate represents __________ of an aggregate of 30,000,000 Warrants. Warrant Certificate THE HILLHAVEN CORPORATION (a Nevada corporation) THIS CERTIFIES THAT or registered assigns is the registered owner of the number of Warrants set forth above, each of which entitles the owner thereof to purchase at any time after January 31, 1990, and prior to 5:00 P.M., Los Angeles time, January 31, 2000, at the principal office of Manufacturers Hanover Trust Company of California, a California corporation (the "Warrant Agent"), or its successor as Warrant Agent, in San Francisco, California, one fully paid and nonassessable share of the Common Stock, par value $0.15 ("New Hillhaven Common Stock"), of The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"), for each Warrant represented hereby at a purchase price ("Purchase Price") of 125% of the fair market value of a share of New Hillhaven Common Stock on the Distribution Date (as defined in the Agreement hereinafter referred to), determined as provided in Section 6(b) of the Agreement, upon presentation and surrender of this Warrant Certificate with the Form of Election to Purchase duly executed, together with an amount equal to any applicable transfer taxes. The number of Warrants evidenced by this Warrant Certificate (and the number of shares of New Hillhaven Common Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of the Distribution Date, based on the shares of New Hillhaven Common Stock as constituted at such date. A-1 As provided in the Agreement, the Purchase Price and the number of shares of New Hillhaven Common Stock which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment. This Warrant Certificate is subject to all of the terms, provisions and conditions of a Warrant and Registration Rights Agreement dated as of January 31, 1990 (the "Agreement") among National Medical Enterprises, Inc., New Hillhaven and the Warrant Agent, which Agreement is hereby incorporated herein by reference and made a part hereof and to which Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Warrant Agent, New Hillhaven and the holders of the Warrant Certificates. Copies of the Agreement are on file at the above-mentioned office of the Warrant Agent. This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the principal office of the Warrant Agent, may be exchanged for another Warrant Certificate or Warrant Certificates of like tenor and date evidencing Warrants entitling the holder to purchase a like aggregate number of shares of New Hillhaven Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant Certificates surrendered shall have entitled such holder to purchase. If this Warrant Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Warrant Certificate or Warrant Certificates for the number of whole Warrants not exercised. No fractional shares of New Hillhaven Common Stock will be issued upon the exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Agreement. No holder of this Warrant Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of New Hillhaven Common Stock or of any other securities of New Hillhaven which may at any time be issuable on the exercise or conversion hereof, nor shall anything contained in the Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of New Hillhaven, any right to vote upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or, except as provided in the Agreement, to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until the Warrant or Warrants evidenced by this Warrant A-2 Certificate shall have been exercised as provided in the Agreement. This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. IN WITNESS WHEREOF, a duly authorized officer of New Hillhaven has executed this Warrant Certificate, and its Secretary or one of its Assistant Secretaries has affixed its seal, this ___ day of ____ , 19___. THE HILLHAVEN CORPORATION By ______________________ Name: Title: ATTEST: ___________________________ Countersigned: __________________________, as Warrant Agent By _______________________ Authorized Signature A-3 FORM OF ASSIGNMENT [To be executed by the registered holder if such holder desires to transfer this Warrant Certificate.) FOR VALUE RECEIVED ___________________________________________________ hereby sells, assigns and transfers unto _______________________________________ (Please insert social Security of other identifying number) ________________________________________________________________________________ (PLEASE PRINT NAME AND ADDRESS OF TRANSFEREE) ________________________________________________________________________________ this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________________ 19 Signature__________________________________ Signature Guaranteed: _________________________________ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. A-4 FORM OF ELECTION TO PURCHASE (to be executed by the registered holder if such holder desires to exercise this Warrant Certificate.) THE HILLHAVEN CORPORATION: The undersigned hereby irrevocably elects to exercise _____________________ Warrants represented by this Warrant Certificate to purchase the shares of New Hillhaven Common Stock issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________________________________________________________ (PLEASE PRINT NAME AN ADDRESS) If such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, a new Warrant Certificate for the balance remaining of such Warrants shall be registered in the name of and delivered to: PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________________________________________________________ (PLEASE PRINT NAME AND ADDRESS) ________________________________________________________________________________ Dated: ______________________________ 19 ___________________________________ SIGNATURE (THE SIGNATURE TO THE FORGOING ELECTION MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR WHATSOEVER, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER) Signature Guaranteed: ___________________________________________________ A-5 EX-4.7 6 FORM OF INDENTURE EXHIBIT 4.7 THE HILLHAVEN CORPORATION and STATE STREET BANK AND TRUST COMPANY __________________ INDENTURE Dated as of September ___, 1993 __________________ $175,000,000 _____% Senior Subordinated Notes due 2001 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of September ___, 1993
Trust Indenture Indenture Act Section Section - --------------- --------- (S) 310(a)(1) ........................ 608 (a)(2) ........................ 608 (b) ........................ 607, 609 (S) 312(c) ........................ 702 (S) 314(a) ........................ 704 (a)(4) ........................ 1019 (c)(1) ........................ 103 (c)(2) ........................ 103 (e) ........................ 103 (S) 315(b) ........................ 601 (S) 316(a) (last sentence) ........................ 101 ("Outstanding") (a)(1)(A) ........................ 502, 512 (a)(1)(B) ........................ 513 (b) ........................ 508 (c) ........................ 105 (S) 317(a)(1) ........................ 503 (a)(2) ........................ 504 (S) 318(a) ........................ 108
_____________________________________ Security: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. Table of Contents -----------------
Page ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions.......................................... 1 Accounts Receivable Financing........................ 2 Acquired Indebtedness................................ 2 Affiliate............................................ 2 Asset Sale........................................... 3 Attributable Debt.................................... 3 Average Life to Stated Maturity...................... 3 Bankruptcy Law....................................... 4 Board of Directors................................... 4 Board Resolution..................................... 4 Business Day......................................... 4 Capital Lease Obligation............................. 4 Capital Stock........................................ 4 Cash Equivalent...................................... 4 Change in Control.................................... 5 Code................................................. 5 Commission........................................... 6 Company.............................................. 6 Company Request...................................... 6 Consolidated Income Tax Expense...................... 6 Consolidated Interest Expense........................ 6 Consolidated Net Income (Loss)....................... 6 Consolidated Net Worth............................... 7 Consolidated Rental Payments......................... 7 Consolidation........................................ 8 Corporate Trust Office............................... 8 Default.............................................. 8 Designated Senior Indebtedness....................... 8 Event of Default..................................... 8 Exchange Act......................................... 8 Fair Market Value.................................... 8 Fiscal Year.......................................... 8 Fixed Charge Coverage Ratio.......................... 8 Generally Accepted Accounting Principles...................................... 9 Guarantee............................................ 9 Guaranteed Debt...................................... 9 Guarantor............................................ 9 Holder............................................... 9 Indebtedness......................................... 9 Indenture............................................ 11
i Table of Contents (con'd) -------------------------
Page ---- Indenture Obligations................................ 11 Intercompany Agreement............................... 11 Interest Payment Date................................ 11 Interest Rate Contracts.............................. 11 Investment........................................... 11 Lien................................................. 11 Management Investors................................. 11 Maturity............................................. 12 Net Cash Proceeds.................................... 12 New Bank Credit Agreement............................ 12 NME.................................................. 12 Non-payment Default.................................. 12 Officers' Certificate................................ 13 Opinion of Counsel................................... 13 Outstanding.......................................... 13 Pari Passu Indebtedness.............................. 14 Paying Agent......................................... 14 Payment Default...................................... 14 Permitted Holders.................................... 14 Permitted Indebtedness............................... 14 Permitted Investment................................. 16 Permitted Junior Securities.......................... 16 Person............................................... 16 PIP Debentures....................................... 16 PIP options.......................................... 16 Predecessor Security................................. 16 Preferred stock...................................... 17 Public Equity Offering............................... 17 Qualified Capital Stock.............................. 17 Redeemable Capital Stock............................. 17 Redemption Date...................................... 17 Redemption Price..................................... 17 Regular Record Date.................................. 17 Responsible Officer.................................. 17 Restricted Payment................................... 18 Securities........................................... 18 Securities Act....................................... 18 Security Register.................................... 18 Senior Indebtedness.................................. 18 Senior Representative................................ 18 Series C Preferred Stock............................. 19 Series D Preferred Stock............................. 19 Significant Subsidiary............................... 19 Special Record Date.................................. 19 Stated Maturity...................................... 19 Subordinated Indebtedness............................ 19
ii Table of Contents (con'd) -------------------------
Page ---- Subsidiary........................................... 19 Temporary Cash Investment............................ 19 Trustee.............................................. 20 Trust Indenture Act.................................. 20 Voting Stock......................................... 20 Warrants............................................. 20 Wholly owned Subsidiary.............................. 20 Section 102. Other Definitions.................................... 21 Section 103. Compliance Certificates and Opinions................. 21 Section 104. Form of Documents Delivered to Trustee............... 22 Section 105. Acts of Holders...................................... 23 Section 106. Notices, etc., to Trustee, the Company and any Guarantor.................................. 23 Section 107. Notice to Holders; Waiver............................ 24 Section 108. Conflict with Trust Indenture Act.................... 24 Section 109. Effect of Headings and Table of Contents............. 25 Section 110. Successors and Assigns............................... 25 Section 111. Separability Clause.................................. 25 Section 112. Benefits of Indenture................................ 25 Section 113. Governing Law........................................ 25 Section 114. Legal Holidays....................................... 26 ARTICLE TWO SECURITY FORMS Section 201. Forms Generally...................................... 26 Section 202. Form of Face of Security............................. 26 Section 203. Form of Reverse of Security.......................... 28 Section 204. Form of Trustee's Certificate of Authentication..................................... 32 ARTICLE THREE THE SECURITIES Section 301. Title and Terms...................................... 32 Section 302. Denominations........................................ 33 Section 303. Execution, Authentication, Delivery and Dating......................................... 33 Section 304. Temporary Securities................................. 34 Section 305. Registration, Registration of Transfer and Exchange........................................... 35 Section 306. Mutilated, Destroyed, Lost and Stolen Securities......................................... 36 Section 307. Payment of Interest; Interest Rights
iii Table of Contents (cont'd) -------------------------
Page ---- Preserved.......................................... 37 Section 308. Persons Deemed Owners................................ 38 Section 309. Cancellation......................................... 38 Section 310. Computation of Interest.............................. 39 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance................................ 39 Section 402. Defeasance and Discharge............................. 39 Section 403. Covenant Defeasance.................................. 40 Section 404. Conditions to Defeasance or Covenant Defeasance...... 40 Section 405. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions........................... 43 Section 406. Reinstatement........................................ 43 ARTICLE FIVE REMEDIES Section 501. Events of Default.................................... 44 Section 502. Acceleration of Maturity: Rescission and Annulment...................................... 46 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee............................. 47 Section 504. Trustee May File Proofs of Claim..................... 48 Section 505. Trustee May Enforce Claims Without Possession of Securities........................... 49 Section 506. Application of Money Collected....................... 50 Section 507. Limitation on Suits.................................. 50 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest.................... 51 Section 509. Restoration of Rights and Remedies................... 51 Section 510. Rights and Remedies Cumulative....................... 51 Section 511. Delay or Omission Not Waiver......................... 52 Section 512. Control by Holders................................... 52 section 513. Waiver of Past Defaults.............................. 52 Section 514. Undertaking for Costs................................ 53 Section 515. Waiver of Stay, Extension or Usury Laws.............. 53
iv Table of Contents (con'd) -------------------------
Page ---- ARTICLE SIX THE TRUSTEE Section 601. Notice of Defaults................................... 54 Section 602. Certain Rights of Trustee............................ 54 Section 603. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof................................ 56 Section 604. Trustee and Agents May Hold Securities: Collections; Etc................................... 56 Section 605. Money Held in Trust.................................. 56 Section 606. Compensation and Indemnification of Trustee and Its Prior Claim................................ 57 Section 607. Conflicting Interests................................ 57 Section 608. Corporate Trustee Required; Eligibility.............. 57 Section 609. Resignation and Removal; Appointment of Successor Trustee.................................. 58 Section 610. Acceptance of Appointment by Successor............... 59 Section 611. Merger, Conversion, Amalgamation, Consolidation or Succession to Business............ 60 Section 612. Preferential Collection of Claims Against Company............................................ 61 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders............................... 61 Section 702. Disclosure of Names and Addresses of Holders............................................ 62 Section 703. Reports by Trustee................................... 62 Section 704. Reports by Company................................... 62 ARTICLE EIGHT CONSOLIDATION, MERGER, AMALGAMATION, CONVEYANCE, TRANSFER OR LEASE Section 801. Company or Guarantor May Consolidate, Amalgamate, etc., Only on Certain Terms............. 63 Section 802. Successor Substitutes................................. 65
v Table of Contents (con'd) -------------------------
Page ---- ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of Holders......................... 66 Section 902. Supplemental Indentures and Agreements with Consent of Holders............................ 67 Section 903. Execution of Supplemental Indentures and Agreements......................................... 68 Section 904. Effect of Supplemental Indentures.................... 68 Section 905. Conformity with Trust Indenture Act.................. 69 Section 906. Reference in Securities to Supplemental Indentures......................................... 69 Section 907. Effect on Senior Indebtedness........................ 69 Section 908. Record Date.......................................... 69 ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest.......... 70 Section 1002. Maintenance of Office or Agency..................... 70 Section 1003. Money for Security Payments to be Held in Trust.......................................... 71 Section 1004. Corporate Existence................................. 72 Section 1005. Payment of Taxes and Other Claims................... 72 Section 1006. Maintenance of Properties........................... 73 Section 1007. Insurance........................................... 73 Section 1008. Limitation on Indebtedness.......................... 73 Section 1009. Limitation on Restricted Payments................... 74 Section 1010. Limitation on Preferred Stock of Subsidiaries...................................... 77 Section 1011. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries............... 78 Section 1012. Limitation on Liens Securing Pari Passu and Subordinated Indebtedness..................... 79 Section 1013. Provision of Financial Statements................... 79 Section 1014. Limitation on Transactions with Affiliates.......... 80 Section 1015. Disposition of Proceeds of Asset Sales.............. 80 Section 1016. Limitation on Issuance of Guarantees of Pari Passu and Subordinated Indebtedness.......... 86 Section 1017. Limitation on Other Senior subordinated Indebtedness...................................... 87 Section 1018. Purchase of Securities upon Change in Control........................................... 87
vi Table of Contents (con'd) -------------------------
Page ---- Section 1019. Statement by Officers as to Default.................. 90 Section 1020. Waiver of Certain Covenants.......................... 91 ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Right of Redemption.................................. 91 Section 1102. Applicability of Article............................. 92 Section 1103. Election to Redeem; Notice to Trustee................ 92 Section 1104. Selection by Trustee of Securities to Be Redeemed.......................................... 92 Section 1105. Notice of Redemption................................. 93 Section 1106. Deposit of Redemption Price.......................... 94 Section 1107. Securities Payable on Redemption Date................ 94 Section 1108. Securities Redeemed or Purchased in Part............. 94 ARTICLE TWELVE SUBORDINATION OF SECURITIES Section 1201. Securities Subordinate to Senior Indebtedness....................................... 95 Section 1202. Payment Over of Proceeds Upon Dissolution, Etc................................................ 95 Section 1203. Suspension of Payment When Senior Indebtedness in Default............................ 97 Section 1204. Payment Permitted if No Default...................... 98 Section 1205. Subrogation to Rights of Holders of Senior Indebtedness................................ 98 Section 1206. Provisions Solely to Define Relative Rights............................................. 99 Section 1207. Trustee to Effectuate Subordination.................. 99 Section 1208. No Waiver of Subordination Provisions................ 100 Section 1209. Notice to Trustee.................................... 101 Section 1210. Reliance on Judicial Order or Certificate of Liquidating Agent............................... 102 Section 1211. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights................................... 102 Section 1212. Article Applicable to Paying Agents.................. 102 Section 1213. No Suspension of Remedies............................ 103 Section 1214. Trustee's Relation to Senior Indebtedness............ 103 Section 1215. Other Rights of Holders of Senior Indebtedness....................................... 103
vii Table of Contents (con'd) -------------------------
Page ---- ARTICLE THIRTEEN SATISFACTION AND DISCHARGE Section 1301. Satisfaction and Discharge of Indenture.............. 104 Section 1302. Application of Trust Money........................... 105
viii INDENTURE, dated as of September ___, 1993, between THE HILLHAVEN CORPORATION, a Nevada corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation, as trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of $175,000,000 aggregate principal amount of its _____ % Senior Subordinated Notes due 2001 (the "Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture; This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act; All acts and things necessary have been done to make the Securities, 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 the terms of this Indenture. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (d) 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; and (e) all references to $, US$, dollars or United States dollars shall refer to the lawful currency of the United States of America. Certain terms used principally in Article Four are defined in Article Four. "Accounts Receivable Financing" means the Company's commercial paper program established pursuant to the Company's Liquidity Agreement among Hillhaven Funding Corporation, the banks named therein and Banque Indosuez, New York Branch, as agent, dated as of July 1, 1990, and as amended to the date of this Indenture and thereafter, pursuant to which the Company has issued short term notes backed by certain of the Company's Medicaid accounts receivable. "Acquired Indebtedness" means Indebtedness of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Affiliate" means with respect to any specified Person, (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock, (iii) any officer or director of (A) any such specified Person, (B) any Subsidiary of such specified Person or (C) any Person described in clause (i) or (ii) above or (iv) the spouse of any natural Person described in clause (i), (ii) or (iii) above or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such spouse. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of 2 such Person directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition (including, without limitation, by way of merger, consolidation or sale and leaseback transaction) (collectively, a "transfer"), directly or indirectly, in one or a series of related transactions, of (i) any Capital Stock of any Subsidiary; (ii) all or substantially all of the properties and assets of any division or line of business of the Company or its Subsidiaries; or (iii) any other properties or assets of the Company or any Subsidiary, other than in the ordinary course of business, provided that for the purposes of this definition only, the disposition of any nursing facilities shall not be considered to be in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any transfer of properties and assets that is governed by the provisions described under Article Eight, or (ii) any transfer of properties or assets of the Company to any Wholly Owned Subsidiary, or of any Subsidiary to the Company or any Wholly Owned Subsidiary in accordance with the terms of this Indenture or (iii) the transfer, directly or indirectly, in one transaction or a series of related transactions, of property or assets with a Fair Market Value (as determined by the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution) not in excess of $1,000,000 in any 12-month period. "Attributable Debt" in respect of a sale-leaseback transaction or an operating lease in respect of a health care facility means, at the time of determination, the present value (discounted at the interest rate implicit in the lease, compounded semiannually) of the obligation of the lessee of the property subject to such sale-leaseback transaction or operating lease in respect of a health care facility for 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 or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. "Average Life to Stated Maturity" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment of such Indebtedness 3 multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, United States Code, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Board of Directors" means the board of directors of the Company or any Guarantor, as the case may be, or any Committee of the Board of Directors duly authorized to act on behalf of the Board of Directors. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or any Guarantor, as the case may be, to have been duly adopted by the Board of Directors or any committee thereof and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or the City of Boston, Massachusetts, are authorized or obligated by law or executive order to close. "Capital Lease Obligation" of any Person means any obligation of such Person and its Subsidiaries on a Consolidated basis under any capital lease of real or personal property which, in accordance with GAAP, has been recorded on the balance sheet of such Person as a capitalized lease obligation. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock or equity interests. "Cash Equivalent" means (A) any security, maturing not more than six months after the date of acquisition, issued by the United States of America, or an instrumentality or agency thereof and guaranteed fully as to principal, premium, if any, and interest by the United States of America, (B) any certificate of deposit, time deposit, money market account or bankers' acceptance, maturing not more than six months after the date of acquisition, issued by any commercial banking institution that is a member of the Federal Reserve System and that has combined capital and surplus and undivided profits of not less than $500,000,000, whose debt has a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or higher) according to Standard and Poor's Corporation or any successor rating agency, and 4 (C) commercial paper, maturing not more than three months after the date of acquisition, issued by any corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America with a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or higher) according to Standard and Poor's Corporation or any successor rating agency. "Change in Control" occurs at any time that (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 40% of the total Voting Stock of the CoMpany; provided, that the Permitted Holders "beneficially own" a lesser percentage of the Voting Stock than such other person or group and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; (ii) the Company consolidates with, or merges into, another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding Voting Stock of the Company is changed into or exchanged for (x) Voting Stock of the surviving corporation which is not Redeemable Capital Stock or (y) cash, securities or other property in an amount which could be paid by the Company in accordance with Section 1009 (and such amount shall be treated as a Restricted Payment subject to the provisions in Section 1009), and (B) the Holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than 50% of the Voting Stock of the surviving corporation immediately after such transaction; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation. "Code" means the Internal Revenue Code of 1986, as amended. 5 "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 Indenture 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. "Company" means The Hillhaven Corporation, a corporation incorporated under the laws of Nevada, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. To the extent necessary to comply with the requirements of the provisions of Trust Indenture Act Sections 310 through 317 as they are applicable to the Company, the term "Company" shall include any other obligor with respect to the Securities for purposes of complying with such provisions. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board, its Vice-Chairman, its President or a Vice President (regardless of Vice Presidential designation), and by any one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Income Tax Expense" means for any period, as applied to any Person, the provision for federal, state, local and foreign income taxes of such Person and its Consolidated Subsidiaries for such period as determined in accordance with GAAP. "Consolidated Interest Expense" of any Person means, without duplication, for any period, as applied to any Person, the sum of (a) the interest expense of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, including, without limitation, (i) amortization of debt discount, (ii) the net cost under interest rate contracts (including amortization of discounts), (iii) any payment or fees with respect to guarantees, letters of credit, or similar facilities, (iv) the interest portion of any deferred payment obligation and (v) accrued interest, plus (b) the interest component of the Capital Lease Obligations paid, accrued and,'or scheduled to be paid, or accrued by such Person during such period, in each case as determined in accordance with GAAP, plus (c) Preferred Stock dividends in respect of Preferred Stock of the Company or any Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary. "Consolidated Net Income (Loss)" of any Person means, for any period, the Consolidated net income (or loss) of the Company and its Consolidated Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income (loss), by excluding (i) all 6 extraordinary gains or losses (less all fees and expenses relating thereto), (ii) the portion of net income (or loss) of the Company and its Consolidated Subsidiaries allocable to minority interests in unconsolidated Persons to the extent that cash dividends or distributions have not actually been received by the Company or one of its Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined with the Company or any of its Subsidiaries in a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss, net of taxes, realized upon the termination of any employee pension benefit plan, (v) any gains or losses (less all fees and expenses relating thereto) in respect of dispositions of assets other than in the ordinary course of business, or (vi) the net income of any Subsidiary to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Subsidiary or its shareholders. "Consolidated Net Worth" of any Person means the Consolidated stockholders' equity (excluding Redeemable Capital Stock) of such Person and its Consolidated Subsidiaries as set forth on the most recent consolidated balance sheet of such Person and its Consolidated Subsidiaries determined in accordance with GAAP. "Consolidated Rental Payments" of any Person means, for any period, the aggregate rental obligations of such Person and its Consolidated Subsidiaries (not including taxes, insurance, maintenance and similar expenses that the lessee is obligated to pay under the terms of the relevant leases), determined on a consolidated basis in conformity with GAAP, payable in respect of such period under Attributable Debt or leases of real or personal property not constituting Attributable Debt (net of income from subleases thereof, not including taxes, insurance, maintenance and similar expenses that the sublessee is obligated to pay under the terms of such sublease), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person and its Subsidiaries or in the notes thereto, excluding, however, in any event, (i) that portion of Consolidated Interest - --------- ------- Expense of such Person representing payments by such Person or any of its Consolidated Subsidiaries in respect of Capital Lease Obligations (net of payments to such Person or any of its Consolidated Subsidiaries under subleases qualifying as capitalized lease subleases to the extent that such payments would be deducted in determining Consolidated Interest Expense) and (ii) the aggregate amount of amortization of obligations of such Person and its Consolidated Subsidiaries in respect of such Capital Lease Obligations for such period (net of payments to such Person or any of its Consolidated Subsidiaries and subleases qualifying as 7 capitalized lease subleases to the extent that such payments could be deducted in determining such amortization amount). "Consolidation" means, with respect to any Person, the consolidation of the accounts of such Person and each of its subsidiaries if and to the extent the accounts of such Person and each of its subsidiaries would normally be consolidated with those of such Person, all in accordance with GAAP. The term "Consolidated" shall have a similar meaning. "Corporate Trust Office" means the office of the Trustee or an affiliate or agent thereof at which at any particular time the corporate trust business for the purposes of this Indenture shall be principally administered, which office at the date of execution of this Indenture is located at 225 Franklin Street, Boston, Massachusetts 02110. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (i) all Senior Indebtedness under the New Bank Credit Agreement and (ii) any other Senior Indebtedness which is $25,000,000 or more in aggregate principal amount outstanding and is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness". "Event of Default" has the meaning specified in Article Five. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer. "Fiscal Year" with respect to the Company shall mean the fiscal year of the Company. "Fixed Charge Coverage Ratio" of any Person means, for any period, the ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense, Consolidated Income Tax Expense, and one-third of Consolidated Rental Payments plus, without duplication, all depreciation, amortization and all other non-cash charges (excluding any such non-cash charge constituting an extraordinary item or loss or any non-cash charge which requires an accrual of or a reserve for cash charges for any future period), in each case, for such period, of the Company and its Subsidiaries on a Consolidated basis, as determined in accordance with GAAP to (b) 8 the sum of (i) Consolidated Interest Expense for such period and (ii) one-third of Consolidated Rental Payments for such period; provided that in making such -------- computation, the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest --- ----- rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, the Company shall apply, at its option, either the fixed or floating rate for purposes of calculating the Fixed Charge Coverage Ratio. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States, consistently applied, which are in effect from time to time. "Guarantee" means the guarantee by any Guarantor which guarantees the Indenture Obligations pursuant to a guarantee given in accordance with this Indenture. "Guaranteed Debt" of any Person means, without duplication, all Indebtedness of any other Person guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the Holder of such Indebtedness against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services without requiring that such property be received or such services be rendered), (iv) to maintain working capital or equity capital of the debtor, or otherwise to maintain the net worth, solvency or other financial condition of the debtor or (v) otherwise to assure a creditor against loss; provided that the term "Guaranteed Debt" shall not include -------- endorsements for collection or deposit, in either case in the ordinary course of business. "Guarantor" means any Person which guarantees the Indenture Obligations pursuant to this Indenture. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, 9 excluding any trade payables and other accrued current liabilities arising in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit or acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (ii) all obligations of such Person evidenced by bonds, notes, debentures, loan agreements, credit agreements, lines of credit or other similar instruments, (iii) every obligation of such Person issued or contracted for as payment in consideration of the purchase by such Person or an Affiliate of such Person of the Capital Stock or substantially all of the assets of another Person or in consideration for the merger or consolidation with respect to which such Person or an Affiliate of such Person was a party (other than any obligation of such Person to pay an amount to another Person based on income in respect of Capital Stock or assets which were purchased or in respect of such merger to which such Person or an Affiliate was a party except for such obligations which are required in accordance with GAAP to be classified as a liability on the balance sheet of such Person), (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade payables and other accrued current liabilities arising in the ordinary course of business, (v) all obligations under Interest Rate Contracts of such Person, (vi) all Capital Lease Obligations of such Person, (vii) all indebtedness referred to in clauses (i) through (vi), (ix) and (x) of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien, upon any property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (viii) all Guaranteed Debt of such Person, (ix) all Redeemable Capital Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends and (x) all Attributable Debt of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capita1 Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be determined 10 in good faith by the board of directors of the issuer of such Redeemable Capital Stock. "Indenture" means this instrument as originally executed (including all exhibits and schedules thereto) and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provision hereof. "Indenture Obligations" means the obligations of the Company and any other obligor under this Indenture or under the Securities, including any Guarantor, to pay principal of, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with this Indenture, the Securities and the performance of all other obligations to the Trustee and the Holders under this Indenture and the Securities, according to the terms thereof. "Intercompany Agreement" means the Intercompany Agreement among the Company and its Subsidiaries in the form of Exhibit A hereto. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Contracts" means interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance, and other agreements or arrangements designed to provide protection against fluctuations in interest rates. "Investment" means, with respect to any Person, directly or indirectly, any advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property (tangible or intangible) to others, or any payment for property or services for the account or use of others or otherwise), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities (including, without limitation, any interests in any partnership or joint venture) issued or owned by any other Person. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. "Management Investors" means each (i) director of the Company and (ii) each "officer" of the Company as such term is defined in Rule 16a-1 promulgated under the Exchange Act. 11 "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein provided or as provided in this Indenture, whether at Stated Maturity, or any Redemption Date and whether by declaration of acceleration, Offer in respect of Excess Proceeds, Change in Control Offer in respect of a Change in Control, call for redemption or otherwise. "Net Cash Proceeds" means, with respect to any Asset Sale by any Person, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Subsidiary) net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, (iv) amounts required to be paid to any Person (other than the Company or any Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (v) appropriate amounts to be provided by the Company or any Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee. "New Bank Credit Agreement" means the Credit Agreement, dated as of _______, 1993, among First Healthcare Corporation, certain lenders named therein and Morgan Guaranty Trust Company of New York, as agent, together with the documents related thereto, including without limitation, any security agreements, pledge agreements, mortgages and guarantees, in each case as such agreements may be amended, extended, renewed, restated, supplemented, otherwise modified, refinanced or replaced from time to time, whether or not involving the same lenders. "NME" means National Medical Enterprises, Inc. "Non-payment Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. 12 "Officers' Certificate" means a certificate signed by the Chairman of the Board, Vice Chairman, the President or a Vice President (regardless of Vice Presidential designation), and by the Treasurer, Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company or the Trustee unless an independent counsel is required pursuant to the terms of this Indenture, and who shall be acceptable to the Trustee. "Outstanding" when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed, -------- notice of such redemption has been duly given pursuant to this Indenture or provision there for reasonably satisfactory to the Trustee has been made; and Securities, except to the extent provided in Sections 402 and 403, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four; and (c) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof reasonably satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any Guarantor, or any other obligor upon the Securities or any Affiliate of the Company, any Guarantor, or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been 13 pledged in good faith may be regarded as Outstanding if the pledgee certifies to the Trustee that the pledgee has the right so to act with respect to such Securities and that the pledgee is not the Company, any Guarantor or any other obligor upon the Securities or any Affiliate of the Company, any Guarantor or such other obligor. "Pari Passu Indebtedness" means Indebtedness of the Company which ranks pari passu in right of payment to the Securities. - ---- ----- "Paying Agent" means any Person authorized by the Company to pay the principal, premium, if any, or interest on any Securities on behalf of the Company. "Payment Default" means any default in the payment of principal, premium, if any, interest, commitment fees, letter of credit fees, reimbursement obligations in respect of amounts owing under letters of credit or payments in respect of interest under Interest Rate Contracts on any Designated Senior Indebtedness. "Permitted Holders" means NME and the Management Investors. "Permitted Indebtedness" means: (a) Indebtedness of up to $360,000,000 aggregate principal amount under the New Bank Credit Agreement; (b) Indebtedness of up to $40,000,000 under the Accounts Receivable Financing; (c) any guarantee by the Company or any Subsidiary under the New Bank Credit Agreement; (d) Indebtedness in existence on the date of this Indenture and set forth on Schedule I hereto; (e) Indebtedness of the Company pursuant to the Securities; (f) Indebtedness evidenced by letters of credit issued in the ordinary course of business consistent with past practice to support the Company's or any Subsidiary's insurance or self-insurance obligations (including to secure workers' compensation and other similar insurance coverages); (g) obligations pursuant to Interest Rate Contracts, to the extent that the notional principal amount of such obligations does not exceed the amount of Indebtedness outstanding or committed to be incurred on the date such Interest Rate Contracts are entered into; 14 (h) Indebtedness of the Company to a Subsidiary (provided that any Indebtedness of the Company owing to a Wholly Owned Subsidiary is subject to the Intercompany Agreement) and Indebtedness of a Subsidiary to the Company or another Subsidiary; (i) any guarantees of Indebtedness by a Subsidiary entered into in accordance with Section 1016; (j) obligations in respect of surety bonds or appeal bonds provided by the Company or a subsidiary in the ordinary course of business; (k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within three Business Days of incurrence; (l) Indebtedness of the Company consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; (m) Indebtedness of the Company or any Subsidiary, in addition to that described in clauses (a) through (l) of this definition of "Permitted Indebtedness," in an aggregate principal amount outstanding at any given time not to exceed $25,000,000; and (n) any renewals, extensions, substitutions, refundings, refinancings or replacements of any Indebtedness described in clauses (a) through (e) of this definition of "Permitted Indebtedness," including any successive extensions, renewals, substitutions, refundings, refinancings or replacements, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for any amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced, plus the amount of any premium required to be paid ---- under the terms of the instrument governing such Indebtedness being refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing through means of a tender offer or privately negotiated transactions and, in each case, actually paid, plus the amount of expenses of the Company incurred in connection with such refinancing, (ii) in the case of any refinancing of Subordinated Indebtedness, such new Indebtedness is made subordinate to the Securities at least to the same extent as the Indebtedness being refinanced; (iii) in the case of any refinancing of Pari Passu Indebtedness, such new Indebtedness shall rank not more than equally in priority of payment with the Securities; (iv) any such 15 new Subordinated Indebtedness has an Average Life to Stated Maturity longer than the Average Life to Stated Maturity of the Securities and final Stated Maturity later than the final Stated Maturity of the Securities; and (v) any such new Pari Passu Indebtedness has an Average Life to Stated Maturity equal to or longer than the Average Life to Stated Maturity of the Securities and a final Stated Maturity equal to or later than the final Stated Maturity of the Securities. "Permitted Investment" means (i) Investments in any of the Securities or any Guarantee; (ii) Temporary Cash Investments; (iii) Indebtedness of the Company to a Subsidiary (provided that any Indebtedness of the Company to a Wholly Owned Subsidiary is subject to the Intercompany Agreement); (iv) Investments in existence on the date of this Indenture; provided, however, that -------- ------- to the extent Indebtedness in existence on the date of this Indenture that constitutes a Permitted Investment is repaid, the amount of such repayment may be reinvested and shall constitute a Permitted Investment; (v) Investments in any Wholly Owned Subsidiary by the Company or any Wholly Owned subsidiary or any Investment in the. Company by any Wholly Owned Subsidiary; (vi) receivables owing to the Company and it. Subsidiaries if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (vii) Investments acquired or retained from another Person in connection with any sale, conveyance, transfer, lease or other disposition of any properties or assets to such Person; and (viii) in addition to the Permitted Investments described in the foregoing clauses (i) through (vii), Investments in the aggregate amount of $10,000,000 at any one time outstanding. "Permitted Junior Securities" shall have the meaning specified in Article Twelve. "Person" means any individual, corporation, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PIP Debentures" means the Company's convertible debentures due May 29, 1999 held by Hillhaven PIP Funding I, Inc., a Wholly Owned Subsidiary, issued in connection with the Company's 1991 Performance Investment Plan. "PIP Options" means options outstanding on the date of the Indenture granted pursuant to the Company's 1991 Performance Investment Plan. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as 16 that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Stock," as applied to any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Public Equity Offering" means, with respect to any Person, a public offering by such Person pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act of shares of its Qualified Capital Stock. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. "Redeemable Capital Stock" means any Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to any Stated Maturity of the principal of the Securities or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to any such Stated Maturity at the option of the holder thereof. "Redemption Date" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date means the 15th day (whether or not a Business Day) next preceding such Interest Payment Date. "Responsible Officer" when used with respect to the Trustee means any officer assigned to the Corporate Trust Office or the agent of the Trustee appointed hereunder, including any vice president, assistant vice president, assistant secretary, or any other officer or assistant officer of the Trustee or the agent of the Trustee appointed hereunder to whom any corporate trust matter 17 is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Payment" has the meaning specified in Section 1009. "Securities" has the meaning specified in the first recital of this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means the principal of, premium, if any, and interest (including interest accruing after the filing of a petition by or against the Company under any state or federal Bankruptcy Laws, whether or not such interest is allowed as a claim after such filing in any proceeding under such law) on any Indebtedness of the Company (other than as otherwise provided in this definition), whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is by its terms subordinate or junior in right of payment to any Indebtedness of the Company, including the Company's outstanding Convertible Subordinated Debentures due 2002, (c) Indebtedness which when incurred and without respect to any election under Section 1111(b) of the Bankruptcy Law is without recourse to the Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities, (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services, (g) to the extent it might constitute Indebtedness, any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness (other than the then outstanding principal amount of the PIP Debentures) of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's subsidiaries, (i) that portion of any Indebtedness which at the time of issuance is issued in violation of this Indenture, and (j) to the extent it might constitute Indebtedness, amounts owing under leases (other than Capital Lease Obligations). "Senior Representative" means a representative of one or more holders of Designated Senior Indebtedness. 18 "Series C Preferred Stock" means the shares of the Company's 8-1/4% cumulative, non-voting Series C Preferred Stock outstanding on the date of this Indenture, the rights, privileges and preferences with respect to which are described in the certificate of designation in effect on the date of this Indenture. "Series D Preferred Stock" means the shares of the Company's Series D Preferred Stock outstanding on the date of this Indenture, the rights, privileges and preferences with respect to which are described in the certificate of designation in effect on the date of this Indenture and any additional Series D Preferred Stock that may be issued as payment-in-kind dividends in accordance with such certificate of designation. "Significant Subsidiary" shall include each Subsidiary that qualifies as a "significant subsidiary" as that term is defined in Rule 1-02 of Regulation S-X under the Securities Act, and in any event shall include the Subsidiary Guarantors, if any. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity" when used with respect to any Indebtedness or any installment of interest thereon, means the dates specified in such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company subordinated in right of payment to the Securities. "Subsidiary" means any corporation or other entity at least a majority of the outstanding voting shares of which is at the time directly or indirectly owned or controlled (either alone or through Subsidiaries or together with Subsidiaries) by the Company or another Subsidiary. "Temporary Cash Investment" means (A) any evidence of Indebtedness, maturing not more than one year after the date of acquisition, issued by the United States of America, or an instrumentality or agency thereof and guaranteed fully as to principal, premium, if any, and interest by the United States of 19 America, (B) any certificate of deposit, time deposit, money market account or bankers' acceptance maturing not more than one year after the date of acquisition, issued by, or time deposit of, a commercial banking institution that is a member of the Federal Reserve System and that has combined capital and surplus and undivided profits of not less than $500,000,000, whose debt has a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or higher) according to Standard and Poor's Corporation or any successor rating agency, (C) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America with a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or any successor rating agency, or "A-1" (or higher) according to Standard and Poor's Corporation or any successor rating agency, and (D) any money market deposit accounts issued or offered by a domestic commercial bank having capital and surplus in excess of $500,000,000. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed, except as provided in Section 905. "Voting Stock" means stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Warrants" means the warrants outstanding on the date of this Indenture held by NME to purchase up to 30,000,000 shares of the Company's common stock pursuant to the terms of that certain Warrant and Registration Rights Agreement dated January 31, 1990 between the Company and NME. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which is owned by the Company or another Wholly Owned Subsidiary. For purposes of this definition, directors qualifying shares shall be disregarded in determining the ownership of a Subsidiary. 20 Section 102. Other Definitions. -----------------
Defined in Term Section ---- ---------- "Act" 105 "Change in Control Offer" 1018 "Change in Control Purchase Date" 1018 "Change in Control Purchase Notice" 1018 "Change in Control Purchase Price" 1018 "covenant defeasance" 403 "Defaulted Interest" 307 "defeasance" 402 "Defeased Securities" 401 "Excess Proceeds" 1015 "Offer" 1015 "Offered Price" 1015 "Pari Passu Debt Amount" 1015 "Pari Passu Offer" 1015 "Payment Blockage Period" 1203 "Permitted Preferred Stock" 1010 "Purchase Date" 1015 "Securities Amount" 1015 "Surviving Entity" 801 "U.S. Government Obligations" 404
Section 103. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company, any Guarantor and any other obligor on the Securities shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents, certificates and/or opinions is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 21 (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 each such individual, he has made such examination or investigation as necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 104. Form of Documents Delivered to Trustee. -------------------------------------- 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 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, any Guarantor or other obligor of the Securities 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 such certificate or opinion 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, any Guarantor or other obligor of the Securities stating that the information with respect to such factual matters is in the possession of the Company, any Guarantor or other obligor of the Securities, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. 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. 22 Section 105. Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The ownership of Securities shall be proved by the Security Register. (c) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security or the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company or any Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. Section 106. Notices, etc., to Trustee, the Company and any Guarantor. -------------------------------------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company or any Guarantor or any other obligor of the Securities or a Senior Representative or holder of Senior Indebtedness shall be sufficient for every purpose hereunder if made, given, furnished or filed, in writing, to or with the Trustee at State Street Bank and Trust Company, 225 Franklin Street, Boston, MA, 02110, or, if delivered by recognized overnight carrier, to, State Street Bank and Trust Company, 5th Floor, One Heritage Drive, North Quincy, MA, 02171-2128, in either case, Attention: Mr. Brian Curtis, Corporate Trust Department or at any other address previously furnished in writing to the Holders, the Company, any Guarantor, any other obligor of 23 the Securities or a Senior Representative or Holder of Senior Indebtedness by the Trustee; or (b) the Company or any Guarantor shall be sufficient for every purpose (except as provided in Section 501(c)) hereunder if in writing and mailed, first-class postage prepaid or delivered to the Company or such Guarantor addressed to it at 1148 Broadway Plaza, Tacoma, Washington 98402, Attention: Secretary, or at any other address previously furnished in writing to the Trustee by the Company. Section 107. Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Section 108. Conflict with Trust Indenture Act. --------------------------------- If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, the provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the 24 latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 109. Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 110. Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company and any Guarantors shall bind their successors and assigns, whether so expressed or not. Section 111. Separability Clause. ------------------- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112. Benefits of Indenture. --------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent, the holders and the Holders of Senior Indebtedness) any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 113. GOVERNING LAW. ------------- THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF). 25 Section 114. Legal Holidays. -------------- In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the securities) payment of interest or principal or premium, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity and no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to the next succeeding Business Day. ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. --------------- The Securities and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by the 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 the rules of any securities exchange, any organizational document or governing instrument or applicable law or as may, consistently herewith, be determined by the officers executing such securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Form of Face of Security. ------------------------ The form of the face of the Securities shall be substantially as follows: 26 THE HILLHAVEN CORPORATION ___________________ ________% SENIOR SUBORDINATED NOTES due 2001 No. ________________ $______________ THE HILLHAVEN CORPORATION, a Nevada corporation (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 ___________________ United States dollars on ___________________, 2001, at the office or agency of the Company referred to below, and to pay interest thereon from _______________, 1993 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________________ and _________________, in each year, commencing _____________________, 1994 at the rate of ___________ % per annum, in United States dollars, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be ____________ or ___________ (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, and interest on such defaulted interest at the interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) 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, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of, premium, if any, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose, 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 27 private debts; provided, however, that payment of interest may be made at the -------- ------- option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof or by the authenticating agent appointed as provided in the Indenture by manual signature, this Security 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 by the manual or facsimile signature of its authorized officers and its corporate seal to be affixed or reproduced hereon. Dated: __________________ THE HILLHAVEN CORPORATION By:___________________________ Attest: [SEAL] - ------------------------- Secretary Section 203. Form of Reverse of Security. --------------------------- The form of the reverse of the Securities shall be substantially as follows: This Security is one of a duly authorized issue of Securities of the Company designated as its _____________% Senior Subordinated Notes due 2001 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $175,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of ______________, 1993, among the Company and State Street Bank and Trust Company, 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, obligations and immunities thereunder of the Company, the Trustee 28 and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness on this Security and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance with certain conditions set forth therein. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture), whether Outstanding on the date of the Indenture or thereafter, and this Security is issued subject to such provisions. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for such purpose; provided, however, that the indebtedness evidenced by this -------- ------- Security shall cease to be so subordinate and subject in right of payment upon any defeasance of this Security referred to in clause (a) or (b) of the next preceding paragraph. The Securities are subject to redemption, as a whole or in part, at any time on or after ____________, 1998 at the option of the Company, upon not less than 30 nor more than 60 days' prior notice by first-class mail in amounts of $1,000 or an integral multiple of $1,000 at the following redemption prices (expressed as a percentage of the principal amount) if redeemed during the 12- month period beginning _____________ of the years indicated below:
Redemption Year Price ---- ---------- 1998 ............................. ______% 1999 ............................. ______%
and thereafter at 100% of the principal amount, in each case, together with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of the Holders of record on the relevant record date to receive interest due on an Interest Payment Date). If less than all of the Securities are to be redeemed, such portion of the Securities shall be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and reasonable. At any time on or prior to __________, 1996, the Company may redeem up to an aggregate of $50,000,000 principal amount of 29 Securities within 180 days of the conclusion of one or more Public Equity Offerings of the Company or any of its Subsidiaries with the net proceeds of such offerings at a redemption price equal to ___% of the aggregate principal amount, together with accrued and unpaid interest, if any, to the Redemption Date. Upon the occurrence of a Change in Control, each Holder may require the Company to repurchase all or a portion of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the date of repurchase. Under certain circumstances, in the event the Net Cash Proceeds received by the Company from any Asset Sale, which is not used to prepay Senior Indebtedness or invested in properties or assets used in the businesses of the Company, exceeds $17,500,000, the Company will be required to apply such proceeds to the repayment of the Securities and certain indebtedness ranking pari passu to the ---- ----- Securities. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities of record at the close of business on the relevant Record Date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the date of redemption. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions (including certain amendments permitted without the consent of any Holders) as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a specified percentage in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of a specified percentage in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain 30 provisions of the Indenture and certain past Defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security 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 Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company or any Guarantor (in the event such Guarantor is obligated to make payments in respect of the Securities), which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed, subject to the subordination provisions of the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. 31 All terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. Section 204. Form of Trustee's Certificate of Authentication. ----------------------------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY As Trustee By:________________________________ Authorized Officer ARTICLE THREE THE SECURITIES Section 301. Title and Terms. --------------- The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $175,000,000 in principal amount of Securities, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 303, 304, 305, 306, 906, 1015, 1018 or 1108. The Securities shall be known and designated as the "__________% Senior Subordinated Notes due 2001" of the Company. The Stated Maturity of the Securities shall be ____________, 2001, and the Securities shall bear interest at the rate of _________ % per annum from ___________, 1993 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable on ___________, 1994 and semi-annually thereafter on____________ and _____________, in each year, until the principal thereof is paid or duly provided for. Subject to Article Twelve, interest on any overdue principal, interest (to the extent lawful) or premium, if any, shall be payable on demand. The principal of, premium, if any, and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that at the option of the -------- ------- Company interest may be paid by check mailed to addresses of the Persons 32 entitled thereto as such addresses shall appear on the Security Register. The Securities shall be redeemable at the option of the Company as provided in Article Eleven. At the election of the Company, the entire indebtedness on the Securities or certain of the Company's obligations and covenants and certain Events of Default thereunder may be defeased as provided in Article Four. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Twelve. Section 302. Denominations. ------------- The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Securities shall be executed on behalf of the Company by one of its Chairman of the Board, its President or one of its Vice Presidents under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices on the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the 33 Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. In case the Company, pursuant to Article Eight or Section 1018, shall be consolidated, amalgamated, merged with or into any other Person or shall convey, transfer or lease substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation or amalgamation, or surviving such merger, or into which the Company shall have been merged or amalgamated, or the Person which shall have received a conveyance, transfer or lease as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, amalgamation, merger, conveyance, transfer or lease may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. Section 304. Temporary Securities. -------------------- Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 1002, 34 without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- The Company shall cause to be kept at the Corporate Trust Office of the Trustee, or such other office as the Trustee may designate, a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Security Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee or an agent thereof or of the Company shall initially be the "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the 35 Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 303, 304, 305, 306, 906, 1015, 1018 or 1108 not involving any transfer. Neither the Company nor the Security Registrar shall be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business (i) 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing or (ii) 15 days before an Interest Payment Date and ending on the close of business on the Interest Payment Date, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------ If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, each Guarantor, if any, and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless, then, in the absence of notice to the Company, any Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a replacement Security, pay such Security. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charge that may be imposed in relation thereto 36 and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and the Guarantors, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 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 Securities. Section 307. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Subsection (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 35 days after such notice) of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Subsection provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed 37 payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first- class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered on such Special Record Date and shall no longer be payable pursuant to the following Subsection (b). (b) The Company may make payment to the Persons in whose name the Securities are registered at the close of business on the Special Record Date of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this Subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 308. Persons Deemed Owners. --------------------- The Company, any Guarantor, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, any Guarantor, the Trustee nor any agent of the Company, any Guarantor or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. ------------ All Securities surrendered for payment, purchase, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already cancel led, shall be promptly cancelled by it. The Company and any Guarantor may at any time deliver to the Trustee for cancellation any Securities previously 38 authenticated and delivered hereunder which the Company or such Guarantor may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities shall be held by the Trustee in accordance with the record retention requirements of the Exchange Act. The Trustee shall provide the Company a list of all Securities that have been cancelled from time to time as requested in writing by the Company. Section 310. Computation of Interest. ----------------------- Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. Company's Option to Effect Defeasance or Covenant Defeasance. ------------------------------------------------------------ The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 402 or Section 403 be applied to all of the Outstanding Securities (the "Defeased Securities"), upon compliance with the conditions set forth below in this Article Four. Section 402. Defeasance and Discharge. ------------------------ Upon the Company's exercise under Section 401 of the option applicable to this Section 402, the Company and each Guarantor, if any, shall be deemed to have been discharged from its obligations with respect to the Defeased Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Defeased Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 405 and the other sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, and, upon written request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Securities to receive, solely from the trust fund described in Section 404 and as more fully set 39 forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (b) the Company's obligations with respect to such Defeased Securities under Sections 304, 305, 306, 1002 and 1003, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 606, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 402 notwithstanding the prior exercise of its option under Section 403 with respect to the Securities. Section 403. Covenant Defeasance. ------------------- Upon the Company's exercise under Section 401 of the option applicable to this Section 403, the Company and any Guarantor, if any, shall be released from its obligations under each covenant or provision contained in Section 501(g) or (h) and in Sections 1006 through 1019 and the provisions of Articles Eight and Twelve, shall not apply, with respect to the Defeased Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities shall thereafter be deemed to be 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 and the provisions of Article Twelve, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Defeased Securities, the Company and each Guarantor, if any, may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article 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 501(c), (d) or (e), but, except as specified above, the remainder of this Indenture and such Defeased Securities shall be unaffected thereby. Section 404. Conditions to Defeasance or Covenant Defeasance. ----------------------------------------------- The following shall be the conditions to application of either Section 402 or Section 403 to the Defeased Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 608 who shall agree to comply with the provisions of this Article Four applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the 40 benefit of the Holders of such Securities, (a) United States dollars in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on the Defeased Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal or installment of principal and interest; provided that the Trustee -------- shall have been irrevocably instructed in writing to apply such United States dollars or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities; and provided, further, that from and after the -------- ------- 91st day after the date of deposit, the United States dollars or U.S. Government Obligations deposited shall not be subject to the rights of the Holders of Senior Indebtedness pursuant to the provisions of Article Twelve. For this purpose, "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof prior to the Stated Maturity of the Securities, and shall also include a depository receipt issued by a bank (as defined in Section 3(a) (2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the Holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to - -------- make any deduction from the amount payable to the Holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) In the case of an election under Section 402, the Company shall have delivered to the Trustee an Opinion of Counsel of independent counsel in the United States of nationally recognized standing to the effect that the Holders of the then Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same 41 manner and at the same times as would have been the case if such defeasance had not occurred. (3) In the case of an election under Section 403, the Company shall have delivered to the Trustee an Opinion of Counsel of independent counsel in the United States of nationally recognized standing to the effect that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (4) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as subsections 501(g) and (h) are concerned, at any time during the period ending on the 91st day after the date of deposit. (5) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under the Indenture, the New Bank Credit Agreement or any other material agreement or instrument to which the Company or any Guarantor is a party or by which it is bound. (6) In the case of defeasance or covenant defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel of independent counsel to the effect that (A) the trust funds will not be subject to any rights of Holders of Senior Indebtedness, including, without limitation, those arising under this Indenture, after the 91st day following the deposit and (B) 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. (7) 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 the Securities or any Guarantee over the other creditors of the Company or any Guarantor with the intent of defecting, hindering, delaying or defrauding creditors of the Company or others. (8) No event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Securities on the date of such deposit or at any time ending on the 91st day after the date of such deposit. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 402 or the covenant defeasance under 42 Section 403 (as the case may be) have been complied with as contemplated by this Section 404. Opinions of Counsel required to be delivered under this Section may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Section 405. Deposited Money and U.S. Government Obligations to Be Held in ------------------------------------------------------------- Trust; Other Miscellaneous Provisions. - ------------------------------------- Subject to the provisions of the last paragraph of Section 1003, all United States dollars and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for purposes of this Section 405, the "Trustee") pursuant to Section 404 in respect of the Defeased Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, 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 U.S. Government Obligations deposited pursuant to Section 404 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 Defeased Securities. Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any United States dollars or U.S. Government Obligations held by it as provided in Section 404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect defeasance or covenant defeasance. Section 406. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 402 or 403, as the case may be, by reason of any order or 43 judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 402 or 403, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such United States dollars or U.S. Government Obligations in accordance with Section 402 or 403, as the case may be; provided, however, that if the Company makes any -------- ------- payment to the Trustee or Paying Agent of principal, premium, if any, or interest on any Security following the reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay any such amount to the Holders of the Securities and the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE FIVE REMEDIES Section 501. Events of Default. ----------------- "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) there shall be a default in the payment of any interest on any Security when it becomes due and payable, and such default shall continue for a period of 30 days; (b) there shall be a default in the payment of the principal of (or premium, if any, on) any Security at its Maturity; (c) (i) there shall be a default in the performance, or breach, of any covenant or agreement of the Company or of any Guarantor under this Indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clauses (a) or (b) or subclauses (ii), (iii) or (iv) of this clause (c)) and such default or breach shall continue for a period of 30 days after written notice has been given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the outstanding Securities; (ii) there shall be a default in the performance or breach of the 44 provisions of Article Eight; (iii) the Company shall have failed to make or consummate an Offer in accordance with the provisions of Section 1015; or (iv) the Company shall have failed to make or consummate a Change in Control Offer in accordance with the provisions of Section 1018; (d) (i) an event of default shall have occurred under any mortgage, bond, indenture, loan agreement or other document evidencing any Indebtedness of the Company or any Subsidiary, which Indebtedness is outstanding in an amount of $15,000,000 or more in the aggregate, and such default shall result in such Indebtedness becoming, whether by declaration or otherwise, due and payable prior to the date on which it would otherwise become due and payable or (ii) a default in any payment when due at final maturity of any such Indebtedness; (e) any Holder of at least $15,000,000 in aggregate principal amount of secured Indebtedness of the Company or any Subsidiary under the New Bank Credit Agreement after a default under such secured Indebtedness under the New Bank Credit Agreement shall commence proceedings, or take any action, to retain in satisfaction of such secured Indebtedness under the New Bank Credit Agreement or to collect, seize, dispose of or apply in satisfaction of such secured Indebtedness under the New Bank Credit Agreement, assets of the Company or any Subsidiary having a Fair Market Value in excess of $15,000,000 individually or in the aggregate (including funds on deposit or held pursuant to lock-box and other similar arrangements) (f) one or more judgments, orders or decrees for the payment of money in excess of $15,000,000, either individually or in the aggregate, shall be entered against the Company or any Subsidiary or any of their respective properties which is not fully covered by insurance, bond, surety or similar instrument and shall not be discharged and either (a) any creditor shall have commenced an enforcement proceeding upon such judgment, order or decree or (b) there shall have been a period of 60 days during which a stay of enforcement of such judgment or order, by reason of an appeal or otherwise, shall not be in effect; (g) the entry of a decree or order by a court having jurisdiction in the premises (i) for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy Law or (ii) adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of 45 any substantial part of any of their respective properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect, for a period of 60 consecutive days; or (h) (i) the institution by the Company or any Significant Subsidiary of a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceedings to be adjudicated bankrupt or insolvent, (ii) the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or such Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law or to the institution of any bankruptcy or insolvency proceedings against the Company or any Significant Subsidiary, (iii) the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, (iv) the Company or any Significant Subsidiary (x) consents to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of any of the Company or any Significant Subsidiary or of any substantial part of their respective properties, (y) makes an assignment for the benefit of creditors, or (z) admits in writing of its inability to pay its debts generally as they become due or (v) the taking of corporate action by the Company or any Significant Subsidiary authorizing any such actions specified in this paragraph (h). Within five business days after the occurrence of any Default or Event of Default, the Company shall deliver to the Trustee written notice thereof, which notice shall be in the form of an Officers' Certificate and shall include the status of the Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 502. Acceleration of Maturity: Rescission and Annulment. -------------------------------------------------- If an Event of Default (other than an Event of Default specified in Sections 501(g) and (h)) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall, declare all the Securities to be due and payable immediately in an amount equal to the principal amount of the Securities, together with accrued and unpaid interest to the date the Securities become due and payable, by a notice in writing to the Company (and to the Trustee, if given by the Holders), and upon any such declaration such principal and interest shall become immediately due and payable. If an Event of 46 unpaid interest to the date the Securities become due and payable, by a notice in writing to the Company (and to the Trustee, if given by the Holders), and upon any such declaration such principal and interest shall become immediately due and payable. If an Event of Default specified in Sections 501(g) and (h) occurs and is continuing, then the Securities shall ipso facto ---- ----- become and be immediately due and payable in an amount equal to the principal amount of the Securities, together with accrued and unpaid interest, without any declaration or other act on the part of the Trustee or any Holder. After such 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 in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under Section 606 and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Securities, (iii) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and (b) all Events of Default, other than the non-payment of principal of the Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon provided in Section 513. Section 503. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. - ------- The Company and each Guarantor, if any, covenant that if a 47 (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of or premium, if any, on any Security at the Stated Maturity thereof, the Company and any such Guarantor will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, subject to Article Twelve, the whole amount then due and payable on such Securities for principal and premium, if any, and interest, with interest upon the overdue principal and premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, in each case, from the date upon which such payments become due and payable, at the rate borne by the Securities; 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. If the Company or any Guarantor, as the case may be, fails to pay such amounts forthwith upon 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 and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any Guarantor or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any Guarantor or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture or the Guarantees by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, including, seeking recourse against any Guarantor pursuant to the terms of any Grarantee, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy, including, without limitation, seeking recourse against any Guarantor pursuant to the terms of a Guarantee, or to enforce any other proper remedy, subject however to Section 512. Section 504. Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or 48 any other obligor, including each Guarantor, if any, upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal, and premium, if any, and interest owing and unpaid in respect of the Securities and to file such 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 of the Holders allowed in such judicial proceeding, and (b) subject to Article Twelve, to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; 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 the Trustee any amount due 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 606. 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 Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 505. Trustee May Enforce Claims Without Possession of Securities. ----------------------------------------------------------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and 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, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. 49 Section 506. Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article or otherwise on behalf of the Holders or the Trustee pursuant to this Article or through any proceeding or any arrangement or restructuring in anticipation or in lieu of any proceeding contemplated by this Article shall be applied, subject to applicable law, in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: Subject to Article Twelve, to the payment of the amounts then due and unpaid upon the Securities for principal, premium, if any, and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest; and THIRD: Subject to Article Twelve, the balance, if any, to the Person or Persons entitled thereto, including the Company, provided that all sums due and owing to the Holders and the Trustee have been paid in full as required by the Indenture. Section 507. Limitation on Suits. ------------------- No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee an indemnity satisfactory to the Trustee against the costs, expenses (including the reasonable fees and disbursements of its attorneys and agents) and liabilities to be incurred in compliance with such request; 50 (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Guarantee to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner provided in this Indenture or any Guarantee and for the equal and ratable benefit of all the Holders. Section 508. Unconditional Right of Holders to Receive Principal, Premium ------------------------------------------------------------ and Interest. - ------------ Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right on the terms stated herein, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder, subject to Article Twelve. Section 509. Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture or any Guarantee 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 the Company, each Guarantor, if any, the Trustee and the Holders shall, subject to any determination in such proceeding, 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 510. Rights and Remedies Cumulative. ------------------------------ 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 51 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 511. Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Security 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. Section 512. Control by Holders. ------------------ The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that -------- (a) such direction shall be in writing and shall not be in conflict with any rule of law or with this Indenture or any Guarantee or, in the sole judgment of the Trustee, expose the Trustee to personal liability; and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 513. waiver of Past Defaults. ----------------------- The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default (a) in the payment of the principal of, premium, if any, or interest on any Security, or (b) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising there from shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver 52 shall extend to any subsequent or other default or impair any right consequent thereon. Section 514. Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). Section 515. Waiver of Stay Extension or Usury Laws. -------------------------------------- Each of the Company and each Guarantor, if any, covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of, premium, if any, or interest on the Securities contemplated herein or in the Securities or which may affect the covenants or the performance of this Indenture; and each of the Company and each Guarantor, if any, (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 53 ARTICLE SIX THE TRUSTEE Section 601. Notice of Defaults. ------------------ Within 60 days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in ------- ------- the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Section 602. Certain Rights of Trustee. ------------------------- Subject to the provisions of Trust Indenture Act Sections 315(a) through 315(d): (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) the Trustee may consult with counsel and any written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein or thereby in compliance with such request or direction; 54 (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture other than any liabilities arising out of the negligence of the Trustee; (f) 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, approval, appraisal, bond, debenture, note, coupon, security or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate principal amount of the Securities then Outstanding; provided that, -------- if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; provided, further, the Trustee in its -------- ------- discretion may make such further inquiry or investigation into such facts or matters as it may deem 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; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers; (i) whenever the Trustee is given hereunder a permissive right or power to act, such right or power shall not be construed as a requirement to act; and (j) matters shall not be deemed known by the Trustee unless known by a Responsible Officer of the Trustee. 55 Section 603. Trustee Not Responsible for Recitals, ------------------------------------- Dispositions of Securities or Application of Proceeds Thereof. - ------------------------------------------------------------- The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility and Qualification on Form T-1 supplied to the Company are true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 604. Trustee and Agents May Hold Securities: Collections; Etc. -------------------------------------------------------- The Trustee, any Paying Agent, Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of the Securities, with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent and, subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. Section 605. Money Held in Trust. ------------------- All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Except for funds or securities deposited with the Trustee pursuant to Article Four, the Trustee may invest all moneys received by the Trustee, until used or applied as herein provided, in Temporary Cash Investments in accordance with the written directions of the Company. Absent written direction from the Company, the Trustee shall not be required to invest any such monies. The Trustee shall not have liability for any losses on monies invested in accordance with the directions of the Company. 56 Section 606. Compensation and Indemnification of Trustee and Its Prior --------------------------------------------------------- Claim. - ----- The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the company covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability, tax, assessment or other governmental charge (other than taxes applicable to the Trustee's compensation hereunder) or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including enforcement of this Section 606 and also including any liability which the Trustee may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge, and the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture. Section 607. Conflicting Interests. --------------------- The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 608. Corporate Trustee Required: Eligibility. --------------------------------------- There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Trust Indenture Act Section 310(a) (1) and which shall have a combined capital and surplus of at least $100,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the 57 combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 609. Resignation and Removal; Appointment of Successor Trustee. --------------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 610. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor Trustee by written instrument executed by authority of the Board of Directors of the Company, a copy Of which shall be delivered to the resigning Trustee and a copy to the successor Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, or any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor Trustee. (c) The Trustee may be removed at any time by an Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of Trust Indenture Act Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 608 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any 58 public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, the Holder of any Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of the Securities and accepted appointment in the manner hereinafter provided, the Holder of any Security who has been a bona fide Holder for at least six months may, subject to Section 514, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office or agent hereunder. Section 610. Acceptance of Appointment by Successor. -------------------------------------- Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as 59 Trustee hereunder; but, nevertheless, on the written request of the Company or the successor Trustee, upon payment of its charges then unpaid, such retiring Trustee shall pay over to the successor Trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor Trustee all such rights, powers, duties and obligations. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such Trustee or such successor Trustee to secure any amounts then due such Trustee pursuant to the provisions of Section 606. No successor Trustee with respect to the Securities shall accept appointment as provided in this Section 610 unless at the time of such acceptance such successor Trustee shall be eligible to act as Trustee under the provisions of Trust Indenture Act Section 310(a) and this Article Sixth and shall have a combined capital and surplus of at least $100,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 in the City of New York. Upon acceptance of appointment by any successor Trustee as provided in this Section 610, the Company shall give notice thereof to the Holders of the Securities, by mailing such notice to such Holders at Their addresses as they shall appear on the Security Register. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 609. If the Company fails to give such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be given at the expense of the Company. Section 611. Merger, Conversion, Amalgamation, Consolidation or Succession ------------------------------------------------------------- to Business. - ----------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or amalgamated, or any corporation resulting from any merger, conversion, amalgamation or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under Trust Indenture Act Section 310(a) and this Article Sixth and shall have a combined capital and surplus of at least $100,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 608 in the City of New York, without the 60 execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided that the right to adopt -------- the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, amalgamation, conversion or consolidation. Section 612. Preferential Collection of Claims Against Company. ------------------------------------------------- If and when the Trustee shall be or become a creditor of the Company (or other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. --------------------------------------------------------- The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; 61 provided, however, that if and so long as the Trustee shall be the Security - -------- ------- Registrar, no such list need be furnished. Section 702. Disclosure of Names and Addresses of Holders. -------------------------------------------- Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the company nor the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312. Section 703. Reports by Trustee. ------------------ Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Securities, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, as provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 15 in accordance with and to the extent required by Trust Indenture Act Section 313(a). Section 704. Reports by Company. ------------------ The Company shall: (a) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company, with the conditions and 62 covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 15 days after the filing thereof with the Trustee, in the manner and to the extent provided in Trust Indenture Act Section 313(c), such summaries of any information, documents and reports required to by filed by the Company pursuant to Subsections (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, AMALGAMATION, CONVEYANCE, TRANSFER OR LEASE Section 801. Company or Guarantor May Consolidate, Amalgamate, etc., Only ------------------------------------------------------------- on Certain Terms. - ----------------- (a) The Company shall not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other Person or sell, assign, convey, transfer or lease or otherwise dispose of all or substantially all of its properties and assets to any Person or group of affiliated Persons, or permit any of its Subsidiaries to enter into any such transaction or transactions if such transaction or transactions, in the aggregate, would result in a sale, assignment, transfer, lease or disposal of all or substantially all of the properties and assets of the Company and its Subsidiaries on a Consolidated basis to any other Person or group of affiliated Persons, unless at the time and after giving effect thereto (i) either (a) the Company shall be the continuing corporation, or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer, lease or disposition the properties and assets of the Company, substantially as an entirety (the "Surviving Entity") shall be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, subject to 602(c), in form satisfactory to the Trustee, all the obligations, including the performance of all covenants contained herein, of the Company under the Securities and this Indenture, and this Indenture shall remain in full force and effect; 63 (ii) immediately before and immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness not --- ----- previously an obligation of the Company or a Subsidiary which becomes the obligation of the Company or any of its Subsidiaries in connection with or as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction on a pro --- forma basis, the Consolidated Net Worth of the Company (or the Surviving ----- Entity if the Company is not the continuing obligor under this Indenture) is at least equal to the Consolidated Net Worth of the Company immediately before such transaction; (iv) immediately before and immediately after giving effect to such transaction on a pro forma basis on the assumption that the transaction --- ----- occurred on the first day of the four-quarter period immediately prior to the consummation of such transaction with the appropriate adjustments with respect to the transaction being included in such pro forma calculation, the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur $1.00 of additional Indebtedness under Section 1008 (other than Permitted Indebtedness); (v) each Guarantor, if any, unless it is the other party to the transactions described above, shall have by supplemental indenture confirmed that its Guarantee of the Securities shall apply to such person's obligations under this Indenture and the Securities; and (vi) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such supplemental indenture comply with this Indenture. (b) Each Guarantor, if any, (other than any Subsidiary whose Guarantee is being released pursuant to Section 1016 as a result of such transaction), shall not, and the Company will not permit a Guarantor to, in a single transaction or through a series of related transactions, merge or consolidate with or into any other corporation or other entity (other than the Company or any Guarantor), or sell, assign, convey, transfer, lease or otherwise dispose of its properties and assets on a Consolidated basis substantially as an entirety to any entity unless 64 (i) either (1) such Guarantor shall be the continuing corporation or partnership or (2) the entity (if other than such Guarantor) formed by such consolidation or into which such Guarantor is merged or the entity which acquires by sale, assignment, conveyance, transfer, lease or disposition the properties and assets of such Guarantor substantially as an entirety shall be a corporation or partnership organized and validly existing under the laws of the United States, any state thereof or the District of Columbia and shall expressly assume by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of such Guarantor under the Securities and this Indenture; (ii) immediately before and immediately thereafter (and treating any Indebtedness not previously an obligation of the Company or a Subsidiary which becomes the obligation of the Company or any of its Subsidiaries in connection with or as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; and (iii) such Guarantor shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such supplemental indenture comply with this Indenture, and thereafter all obligations of the predecessor shall terminate. Section 802. Successor Substitutes. ---------------------- Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company or any Guarantor in accordance with Section 801, the successor Person formed by such consolidation or into which the Company or such Guarantor, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture and/or the Guarantees, if any, as the case may be, with the same effect as if such successor had been named as the Company or such Guarantor, as the case may be, herein and/or in the Guarantees, as the case may be. When a successor assumes all the obligations of its predecessor under this Indenture, the Securities or a Guarantee, as the case may be, the predecessor shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor -------- shall not be released from the payment of principal and interest on the Securities or a Guarantee, as the case may be. 65 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures and Agreements without Consent of --------------------------------------------------------- Holders. - ------- Without the consent of any Holders, the Company and the Guarantors, if any, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto or agreements or other instruments with respect to any Guarantee, in form and substance satisfactory to the Trustee, for any of the following purposes: (a) 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 or such Guarantor herein and in the Securities and in any Guarantee; (b) to add to the covenants of the Company or any Guarantor for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or any Guarantor, as applicable, herein, in the Securities or in any Guarantee; (c) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or in any Guarantee, or to make any other provisions with respect to matters or questions arising under this Indenture, the Securities or any Guarantee; provided that, in -------- each case, such provisions shall not adversely affect the interests of the Holders; (d) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by Section 905 or otherwise; (e) to add a Guarantor pursuant to the requirements of Section 1016; (f) to evidence and provide the acceptance of the appointment of a successor Trustee hereunder; (g) to add Events of Default for the benefit of the Holders of all of the Securities; (h) to secure the Securities pursuant to the requirements of Section 1012 or otherwise; or (i) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the Holders as additional security for the payment and performance of the Indenture Obligations, in any property or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to this Indenture or otherwise. Section 902. Supplemental Indentures and Agreements with Consent of ------------------------------------------------------ Holders. - ------- With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company, each Guarantor, if any, and the Trustee, the Company, and each Guarantor (if a party thereto) when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto or agreements or other instruments with respect to any Guarantee in form and substance satisfactory to the Trustee for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture, the Securities or any Guarantee; provided, however, that no such -------- ------- supplemental indenture, agreement or instrument shall, without the consent of the Holder of each Outstanding Security affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption or required purchase thereof, or change the coin or currency in which the principal of any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (b) amend, change or modify the obligation of the Company to make and consummate a Change in Control Offer in accordance with Section 1018 or an Offer in accordance with Section 1015, including amending, changing or modifying any of the definitions related thereto for purposes of such provisions; (c) reduce the percentage in principal amount of the Outstanding Securities, 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 their consequences provided for in this Indenture or with respect to any Guarantee; 67 (d) modify any of the provisions of this Section or Section 513 or 1020, 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 Holder of each Security affected thereby; (e) except as otherwise permitted under Article Eight, consent to the assignment or transfer by the Company or any Guarantor of any of their rights and obligations under this Indenture; or (f) modify any of the provisions of this Indenture relating to the subordination of the Securities or any Guarantee in a manner adverse to the Holders thereof. Upon the written request of the Company and each Guarantor, if any, accompanied by a copy of a Board Resolution authorizing the execution of any such supplemental indenture or guarantee, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall join with the Company and each Guarantor in the execution of such supplemental indenture or Guarantee. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or Guarantee or agreement or instrument relating to any Guarantee, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures and Agreements. --------------------------------------------------- In executing, or accepting the additional trusts created by, any supplemental indenture, agreement or instrument permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Trust Indenture Act Section 315(a) through 315(d) and Section 602 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate stating that the execution of such supplemental indenture, agreement or instrument is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture, agreement or instrument which affects the Trustee's own rights, duties or immunities under this Indenture, any Guarantee or otherwise. Section 904. Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, 68 and such supplemental indenture shall form a part of this Indenture for all Purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 906. Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and each Guarantor, if any, and authenticated and delivered by the Trustee in exchange for Outstanding Securities. Section 907. Effect on Senior Indebtedness. ----------------------------- No supplemental indenture shall adversely affect the rights under Article Twelve, or any definitions or provisions related thereto, or the Guarantees of any Holder of Senior Indebtedness unless the requisite Holders of each issue of Senior Indebtedness affected thereby shall have consented to such supplemental indenture. Section 908. Record Date. ----------- If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any supplemental indenture, agreement or instrument or any waiver, and shall promptly notify the Trustee of any such record date. If a record date is fixed those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such supplemental indenture, agreement or instrument or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. The record date shall be a date no more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than the date such 69 solicitation is completed. No such consent shall be valid or effective for more than 90 days after such record date and no action shall be taken in respect of such consent after such 90 day period. ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest. ------------------------------------------ The Company will duly and punctually pay the principal of, premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. ------------------------------- So long as any of the Securities remain outstanding, the Company will maintain in the City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company initially appoints State Street Bank and Trust Company, N.A., at its office at 61 Broadway, New York, New York 10005, as its office or agency for each of said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any 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 office of the agent of the Trustee described above and the Company hereby appoints such agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies (in or outside of the City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation; 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 City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. 70 Section 1003. Money for Security Payments to be Held in Trust. ----------------------------------------------- If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. If the Company is not acting as Paying Agent, the company will, on or before each due date of the principal of, premium, if any, or interest on, any Securities, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company or any Guarantor (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and disabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying 71 Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal and premium, if any, or interest has become due and payable shall promptly be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general 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 promptly be repaid to the Company. Section 1004. Corporate Existence. ------------------- Subject to Article Eight and Section 1018, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. Section 1005. Payment of Taxes and Other Claims. --------------------------------- The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, the failure to pay or discharge of which would have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and its Subsidiaries taken as one enterprise; provided, however, that the Company shall -------- ------- not be required to pay or cause to be paid or discharged any such tax, assessment or governmental charge whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted and in respect of which appropriate reserves (in the good faith judgment of management of the Company) are being maintained in accordance with GAAP consistently applied. 72 Section 1006. Maintenance of Properties. ------------------------- The Company will cause all properties owned or leased by the Company or any Subsidiary or used or held for use in the conduct of its busineSs or the business of any Subsidiary to be maintained and kept in good condition and repair (ordinary wear and tear excepted) as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section -------- ------- shall prevent the Company from (i) discontinuing the use, operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Board of Directors of the Company or the Subsidiary concerned, or of any officer (or other agent employed by the Company or any Subsidiary) having managerial responsibility for any such property, desirable in the conduct of its business or the business of any Subsidiary or (ii) selling any properties; provided that the proceeds of such sale shall be applied in accordance with Section 1015, if applicable. Section 1007. Insurance. --------- The Company shall provide or cause to be provided for itself and any Subsidiaries insurance (including appropriate self-insurance), with insurers believed by the Company to be responsible, against loss or damage of the kinds customarily insured against by Persons similarly situated and owning like properties in the same general areas in which the Company or such Subsidiaries operate, unless such failure to provide or cause to be provided such insurance could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and its subsidiaries taken as one enterprise. Section 1008. Limitation on Indebtedness. -------------------------- The Company will not, and will not permit any of its Subsidiaries to, crate, incur, assume, or directly or indirectly guarantee or in any other manner become directly or indirectly liable for the payment of, any Indebtedness (including any Acquired Indebtedness and the liquidation value of any outstanding Permitted Preferred Stock but excluding Permitted Indebtedness) unless the Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters immediately preceding such event, taken as one period, and after given pro forma effect to (i) the incurrence of such Indebtedness and (if --- ----- applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred at the beginning of such four-quarter period; (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Subsidiaries since the first day of such four-quarter period as if such Indebtedness was 73 incurred, repaid or retired at the beginning of such four-quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during such four-quarter period); and (iii) any acquisition or disposition by the Company or any Subsidiaries of any assets or any Person out of the ordinary course of business, whether by merger, stock purchase or sale, or asset purchase or sale, as if such acquisition or disposition occurred at the beginning of such four-quarter period, including the Consolidated Net Income for such period related to the Person or assets acquired or disposed by the Company or such Subsidiary, is at least equal to the ratios set forth below during the Fiscal Years indicated below:
Fiscal Year Ratio ----------- ----- 1994.............................. 1.85:1.00 1995.............................. 2.00:1.00 1996 and thereafter............... 2.15:1.00
Section 1009. Limitation on Restricted Payments. --------------------------------- (a) The Company will not, and will not permit any Subsidiary to, directly or indirectly: (i) declare or pay any dividend on, or make any distribution to Holders of, any Capital Stock of the Company (other than dividends or distributions payable solely in shares of Qualified Capital Stock of the Company or in options, warrants or other rights to acquire Qualified Capital Stock of the Company); (ii) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any option, warrant or other right to acquire such Capital Stock of the Company; (iii) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, prior to any scheduled repayment, or maturity, any Subordinated Indebtedness or Pari Passu Indebtedness; (iv) declare or pay any dividend or distribution on any Capital Stock of any Subsidiary to any Person other than the Company or any of its Wholly Owned Subsidiaries (other than dividends or distributions by any Subsidiary to all Holders of Capital Stock or such Subsidiary on a pro rata basis) or purchase, redeem, defease or otherwise acquire for value any Capital Stock of any Subsidiary held by any Person (other than the Company or any of its Wholly Owned Subsidiaries) or any warrants, rights or options to purchase or acquire any such outstanding Capital Stock; or 74 (v) make any Investment in any Person (other than any Permitted Investment) unless the Person will thereby become a Wholly Owned Subsidiary; (any of the foregoing payments or other actions described in (i) through (v), collectively, "Restricted Payments") unless at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution), (1) no Default or Event of Default shall have occurred and be continuing and such Restricted Payment shall not be an event which is, or after notice or lapse of time or both, would be, an "event of default" under the terms of any Indebtedness of the Company or any Subsidiary; (2) immediately before and immediately after giving effect to such transaction on a pro forma basis, the Company could incur $1.00 of additional Indebtedness under the provisions of Section 1008 (other than Permitted Indebtedness); and (3) the aggregate amount of all Restricted Payments declared or made after the date of this Indenture shall not exceed the sum of (A) 50% of the Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the date of this Indenture and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of such loss); (B) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Subsidiaries) of shares of Qualified Capital Stock or any options or warrants to purchase such shares of Qualified Capital Stock of the Company (except, in each case, to the extent such proceeds are used for the purposes described in clause (ii) of the following paragraph (b)); (C) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company as capital contributions to the Company; (D) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company (other than from any of its Subsidiaries) upon the exercise of any options or warrants to purchase shares of Qualified Capital Stock of the Company; and (E) the amount of which Indebtedness of the Company is reduced upon any conversion or exchange of Indebtedness of the Company into Qualified Capital Stock of the Company plus the aggregate cash received by the Company at the time of such conversion or exchange. 75 (b) None of the foregoing provisions shall be deemed to prohibit the following Restricted Payments so long as in the case of clauses (ii), (iv) and (vi) there is no Default or Event of Default continuing: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at the date of declaration, such payment would be permitted by the provisions of the preceding paragraph (a) and such payment shall be deemed to have been paid on such date of declaration for purposes of the calculation required by the provisions of the foregoing paragraph; (ii) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company, Subordinated Indebtedness or Pari Passu Indebtedness in exchange for, or out of the net proceeds of, a substantially concurrent issue and sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company; provided that any net proceeds from -------- the issue and sale of such Qualified Capital Stock are excluded from clause 3(B) of paragraph (a) above; (iii) the repurchase of the PIP Options in accordance with the terms of the PIP Options in an aggregate amount not to exceed $5,000,000, upon the death, disability or involuntary or voluntary termination of employment of employees of the Company; (iv) the payment of dividends on the Series C Preferred Stock and the Series D Preferred Stock, each in accordance with the terms of the certificates of designation for such Preferred Stock; (v) the exchange by NME of up to $63,300,000 in liquidation value of Series D Preferred Stock in connection with the exercise of the Warrants held by NME; and (vi) the redemption, repurchase, or other acquisition or retirement of Pari Passu Indebtedness or Subordinated Indebtedness of the Company (other than Redeemable Capital Stock) made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Pari Passu Indebtedness or Subordinated Indebtedness of the Company so long as (A) the principal amount of such new Pari Passu Indebtedness or Subordinated Indebtedness does not exceed the principal amount of the Pari Passu Indebtedness or Subordinated Indebtedness being so redeemed, repurchased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Pari Passu Indebtedness or Subordinated Indebtedness being so redeemed, repurchased, acquired or retired or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated transactions and, in each case, actually paid, plus the amount of 76 expenses of the Company incurred in connection with such refinancing), (B) in the case of the redemption, repurchase, or other acquisition or retirement of Subordinated Indebtedness, such new Indebtedness is subordinated to Senior Indebtedness and the Securities at least to the same extent as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired for value, (C) in the case of the redemption, repurchase or other acquisition or retirement of Pari Passu Indebtedness, such new Indebtedness shall be pari passu ---- ----- in right of payment with the Securities or shall be Subordinated Indebtedness, (D) any such Subordinated Indebtedness has a Stated Maturity for its final scheduled principal payment later than the Stated Maturity for the final scheduled principal payment of the Securities and an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (E) any such Pari Passu Indebtedness has a Stated Maturity for its final scheduled principal payment later than or equal to the Stated Maturity for the final scheduled principal payment of the Notes and an Average Life to Stated Maturity greater than or equal to the remaining Average Life to Stated Maturity of the Notes. The actions described in clauses (i), (ii), (iii), (iv) and (v) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph (b) but shall reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a) and the actions described in clause (vi) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph (b) and shall not reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a). Section 1010. Limitation on Preferred Stock of Subsidiaries. --------------------------------------------- The Company will not permit any Subsidiary to issue any Preferred Stock other than Preferred Stock (collectively, "Permitted Preferred Stock") to be issued (i) to the Company or a Wholly Owned Subsidiary, or (ii) to any Person (other than the Company or a Wholly Owned Subsidiary) provided that at the time of such issuance a Subsidiary would be entitled to create, incur or assume Indebtedness pursuant to Section 1008 in the aggregate principal amount equal to the aggregate liquidation value, plus any accrued dividends, of the Preferred Stock to be issued. The Company will not sell, transfer or otherwise dispose of Preferred Stock issued by a Subsidiary or permit a Wholly Owned Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by a Subsidiary, other than (i) to the Company or a Wholly Owned Subsidiary, as the case may be, or (ii) to any Person (other than the Company or a Wholly Owned Subsidiary), provided that at the time of such sale, transfer or disposition a Subsidiary would be 77 entitled to create, incur or assume Indebtedness pursuant to Section 1008 hereof in the aggregate amount equal to the aggregate liquidation value, plus any accrued dividends, of the Preferred Stock to be sold, transferred or otherwise disposed of. Notwithstanding the foregoing, nothing set forth in this covenant will prohibit the ownership of Preferred Stock issued by a Person prior to the time (A) such Person becomes a Subsidiary of the Company, (B) such Person merges with or into a Subsidiary of the Company or (C) a Subsidiary of the Company merges with or into such Person; provided, further, that such Preferred -------- ------- Stock was not issued or incurred by such Person in anticipation of a transaction contemplated by subclause (A), (B), or (C) above. Section 1011. Limitation on Dividend and Other Payment Restrictions ----------------------------------------------------- Affecting Subsidiaries. - ---------------------- The Company will not, and will not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind, on the ability of any Subsidiary to (i) pay dividends or make any other distribution on its Capital Stock to the Company or any other Subsidiary, (ii) pay any Indebtedness owed to the Company or any other Subsidiary, (iii) make any Investment in the Company or any other Subsidiary or (iv) transfer any of its property or assets to the Company or any other Subsidiary, except (a) any encumbrance or restriction existing under or by reason of applicable law; (b) any encumbrance or restriction existing under or by reason of customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Subsidiary; (c) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of this Indenture as set forth in an Officers' Certificate dated the date hereof delivered to the Trustee; (d) any encumbrance or restriction, with respect to a Subsidiary that is not a Subsidiary on the date of this Indenture, in existence at the time such Person becomes a Subsidiary or created on the date it becomes a Subsidiary and not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary; and (e) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (c) and (d), provided that the terms and conditions of any such encumbrances or -------- restrictions are not materially less favorable to the Holders of the Securities than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced or replaced (in the opinion of the Board of Directors of the Company whose determination shall be evidenced by a Board Resolution). 78 Section 1012. Limitation on Liens Securing Pari Passu and Subordinated -------------------------------------------------------- Indebtedness. - ------------ The Company will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any Liens of any kind upon any of their respective assets or properties now owned or acquired after the date of this Indenture or any income or profits therefrom securing (i) any Indebtedness of the Company which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company, unless the Securities are equally and ratably secured; provided that, if such Indebtedness which is expressly by its terms -------- subordinate or junior in right of payment to any other Indebtedness of the Company is Subordinated Indebtedness, the Lien securing such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Securities with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Securities, or (ii) any assumption, guarantee or other liability of any Subsidiary in respect of any Indebtedness of the Company which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company, unless the substantially similar assumption, guarantee or other liability of such Subsidiary in respect of the Securities is equally and ratably secured; provided that, if such -------- subordinated Indebtedness is expressly by its terms subordinate or junior to the Securities, then the Lien securing the assumption, guarantee or other liability of such Subsidiary in respect of such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Securities or securing the assumption, guarantee or other liability of such Subsidiary in respect of the Securities, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Securities; provided, further, that -------- ------- clauses (i) and (ii) shall not be applicable to any Lien securing Acquired Indebtedness, which Lien is in existence at the time of such transaction or incurrence of such Acquired Indebtedness (and was not created in connection with, or in contemplation of, the incurrence of such Indebtedness by the Company or any Subsidiary), which Indebtedness is permitted under the provisions of Section 1008, and so long as such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than the property or assets acquired in such transaction or securing such Acquired Indebtedness. Section 1013. Provision of Financial Statements. --------------------------------- Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission 79 pursuant to such Sections 13(a) of 15(d) if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required to file such documents if the Company were so subject. The Company will also in any event within 15 days of each Required Filing Date file with the Trustee and provide to the Holders of the Securities copies of the annual reports, quarterly reports and other documents which the Company is required or permitted to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act. Section 1014. Limitation on Transactions with Affiliates. ------------------------------------------ The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (other than the Company or a Wholly Owned Subsidiary) unless (i) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than would be available in a comparable transaction in arm's-length dealings with an unrelated third party, (ii) with respect to a transaction or series of related transactions involving payments in excess of $1,000,000 in the aggregate, the Company delivers an Officers' Certificate to the Trustee certifying that (x) such transaction or series of related transactions complies with claus. (i) above and (y) such transaction or series of related transactions shall have been approved by a majority of the Board of Directors of the Company and (iii) with respect to any transaction or series of transactions involving aggregate payments in excess of $10,000,000, such transaction or series of related transactions shall have been approved by a Majority of the independent directors of the Board of Directors of the Company; provided, however, that the foregoing -------- ------- restriction shall not apply to (a) any transaction resulting from any agreement entered into prior to the date of this Indenture, (b) the payment of reasonable and customary regular fees to directors of the Company or any of its Subsidiaries who are not employees of the Company or any Affiliate or (c) payments or distributions in accordance with the Company's employee compensation and other benefit arrangements. Section 1015. Disposition of Proceeds of Asset Sales. -------------------------------------- (a) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, make any Asset Sale unless the Company or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets subject to such Asset Sale (as determined by the 80 Board of Directors of the Company and evidenced in a Board Resolution). (b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not required to be applied to permanently repay any outstanding Senior Indebtedness, or the Company determines not to apply such Net Cash Proceeds to the permanent prepayment of such Senior Indebtedness, or if no such Senior Indebtedness is outstanding, then the Company may within one year of the Asset Sale invest (or enter into a legally binding agreement to invest) the Net Cash Proceeds in properties and assets that (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) replace the properties and assets that were the subject of the Asset Sale or in properties and assets that will be used in the businesses of the Company or its Wholly Owned Subsidiaries existing on the date of this Indenture or in a business reasonably related thereto; provided that, in the case of any such -------- legally binding agreement to invest, the Company makes such investment pursuant to such legally binding agreement within 18 months of the Asset Sale. The amount of such Net Cash Proceeds neither used to permanently repay or prepay Senior Indebtedness nor used or invested as set forth in this paragraph constitutes "Excess Proceeds." (c) Subject to paragraph (f) below, when the aggregate amount of Excess Proceeds equals $17,500,000 or more, the Company shall apply the Excess Proceeds to the repayment of the Securities and any Pari Passu Indebtedness required to be repurchased under the instrument governing such Pari Passu Indebtedness as follows: (a) the Company shall make an offer to purchase (an "Offer") from all Holders of the Securities in accordance with the procedures set forth in this Indenture in the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Securities Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Securities, and the denominator of which is the sum of the outstanding principal amount of the Securities and such Pari Passu Indebtedness (subject to proration in the event such amount is less than the aggregate Offered Price (as defined herein) of all Securities tendered) and (b) to the extent required by such Pari Passu Indebtedness to permanently reduce the principal amount of such Pari Passu Indebtedness, the Company shall make an offer to purchase Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Securities Amount, provided -------- that in no event shall the Pari Passu Debt Amount exceed the principal amount of such Pari Passu Indebtedness plus the amount of any premium required to be paid to repurchase such Pari Passu Indebtedness. The offer price shall be payable in cash in an amount equal to 100% of the principal amount 81 of the Securities plus accrued and unpaid interest, if any, to the date such Offer is consummated (the "Offered Price") in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of the Securities tendered and Pari Passu Indebtedness repurchased pursuant to an Offer and Pari Passu Offer, respectively, is less than the amount of Excess Proceeds, the Company may use such deficiency in the business of the company or its Wholly Owned Subsidiaries or in a business reasonably related thereto. Upon completion of the purchase of all the Securities tendered pursuant to an Offer or repurchase of the Pari Passu Indebtedness pursuant to a Pari Passu Offer, the amount of Excess Proceeds shall be reset at zero. (d) Whenever the Excess Proceeds received by the Company or its Subsidiaries exceed $5,000,000, such Excess Proceeds shall be set aside by the Company in a separate account pending (i) deposit with the Trustee or a Paying Agent of the amount required to purchase the Securities tendered in an Offer or a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to the Holders of the Securities tendered in an Offer or a Pari Passu Offer and (iii) application, as set forth above, of Excess Proceeds for the purposes specified in paragraph (b) above. Such Excess Proceeds may be invested at the written direction of the Company in Temporary Cash Investments, provided that the -------- maturity date of any investment made after the amount of Excess Proceeds exceeds $17,500,000 shall not be later than the Offer Date. The Company shall be entitled to any interest or dividends accrued, earned or paid on such Temporary Cash Investments, provided that the Company shall not be entitled to such -------- interest if a Default or Event of Default has occurred and is continuing. (e) If the Company becomes obligated to make an Offer pursuant to clause (c) above, the Securities shall be purchased by the Company, at the option of the Holder thereof, in whole or in part in integral multiples of $1,000, on a date (the "Purchase Date") that is not earlier than 30 days and not later than 60 days from the date the notice is given to Holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act, subject to proration in the event the Securities Amount is less than the aggregate Offered Price of all Securities tendered. (f) In the event that the Company shall be unable to purchase Securities from Holders thereof in an Offer because of the provisions (i) of applicable law or (ii) of the Company's loan agreements, indentures or other contracts in existence on the date of this Indenture, the Company need not make an Offer. The Company shall then be obligated to (i) invest the Excess Proceeds in properties and assets to replace the properties and assets that were the subject of the Asset Sale or in properties and assets that 82 (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) will be used in the business of the Company or its Wholly Owned Subsidiaries existing on the date of this Indenture or in any business reasonably related thereto or (ii) apply the Excess Proceeds to repay Senior Indebtedness. (g) The Company shall comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, in connection with an Offer. (h) The Company will not, and will not permit any Subsidiary to, create or permit to exist or become effective any restriction (other than restrictions existing under (i) Indebtedness as in effect on the date of this Indenture or (ii) any Senior Indebtedness existing on the date of this Indenture or thereafter, provided that, in each case, such restrictions are no less favorable -------- to the Holders of Securities than those existing on the date of this Indenture) that would materially impair the ability of the Company to Make an Offer to purchase the Securities upon an Asset Sale or, if such Offer is made, to pay for the Securities tendered for purchase. (i) Within 30 days after the date on which the amount of Excess Proceeds equals or exceeds $17,500,000, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Securities, at his address appearing in the Security Register, a notice stating or including: (1) that the Holder has the right to require the Company to repurchase, subject to proration, such Holder's Securities at the Offered Price; (2) the Purchase Date; (3) the instructions a Holder must follow in order to have its Securities purchased in accordance with paragraph (c) of this Section; and (4) (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Sales otherwise described in the offering materials (or corresponding successor reports) (or in the event the Company is not required to prepare any of the foregoing Forms, the comparable information required pursuant to Section 1013), (ii) a description of material developments in the Company's business subsequent to the date of the latest 83 of such Reports, (iii) if material, appropriate pro forma financial information, and (iv) such other information, if any, concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed investment decision. (j) Holders electing to have Securities purchased will be required to surrender such Securities to the Company at the address specified in the notice at least two Business Days prior to the Purchase Date. An election may be withdrawn before or after delivery by the Holder to the Paying Agent at the office of the Paying Agent of the Security to which such an election relates, by means of a written notice of withdrawal delivered by the Holder to the Paying Agent at the office of the Paying Agent or to the office or agency referred to in Section 1002 to which the related notice was delivered at any time prior to the close of business on the Purchase Date specifying, as applicable: (1) the certificate number of the Security in respect of which such notice of withdrawal is being submitted; (2) the principal amount of the Security (which shall be $1,000 or an integral multiple thereof) with respect to which such notice of withdrawal is being submitted; and (3) the principal amount, if any, of such Security (which shall be $1,000 or an integral multiple thereof) that remains subject to the original notice of the Offer and that has been or will be delivered for purchase by the Company. Holders will be entitled to withdraw their election if the Company receives, not later than three Business Days prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Securities purchased. (k) Not later than the Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Offer, (ii) deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in same day funds (or New York Clearing House funds if such deposit is made prior to the Purchase Date) sufficient to pay the aggregate Offered Price of all the Securities or portions thereof which are to be purchased on that date and (iii) deliver to the Paying Agent Officers' Certificate stating the securities or portions thereof accepted for payment by the Company. 84 As provided in the Securities, the Trustee and the Paying Agent shall return to the company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Offered Price; provided, however, that, to the extent that the aggregate amount of cash - -------- ------- deposited by the Company with the Trustee in respect of an Offer exceeds the aggregate Offered Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and promptly after the Business Day following the Purchase Date the Trustee shall upon demand return any such excess to the Company. (l) Securities to be purchased shall, on the Purchase Date, become due and payable at the Offered Price and from and after such date (unless the Company shall default in the payment of the Offered Price) such Securities shall cease to bear interest. Such Offered Price shall be paid to such Holder promptly following the later of the Business Day following the Purchase Date and the time of delivery of such Security to the relevant Paying Agent at the office of such Paying Agent by the Holder thereof in the manner required. Upon surrender of any such Security for purchase in accordance with the foregoing provisions, such Security shall be paid by the Company at the Offered Price; provided, however, -------- ------- that installments of interest whose Stated Maturity is on or prior to the Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 307; provided, further, -------- ------- that Securities to be purchased are subject to proration in the event the Securities Amount is less than the aggregate Offered Price of all Securities tendered for purchase, with such adjustments as may be appropriate by the Trustee so that only Securities in denominations of $1,000 or integral multiples thereof, shall be purchased. If any Security tendered for purchase shall not be so paid upon surrender thereof, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Purchase Date at the rate borne by such Security. Any Security that is to be purchased only in part shall be surrendered to a Paying Agent at the office of such Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, one or more new Securities of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased. 85 Section 1016. Limitation on Issuance of Guarantees of Pari Passu and ------------------------------------------------------ Subordinated Indebtedness. - ------------------------- (a) The Company will not permit any Subsidiary, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company that is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company unless (i) such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a guarantee of payment of the Securities by such Subsidiary and (A) if any such assumption, guarantee or other liability is subordinated, the guarantee under the supplemental indenture shall be subordinated to no more than the extent that the Securities are subordinated to Senior Indebtedness of the Company under this Indenture and (B) if such subordinated or junior Indebtedness is expressly subordinated or junior to the Securities, any such assumption, guarantee or other liability of such Subsidiary with respect to such subordinated or junior Indebtedness shall be subordinated to such Subsidiary's assumption, guarantee or other liability with respect to the Securities to at least the same extent as such subordinated or junior Indebtedness is subordinated or junior to the Securities under this Indenture; and (ii) such Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary as a result of any payment by such Subsidiary under its Guarantee (as defined below). (b) Each guarantee created pursuant to the provisions described in the foregoing paragraph is referred to as a "Guarantee" and the issuer of each such Guarantee is referred to as a "Guarantor." Notwithstanding the foregoing, any Guarantee by a Subsidiary of the Securities shall provide by its terms that it (together with any Liens arising from such Guarantee) shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's Capital Stock in, or all or substantially all the assets of, such Subsidiary, which is in compliance with this Indenture, and (ii) in the case of any Guarantee created pursuant to the provisions described in the foregoing paragraph, the release or discharge of the assumption, guarantee or other liability which resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such assumption, guarantee or other liability. 86 Section 1017. Limitation on Other Senior Subordinated Indebtedness. ---------------------------------------------------- The Company will not create, incur, assume, guarantee or in any other manner become liable with respect to any Indebtedness, other than the Securities, that is subordinate in right of payment to any Senior Indebtedness, unless such Indebtedness is also pari passu with, or subordinate in right of ---- ----- payment to, the Securities pursuant to subordination provisions substantially similar to those contained in this Indenture. Section 1018. Purchase of Securities upon Change in Control. --------------------------------------------- (a) If a Change in Control occurs at any time, each Holder shall have the right to require that the Company repurchase such Holder's Securities pursuant to an offer described in subsection (c) of this Section (a "Change in Control Offer") in whole or in part in integral multiples of $1,000, at a purchase price (the "Change in Control Purchase Price") in cash in an amount equal to 101% 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 Subsections (b), (c), (d) and (e) of this Section. (b) Within 30 days following a Change in Control and prior to the mailing of the Change in Control Purchase Notice to Holders provided for in paragraph (c) below, the Company covenants to either (1) repay in full all Indebtedness under the New Bank Credit Agreement and permanently reduce the commitments of the lenders thereunder or offer to repay in full all such Indebtedness and permanently reduce the commitment of each lender who has accepted such offer or (2) obtain the requisite consent under the New Bank Credit Agreement to permit the repurchase of the Securities as provided for in this Section 1018. The Company shall first comply with this subsection (b) before it shall be required to repurchase the Securities pursuant to this Section 1018, but any failure to comply with this subsection (b) shall constitute a default of this covenant for purposes of Section 501(c) (iv). (c) Within 30 days following any Change in Control, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Securities, at his address appearing in the Security Register, a notice (a "Change in Control Purchase Notice") stating or including: (1) that a Change in Control has occurred, the date of such event, and that such Holder has the right to require the Company to repurchase such Holder's Securities at the Change in Control Purchase Price; 87 (2) the circumstances and relevant facts regarding such Change in Control (including but not limited to information with respect to pro forma --- ----- historical income, cash flow and capitalization after giving effect to such Change in Control, if any); (3)(i) the most recently filed Annual Report on Form 10-K including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q, as applicable, and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report (or in the event the Company is not required to prepare any of the foregoing Forms, the comparable information required to be prepared by the Company and any Guarantor pursuant to Section 1013), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such reports and (iii) such other information, if any, concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed investment decision; (4) that the Change in Control Offer is being made pursuant to this Section 1018(a) and that all Securities properly tendered pursuant to the Required Offer will be accepted for payment at the Required Offer Purchase Price; (5) the purchase date (the "Change in Control Purchase Date") which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed; (6) the Change in Control Purchase Price; (7) the names and addresses of the Paying Agent and the offices or agencies referred to in Section 1002; (8) that Securities must be surrendered on or prior to the Change in Control Purchase Date to the Paying Agent at the office of the Paying Agent or to an office or agency referred to in Section 1002 to collect payment; (9) that the Change in Control Purchase Price for any Security which has been properly tendered and not withdrawn will be paid promptly following the Required Offer Purchase Date; and (10) the procedures for withdrawing a tender. (d) Upon receipt by the Company of the proper tender of Securities, the Holder of the Security in respect of which such proper tender was made shall (unless the tender of such Security is 88 properly withdrawn) thereafter be entitled to receive solely the Change in Control Purchase Price with respect to such Security. Upon surrender of any such Security for purchase in accordance with the foregoing provisions, such Security shall be paid by the Company at the Change in Control Purchase Price; provided, -------- however, that installments of interest whose Stated Maturity is on or prior to - ------- the Change in Control Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 307. If any Security tendered for purchase shall not be so paid upon surrender thereof, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Change in Control Purchase Date at the rate borne by such Security. Holders electing to have Securities purchased will be required to surrender such Securities to the Paying Agent at the address specified in the notice at least two Business Days prior to the Change in Control Purchase Date. Any Security that is to be purchased only in part shall be surrendered to a Paying Agent at the office of such Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, one or more new Securities of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased. (e) Not later than the Change in Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change in Control Offer, (ii) no later than 11:00 a.m. (New York time) on the Business Day following the Change in Control Purchase Date, deposit with the Paying Agent an amount of cash sufficient to pay the aggregate Change in Control Purchase Price of all the Securities or portions thereof that are to be purchased as of the Change in Control Purchase Date and (iii) deliver to the Paying Agent an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Securities so accepted payment in an amount equal to the Change in Control Purchase Price of the Securities purchased from each such Holder, and the Company shall execute and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Paying Agent at the Company's expense to the Holder thereof. The Company will publicly announce the results of the Change in Control Offer on the Change in Control 89 Purchase Date. For purposes of this section 1018, the Company shall choose a Paying Agent which shall not be the Company. (f) A Change in Control Purchase Notice may be withdrawn before or after delivery by the Holder to the Paying Agent at the office of the Paying Agent of the Security to which such Change in Control Purchase Notice relates, by means of a written notice of withdrawal delivered by the Holder to the Paying Agent at the office of the Paying Agent or to the office or agency referred to in Section 1002 to which the related Change in Control Purchase Notice was delivered at any time prior to the close of business on the Change in Control Purchase Date specifying, as applicable: (1) the certificate number of the Security in respect of which such notice of withdrawal is being submitted, (2) the principal amount of the Security (which shall be $1,000 or an integral multiple thereof) with respect to which such notice of withdrawal is being submitted, and (3) the principal amount, if any, of such Security (which shall be $1,000 or an integral multiple thereof) that remains subject to the original Change in Control Purchase Notice and that has been or will be delivered for purchase by the Company. (g) As provided in the Securities, the Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Change in Control Purchase Price; provided, however, that, to the extent that the -------- ------- aggregate amount of cash deposited by the Company pursuant to clause (e) (ii) exceeds the aggregate Change in Control Purchase Price of the Securities or portions thereof to be purchased, then the Trustee shall hold such excess for the Company and promptly after the Business Day following the Change in Control Purchase Date the Trustee shall upon demand return any such excess to the Company together with interest or dividends, if any, thereon. (h) The Company shall comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, in connection with a Change in Control Offer. Section 1019. Statement by Officers as to Default. ----------------------------------- (a) The Company will deliver to the Trustee, on or before a date not more than 60 days after the end of each fiscal quarter and not more than 120 days after the end of each Fiscal Year of the Company ending after the date hereof, a written statement signed by the principal executive officer, principal financial officer or 90 principal accounting officer of the Company, stating whether or not, after a review of the activities of the Company during such year or such quarter and of the Company's performance under this Indenture, to the best knowledge, based on such review, of the signers thereof, the Company has fulfilled all its obligations and is in compliance with all conditions and covenants under this Indenture throughout such year or quarter, as the case may be, and, if there has been a Default, specifying each Default and the nature and status thereof. (b) When any Default or Event of Default has occurred and is continuing, or if the Trustee or any Holder or the trustee for or the holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice to the Company or takes any other action of which the Company has knowledge with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $1,000,000), the Company shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy an Officers' Certificate specifying such Default, Event of Default, notice or other action within five Business Days of its occurrence. Section 1020. Waiver of Certain Covenants. --------------------------- The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 1005 through 1014, 1016, 1017 and 1019, if, before or after the time for such compliance, the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding waive such compliance in such instance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Right of Redemption. ------------------- (a) The Securities may be redeemed at the election of the Company, as a whole or from time to time in whole or in part, at any time on or after ___________, 1998, at the option of the Company subject to the conditions and at the Redemption Prices specified in the form of Security, together with accrued interest to the Redemption Date. 91 (b) Up to $50,000,000 principal amount of Securities may also be redeemed at any time on or prior to __________, 1996, within 180 days of one or more Public Equity Offerings of the Company or any of its Subsidiaries with the net proceeds of such Public Equity Offerings at ____________% of the aggregate principal amount, together with accrued and unpaid interest, if any, to the redemption date. Section 1102. Applicability of Article. ------------------------ Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. Section 1103. Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Company Order and an Officers' Certificate. In case of any redemption at the election of the Company, the Company shall, not less than 45 nor more than 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date and of the principal amount of Securities to be redeemed. Section 1104. Selection by Trustee of Securities to Be Redeemed. ------------------------------------------------- If less than all the Securities are to be redeemed, the particular Securities or portions thereof to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by lot or such other method as the Trustee shall deem fair and appropriate, and the amounts to be redeemed may be equal to $1,000 or any integral multiple thereof. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. 92 Section 1105. Notice of Redemption. -------------------- Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed; (d) in the case of a Security to be redeemed in part, the principal amount of such Security to be redeemed and that after the Redemption Date upon surrender of such Security, new Security or Securities in the aggregate principal amount equal to the unredeemed portion thereof will be issued; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (f) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof, and that (unless the Company shall default in payment of the Redemption Price) interest thereon shall cease to accrue on and after said date; (g) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and (h) the CUSIP number, if any, relating to such Securities. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. 93 Section 1106. Deposit of Redemption Price. --------------------------- No later than 10:00 a.m. (New York time) on Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in same day funds sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. All money earned on funds held in trust by the Trustee or any Paying Agent shall be remitted to the Company. Section 1107. Securities Payable on Redemption Date. ------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose -------- ------- Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. Section 1108. Securities Redeemed or Purchased in Part. ---------------------------------------- Any Security which is to be redeemed or purchased only in part shall be surrendered to the Paying Agent at the office or agency maintained for such purpose pursuant to Section 1002 (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar or the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the 94 unredeemed portion of the principal of the Security so surrendered that is not redeemed or purchased. ARTICLE TWELVE SUBORDINATION OF SECURITIES Section 1201. Securities Subordinate to Senior Indebtedness. --------------------------------------------- The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the Indebtedness represented by the Securities and the payment of the principal of, premium, if any, and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment as provided in this Article to the prior payment in full of all Senior Indebtedness. This Article Twelve shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold Senior Indebtedness; and such provisions are made for the benefit of the holders of Senior Indebtedness; and such holders are made obligees hereunder and they or each of them may enforce such provisions. Section 1202. Payment Over of Proceeds Upon Dissolution, Etc. ---------------------------------------------- In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets or liabilities of the Company, then and in any such event: (1) the holders of Senior Indebtedness shall be entitled to receive payment in full or provision made for such payment of all amounts due on or in respect of all Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character (excluding securities of the Company or any other corporation that are equity securities or are subordinated in right of payment to all Senior Indebtedness, that may at the time be outstanding, to substantially the same 95 extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article; such securities are hereinafter collectively referred to as "Permitted Junior Securities") on account of principal of, premium, if any, or interest on the Securities (including any payment or other distribution which may be received from the holders of Subordinated Indebtedness as a result of any payment on such Subordinated Indebtedness); and (2) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (excluding Permitted Junior Securities), by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article (including any payment or other distribution which may be received from the holders of Subordinated Indebtedness as a result of any payment on such Subordinated Indebtedness) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash or in any other form acceptable to each, of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, in respect of principal, premium, if any, and interest on the Securities before all Senior Indebtedness is paid in full, then and in such event such payment or distribution (excluding Permitted Junior Securities but including any payment or other distribution which may be received from the holders of Subordinated Indebtedness as a result of any payment on such Subordinated Indebtedness) shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash or, as acceptable to each holder of Senior Indebtedness, any other manner, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. 96 The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in Article Eight. Section 1203. Suspension of Payment When Senior Indebtedness in Default. --------------------------------------------------------- (a) Unless Section 1202 shall be applicable, upon (1) the occurrence of a Payment Default and (2) receipt by the Trustee and the Company from a Senior Representative of written notice of such occurrence, then no payment (other than any payments made pursuant to Article Four which have been deposited with the Trustee for at least 91 days) or distribution of any assets of the Company of any kind or character (excluding Permitted Junior Securities) shall be made by the Company on account of principal of, premium, if any, or interest on, the Securities or on account of the purchase, redemption or other acquisition of or in respect of the Securities unless and until such Payment Default shall have been cured or waived or shall have ceased to exist or the Designated Senior Indebtedness shall have been discharged or paid in full, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. (b) Unless Section 1202 shall be applicable, upon (1) the occurrence of a Non-payment D.fault and (2) receipt by the Trustee and the Company from a Senior Representative of written notice of such occurrence, then no payment or distribution of any assets of the Company of any kind or character (excluding Permitted Junior Securities) shall be made by the Company on account of any principal of, premium, if any, or interest on, the Securities or on account of the purchase, redemption or other acquisition of or in respect of Securities for a period ("Payment Blockage Period") commencing on the date of receipt by the Trustee and the Company of such notice unless and until the earliest of (x) 179 days after receipt of such written notice by the Trustee, (y) the date such Non- payment Default shall have been cured or waived or shall have ceased to exist or the Senior Indebtedness 97 related thereto shall have been discharged or paid in full or (z) the date such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Senior Representative of the holders of the Designated Senior Indebtedness that have given notice of a Non-payment Default at or after the initiation of such Payment Blockage Period, after which, in the case of clause (x), (y) or (z), the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. Notwithstanding any other provision of this Indenture, in no event shall a Payment Blockage Period extend beyond 179 days. Not more than one Payment Blockage with respect to the Securities may be commenced during any one period of 365 consecutive days. No Non-payment Default with respect to the Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period will be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 365 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, then and in such event such payment shall be paid over and delivered forthwith to a Senior Representative of the holders of the Designated Senior Indebtedness or as a court of competent jurisdiction shall direct. Section 1204. Payment Permitted if No Default. ------------------------------- Nothing contained in this Article, elsewhere in this Indenture or in any of the Securities shall prevent the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 1202 or under the conditions described in Section 1203, from making payments at any time of principal of, premium, if any, or interest on the Securities. Section 1205. Subrogation to Rights of Holders of Senior Indebtedness. ------------------------------------------------------- Subject to the payment in full of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, 98 property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. Section 1206. Provisions Solely to Define Relative Rights. ------------------------------------------- The provisions of this Article are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than Holders of Senior Indebtedness and the holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 1202, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 1203, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 1203(c). Section 1207. Trustee to Effectuate Subordination. ----------------------------------- Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of Company owing 99 to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file a proper claim at least 30 days before the expiration of the time to file such claim, then the holders of Senior Indebtedness, and their agents, trustees or other representatives are authorized to do so for and on behalf of the Holders of the Securities. Section 1208. No Waiver of Subordination Provisions. ------------------------------------- (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of Subsection (a) of this Section, the holders of Senior Indebtedness may, any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no -------- ------- event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article 5 of this Indenture or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Article, subject to the rights, if any, under this Article, of the holders, from time to time, of Senior Indebtedness to receive the cash, property or securities receivable upon the exercise of such rights or remedies. 100 Section 1209. Notice to Trustee. ----------------- (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from a Senior Representative or any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received -------- ------- the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, or interest on any Security), then, anything herein contained to the contrary notwithstanding but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. (b) The Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Company by a Person representing himself to be a Senior Representative or a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a Senior Representative or a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor); provided, however, that failure to give such -------- ------- notice to the Company shall not affect in any way the ability of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is 101 not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 1210. Reliance on Judicial Order or Certificate of Liquidating -------------------------------------------------------- Agent. - ----- Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness 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, provided that the foregoing shall apply only if such court has -------- been fully apprised of the provisions of this Article. Section 1211. Rights of Trustee as a Holder of Senior Indebtedness: ----------------------------------------------------- Preservation of Trustee's Rights. - -------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 606. Section 1212. Article Applicable to Paying Agents. ----------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under this Indenture, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, -------- however, that Section 1211 shall not apply to the Company or any Affiliate of - ------- the Company if it or such Affiliate acts as Paying Agent. 102 Section 1213. No Suspension of Remedies. ------------------------- Nothing contained in this Article shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Five of this Indenture or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article of the holders, from time to time, of Senior Indebtedness to receive the cash, property or securities receivable upon the exercise of such rights or remedies. Section 1214. Trustee's Relation to Senior Indebtedness. ----------------------------------------- With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Article against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall mistakenly pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. Section 1215. Other Rights of Holders of Senior Indebtedness. ---------------------------------------------- All rights and interests under this Indenture of the holders of Senior Indebtedness, and all agreements and obligations of the Trustee, the Holders of the Securities and the Company under this Article shall remain in full force and effect irrespective of (a) any lack of validity or enforceability of the New Bank Credit Agreement, and promissory notes evidencing the New Bank Credit Agreement or any other agreement or instrument relating thereto or to any other Senior Indebtedness or (b) any other circumstance that might constitute a defense available to, or a discharge of, a guarantor or surety (other than as a result of any payments made on the New bank Credit Agreement or any other Senior Indebtedness). The holders of Senior Indebtedness are hereby authorized to demand specific performance of this Article, whether or not the Company shall have complied with any provisions of this Article applicable to it, at any time when the Trustee or any Holder of the Securities shall have failed to comply with any of these provisions. 103 The provisions of this Article shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. ARTICLE THIRTEEN SATISFACTION AND DISCHARGE Section 1301. Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities herein expressly provided for) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (1) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment United States dollars have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (2) all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee in trust for the purpose an amount in United States dollars sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and interest to the date of such deposit; (b) the Company or any Guarantor has paid or caused to be paid all other sums payable hereunder by the Company and any Guarantor; and (c) the Company and each Guarantor, if any, have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel 104 each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if United States dollars shall have been deposited with the Trustee pursuant to subclause (2) of Subsection (a) of this Section, the obligations of the Trustee under Section 1302 and the last paragraph of Section 1003 shall survive. Section 1302. Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 1003, all United States dollars deposited with the Trustee pursuant to Section 1301 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of, premium, if any, and interest on the Securities for whose payment such United States dollars have been deposited with the Trustee. If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates a Security on which a Guarantee is endorsed, such Guarantee shall be valid nevertheless. * * * * * If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates a Security on which a Guarantee is endorsed, such Guarantee shall be valid nevertheless. 105 This Indenture may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. THE HILLHAVEN CORPORATION By: ______________________________ Name: Title: Attest: ______________________ Name: Title: STATE STREET BANK AND TRUST COMPANY as Trustee By:______________________________ Name: Title: Attest: _______________________ Name: Title: 106 STATE OF WASHINGTON ) ) ss.: COUNTY OF ) On the ________ day of September, 1993, before more personally came ___________, to me known, who, being by me duly sworn, did depose and say that he resides at __________________________________; that he is a of The Hillhaven Corporation one of the corporations described in and which executed the foregoing instrument; that he knows the corporate seal of such corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed pursuant to authority of the Board of Directors of such corporation; and that he signed his name thereto pursuant to like authority. (NOTARIAL SEAL) STATE OF ) ) ss.: COUNTY OF ) On the ____________ day of September, 1993, before me personally came __________________, to me known, who, being by me duly sworn, did depose and say that he resides at ______________; that he is __________________ of State Street Bank and Trust Company one of the corporations described in and which executed the above instrument; that he knows the corporate seal of such corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed pursuant to authority of the Board of Directors of such corporation; and that he signed his name thereto pursuant to like authority. (NOTARIAL SEAL) EXHIBIT A --------- FORM OF INTERCOMPANY AGREEMENT ------------------------------ THIS AGREEMENT, made and entered into this ______________ day of _____________, 1993, by and among The Hillhaven Corporation, a Nevada corporation (the "Company"), and the Subsidiaries listed on Annex A hereto (all of the above corporations or partnerships other than the Company are referred to individually as a Subsidiary, as such term is defined in the Indenture between the Company and State Street Bank and Trust Company, as Trustee, dated as of ___________, 1993 (the "Indenture"), and referred to collectively as the "Subsidiaries"). All capitalized terms used herein that are defined in, or by reference in, the Indenture, have the meanings assigned to such terms therein, or by reference therein, unless otherwise defined. ARTICLE I TERMS OF THE INTERCOMPANY LOANS Section 1.01 The Loans. Each of the parties to this Agreement agrees that --------- all loans and other advances (individually, a "Loan" and collectively, the "Loans") by a party hereto (a "Lender") to another party hereto (a "Borrower") made after the date hereof shall be made on the terms and subject to the conditions set forth in this Agreement. For the purposes hereof, "Loans" shall also include all intercompany loans and advances owing by the Company to any Subsidiary outstanding on the date hereof and all Loans made after the date hereof. Section 1.02 Payment Terms. Each Loan subject to the terms of this ------------- Agreement shall be payable on such terms as may be agreed upon from time to time by the parties thereto. Section 1.03 Interest Prepayment. (a) The interest rate ("Interest ------------------- Rate"), if any, on a Loan shall be determined by the parties and shall be recorded in the Ledgers (as defined below) of the Borrower and the Lender. (b) The interest, if any, payable on each Loan shall accrue from the date such Loan is made. A-1 (c) The Loans may provide that if the principal or accrued interest, if any, on a Loan is not paid on the date, when due, interest on the unpaid principal and interest will accrue at a rate equal to the Interest Rate, if any, plus a specified amount of basis points per annum from maturity until the principal and interest on such Loan are fully paid. (d) The Loans may provide for prepayment at the option of the Borrower. Section 1.04 Subordination. Subject to Section 3.01, all Loans made to ------------- the Company or any Guarantor, in either case, by a Wholly Owned Subsidiary shall be subordinated in right of payment to the payment and performance of the obligations of the Company and any Guarantor under the Indenture, the Securities, the Guarantees or any other Indebtedness ranking senior to or pari ---- passu with the Securities. - ----- ARTICLE II COVENANTS Section 2.01 Maintenance of Ledger. Each Borrower and Lender shall --------------------- maintain, in accordance with generally accepted accounting principles consistently applied, a loan account in their general ledgers or other financial records (the "Ledgers") and each Loan (including the Interest Rate, if any) when made shall be promptly evidenced by a book-entry in such Ledgers. The Ledgers shall also indicate the date on which any repayment or prepayment of principal or accrued interest, if any, on a Loan is made and the amount of such repayment or prepayment. Section 2.02 Additional Subsidiaries. The Company agrees to cause any ----------------------- entity which becomes a Subsidiary after the date hereof to become a party to this Agreement on the date that the Company or a Subsidiary creates or acquires such Subsidiary by executing an amendment to this Agreement pursuant to which such Subsidiary agrees to be bound by the terms hereof as if an original party hereto. Section 2.03 Separate Evidence of Intercompany Debt Obligations. Any -------------------------------------------------- intercompany debt obligation may be evidenced by a promissory note, agreement or other instrument, provided that any such promissory note, agreement or other -------- instrument entered into after the date hereof if it evidences a Loan to the Company from a Wholly Owned Subsidiary incorporates by reference all of the terms of this Agreement and is not inconsistent with the terms hereof. A-2 ARTICLE III REPAYMENT PROVISIONS Section 3.01 Repayment Provisions. If after the date of issuance of a -------------------- Loan (i) a Default or Event of Default has occurred and is continuing under the Indenture or (ii) a Default or Event of Default under the New Bank Credit Agreement (as defined) shall have occurred and be continuing, then any Loans made to the Company by any Wholly Owned Subsidiary shall not be payable; provided, however, that if any such Default or Event of Default under the - -------- ------- Indenture or the New Bank Credit Agreement has been waived, cured or rescinded, such Loans may be paid. Any Lender that is a Wholly Owned Subsidiary hereby agrees that if it receives from the Company any payments or distributions on any Loan in violation of the prior sentence after any Default or Event of Default under the Indenture or the New Bank Credit Agreement has occurred, is continuing and has not been waived, cured or rescinded, it will pay over and deliver forthwith to the Company, all such payments and distributions. ARTICLE IV MISCELLANEOUS Section 4.01 Amendments, Etc. No amendment or waiver of any provision of --------------- this Agreement, or consent to depart therefrom, which in any such case could adversely affect the Holders of the Securities, is permitted at any time for any reason, except for (i) an amendment required under Section 2.02 or (ii) with the consent of the Holders of at least a majority in aggregate principal amount of the Outstanding Securities. Section 4.02 Termination; Release. This Agreement shall expire upon (i) -------------------- the discharge of the Company's and each of the Guarantor's obligations under the Indenture or (ii) the Company's election to defuse its obligations under the Indenture with respect to all Outstanding Securities in accordance with Section 402 or 403 of the Indenture. A Subsidiary shall be released from its obligations under this Agreement upon (x) its merger into another Subsidiary or the Company or (y) the sale, exchange or transfer by consolidation, merger or otherwise, to any Person not an Affiliate of the Company of all the Company's stock in, or all or substantially all of the assets of, such Subsidiary which is in compliance with the Indenture. A-3 Section 4.03 Assignment. No party to this Agreement may assign, in whole ---------- or in part, any of its rights and obligations under this Agreement, except to its legal successor in interest. Section 4.04 Third Party Beneficiaries. The Holders of the Securities, ------------------------- shall be third party beneficiaries of this Agreement; provided that only the -------- Trustee (on behalf of the Holders of the Securities) shall have the right to enforce this Agreement against the Company and the Subsidiaries. Section 4.05 Headings. Article and Section headings in this Agreement are -------- included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 4.06 Execution of Counterparts. This Agreement may be executed in ------------------------- any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 4.07 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. Section 4.08 Waivers. The maker of any loan hereunder hereby waives ------- presentment, demand for payment, notice of protest and all other demands and notices in connection with the delivery, acceptance, performance or enforcement thereof. A-4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE HILLHAVEN CORPORATION By_________________________________ Name: Title: FIRST HEALTHCARE CORPORATION By_________________________________ Name: Title: MEDISAVE PHARMACIES INC. By_________________________________ Name: Title: Each of the Corporations listed on Schedule A By_________________________________ Name: Title: A-5 SCHEDULE I INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARY (Excluding Attributable Debt) AS OF ____________, 1993 EX-4.8 7 FORM OF 10 1/8% SENIOR SUB. NOTE DUE 2001 EXHIBIT 4.8 THE HILLHAVEN CORPORATION _____________________ ________% SENIOR SUBORDINATED NOTES due 2001 No. ________________ $______________ THE HILLHAVEN CORPORATION, a Nevada corporation (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 ___________________ United States dollars on ___________________, 2001, at the office or agency of the Company referred to below, and to pay interest thereon from _______________, 1993 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________________ and _________________, in each year, commencing ___________, 1994 at the rate of ___________ % per annum, in United States dollars, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be ____________ or ___________ (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, and interest on such defaulted interest at the interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) 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, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of, premium, if any, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose, 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; provided, however, that payment of interest may be made at the -------- ------- option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof or by the authenticating agent appointed as provided in the Indenture by manual signature, this Security 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 by the manual or facsimile signature of its authorized officers and its corporate seal to be affixed or reproduced hereon. Dated: _______________ THE HILLHAVEN CORPORATION By:_______________________ Attest: [SEAL] _________________________ Secretary Form of Reverse of Security. ---------------------------- The form of the reverse of the Securities shall be substantially as follows: This Security is one of a duly authorized issue of Securities of the Company designated as its _____________% Senior Subordinated Notes due 2001 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $175,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of ______________, 1993, among the Company and State Street Bank and Trust Company, 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, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness on this Security and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance with certain conditions set forth therein. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture), whether Outstanding on the date of the Indenture or thereafter, and this Security is issued subject to such provisions. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for such purpose; provided, however, that the indebtedness evidenced by this -------- ------- Security shall cease to be so subordinate and subject in right of payment upon any defeasance of this Security referred to in clause (a) or (b) of the next preceding paragraph. The Securities are subject to redemption, as a whole or in part, at any time on or after __________, 1998 at the option of the Company, upon not less than 30 nor more than 60 days' prior notice by first-class mail in amounts of $1,000 or an integral multiple of $1,000 at the following redemption prices (expressed as a percentage of the principal amount) if redeemed during the 12-month period beginning ___________ of the years indicated below:
Redemption Year Price ---- ---------- 1998 .......................... ______% 1999 .......................... ______%
and thereafter at 100% of the principal amount, in each case, together with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of the Holders of record on the relevant record date to receive interest due on an Interest Payment Date). If less than all of the Securities are to be redeemed, such portion of the Securities shall be redeemed pro rata, by lot or by any other method the Trustee shall deem fair and reasonable. At any time on or prior to __________, 1996, the Company may redeem up to an aggregate of $50,000,000 principal amount of Securities within 180 days of the conclusion of one or more Public Equity Offerings of the Company or any of its Subsidiaries with the net proceeds of such offerings at a redemption price equal to of the aggregate principal amount, together with accrued and unpaid interest, if any, to the Redemption Date. Upon the occurrence of a Change in Control, each Holder may require the Company to repurchase all or a portion of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the date of repurchase. Under certain circumstances, in the event the Net Cash Proceeds received by the Company from any Asset Sale, which is not used to prepay Senior Indebtedness or invested in properties or assets used in the businesses of the Company, exceeds $17,500,000, the Company will be required to apply such proceeds to the repayment of the Securities and certain indebtedness ranking pari passu to the ---- ----- Securities. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities of record at the close of business on the relevant Record Date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the date of redemption. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions (including certain amendments permitted without the consent of any Holders) as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a specified percentage in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of a specified percentage in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past Defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange here for or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company or any Guarantor (in the event such Guarantor is obligated to make payments in respect of the Securities), which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed, subject to the subordination provisions of the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. Form of Trustee's Certificate of Authentication. ----------------------------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY As Trustee By:_________________________ Authorized Officer EX-10.1 8 DIRECTORS/OFFICERS INSURANCE CO. REIMBUR. POL. EXHIBIT 10.1 - -------------------------------------------------------------------------------- POLICY NUMBER: 445-86-62 [LOGO OF AMERICAN INTERNATIONAL COMPANIES] DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY [_]AIU Insurance Company [_]Illinois National Insurance Company [_]American Global Insurance Company [X]National Union Fire Insurance Company of Pittsburgh, Pa [_]Granite State Insurance Company [_]National Union Fire Insurance Company of Louisiana [_]New Hampshire Insurance Company [_]Birmingham Fire Insurance Company of Pennsylvania
(each of the above being a capital stock company) __________________________________________________________________ NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE OF THIS POLICY IS GENERALLY LIMITED TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD AND REPORTED IN WRITING TO THE INSURER PURSUANT TO THE TERMS HEREIN. PLEASE READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE THEREUNDER WITH YOUR INSURANCE AGENT OR BROKER. NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT. NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER MUST ADVANCE DEFENSE COSTS PAYMENTS PURSUANT TO THE TERMS HEREIN PRIOR TO THE FINAL DISPOSITION OF A CLAIM. DECLARATIONS
ITEM 1. NAMED CORPORATION: VENCOR INC MAILING ADDRESS: 3300 PROIVIDIAN CENTER LOUISVILLE, KY 40202 STATE OF INCORPORATION OF THE NAMED CORPORATION: Delaware ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the Named Corporation ITEM 3. POLICY PERIOD: From: September 28, 1995 To: September 28, 1996 (12:01 AM standard time at the address stated in Item 1.) ITEM 4. LIMIT OF LIABILITY: $20,000,000 aggregate for Coverages A and B combined (including Defense Costs) ITEM 5. RETENTION: SECURITIES CLAIMS ----------------- Judgments & Settlements (all coverages) None
62334 (5/95) 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Defense Costs (non-Indemnifiable Loss) None Defense Costs (Coverage B(i) and Indemnifiable Loss) $ 200,000 for Loss arising from Claims alleging the same Wrongful Act or related Wrongful Acts (waivable under Clause 6 in certain circumstances) OTHER CLAIMS: ------------- Judgments, Settlements and Defense Costs (non-Indemnifiable Loss) None Judgments, Settlements and Defense Costs (Indemnifiable Loss) $200,000 for Loss arising from Claims alleging the same Wrongful Act or related Wrongful Acts ITEM 6. CONTINUITY DATES: A. Coverages A and B(ii): September 01, 1989 B. Coverage B(i): September 28, 1995 C. Outside Entity Coverage: Per Outside Entity, see endorsement # 15, 16, 17 & 18 ITEM 7. PREMIUM: $335,000 + $ 5,025 KY Surcharge ITEM 8. NAME AND ADDRESS OF INSURER ("Insurer"): (This policy is issued only by the insurance company indicated below.) National Union Fire Insurance Company of Pittsburgh, Pa. 70 Pine Street New York, NY 10270
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed by its President and Secretary and signed on the Declarations Page by a duly authorized representative of the Insurer. /s/ Elizabeth M. Tuck [SIGNATURE ILLEGIBLE] SECRETARY PRESIDENT ALEXANDER & ALEXANDER TWO PRUDENTIAL PLAZA CHICAGO, IL 60601-6714 [SIGNATURE ILLEGIBLE] -------------------------- AUTHORIZED REPRESENTATIVE 11-27-95 LOUISVILLE, KY --------------------- ---------------- COUNTERSIGNATURE DATE COUNTERSIGNED AT 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY In consideration of the payment of the premium, and in reliance upon the statements made to the Insurer by application forming a part hereof and its attachments and the material incorporated therein, the insurance company designated in Item 8 of the Declarations, herein called the "Insurer", agrees as follows: 1. INSURING AGREEMENTS COVERAGE A: DIRECTORS AND OFFICERS INSURANCE This policy shall pay the Loss of each and every Director or Officer of the Company arising from a Claim first made against the Directors or Officers during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this policy for any actual or alleged Wrongful Act in their respective capacities as Directors or Officers of the Company, except when and to the extent that the Company has indemnified the Directors or Officers. The Insurer shall, in accordance with and subject to Clause 8, advance Defense Costs of such Claim prior to its final disposition. COVERAGE B: CORPORATE LIABILITY INSURANCE This policy shall pay the Loss of the Company arising from a: (i) Securities Claim first made against the Company, or (ii) Claim first made against the Directors or Officers, during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this policy for any actual or alleged Wrongful Act, but, in the case of (ii) above, only when and to the extent that the Company has indemnified the Directors or Officers for such Loss pursuant to law, common or statutory, or contract, or the Charter or By-laws of the Company duly effective under such law which determines and defines such rights of indemnity. The Insurer shall, in accordance with and subject to Clause 8, advance Defense Costs of such Claim prior to its final disposition. 2. DEFINITIONS (a) "Claim" means: (1) a written demand for monetary or non-monetary relief, or (2) a civil, criminal, or administrative proceeding for monetary or non-monetary relief which is commenced by: (i) service of a complaint or similar pleading; or (ii) return of an indictment (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges. The term "Claim" shall include a Securities Claim; provided, however, that with respect to Coverage B(i) only, Claim or Securities Claim shall not mean a criminal or administrative proceeding against the Company. (b) The "Company" means the Named Corporation designated in Item I of the Declarations and any Subsidiary thereof. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (c) "Continuity Date" means the date set forth in: (1) Item 6A of the Declarations with respect to Coverages A and B(ii); or (2) Item 6B of the Declarations with respect to Coverage B(i); or (3) Item 6C of the Declarations with respect to Coverages A or B for a Claim against an Insured arising out of such Insured serving as a director, officer, trustee or governor of an Outside Entity. (d) "Defense Costs" means reasonable and necessary fees, costs and expenses consented to by the Insurer (including premiums for any appeal bond, attachment bond or similar bond, but without any obligation to apply for or furnish any such bond) resulting solely from the investigation, adjustment, defense and appeal of a Claim against the Insureds, but excluding salaries of Officers or employees of the Company. (e) "Director(s) or Officer(s)" or "Insured(s)" means: (1) with respect to Coverages A and B(ii), any past, present or future duly elected or appointed directors or officers of the Company. In the event the Named Corporation or a Subsidiary thereof operates outside the United States, then the term "Director(s) or Officer(s)" or "Insured(s)" also means those titles, positions or capacities in such foreign Named Corporation or Subsidiary which is equivalent to the position of Director or Officer in a corporation incorporated within the United States. Coverage will automatically apply to all new Directors and Officers after the inception date of this policy; (2) with respect to Coverage B(i) only, the Company. (f) "Listed Event" means any of the following events: (1) any event for which the Company has reported or is required to report on Form 8-K filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934; or (2) any restatement or correction of a Company financial statement contained in any document filed with the Securities and Exchange Commission; or (3) any statement or disclosure made by or on the behalf of the Company relating to a prior forecast, estimate or projection of the Company's earnings or sales made by or on the behalf of the Company, which statement or disclosure represents a greater than 15% change from such prior forecast, estimate or projection. (g) "Loss" means damages, judgments, settlements and Defense Costs; however, Loss shall not include civil or criminal fines or penalties imposed by law, punitive or exemplary damages, the multiplied portion of multiplied damages, taxes, any amount for which the Insureds are not financially liable or which are without legal recourse to the Insureds, or matters which may be deemed uninsurable under the law pursuant to which this policy shall be construed. 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Further, with respect to Coverage B only, Loss shall not include damages, judgments or settlements arising out of a Claim alleging that the Company paid an inadequate or unfair price or consideration for the purchase of its own securities or the securities of a subsidiary. Notwithstanding the foregoing, with respect to Coverage B(i) only and subject to the other terms, conditions and exclusions of the policy, Loss shall include punitive damages (if insurable by law) imposed upon the Company. (h) "No Liability" means with respect to a Securities Claim made against the Insured(s): (1) a final judgment of no liability obtained prior to trial, in favor of all Insureds, by reason of a motion to dismiss or a motion for summary judgment, after the exhaustion of all appeals; or (2) a final judgment of no liability obtained after trial, in favor of all Insureds, after the exhaustion of all appeals. In no event shall the term "No Liability" apply to a Securities Claim made against an Insured for which a settlement has occurred. (i) "Outside Entity" means: (1) a not-for-profit organization under section 501(c)(3) of the Internal Revenue Code of 1986 (as amended); or (2) any other corporation, partnership, joint venture or other organization listed by endorsement to this policy. (J) "Policy Period" means the period of time from the inception date shown in Item 3 of the Declarations to the earlier of the expiration date shown in Item 3 of the Declarations or the effective date of cancellation of this policy; however, to the extent that coverage under this policy replaces coverage in other policies terminating at noon standard time on the inception date of such coverage hereunder, then such coverage as is provided by this policy shall not become effective until such other coverage has terminated. (k) "Securities Claim" means a Claim made against an Insured which alleges a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, rules or regulations promulgated thereunder, the securities laws of any state, or any foreign jurisdiction, and which alleges a Wrongful Act in connection with the claimant's purchase or sale of; or the offer to purchase or sell to the claimant, any securities of the Company, whether on the open market or arising from a public or private offering of securities by the Company. (l) "Subsidiary" means: (1) a corporation of which the Named Corporation owns on or before the inception of the Policy Period more than 50% of the issued and outstanding voting stock either directly, or indirectly through one or more of its Subsidiaries; (2) automatically a corporation whose assets total less than 10% of the total consolidated assets of the Company as of the inception date of this policy, which corporation becomes a Subsidiary during the Policy Period. The Named Corporation shall provide the Insurer with full particulars of the new Subsidiary before the end of the Policy Period; 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (3) a corporation which becomes a Subsidiary during the Policy Period (other than a corporation described in paragraph (2) above) but only upon the condition that within 90 days of its becoming a Subsidiary, the Named Corporation shall have provided the Insurer with full particulars of the new Subsidiary and agreed to any additional premium and/or amendment of the provisions of this policy required by the Insurer relating to such new Subsidiary. Further, coverage as shall be afforded to the new Subsidiary is conditioned upon the Named Corporation paying when due any additional premium required by the Insurer relating to such new Subsidiary. A corporation becomes a Subsidiary when the Named Corporation owns more than 50% of the issued and outstanding voting stock, either directly, or indirectly through one or more of its Subsidiaries. A corporation ceases to be a Subsidiary when the Named Corporation ceases to own more than 50% of the issued and outstanding voting stock, either directly, or indirectly through one or more of its Subsidiaries. In all events, coverage as is afforded with respect to a Claim made against a Subsidiary or any Director or Officer thereof shall only apply for Wrongful Acts committed or allegedly committed after the effective time that such Subsidiary became a Subsidiary and prior to the time that such Subsidiary ceased to be a Subsidiary. (m) "Wrongful Act" means: (1) with respect to individual Directors or Officers, any breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Directors or Officers of the Company in their respective capacities as such, or any matter claimed against them solely by reason of their status as Directors or Officers of the Company, or any matter claimed against them arising out of their serving as a director, officer, trustee or governor of an Outside Entity in such capacities, but only if such service is at the specific written request or direction of the Company, (2) with respect to the Company, any breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Company, but solely as respects a Securities Claim. 3 EXTENSIONS Subject otherwise to the terms hereof, this policy shall cover Loss arising from a Claim made against the estates, heirs, or legal representatives of deceased Directors or Officers, and the legal representatives of Directors or Officers in the event of incompetency, insolvency or bankruptcy, who were Directors or Officers at the time the Wrongful Acts upon which such Claims are based were committed. Subject otherwise to the terms hereof, this policy shall cover Loss arising from a Claim made against the lawful spouse (whether such status is derived by reason of statutory law, common law or otherwise of any applicable jurisdiction in the world) of an individual Director or Officer for a Claim arising solely out of his or her status as the spouse of an individual Director or Officer, including a Claim that seeks damages recoverable from marital community property, property jointly held by the individual Director or Officer and the spouse, or property transferred from the individual Director or Officer to the spouse; provided, however, that this extension shall not afford coverage for any Claim for any actual or alleged Wrongful Act of the spouse, but shall apply only to Claims arising out of any actual or alleged Wrongful Acts of an individual Director or Officer, subject to the policy's terms, conditions and exclusions. 62335 (5/95) 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4. EXCLUSIONS The Insurer shall not be liable to make any payment for Loss in connection with a Claim made against an Insured: (a) arising out of, based upon or attributable to the gaining in fact of any profit or advantage to which an Insured was not legally entitled; (b) arising out of, based upon or attributable to: (1) profits in fact made from the purchase or sale by an Insured of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law; or (2) payments to an Insured of any remuneration without the previous approval of the stockholders of the Company, which payment without such previous approval shall be held to have been illegal; (c) arising out of, based upon or attributable to the committing in fact of any criminal or deliberate fraudulent act; [The Wrongful Act of a Director or Officer shall not be imputed to any other Director or Officer for the purpose of determining the applicability of the foregoing exclusions 4(a) through 4(c)] (d) alleging, arising out of, based upon or attributable to the facts alleged, or to the same or related Wrongful Acts alleged or contained, in any claim which has been reported, or in any circumstances of which notice has been given, under any policy of which this policy is a renewal or replacement or which it may succeed in time; (e) alleging, arising out of, based upon or attributable to any pending or prior litigation as of the Continuity Date, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation; (f) alleging, arising out of, based upon or attributable to a Listed Event that occurs no later than 90 days subsequent to the Continuity Date; provided, however, that this exclusion shall only apply with respect to coverage which would have otherwise been afforded under Coverage B(i) of the policy; (g) with respect to serving as a director, officer, trustee or governor of an Outside Entity, for any Wrongful Act occurring prior to the Continuity Date if the Insured knew or could have reasonably foreseen that such Wrongful Act could lead to a Claim under this policy; (h) alleging, arising out of, based upon or attributable to any actual or alleged act or omission of the Directors or Officers serving in their capacities as directors, officers, trustees or governors of any other entity other than the Company or an Outside Entity, or by reason of their status as directors, officers, trustees or governors of such other entity; (i) which is brought by any Insured or by the Company; or which is brought by any security holder of the Company, whether directly or derivatively, unless such security holder's Claim is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of, any Insured or the Company; provided, however, this 5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- exclusion shall not apply to a wrongfUl termination of employment Claim brought by a former employee other than a former employee who is or was a Director of the Company; (j) for any Wrongful Act arising out of the Insured serving as a director, officer, trustee or governor of an Outside Entity if such Claim is brought by the Outside Entity or by any director or officer thereof; or which is brought by any security holder of the Outside Entity, whether directly or derivatively, unless such security holder's Claim is instigated and continued totally independent of; and totally without the solicitation of; or assistance of; or active participation of; or intervention of; the Outside Entity, any director or officer thereof, the Company or an Insured. (k) for bodily injury, sickness, disease, death or emotional distress of any person, or damage to or destruction of any tangible property, including the loss of use thereof, or for injury from libel or slander or defamation or disparagement, or for injury from a violation of a person's right of privacy; (l) alleging, arising out of, based upon, attributable to, or in any way involving, directly or indirectly: (1) the actual, alleged or threatened discharge, dispersal, release or escape of pollutants; or (2) any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants, Including but not limited to a Claim alleging damage to the Company or its securities holders. Pollutants include (but is not limited to) any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes (but is not limited to) materials to be recycled, reconditioned or reclaimed; (m) for violation(s) of any of the responsibilities, obligations or duties imposed upon fiduciaries by the Employee Retirement Income Security Act of 1974, or amendments thereto or any similar provisions of state statutory law or common law. 5. LIMIT OF LIABILITY (FOR ALL LOSS - INCLUDING DEFENSE COSTS) The Limit of Liability stated in Item 4 of the Declarations is the limit of the Insurer's liability for all Loss, under Coverage A and Coverage B combined, arising out of any Claim first made against the Insureds during the Policy Period and the Discovery Period (if applicable); however, the Limit of Liability for the Discovery Period shall be part of, and not in addition to, the Limit of Liability for the Policy Period. Further, a Claim which is made subsequent to the Policy Period or Discovery Period (if applicable) which pursuant to Clause 7(b) or 7(c) is considered made during the Policy Period or Discovery Period shall also be subject to the aggregate Limit of Liability stated in Item 4 of the Declarations. DEFENSE COSTS ARE NOT PAYABLE BY THE INSURER IN ADDITION TO THE LIMIT OF LIABILITY. DEFENSE COSTS ARE PART OF LOSS AND AS SUCH ARE SUBJECT TO THE LIMIT OF LIABILITY FOR LOSS. 6 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6. RETENTION CLAUSE The Insurer shall only be liable for the amount of Loss arising from a Claim which is in excess of the Retention amount stated in Item 5 of the Declarations, such Retention amount to be borne by the Company and/or the Insureds and shall remain uninsured, with regard to all Loss under: (i) Coverage A or B(ii) for which the Company has indemnified or is permitted or required to indemnify the Director(s) or Officer(s) ("Indemnifiable Loss"); or (ii) Coverage B(i). A single Retention amount shall apply to Loss arising from all Claims alleging the same Wrongful Act or related Wrongful Acts. Notwithstanding the foregoing, solely with respect to a Securities Claim under this policy, the Retention shall only apply to Defense Costs; provided, however, no Retention shall apply for a Securities Claim even as respects Defense Costs in the event of a determination of No Liability of all Insureds, and the Insurer shall thereupon reimburse such Defense Costs paid by the Insured. 7. NOTICE/CLAIM REPORTING PROVISIONS NOTICE HEREUNDER SHALL BE GIVEN IN WRITING TO THE INSURER NAMED IN ITEM 8 OF THE DECLARATIONS AT THE ADDRESS INDICATED IN ITEM 8 OF THE DECLARATIONS. IF MAILED, THE DATE OF MAILING SHALL CONSTITUTE THE DATE THAT SUCH NOTICE WAS GIVEN AND PROOF OF MAILING SHALL BE SUFFICIENT PROOF OF NOTICE. (a) The Company or the Insureds shall, as a condition precedent to the obligations of the Insurer under this policy, give written notice to the Insurer of a Claim made against an Insured as soon as practicable and either: (1) anytime during the Policy Period or during the Discovery Period (if applicable); or (2) within 30 days after the end of the Policy Period or the Discovery Period (if applicable), as long as such Claim(s) is reported no later than 30 days after the date such Claim was first made against an Insured. (b) If written notice of a Claim has been given to the Insurer pursuant to Clause 7(a) above, then a Claim which is subsequently made against the Insureds and reported to the Insurer alleging, arising out of, based upon or attributable to the facts alleged in the Claim for which such notice has been given, or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged in the Claim of which such notice has been given, shall be considered made at the time such notice was given. (c) If during the Policy Period or during the Discovery Period (if applicable) the Company or the Insureds shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against the Insureds and shall give written notice to the Insurer of the circumstances and the reasons for anticipating such a Claim, with full particulars as to dates, persons and entities involved, then a Claim which is subsequently made against the Insureds and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the time such notice of such circumstances was given. 7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENSE COSTS) Under both Coverage A and Coverage B of this policy, except as hereinafter stated, the Insurer shall advance, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advance payments by the Insurer shall be repaid to the Insurer by the Insureds or the Company, severally according to their respective interests, in the event and to the extent that the Insureds or the Company shall not be entitled under the terms and conditions of this policy to payment of such Loss. THE INSURER DOES NOT, HOWEVER, UNDER THIS POLICY, ASSUME ANY DUTY TO DEFEND. THE INSUREDS SHALL DEFEND AND CONTEST ANY CLAIM MADE AGAINST THEM. THE INSUREDS SHALL NOT ADMIT OR ASSUME ANY LIABILITY, ENTER INTO ANY SETTLEMENT AGREEMENT, STIPULATE TO ANY JUDGMENT, OR INCUR ANY DEFENSE COSTS WITHOUT THE PRIOR WRITTEN CONSENT OF THE INSURER. ONLY THOSE SETTLEMENTS, STIPULATED JUDGMENTS AND DEFENSE COSTS WHICH HAVE BEEN CONSENTED TO BY THE INSURER SHALL BE RECOVERABLE AS LOSS UNDER THE TERMS OF THIS POLICY. THE INSURER'S CONSENT SHALL NOT BE UNREASONABLY WITHHELD, PROVIDED THAT THE INSURER SHALL BE ENTITLED TO EFFECTIVELY ASSOCIATE IN THE DEFENSE AND THE NEGOTIATION OF ANY SETTLEMENT OF ANY CLAIM. The Insurer shall have the right to effectively associate with the Company and the Insureds in the defense of any Claim that appears reasonably likely to involve the Insurer, including but not limited to negotiating a settlement. The Company and the Insureds shall give the Insurer full cooperation and such information as it may reasonably require. The Insurer may make any settlement of any Claim it deems expedient with respect to any Insured subject to such Insured's written consent. If any Insured withholds consent to such settlement, the Insurer's liability for all Loss on account of such Claim shall not exceed the amount for which the Insurer could have settled such Claim plus Defense Costs incurred as of the date such settlement was proposed in writing by the Insurer. The Company is not covered in any respect under Coverage A; the Company is covered, subject to the policy's terms and conditions, only with respect to its indemnification of its Directors or Officers under Coverage B(ii) as respects a Claim against such Directors and Officers, and subject to the policy's terms and conditions, under Coverage B(i) for a Securities Claim made against the Company. Accordingly, the Insurer has no obligation under this policy for Defense Costs incurred by, judgments against or settlements by the Company arising out of a Claim made against the Company other than a covered Securities Claim, or any obligation to pay Loss arising out of any legal liability that the Company has to a claimant except as respects a covered Securities Claims against the Company. With respect to (i) Defense Costs jointly incurred by, (ii) any joint settlement made by, and/or (iii) any adjudicated judgment of joint and several liability against the Company and any Director or Officer, in connection with any Claim other than a Securities Claim, the Company and the Director(s) or Officer(s) and the Insurer agree to use their best efforts to determine a fair and proper allocation of the amounts as between the Company and the Director(s) or Officer(s) and the Insurer, taking into account the relative legal and financial exposures of and the relative benefits obtained by the Directors and Officers and the Company. In the event that a determination as to the amount of Defense Costs to be advanced under the policy cannot be agreed to, then the Insurer shall advance such Defense Costs which the Insurer states to be fair and proper until a different amount shall be agreed upon or determined pursuant to the provisions of this policy and applicable law. 62335 (5/95) 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9. PRE-AUTHORIZED SECURITIES DEFENSE ATTORNEYS Only with respect to a Securities Claim: Affixed as Appendix A hereto and made a part of this policy is a list of Panel Counsel law firms ("Panel Counsel Firms"). The list provides the Insured a choice of law firms from which a selection of legal counsel shall be made to conduct the defense of any Securities Claim made against them. The Insureds shall select a Panel Counsel Firm to defend a Securities Claim made against the Insureds in the jurisdiction in which the Securities Claim is brought. In the event a Securities Claim is brought in a jurisdiction not included on the list, the Insureds shall select a Panel Counsel Firm in the listed jurisdiction which is the nearest geographic jurisdiction to either where the Securities Claim is brought or where the corporate headquarters of the Named Corporation is located. In such instance the Insureds also may, with the consent of the Insure, which consent shall not be unreasonably withheld, select a non-Panel Counsel Firm in the jurisdiction in which the Securities Claim is brought to function as "local counsel" on the Securities Claim to assist the Panel Counsel Firm which will function as "lead counsel" in conducting the defense of the Securities Claim. With the express prior written consent of the Insurer, an Insured may select a Panel Counsel Firm different from that selected by other Insured defendants if such selection is required due to an actual conflict of interest or is otherwise reasonably justifiable. The list of Panel Counsel Firms may be amended from time to time by the Insurer. However, no change shall be made to the specific list attached to this policy during the Policy Period without the consent of the Named Corporation. At the request of the Insured, the Insurer may in its discretion add to the attached list of Panel Counsel Firms for the purposes of defending a Securities Claim made against the Insured in any specified jurisdiction (including a jurisdiction not originally included in the Panel Counsel list) a Panel Counsel Firm not originally listed for such jurisdiction. The Insurer may in its discretion waive, in part or in whole, the provisions of this clause as respects a particular Claim. 10. DISCOVERY CLAUSE Except as indicated below, if the Insurer or the Named Corporation shall cancel or refUse to renew this policy, the Named Corporation shall have the right, upon payment of an additional premium of 75% of the "full annual premium", to a period of one year following the effective date of such cancellation or nonrenewal (herein referred to as the Discovery Period) in which to give to the Insurer written notice of Claims first made against the Insureds during said one yew period for any Wrongful Act occurring prior to the end of the Policy Period and otherwise covered by this policy. As used herein, "full annual premium" means the premium level in effect immediately prior to the end of the Policy Period. The rights contained in this paragraph shall terminate, however, unless written notice of such election together with the additional premium due is received by the Insurer within 30 days of the effective date of cancellation or nonrenewal. In the event of a Transaction, as defined in Clause 12, the Named Corporation shall have the right, within 30 days before the end of the Policy Period, to request an offer from the Insurer of a Discovery Period (with respect to Wrongful Acts occurring prior to the effective time of the Transaction) for a period of no less than three years or for such longer or shorter period as the Named Corporation may request. 62335 (5/95) 9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Insurer shall offer such Discovery Period pursuant to such terms, conditions and premium as the Insurer may reasonably decide. In the event of a Transaction, the right to a Discovery Period shall not otherwise exist except as indicated in this paragraph. The additional premium for the Discovery Period shall be fully earned at the inception of the Discovery Period. The Discovery Period is not cancelable. This clause and the rights contained herein shall not apply to any cancellation resulting from non-payment of premium. 11. CANCELLATION CLAUSE This policy may be canceled by the Named Corporation at any time only by mailing written prior notice to the Insurer or by surrender of this policy to the Insurer or its authorized agent. This policy may also be canceled by or on behalf of the Insurer by delivering to the Named Corporation or by mailing to the Named Corporation, by registered, certified, or other first class mail, at the Named Corporation's address as shown in Item 1 of the Declarations, written notice stating when, not less than 60 days thereafter, the cancellation shall be effective. The mailing of such notice as aforesaid shall be sufficient proof of notice. The Policy Period terminates at the date and hour specified in such notice, or at the date and time of surrender. If this policy shall be canceled by the Named Corporation, the Insurer shall retain the customary short rate proportion of the premium herein. If this policy shall be canceled by the Insurer, the Insurer shall retain the pro rata proportion of the premium herein. Payment or tender of any unearned premium by the Insurer shall not be a condition precedent to the effectiveness of cancellation, but such payment shall be made as soon as practicable. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. 12. CHANGE IN CONTROL OF NAMED CORPORATION If during the Policy Period: a. the Named Corporation shall consolidate with or merge into, or sell all or substantially all of its assets to any other person or entity or group of persons and/or entities acting in concert; or b. any person or entity or group of persons and/or entities acting in concert shall acquire an amount of the outstanding securities representing more than 50% of the voting power for the election of Directors of the Named Corporation, or acquires the voting rights of such an amount of such securities; (either of the above events herein referred to as the "Transaction") 62335 (5/95) 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- then, this policy shall continue in full force and effect as to Wrongful Acts occurring prior to the effective time of the Transaction, but there shall be no coverage afforded by any provision of this policy for any actual or alleged Wrongful Act occurring after the effective time of the Transaction. This policy may not be canceled after the effective time of the Transaction and the entire premium for this policy shall be deemed earned as of such time. The Named Corporation shall also have the right to an offer by the Insurer of a Discovery Period described in Clause 10 of the policy. The Named Corporation shall give the Insurer written notice of the Transaction as soon as practicable, but not later than 30 days after the effective date of the Transaction. 13. SUBROGATION In the event of any payment under this policy, the Insurer shall be subrogated to the extent of such payment to all the Company's and the Insureds' rights of recovery thereof, and the Company and the Insureds shall execute all papers required and shall do everything that may be necessary to secure such rights including the execution of such documents necessary to enable the Insurer effectively to bring suit in the name of the Company and/or the Insureds. In no event, however, shall the Insurer exercise its rights of subrogation against an Insured under this policy unless such Insured has been convicted of a criminal act, or been judicially determined to have committed a deliberate fraudulent act, or obtained any profit or advantage to which such Insured was not legally entitled. 14. OTHER INSURANCE AND INDEMNIFICATION Such insurance as is provided by this policy shall apply only as excess over any other valid and collectible insurance. In the event of a Claim against a Director or Officer arising out of his or her serving as a director, officer, trustee or governor of an Outside Entity, coverage as is afforded by this policy shall be specifically excess of indemnification provided by such Outside Entity and any insurance provided to such Outside Entity with respect to its directors or officers. Further, in the event such other Outside Entity insurance is provided by the Insurer or any member company of American International Group, Inc. (AIG) (or would be provided but for the application of the retention amount, exhaustion of the limit of liability or failure to submit a notice of a Claim) then the maximum aggregate Limit of Liability for all Losses combined covered by virtue of this policy as respects any such Claim shall be reduced by the limit of liability (as set forth on the Declarations Page) of the other AIG insurance provided to such Outside Entity. 15. NOTICE AND AUTHORITY It is agreed that the Named Corporation shall act on behalf of its Subsidiaries and all Insureds with respect to the giving of notice of Claim or giving and receiving notice of cancellation, the payment of premiums and the receiving of any return premiums that may become due under this policy, the receipt and acceptance of any endorsements issued to form a part of this policy and the exercising or declining to exercise any right to a Discovery Period. 16. ASSIGNMENT This policy and any and all rights hereunder are not assignable without the written consent of the Insurer. 62335 (5/95) 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 17. ARBITRATION It is hereby understood and agreed that all disputes or differences which may arise under or in connection with this policy, whether arising before or after termination of this policy, including any determination of the amount of Loss, shall be submitted to the American Arbitration Association under and in accordance with its then prevailing commercial arbitration rules. The arbitrators shall be chosen in the manner and within the time frames provided by such rules. If permitted under such rules, the arbitrators shall be three disinterested individuals having knowledge of the legal, corporate management, or insurance issues relevant to the matters in dispute. Any party may commence such arbitration proceeding in either New York, NY; Atlanta, Georgia; Chicago, Illinois; or Denver, Colorado. The arbitrators shall give due consideration to the general principles of Delaware law in the construction and interpretation of the provisions of this policy; provided, however, that the terms, conditions, provisions and exclusions of this policy are to be construed in an evenhanded fashion as between the parties, including without limitation, where the language of this policy is alleged to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant terms, conditions, provisions or exclusions of the policy (without regard to the authorship of the language, the doctrine of reasonable expectation of the parties and without any presumption or arbitrary interpretation or construction in favor of either party or parties, and in accordance with the intent of the parties.) The written decision of the arbitrators shall be provided to both parties and shall be binding on them. The arbitrators' award shall not include attorney fees or other costs. Each party shall bear equally the expenses of the arbitration. 18. ACTION AGAINST INSURER Except as provided in Clause 17 of the policy, no action shall lie against the Insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the Insureds' obligation to pay shall have been finally determined either by judgment against the Insureds after actual trial or by written agreement of the Insureds, the claimant and the Insurer. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy. No person or organization shall have any fight under this policy to join the Insurer as a party to any action against the Insureds or the Company to determine the Insureds' liability, nor shall the Insurer be impleaded by the Insureds or the Company or their legal representatives. Bankruptcy or insolvency of the Company or the Insureds or of their estates shall not relieve the Insurer of any of its obligations hereunder. 19. HEADINGS The descriptions in the headings of this policy are solely for convenience, and form no part of the terms and conditions of coverage. 62335 (5/95) 12 - -------------------------------------------------------------------------------- APPENDIX A ---------- PANEL COUNSEL
Palo Alto CALIFORNIA Los Angeles Wilson Sonsini Goodrich & Rosati Gibson Dunn & Crutcher 650 Page Mill Road 333 South Grand Avenue Palo Alto, California 94304-1050 Los Angeles, California 90071-3197 Contact Person: Bruce Vanyo or Contact Person: Robert Warren or Steven Sethatz (415) 493-9300 Robert S. Warren (213) 229-7326 Wayne W. Smith (213) 229-7464 Heller, Ellman, White & McAuliffe John H. Sharer (213) 229-7476 525 University Avenue Palo Alto, California 94301 Irell & Manella Contact Person: Norman J. Blears 1800 Avenue Of The Stars (415) 324-7000 Suite 900 Los Angeles, California 90067-4276 Contact Person: Richard Borow San Francisco (310) 277-1010 Brobeck, Phleger & Harrison Kirkland & Ellis Spear Street Tower 300 South Grand Avenue One Market Los Angeles, California 90071 San Francisco, California 94104 Contact Person: Jeffrey S. Davidson or Contact Person: Stephen C. Neal Tower C. Snow, Jr. (415) 442-0900 (213) 680-8400 Heller, Ehrman, White & McAuliffe Latham & Watkins 333 Bush Street 633 West Fifth Avenue San Francisco, California 94104-2878 Los Angeles, CA 90071 Contact Person: Douglas Schwab or Contact: M. Laurence Popofsky (415) 772-6000 Hugh Steven Wilson (213) 485-1234 McCutchen, Doyle, Brown & Enersen Munger, Tolles & Olson 3 Embarcadero Center - 18th floor 355 South Grand Avenue - 35th floor San Francisco. California 94111-4034 Los Angeles, California 90071-1560 Contact Person: David Balabanian or Contact Person: Dennis Kinnaird Phillip Rotner (415) 393-2000 (213) 683-9264 or John W. Spiegel (213) 683-9152 Morrison & Foerster 345 California Street O'Melveny & Myers San Francisco, California 94104-2675 400 South Hope Street Contact Person: Los Angeles, California 90071-2899 Melvin R. Goldman (415) 677-7311 Contact Person: Seth Aronson or Paul T. Friedman (415) 677-7444 Robert Vanderet (213) 669-6000 Orrick Herrington & Sutcliffe Skadden, Arps, Slate, Meagher & Flom Old Federal Reserve Bank Bldg. 300 South Grand Avenue 400 Sansome Street Suite 3400 San Francisco, California 94111 Los Angeles, California 90071 Contact Person: James A. Hughes Contact Person: James E. Lyons or (415) 392-1122 Frank Rothman (213) 687-5000 or W. Reece Bader (415) 392-1122 Pillsbury, Madison & Sutro P.O. Box 7880 235 Montgomery Street San Francisco, California 94104 Contact Person: Gary H. Anderson (415) 983-1341
PANEL COUNSEL
DISTRICT OF COLUMBIA GEORGIA Washington Atlanta Arnold & Porter Alston & Bird 555 Twelfth St. N.W. One Atlantic Center Washington, DC 20004 1201 West Peachtree Street Contact Person: Scott Schreiber Atlanta. Georgia 30309-3424 (202) 942-5672 Contact Person: Peter Q. Bassett (404) 881-7343 Mary C. Gill (404) 881-7276 Davis Polk & Wardwell 1300 I Street, NW King & Spalding Suite 1100 191 Peachtree Street N.W. Washington, D.C. 20005 Atlanta, Georgia 30303 Contact Person: Scott W. Muller Contact Person: Michael R. Smith or Michael P. Carroll (202) 962-7000 Griffin Bell (404) 572-4600 Gibson, Dunn & Crutcher Long, Aldridge & Norman 1050 Connecticut Avenue, NW One Peachtree Center Suite 900 303 Peachtree Street - Suite 5300 Washington, D.C. 20036-5306 Atlanta, Georgia 30308 Contact Person: F. Joseph Warin Contact Person: Clay C. Long (404) 527-4050 (202) 887-3609 J. Allen Maines (404) 527-8340 Mudge Rose Guthrie Alexander & Ferdon Smith, Gambrell & Russel 212 K Street, NW Suite 1800 Washington, D.C. 20037-5303 3343 Peachtree Road N.E. Contact Person: Leonard Garment or Atlanta. Georgia 30326 I. Lewis Libby (202) 429-9355 Contact Person: David Handley (404) 264-2671 Robert C. Schwartz (404) 264-2658 Patton Boggs, LLP 2550 M Street N.W. Suite 900 ILLINOIS Washington, D.C. 20037 Chicago Contact Person: C. Allen Foster (202) 457 6320 Jenner & Block or Charles H. Camp (202) 457-5265 One IBM Plaza Chicago, Illinois 60611 Shearman & Sterling Contact Person: Jerold Solovy 801 Pennsylvania Avenue N.W. (312) 222-9350 Washington, D.C. 20004-2604 Contact Person: Thomas S. Martin or Kirkland & Ellis Jonathan L Greenblatt (202) 508-8000 200 East Randolph Drive Chicago, Illinois 60601 Willkie Farr & Gallagher Contact Person: Garrett B. Johnson Three Lafayette Centre Robert J. Kopecky (312) 861-2000 1155 21st Street N.W. Washington, D.C. 20036-3384 Contact Person: Kevin B. Clark (202) 328-8000
PANEL COUNSEL Sidley & Austin NEW YORK One First National Plaza New York Chicago, Illinois 60603-2003 Contact Person: Robert Downing (312) 853-7434 Cahill Gordon & Reindel Eugene Schoon (312) 853-7279 80 Pine Street Walter C. Carlson (312) 853-7734 New York, New York 10005 Contact Person: Charles A. Gilman Skadden, Arps, Slate, Meagher & Flom or Thomas J. Kavaler (212) 701-3000 333 West Wacker Drive or Immanuel Kohn Suite 2100 Chicago, Illinois 60606 Davis, Polk & Wardwell Contact Person: Timothy Nelsen or 450 Lexington Avenue Susan Getzendanner (312) 407-0700 New York, New York 10017 Contact Person: Henry King, Sonnenschein Nath & Rosenthal or Dan Kolb (212) 450-4000 8000 Sears Tower Chicago, Illinois 60606-6404 Contact Person: Harold D. Shapiro Fried Frank Harris Shriver & Jacobson (312) 876-8035 1 New York Plaza - 27th Floor New York, New York 10004 Contact Person: Sheldon Raab MASSACHUSETTS (212) 820-8090 Boston Kirkland & Ellis Goodwin, Proctor & Hoar Citicorp Center Exchange Place Boston, 153 East 53rd Street Massachusetts 02109-2881 New York, New York 10022-4675 Contact Person: Don M. Kennedy Contact Person: Yosef J. Riemer or (617) 570-1000 Frank M, Holozubiec (212) 446-4800 Hale & Dorr Milbank, Tweed, Hadley & McCloy 60 State St. 1 Chase Manhattan Plaza Boston, Massachusetts 02109 New York, New York 10005 Jeffery Rudman (617) 742-9100 Contact Person: Russell E. Brooks (212) 530-5554 Ropes & Gray One International Plaza Mudge Rose Guthrie Alexander & Ferdon Boston, Massachusetts 02110-2624 180 Maiden Lane Contact Person: John Donovan, Jr. New York, New York 10038 (617) 951-7566 Contact Person: Kenneth Con boy, John J. Kirby, Jr., or Skadden, Arps, Slate, Meagher & Flom Laurence V. Senn, Jr. (212) 510-7000 1 Beacon Street Boston, Massachusetts 02108 Shearman & Sterling Contact Person: Thomas A. Dougherty or Citicorp Center George J. Skelley 153 E 53rd Street (617) 573-4800 New York, New York 10022-4676 Contact Person: Palmer & Dodge Dennis Orr (212) 848-8000 1 Beacon Street Boston, Massachusetts 02108 Contact Person: Peter Terris or Peter Saparoff (617) 573-0100
PANEL COUNSEL Simpson Thacher & Bartlett TEXAS 425 Lexington Avenue Dallas New York, New York 10017-3909 Contact Person: Roy L. Reardon, Akin, Gump, Strauss, Hauer & Feld, LLP. James Hagan, or 4100 Suite Michael J. Chepiga (212) 455-2000 1700 Pacific Avenue Dallas, Texas 75201-4618 Contact Person: Michael Lowenberg P.C. Skadden, Arps, Slate, Meagher & Flom or Louis P. Bickel (214) 969-2800 919 Third Avenue New York, New York 10022 Fulbright & Jaworski Contact Person: Barry H. Garfinkel or 2200 Ross Avenue Jonathan Lerner (212) 735-3000 Suite 2800 Dallas, Texas 75201 Stroock & Stroock & Lavan Contact Person: Karl G. Dial Seven Hanover Square (214) 855-8000 New York, NY 10004-2696 Contact: Locke Purnell Rain Harrell Melvin A. Brosterman (212) 806-5400 2200 Ross Avenue Laurence Greenwald (212) 806-5400 Suite 2200 Alvin K. Hellerstein (212) 806-5400 Dallas, TX 75201-6776 Contact Person: Sullivan & Cromwell John McElhaney (214) 740-8458 125 Broad Street Peter Flynn (214) 740-8654 New York, New York 10004 Morris Harrell (214) 740-8404 Contact Person: John L Warden (212) 558-4000 Thompson & Knight, P.C. 1700 Pacific Avenue Wachtell, Lipton, Rosen & Katz Suite 3300 51 West 57th Street Dallas, TX 75201 New York, New York 10019 Contact Person: Contact Person: Norman Redlich. Schuyler B. Marshall (214) 969-1246 (212) 371-9200 Baker & Botts, LLP. Willkie Farr & Gallagher 2001 Ross Avenue One Citicorp Center Dallas, Texas 75201-2916 153 East 53rd Street Contact Person: New York, New York 10022-4677 Ronald L Palmer (214) 953-6500 Contact Person: Michael R. Young (212) 821-8000 Haynes & Boone, LLP. David L Foster (212) 821-8000 3100 NationsBank Plaza Richard L Posen (212) 821-8000 901 Main Street Dallas, Texas 75202-3789 Weil, Gotshal & Manges Contact Person: Michael Boone, 767 Fifth Avenue George Bramblett, or New York, New York 10153 Noel Hensley (214) 651-5000 Contact Person: Dennis J. Block (212) 310-8000 Kaye, Scholer, Fierman, Hays & Handler 425 Park Avenue New York, New York 10022 Contact Person: Frederic W. Yerman (212) 836-8663
PANEL COUNSEL
Houston Vinson & Elkins Akin, Gump, Strauss, Hauer & Feld, L.L.P. 2500 First City Tower Pennzoil Place - South Tower 1001 Fannin 711 Louisiana Street Houston, Texas 77002-6760 Suite 1900 Contact Person: David T. Hedges Jr. Houston, Texas 77002 (713) 758-2676 Contact Person: Charles Moore or Paula Hinton (713) 220-5800 Baker & Botts 910 Louisiana Street Fulbright & Jaworski, L.LP. One Shell Plaza 1301 McKinney Houston, Texas 77002-4995 Suite 5100 Contact Person: Houston, Texas 77010-3095l William C. Slugger (713) 229-1234 Contact Person: Richard Carrell or Harold Metts (713) 229-1234 Frank Jones (713) 651-5151
NOTICE STATE OF KENTUCKY WARNING: "ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE CONTAINING ANY MATERIALLY FALSE INFORMATION OR CONCERNS, FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME." ENDORSEMENT# 1 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. NUCLEAR ENERGY LIABILITY EXCLUSIONS ENDORSEMENT (BROAD FORM) In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against any Insured(s): A. alleging, arising out of, based upon, attributable to, or in any way involving, directly or indirectly the hazardous properties of nuclear material, including but not limited to: (1) nuclear material located at any nuclear facility owned by, or operated by or on behalf of, the Company, or discharged or dispersed there from; or (2) nuclear material contained in spent fuel or waste which was or is at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of the Company; or (3) the furnishing by an Insured or the Company of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility; or (4) claims for damages to the Company or its shareholders which alleges, arises from, is based upon, is attributed to or in any way involves, directly or indirectly, the hazardous properties of nuclear material. B. (1) which is insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability underwriters, or Nuclear Insurance Association of Canada, or would be insured under any such policy but for its termination or exhaustion of its limit of liability; or, ENDORSEMENT# 1 (CONTINUED) ------------ This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. (2) with respect to which (a) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (b) the Insured is, or had this policy not been issued would be entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into the United States of America, or any agency thereof, with any person or organization. As used in this endorsement: "hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or byproduct material; "source material", "special nuclear material", and "byproduct material" have the meanings given them in the Atomic Energy Act of 1954 or in law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; "nuclear facility" means (a) any nuclear reactor, (b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste, ENDORSEMENT# 1 (CONTINUED) ------------ This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. (c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the Insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235, (d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material. All other terms, conditions and exclusions remain unchanged. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 2 ------------ This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. COMMISSIONS EXCLUSION In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim made against any Insured(s) alleging, arising out of, based upon, attributable to: (i) Payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full or part-time domestic or foreign government or armed services officials, agents, representatives, employees or any members of their family or any entity with which they are affiliated; or (ii) Payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full or part-time officials, directors, agents, partners, representatives, principal shareholders, or owners or employees, or affiliates (as that term is defined in The Securities Exchange Act of 1934, including any of their officers, directors, agents, owners, partners, representatives, principal shareholders or employees) of any customers of the company or any members of their family or any entity with which they are affiliated; or (iii) Political contributions, whether domestic or foreign. All other terms, conditions and exclusions remain unchanged. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 3 (REVISED) ------------ This endorsement, effective 12.01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that the term "Director or Officer" as stated in Policy Form 62335 (5/95) is amended in part to include the position of - Administrators (all locations) - All Corporate Directors including: - Director of Acquisition and Development - Director of Corporate Accounting - Director of Finance - Directors of Hospital Accounting - Director of Reimbursement - Director of Tax and Insurance - Director of Vencare Accounting - Assistant Administrator of Clinical Operations (all locations) - Assistant Administrator of Finance (Corporate) - Assistant Administrator of Outpatient Services (all locations) - Medical Directors (all locations) - Peer Review Committee (all locations) - Regional Directors of Operations - Manager of Investment Relations - Director of Total Compensation - Senior Director of Finance - Senior Director Financial Planning - Senior Director Management Information Services - Senior Director Reimbursement - Senior Director of Taxation - Senior Director & Treasurer - Senior Director Human Resources & Support Services - Senior Director of Risk Management - Senior Director Purchasing - Senior Director Internal Audit - Senior Director Investor Relations/Public Relations. ENDORSEMENT# 4 -------------- This endorsement, effective 12.01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY DEFINITION OF COMPANY In consideration of the premium charged, it is hereby understood and agreed that the term "Company" is amended, in part, to include the following entities: The Hillhaven Foundation It is further understood and agreed that this policy provides coverage only for claim or claims against the Directors or Officers of each of the above listed entities for alleged Wrongful Acts occurring on or after the date of creation or acquisition of such entity, and otherwise covered by this policy, All other terms and conditions of the policy remain unchanged. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ED0365 ENDORSEMENT# 5 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that Appendix A (PANEL COUNSEL FIRMS), is amended to include the following two firms: Heller, Ehrman, White & McAuliffe 6100 Columbia Center 701 Fifth Avenue Seattle, Washington 98104 Contact Person: George E. Greer Phone: (206) 447-0900 Lane, Powell, Spears & Lubersky 1420 Fifth Avenue, Suite 4100 Seattle, WA 98101 Contact Person: James L. Robert Phone (206) 223-7000 [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 6 ------------- This endorsement, effective 12.01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. MEDICAL MALPRACTICE EXCLUSION In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Directors or Officers alleging, arising out of, based upon or attributable to medical or professional malpractice, including but not limited to the rendering or failure to render medical or professional service or treatment. Provided, however, that the foregoing exclusion shall not be applicable to any derivative or shareholder class action claims against Directors or Officers alleging a failure to supervise those who performed or failed to perform such professional services. All other terms and conditions and exclusions remain unchanged. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 7 ------------ This endorsement, effective 12.01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. GENERAL E&O EXCLUSION In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Directors or Officers alleging, arising out of, based upon or attributable to the Company's or an Insured's performance of or failure to perform professional services for others for a fee, or any act, error, or omission relating thereto. Provided, however, that the foregoing exclusion shall not be applicable to any derivative or shareholder class action claims against Directors or Officers alleging a failure to supervise those who performed or failed to perform such professional services. All other terms and conditions remain unchanged. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 8 ------------ This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. PROFESSIONAL E&O EXCLUSION In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against any Insured(s) alleging, arising out of, based upon or attributable to the Company's or an Insured's performance of or failure to perform professional services, or any act, error or omission relating there to. However, notwithstanding the foregoing, it is further understood and agreed that this exclusion shall not apply to shareholder actions against an Insured for failure to supervise those who performed or failed to perform such professional services provided that such shareholder action is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of, any Insured or the Company. ALL TERMS, CONDITIONS, AND EXCLUSIONS REMAIN UNCHANGED. [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 9 ------------ This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. REGULATORY EXCLUSION (INSURANCE) In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Directors or Officers brought directly or indirectly by or on behalf of, or based upon, attributable to or alleging any claim brought by or on the behalf of, any insurance regulatory agency or supervisory authority, including but not limited to any state or local insurance department or commission, or any state or local insurance guaranty or insolvency fund (any of the foregoing organizations are hereinafter referred to as an "Agency"), including any type of legal or equitable action which such Agency has the legal right to bring as receiver, conservator, liquidator or assignee of the Company, its security holders or its creditors, or otherwise; whether such action or proceeding is brought in the name of such Agency, or by or on behalf of such Agency in the name of any other entity, or solely in the name of any third party. All other terms and conditions remain unchanged. [SIGNATURE ILLEGIBLE] ---------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 10 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration for the premium charged, it is hereby understood and agreed that Clause 11, CANCELLATION CLAUSE, is amended to increase the Insurers required notice of cancellation to ninety (90) days from sixty (60) days, except for non-payment of premium in which case ten (10) days notice must be given. [SIGNATURE ILLEGIBLE] --------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 11 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. PRIOR ACTS EXCLUSION (for listed Entity(ies) In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Insured(s) of any entity listed below for any Wrongful Act(s) which occurred on or before such entity s respective retroactive date listed below, and prior to the end of the Policy Period, and otherwise covered by this policy. Loss(es) arising out of the same related Wrongful Act(s) shall be deemed to arise from the first such same or related Wrongful Act(s).
ENTITY RETROACTIVE DATE Ventech Systems, Inc. December 22, 1993 Candle Subacute Services, Inc. February 4, 1994 Hillhaven Corporation September 28, 1995
All other terms, conditions and exclusions remain unchanged. [SIGNATURE ILLEGIBLE] ---------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 12 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make payment for loss in connection with any claim or claims including, but not limited to, any derivative or representative class actions) brought by or on behalf of East Ascension Parish Hospital Service District and/or Lanoux or any of their subsidiaries, affiliates, agents, employees or related parties against the directors and officers alleging, arising out of, based upon or attributable to: 1. anti-trust actions; 2. medicare/medicaid fraud; 3. the Federal False Claims Act; 4. mismanagement and/or failure to manage a hospital in a prudent matter; 5. seeking Rule 11 sanctions; [SIGNATURE ILLEGIBLE] --------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 13 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that: I. Upon expiration of the policy period, the Insurer shall renew this policy unless: (1) during the Policy Period: (a) the Named Corporation shall consolidate with or merge into, or sell all or substantially all of its assets to, any person or entity or group of persons and/or entities acting in concert; or (b) any person or entity or group of persons and/or entities acting in concert shall acquire an amount of the outstanding securities representing more than 50% of the voting power for the election of Directors of the Named Corporation, or acquires the voting rights of such an amount of such securities; or (c) the Name Corporation has been adjudicated bankrupt or insolvent or made an assignment for the benefit of creditors, or a bankruptcy petition has been filed to have the Named Corporation adjudicated bankrupt and the matter is still pending at the expiration of the Policy Period; or (2) the Insurer has not been provided on a timely basis with a properly completed renewal application and other information for renewal underwriting; or (3) this policy has been cancelled by the Named Corporation or the Insurer as permitted or required by law and the cancellation clause of this policy; or (4) there has occurred a change in the law (including insurance regulations) or insurance regulatory action which prevents the Insurer from issuing a renewal policy at the same terms and conditions as this policy. II. A renewal of this policy pursuant to Section I shall be at the same terms and conditions as this policy (except for the inception and expiration dates of the policy period, and with an endorsement like this one but ENDORSEMENT# 13 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. having no requirement of adding a like endorsement to any renewal) for one year. The premium for such renewal shall be in accordance with Section III below. III. The premium for a renewal of this policy pursuant to Section I shall not exceed 110% of the greater of (i) the Pull Annual Premium for this policy, or (ii] the Full Annual Premium for the policy renewed by this policy; unless, during the Policy Period, a notice of claim or notice of circumstances which may reasonably be expected to give rise to a claim has been given to the Insurer, in which case the 110% premium cap shall not apply. In this case, however, the Insurer may, in its absolute discretion, agree in writing to apply the cap notwithstanding the notice of claim or notice of circumstances. If there has occurred a change in the law (including insurance regulations) or insurance regulatory action which prevents the Insurer from issuing a renewal policy at any premium permitted by this Section III, then all rights and obligations of all parties under this endorsement shall terminate. IV. Nothing in this endorsement shall be construed to affect any rights the Insurer has to require an additional premium and/or amendment of the provisions of this policy during the Policy Period because of the addition of a new Subsidiary in accordance with Section 2(1) of the policy. V. The "Full Annual Premium" shall mean the premium level in effect immediately prior to the end of the expiring policy period, annualized to a full one year. VI. The Named Corporation shall have the right, prior to expiration of the Policy Period, to decline to have a renewal of this policy issued by the Insurer. [SIGNATURE ILLEGIBLE] ------------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 14 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. EMPLOYMENT PRACTICES ENDORSEMENT COVERAGE In consideration of the premium charged, it is hereby understood and agreed that the coverage as is afforded by this policy is extended to Employment Practice Claims against an individual "Insured" (whether such Claims are brought by (i) a past, present or prospective employee or employees, whether directly or by class action; or (ii) by the Employee Equal Opportunity Commission (EEOC) or any other state or federal governmental authority regulating employment practices; or (iii) by any other person or entity), subject to both the terms, conditions and exclusions of this endorsement and the policy. DEFINITIONS It is further understood and agreed that for the purposes of this endorsement only, the following definitions shall apply: (1) "Employment Practice Claims" shall mean any Claim relating to a past, present or prospective employee of the Company for, or arising out of the following: (i) any actual or alleged wrongful dismissal, discharge or termination (either actual or constructive), of employment; (ii) employment- related misrepresentation; (iii) wrongful failure to employ or promote; (iv) wrongful deprivation of career opportunity; (v) wrongful discipline; (vi) failure to grant tenure or negligent employee evaluation; (vii) failure to provide adequate employee policies and procedure; or (viii) sexual or workplace harassment of any kind, (including the alleged creation of a harassing workplace environment); or (ix) unlawful discrimination, (including sexual or workplace harassment or creation of a harassing workplace environment) whether direct, indirect, or unintentional. Employment Practices Claims shall include Claims brought under state, local or federal law (whether common or statutory) and shall include, but not be ENDORSEMENT# 14 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. limited to, allegations of violations of the following federal laws (as amended), including regulations promulgated thereunder: 1. Family and Medical Leave Act of 1993 2. Americans with Disabilities Act of 1992 (ADA), 3. Civil Rights Act of 1991, 4. Age Discrimination in Employment Act of 1967 (ADEA), including the Older Workers Benefit Protection Act of 1990. 5. Title VII of the Civil Rights Law of 1964, as amended, including the Pregnancy Discrimination Act of 1978. 6. Civil Rights Act of 1866, Section 1981, and 7. Fifth and Fourteenth Amendments of the U.S. Constitution. (2) The term "Insured" shall include, for the purposes of Employment Practices Claims only, any past, present or future duly elected individual Director or Officer. EXCLUSIONS It is further understood and agreed that solely for the additional coverage hereby granted for Employment Practices Claims exclusions (i) and (k) are amended as follows: (1) Exclusion (i) is amended by deleting the phrase, "wrongful termination of employment claims", and substituting the phrase, "Employment Practice Claims" (as defined in this endorsement) and by deleting the word "former employee" and substituting the word "employee" to read as follows: (i) which are brought by any Insured or the Company; or which are brought by any security holder of the Company, whether directly or derivatively, unless such security holder's Claim(s) is instigated and ENDORSEMENT# 14 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of, any Insured or the Company; provided, however, this exclusion shall not apply to Employment Practice Claims brought by an employee other than an employee who is or was a Director of the Company. (2) Exclusion (k) is amended by deleting the phrase, "emotional distress", and by deleting the phrase, "or for injury from libel or slander or defamation or disparagement or for injury from a violation of a person's right of privacy", to read as follows: (k) for bodily injury, sickness, disease or death of any person, or damage to or destruction of any tangible property, including the loss of use thereof; It is further understood and agreed that only as respects any additional coverage granted by virtue of this endorsement, the following exclusions shall apply: (1) The Insurer shall not be liable for any Loss in connection with any Claim or Claims made against an Insured alleging, arising out of, based upon or attributable to any pending or prior litigation as of September 28, 1995, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation. (2) The Insurer shall not be liable for any Loss in connection with any Claim or Claims made against an Insured for any alleged Wrongful Act committed prior to September 28, 1995 if any Insured(s), as of such date, knew or could have reasonably foreseen that such Wrongful Act could lead to a Claim. ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN UNCHANGED. [SIGNATURE ILLEGIBLE] ----------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 15 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. OUTSIDE ENTITY ENDORSEMENT (2x) In consideration of the premium charged, it is hereby understood and agreed that the following entities shall be deemed an "Outside Entity", but only as respects the Outside Entity's respective Continuity Date below: OUTSIDE ENTITY CONTINUITY DATE 1) a not-for-profit organization September 1, 1989 under section 501(c)(3) of the Internal Revenue Code of 1986 (as amended)) 2) a not-for-profit organization September 1, 1989 other than a not-for-profit organization listed in (1) above (2/90) [SIGNATURE ILLEGIBLE] ------------------------------ AUTHORIZED REPRESENTATIVE ENDORSEMENT# 16 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh. Pa. In consideration of the premium charged, it is hereby understood and agreed that the coverage as is afforded under this policy is extended to Directors and Officers who were or now are at the specific written request of Vencor, Inc a member of the Partnership Management Committee of the Partnerships listed below for any alleged Wrongful Acts in their respective capacities as a member of this Partnership Management Committee. Further, coverage as is afforded by virtue of this endorsement shall be specifically excess of any insurance in force as respects to the Partnership and any indemnification provided to the Directors and Officers by the Partnership. Further, if said other insurance in force as respects to any such Partnership is provided by the Insurer or any member company of American International Group, (or would be provided but for the application of the retention amount or the exhaustion of the Limit of Liability) then the Limit of Liability for all Loss covered by virtue of this endorsement shall be reduced by the Limit of Liability (as set forth on the Declarations Page) of such other AIG insurance provided to such Partnership. Furthermore, it is understood and agreed that coverage as is afforded by virtue of this endorsement shall not apply to any claim or claims for any alleged Wrongful Act, if as of the effective date of the first Directors and Officers Liability and Corporation Reimbursement Policy/Directors and Officers Insurance and Company Reimbursement Policy/Directors, Officers and Corporate Liability Insurance Policy for which coverage as is afforded by this endorsement was granted issued by the Insurer to the Company first named in Item 1 of the Declarations, as of such date, knew or could have reasonably foreseen that such Wrongful Act could lead to a claim. It is further understood and agreed, as respects this endorsement, that the Insurer shall not be liable for any Loss in connection with any claim or claims made against the Directors or Officers which are brought by or on behalf of any of the Partnerships listed below; or which are brought by any member of the Partnership Management Committee of any of the Partnerships listed below; or which are brought by ENDORSEMENT# 16 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. any security holder of the Partnerships listed below, whether directly or derivatively, unless such claim(s) is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of any member of the Partnership Management Committee of any of the Partnerships listed below. The Partnerships to which this endorsement applies is as follows: PARTNERSHIPS 1. Pharmaceutical Infusion Therapy, a California General Partnership, Advanced Infusion Systems has a 50.99% interest. 2. CPS-Sacramento, a California General Partnership, Advanced Infusion Systems has a 60% interest. Further provided that for the purposes of the applicability of this endorsement, the for-profit organizations listed above will be conclusively deemed to have indemnified the Partnership Management Committee members to the extent that the Partnerships are permitted or required to grant such indemnification pursuant to law, common or statutory, or contract or the Charter or the By-laws of the Partnerships (which are deemed to adopt the broadest provisions of the law which determines or defines such rights of indemnity). The Partnerships hereby agree to indemnify such persons to the fullest extent permitted by law and to no less extent as indemnification is permitted for the Partnership's management committee members. [SIGNATURE ILLEGIBLE] ----------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 17 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY OUTSIDE DIRECTORSHIP EXTENSION: FOR-PROFIT (DOUBLE EXCESS, SCHEDULED ORGANIZATIONS) In consideration of the premium charged, it is hereby understood and agreed that the coverage as is afforded under this policy is extended to Directors or Officers who were, now are or hereafter become at the specific written request of the Company a director of the for-profit organization(s) listed below for any alleged Wrongful Acts in their respective capacities as directors of such for-profit organization. Further, coverage as is afforded by virtue of this endorsement shall be specifically excess of any insurance in force as respects to these for-profit organizations and any indemnification provided by these for-profit organizations. Further, if said other insurance in force as respects to any such for-profit organization is provided by the Insurer or any member company of American International Group, Inc. (or would be provided but for the application of the retention amount, the exhaustion of the Limit of Liability or the failure to submit the claim), then the Limit of Liability for all Loss by virtue of this endorsement with respect of any such for-profit organization shall be reduced by the Limit of Liability (as set forth on the Declarations Page) of such other American International Group, Inc. member company insurance provided to such for-profit organization. Furthermore, it is understood and agreed that coverage as is afforded by virtue of this endorsement shall not apply to any claim or claims for any alleged Wrongful Act: (i) occurring at any time when the Insured was not sitting as a director of the for-profit organization at the specific written request of the Company, or (ii) for any Wrongful Act if as of the effective date of the first Directors and Officers Liability and Corporation Reimbursement Policy/Directors and Officers Insurance and Company Reimbursement Policy for which coverage as is afforded by this endorsement was granted issued by the Insurer to the Company first named in Item 1 of the date of this policy, ENDORSEMENT# 17 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. (or in the case of a newly appointed or elected director as of the appointment or election date for such Insured) the Insured(s), as of such date, knew or could have reasonably foreseen that such Wrongful Act could lead to a claim. The list of for-profit organization to which this endorsement applies is as follows: FOR-PROFIT ORGANIZATION American X-Rays, Inc. Evergreen Pharmaceutical, Inc. All other terms and conditions of the policy remain unchanged. [SIGNATURE ILLEGIBLE] ---------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 18 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that the coverage as is afforded under this policy is extended to Directors and Officers who were or now are at the specific written request of Vencor Inc a member of the Partnership Management Committee of the Partnerships listed below for any alleged Wrongful Acts in their respective capacities as a member of this Partnership Management Committee. Further, coverage as is afforded by virtue of this endorsement shall be specifically excess of any insurance in force as respects to the Partnership and any indemnification provided to the Directors and Officers by the Partnership, Further, if said other insurance in force as respects to any such Partnership is provided by the Insurer or any member company of American International Group, (or would be provided but for the application of the retention amount or the exhaustion of the Limit of Liability) then the Limit of Liability for all Loss covered by virtue of this endorsement shall be reduced by the Limit of Liability (as set forth on the Declarations Page) of such other AIG insurance provided to such Partnership. Furthermore, it is understood and agreed that coverage as is afforded by virtue of this endorsement shall not apply to any claim or claims for any alleged Wrongful Act, if as of the effective date of the first Directors and Officers Liability and Corporation Reimbursement Policy/Directors and Officers Insurance and Company Reimbursement Policy/Director, Officers and Corporate Liability Insurance Policy for which coverage as is afforded by this endorsement was granted issued by the Insurer to the Company first named in Item 1 of the Declarations, as of such date, knew or could have reasonably foreseen that such Wrongful Act could lead to a claim. It is further understood and agreed, as respects this endorsement, that the Insurer shall not be liable for any Loss in connection with any claim or claims made against the Directors or Officers which are brought by or on behalf of any of the Partnerships listed below; or which are brought by any member of the Partnership Management Committee of any of the Partnerships listed below; or which are brought by ENDORSEMENT# 18 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. any security holder of the Partnerships listed below, whether directly or derivatively, unless such claim(s) is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of any member of the Partnership Management Committee of any of the Partnerships listed below. The Partnerships to which this endorsement applies is as follows: PARTNERSHIPS 1. Hillhaven Community Health Partnership, a Florida General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation 50% interest. 2. Windsor Woods Nursing Home Partnership, a Washington General Partnership, First Healthcare Corporation, General Partner, First Healthcare Corporation 50% interest. 3. St. George Nursing Home Limited Partnership, an Oregon Limited Partnership, Hillhaven Properties, Ltd., General Partner, First Healthcare Corporation, a Limited Partner. Hillhaven Properties, Ltd. owns 96% of the general partners' interest, and First Healthcare Corporation owns 7.5% of the limited partners' interest. 4. Bartlesville Nursing Home Partnership, an Oregon General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation has 50% interest. 5. Carrollwood Care Center, a Florida General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation has 50% interest. 6. Foothill Nursing Company Partnership, a California General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation has 50% interest. ENDORSEMENT# 18 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. 7. San Marcos Nursing Home Partnership, a California General Partnership, First Healthcare Corporation General Partner. First Healthcare Corporation has 50% interest. 8. Fox Hill Village Partnership, a Massachusetts General Partnership, Brim of Massachusetts, Inc. General Partner. Brim of Massachusetts, Inc. has 50% interest. 9. Starr Farm Partnership, a Vermont General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation has a 50% interest. 10. New Pond Village Associates, a Massachusetts General Partnership, First Healthcare Corporation, General Partner. First Healthcare Corporation purchase its partners interest and now has 100% interest. The Partnership may be dissolved in the future unless marketing reasons dictate otherwise. 11. Tuscon Retirement Center Limited, an Oregon Limited Partnership, Hillhaven Properties, Ltd., General and Limited Partner. 12. San Marcos Retirement Village, a California General Partner, Hillhaven Properties, Ltd. General Partner. Hillhaven Properties, Ltd. has a 35% interest. 13. Castle Gardens Retirement Center Limited Partnership, an Oregon Limited Partnership, Hillhaven Properties, sole General Partner, First Healthcare Corporation, sole Limited Partner. 14. Lantana Partners, Ltd. a Florida Limited Partnership, Hillhaven Properties, Ltd. and Twenty-Nine Hundred Associates, Ltd. are sole General Partners. 15. Woodhaven Partners, Ltd. a Florida Limited Partnership, Hillhaven Properties, Ltd. the General Partner and sole Limited Partner. Hillhaven Properties, Ltd. has 50% interest in the general partnership. 16. Hillcrest Retirement Center, Ltd., an Oregon Limited Partnerships, Fairview Living Centers, Inc. sole General ENDORSEMENT# 18 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. Partner, and has acquired eight limited partnership interests out of 41. 17. Topeka Retirement Center, Ltd., a Kansas Limited Partnerships, Hillhaven Properties, Ltd. the General Partner. Hillhaven Properties, Ltd., has 90% interest. 18. Meridian Manor, a Louisiana General Partnerships, Hillhaven Properties, Ltd. and First Healthcare Corporation are equal General Partners. 19. Sandy Retirement Center Limited Partnerships, an Oregon Limited Partnership, Hillhaven Properties, Ltd., sole General Partner, first Healthcare Corporation, sole Limited Partner. 20. Mayfair Retirement Center Limited Partnership, an Oregon Limited Partnerships, Hillhaven Properties, Ltd. sole General Partner, appears to own 1% interest. 21. Hillhaven-MSC Partnerships, a California General Partnerships, First Healthcare Corporation, General Partner. first Healthcare Corporation has 50% interest. 22. Stockton Health Care Center Limited Partnerships, an Oregon Limited Partnerships, First Healthcare Corporation, is sole General Partner and owns 1%. 23. Twenty-Nine Hundred Associates, Ltd., a Florida Limited Partnerships, Twenty-Nine Hundred Corporation, is the sole General Partner and Hillhaven Properties, Ltd., is the sole Limited Partner. 24. Medisave Pharmacies Partnerships, d.b.a. HealthCare Network, a California General Partnership, Medisave Pharmacies, Inc. has 74% interest. 25. Medisave - CSSI Partnerships, a Florida General Partnerships, Medisave of Florida, Inc. has a 51% interest. 26. VNA/CPS Pharmaceutical Services, a California General Partnerships, Advanced Infusion Systems has a 46.2875% interest. [SIGNATURE ILLEGIBLE] --------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT# 19 ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. In consideration of the premium charged, it is hereby understood and agreed that the coverage as is afforded under this policy is extended to Directors and Officers who were or now are at the specific written request of Vencor, Inc. a member of the Partnership Management Committee of the Partnership listed below for any alleged Wrongful Acts in their respective capacities as a member of this Partnership Management Committee. Further, coverage as is afforded by virtue of this endorsement shall be specifically excess of any insurance in force as respects to the Partnership and any indemnification provided to the Directors and Officers by the Partnership. Further, if said other insurance in force as respects to any such Partnerships is provided by the Insurer or any member company of American International Group, (or would be provided but for the application of the retention amount or the exhaustion of the Limit of Liability) then the Limit of Liability for all Loss covered by virtue of this endorsement shall be reduced by the Limit of Liability (as set forth on the Declarations Page) of such other AIG insurance provided to such Partnership. Furthermore, it is understood and agreed that coverage as is afforded by virtue of this endorsement shall not apply to any claim or claims for any alleged Wrongful Act if, as of the effective date of the first Directors and Officers Liability and Corporation Reimbursement Policy/Directors and Officers Insurance and Company Reimbursement Policy/Directors, Officers and Corporate Liability Insurance Policy for which coverage as is afforded by this endorsement was granted issued by the Insurer to the Company first named in Item 1 of the Declarations, the Insured(s), as of such date, knew or could have reasonably foreseen that such Wrongful Act could lead to a claim. It is further understood and agreed, as respects this endorsement, that the Insurer shall not be liable for any Loss in connection with any claim or claims made against the Directors or Officers which are brought by or on behalf of any of the Partnerships listed below; or which are brought by any member of the Partnership Management Committee of any ENDORSEMENT# 19 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. of the Partnerships listed below; or which are brought by any security holder of the Partnerships listed below, whether directly or derivatively, unless such claim(s) is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of any member of the Partnership Management Committee of any of the Partnerships listed below. The Partnerships to which this endorsement applies are as follows: 1. California Respiratory Care Partnership, a California General Partnership, Advanced Infusion Systems has a 51% interest. 2. Visiting Nurse Advanced Infusion Systems - Colton, a California General Partnerships, Advanced Infusion Systems has a 51% interest. 3. Evergreen Woods, Ltd. Nationwide Care, Inc. has a 99% interest and First Healthcare Corporation has a 1% interest. Furthermore, it is understood and agreed that coverage as is afforded by virtue of this endorsement shall not apply to any claim or claims for any alleged Wrongful Act alleging, arising out of, based upon or attributable to any pending or prior litigation, as of the effective date of the first Directors and Officers Liability and Corporation Reimbursement Policy/Directors and Officers Insurance and Company Reimbursement Policy/Directors, Officers and Corporate Liability Insurance Policy for which coverage as is afforded by this endorsement was granted issued by the Insurer to the Company first named in Item 1 of the Declarations, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation. ENDORSEMENT# 19 (Continued) ------------- This endorsement, effective 12:01 AM, September 28, 1995 forms a part of policy number 445-86-62 issued to VENCOR INC by National Union Fire Insurance Company of Pittsburgh, Pa. Further, provided that for the purposes of the applicability of this endorsement, the for-profit organizations listed above will be conclusively deemed to have indemnified the Partnership Management Committee members to the extent that the Partnerships are permitted or required to grant such indemnification pursuant to law, common or statutory, or contract or the Charter or By- laws of the Partnerships (which are deemed to adopt the broadest provisions of the law which determines or defines such rights of indemnity), the Partnerships hereby agree to indemnify such persons to the fullest extent permitted by law and to no less extent as indemnification is permitted for the Partnership's management committee members. [SIGNATURE ILLEGIBLE] ----------------------------- AUTHORIZED REPRESENTATIVE ENDORSEMENT #20 THIS ENDORSEMENT, EFFECTIVE 12:01 AM SEPTEMBER 28, 1995 FORMS A PART OF POLICY NUMBER 445-86-62 ISSUED TO VENCOR, INC. BY NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA In consideration of the return premium of $5,025, it is hereby understood and agreed that Item 7, of the DECLARATIONS page, PREMIUM, is amended to read: 7. PREMIUM: $329,975 + $5,025 KY Surcharge ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED. [SIGNATURE ILLEGIBLE] ----------------------------- Authorized Representative ENDORSEMENT #21 This endorsement, effective 12:01 AM September 29, 1995 forms a part of policy number 445-86-62 issued to VENCOR, INC, by National Union Fire Insurance Company of Pittsburgh, PA In consideration of the premium charged, it is hereby understood and agreed That Endorsement #9 is deleted in its entirety. All other terms, conditions and exclusions remain unchanged. [SIGNATURE ILLEGIBLE] --------------------------- AUTHORIZED REPRESENTATIVE IMPORTANT NOTE: THIS IS CLAIMS MADE COVERAGE PLEASE READ THIS POLICY CAREFULLY THIS POLICY, SUBJECT TO THE DECLARATIONS, INSURING AGREEMENTS, TERMS, CONDITIONS LIMITATIONS AND AMENDMENTS, APPLIES ONLY TO CLAIM OR CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED(S) AND REPORTED TO THE INSURER DURING THE POLICY PERIOD OR DISCOVERY PERIOD (IF APPLICABLE). THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED AND MAY BE EXHAUSTED BY AMOUNTS INCURRED FOR DEFENSE COSTS CHARGES AND EXPENSES (THE RETENTIONS) APPLYIES TO DEFENSIVE COSTS CHARGES AND EXPENSES -------------------------------------ST. PAUL MERCURY------------------ INSURANCE COMPANY EXCESS DIRECTORS AND OFFICERS LIABILITY AND CORPORATE INDEMNIFICATION POLICY DECLARATIONS St. Paul, Minnesota 55102 A Capital Stock Company Herein Called the Insurer ----------------------------------------------------------------------- ITEM 1. NAMED INSURED: The Directors and Officers of VENCOR, INC. ITEM 2. ADDRESS (No., Street, City, State and Zip Code) 3300 Capital Holding Center 400 West Market Street, Suite 3300 Louisville, KY 40202 ITEM 3. POLICY PERIOD From To 9-28-95 9-28-96 (12:01 A.M. Standard Time at the address stated in Item 2.) --------------------------------------------------- ITEM 4. LIMIT OF LIABILITY $ 10,000,000 each POLICY PERIOD in excess of Item 7(E). The limit of liability available ------------------ to pay judgments or settlements shall be reduced and may be exhausted by amounts incurred for legal defense costs, charges and expense. ITEM 5. RETENTIONS (Applicable to Section 2(B)(2)) $ 200,000 Corporate Indemnification Each Loss ----------------- $ -0- Each Insured Each Loss ----------------- $ -0- Aggregate All Insureds Each Loss ----------------- ITEM 6. PREMIUM $70,000. (inclusive of Municipal Tax: $3,784. and State Surcharge: $978.) ----------------------- ITEM 7. SCHEDULE OF UNDERLYING INSURER(S) (A) 1. Underlying Insurer: National Union Fire Insurance Company of Pittsburgh, Pa. 2. Policy Number: 445 86 62 3. Policy Period: From: 9-28-95 To 9-28-96 4. Limit of Liability: $20,000,000. 5. Retentions: $200,000. Corporate Indemnification Each Loss ------------------------- $ -0- Each Insured Each Loss ------------------------- $ -0- Aggregate All Insureds Each Loss ------------------------- (B) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (C) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (D) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (E) Total amount of Underlying Limit of Liability $ 20,000,000. and any retentions or deductibles as --------------------- applicable under the policy(ies) as stated in this Item 7. ITEM 8. SUBJECT TO THE TERMS, CONDITIONS AND LIMITATIONS OF THIS POLICY AS HEREINAFTER PROVIDED, THIS POLICY FOLLOWS THE FORM OF: Insurer's Name: National Union Fire Insurance Company of Pittsburgh, Pa. Policy Number: 445 86 62 ITEM 9. FORMS ATTACHED (a) St. Paul Mercury Excess Insurance Company Policy, Form #50408. (b) Endorsements one through three. SIGNATURE ILLEGIBLE ---------------------------------------- --------------------------------- -------------------------------- Authorized representative Countersignature Date Countersigned At [LOGO OF THE ST PAUL APPEARS HERE]
INSURING CLAUSE consideration of the payment of the premium, in reliance upon the statements made to the Insurer by application including its attachments, a copy of which is attached to and forms a part of this policy, and any material submitted therewith (which shall be retained on file by the Insurer and be deemed attached hereto), and except as hereinafter otherwise provided or amended, this policy is subject to the same Insuring Agreement(s), Terms, Conditions and Limitations as provided by the policy stated in Item 8 of the Declarations and any amendments thereto, provided: A. 1. the Insurer has received prior written notice from the Insured(s) of any amendments to the policy stated in Item 8 of the Declarations, and 2. the Insurer has given to the Insured(s) its written consent to any amendments to the policy stated in Item 8 of the Declarations, and 3. the Insured has paid any required additional premium. B. This policy is not subject to the same premium or the amount and Limit of Liability of the policy stated in Item 8 of the Declarations. TERMS, CONDITIONS AND LIMITATIONS SECTION 1. UNDERLYING INSURANCE A. It is a condition precedent to the Insured(s) rights under this policy that the Insured(s) notify the Insurer, as soon as practicable in writing, of a failure to maintain in full force and effect, except as provided for under Section 2(B), and without alteration of any Terms, Conditions, Limit of Liability or Retentions, any of the underlying insurance policies as stated in Item 7 of the Declarations. Failure to maintain, as set forth above, any of the underlying insurance policies as stated in Item 7 of the Declarations, except as provided for under Section 2(B), shall not invalidate this policy, but the liability of the Insurer for loss under this policy shall apply only to the same extent it would have been liable had the underlying insurance policies been maintained as set forth above. In no event shall the Insurer be liable to pay loss under this policy until the total amount of the Underlying Limit of Liability, as stated in Item 7(E) of the Declarations, has been paid solely by reason of the payment of loss. SECTION 2. LIMIT OF LIABILITY A. The Insurer shall only be liable to make payment under this policy after the total amount of the Underlying Limit of Liability as stated in Item 7(E) of the Declarations has been paid solely by reason of the payment of loss. B. In the event of the reduction or exhaustion of the total amount of the Underlying Limit of Liability as stated in Item 7(E) of the Declarations solely by reason of the payment of loss, this policy shall: 1. in the event of such reduction pay excess of the reduced amount of the Underlying Limit of Liability but not to exceed the amount stated in Item 4 of the Declarations, or 2. in the event of exhaustion continue in force provided always that this policy shall only pay the excess over the Retention amount stated in Item 5 of the Declarations as respects each and every loss hereunder, but not to exceed the amount stated in Item 4 of the Declarations. C. The Insurers' liability for loss subject to paragraphs (A) and (B) above shall be the amount stated in Item 4 of the Declarations which shall be the maximum liability of the Insurer in the Policy Period stated in Item 3 of the Declarations. The Limit of Liability of the Insurer for the Discovery Period, if elected, shall be part of, and not in addition to, the Limit of Liability as stated in Item 4 of the Declarations. 3 SECTION 3. LOSS PROVISIONS The Insured(s) shall as a condition precedent to the right to be indemnified under this policy give to the Insurer notice in writing, as soon as practicable and during the Policy Period or during the Discovery Period, if effective, of a claim made against the Insured(s). SECTION 4. NOTICE Notice hereunder shall be given to St. Paul Mercury Insurance Company, 385 Washington Street, St. Paul. MN 55102. SECTION 5. CANCELLATION This policy may be cancelled by the Corporation at any time by mailing written notice to the Insurer at the address shown in Section 4 stating when thereafter such cancellation shall be effective or by surrender of this policy to the Insurer or its authorized agent. This policy may also be cancelled by or on behalf of the Insurer by delivering to the Corporation or by mailing to the Corporation by registered, certified, or other first class mail, at the Corporation's address as shown in Item 2 of the Declarations, written notice stating when, not less than sixty (60) days thereafter, the cancellation shall be effective. The mailing of such notice as aforesaid shall be sufficient proof of notice. The Policy Period terminates at the date and hour specified in such notice, or at the date and time of surrender. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. SECTION 6. DISCOVERY PERIOD If the Insurer shall cancel or refuse to renew (refusal to renew is hereafter referred to as non-renewal) this policy, the Corporation or the Insureds shall have the right, upon payment of the additional premium of 75% of the premium hereunder, to an extension of the cover granted by this policy to report any claim or claims in accordance with Section 3, which claim or claims are made against the Insureds during the period of twelve (12) months after the effective date of cancellation or non-renewal, herein called the Discovery Period, but only for any Wrongful Act committed before the effective date of such cancellation or non-renewal and otherwise covered by this policy. This right shall terminate, however, unless the Corporation or the Insureds provide written notice of such election together with the payment of the additional premium due and this is received by the Insurer at the address shown in Section 4 within ten (10) days after the effective date of cancellation or non-renewal. Discovery Period wherever used in this policy shall also mean optional extension period or extended reporting period as defined by the policy stated in Item 8 of the Declarations. The offer by the Insurer of renewal terms, conditions, limits of liability and/or premiums different from those of the expiring policy shall not constitute non-renewal. The provisions of this Section 6 and the rights granted herein to the Corporation or the Insureds shall not apply to any cancellation resulting from non-payment of premium. SECTION 7. NUCLEAR ENERGY LIABILITY EXCLUSION It is agreed that: A. This policy does not apply: 1. Under any Liability Coverage, to bodily injury or property damage 4 a. with respect to which an Insured under this policy is also an Insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an Insured under any such policy but for its termination upon exhaustion of its limit of liability; or b. resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the Insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or an agency thereof, under any agreement entered into by the United States of America, or any agency thereof with any person or organization. 2. Under any Medical Payments coverage, or under any Supplementary Payments provision relating to first aid, to expenses incurred with respects to bodily injury resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization. 3. Under any Liability Coverage, to bodily injury or property damage resulting from the hazardous properties of nuclear material, if a. the nuclear material (l) is at any nuclear facility owned by, or operated by or on behalf of an Insured or (2) has been discharged or dispersed therefrom; b. the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an Insured, or c. the bodily injury or property damage arises out of the furnishing by an Insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories or possessions or Canada, this exclusion (c) applies only to property damage to such nuclear facility and any property thereat. As used in this exclusion: "hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or by-product material; "source material," "special nuclear material," and by-product material have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (l) containing by-product material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (l) or (2) thereof; "nuclear facility" means (1) any nuclear reactor, (2) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste, (3) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the Insured and the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235, (4) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, and operations conducted on such site and all premises used for such operations; 5 "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain critical mass of fissionable material, "property damage" includes all forms of radioactive contamination of property. SECTION 8. ACTION AGAINST THE INSURER No action shall lie against the Insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the Corporation's obligation to pay and/or the Insureds' obligation to pay have been finally determined either by judgment against the Insureds after actual trial or by written agreement of the Corporation and/or the Insureds, the claimant and the Insurer. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy. No person or organization shall have any right under this policy to join the Insurer as a party to any action against the Corporation and/or Insureds to determine the Insureds' liability, nor shall the Insurer be impleaded by the Corporation and/or Insureds or their legal representatives. Bankruptcy or insolvency of the Corporation or the Corporation's estate, or bankruptcy or insolvency of the Insureds or the Insureds' estate shall not relieve the Insurer of any of its obligations hereunder. IN WITNESS WHEREOF, the Insurer designated on the Declarations page has caused this policy to be signed by its President and Secretary and countersigned on the Declarations page by a duly authorized representative of the Insurer. SIGNATURE ILLEGIBLE SIGNATURE ILLEGIBLE Secretary President 6 [LOGO OF THE ST PAUL APPEARS HERE] ENDORSEMENT #3 The following spaces preceded by an asterisk (*) need not be completed if this endorsement and the policy have the same inception date. - -------------------------------------------------------------------------------- ATTACHED TO AND FORMING *EFFECTIVE DATE OF *ISSUED TO PART OF POLICY NO. ENDORSEMENT 900DX0158 - -------------------------------------------------------------------------------- SCHEDULED ATTACHMENTS TO POLICY ENDORSEMENT In consideration of the premium charged, it is hereby understood and agreed that the Insurer has relied upon the material listed in the following schedule. It is further understood and agreed that the material listed below is attached to and forms a part of the policy. -SCHEDULE- 1) Warranty Letter signed by W. Bruce Lunsford, President and Chief Executive Officer, dated September 28, 1995. 2) Copy of the Joint Proxy Statement dated August 11, 1995. 3) 1994 Vencor, Inc. Annual Report. 4) 1994 Vencor, Inc. form 10-k. 5) 1995 Vencor, Inc. form 10-Q. 6) List of Subsidiaries. and that this aforementioned material shall be retained on file by the Insurer and be deemed attached hereto and made a part of this application and policy by reference. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof, the Company has caused this *Agency Name and Address endorsement to be signed by a duly authorized representative of the Company. ----------------------------------------------- Authorized Representative [LOGO OF THE ST PAUL APPEARS HERE] ENDORSEMENT #2 The following spaces preceded by an asterisk (*) need not be completed if this endorsement and the policy have the same inception date. - -------------------------------------------------------------------------------- ATTACHED TO AND FORMING *EFFECTIVE DATE OF *ISSUED TO PART OF POLICY NO. ENDORSEMENT 900DX0158 - -------------------------------------------------------------------------------- In consideration of the premium charged, it is hereby understood and agreed that this policy does not follow form with Endorsement #13 of the policy referenced in Item 8 of the Declarations and that this endorsement is deleted in its entirety. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof, the Company has caused this *Agency Name and Address endorsement to be signed by a duly authorized representative of the Company. ----------------------------------------------- Authorized Representative [LOGO OF THE ST PAUL APPEARS HERE] ENDORSEMENT #1 The following spaces preceded by an asterisk (*) need not be completed if this endorsement and the policy have the same inception date. - -------------------------------------------------------------------------------- ATTACHED TO AND FORMING *EFFECTIVE DATE OF *ISSUED TO PART OF POLICY NO. ENDORSEMENT 900DX0158 - -------------------------------------------------------------------------------- PRIOR AND PENDING LITIGATION EXCLUSION M1150 Ed. 3-90 In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for loss in connection with any claim or claims made against the Insured(s) arising from any prior or pending litigation as of 9-28-95, as well as all future claims or litigation based upon the pending or prior litigation or derived from the same or essentially the same facts (actual or alleged) that gave rise to the prior or pending litigation. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof, the Company has caused this *Agency Name and Address endorsement to be signed by a duly authorized representative of the Company. ----------------------------------------------- Authorized Representative EX-10.9 9 AMEND #7 VENCOR RETIREMENT SAVINGS PLAN EXHIBIT 10.9 AMENDMENT NUMBER 7 VENCOR, INCORPORATED RETIREMENT SAVINGS PLAN WHEREAS Vencor, Incorporated ("Sponsoring Employer") adopted the Retirement Savings Plan ("Plan") effective as of January 1, 1989; and WHEREAS the Sponsoring Employer reserved the right to amend the Plan by action of its Board of Directors; and WHEREAS the Sponsoring Employer now desires to amend said Plan to comply with changes in the Internal Revenue Code of 1986; NOW, THEREFORE, the Plan is amended, effective as provided herein, in the following respects: (1) Section 1.12 is amended effective January 1, 1994, to read as follows: Section 1.12 COMPENSATION means, for any Plan Year, total cash compensation paid to an Employee by the Employer as reportable on Internal Revenue Service form W-2 , excluding reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits and increased by amounts deferred pursuant to Code Sections 125 (flexible benefit plans), 402(a)(8) (salary redirection), and 402(h)(1)(B) (simplified employee plans). In the Plan Year during which an Employee becomes a Participant, only remuneration paid in the portion of the Plan Year in which he was a participant shall be considered Compensation. Effective for Plan Years beginning on or after January 1, 1989, Compensation shall be limited to such amount as determined pursuant to Code Section 401(a)(17). (2) Subsection 3.5(d) is amended effective January 1, 1994, to read as follows: (d) The term "compensation" for purposes of this Section, shall include all amounts paid by the Employer to the Employee which are currently includible in the Employee's gross income. For Plan Years beginning prior to January 1, 1992, or such later date as permitted by regulations or notices, said compensation shall only include amounts paid by the Employer to the Employee during the period he is eligible to make Salary Redirection contributions and which amounts are currently includible in the Employee's gross income. For all Plan Years, the Employer shall have the right to increase the Employee's compensation, for purposes of this Section by the amount of any Employee salary redirection elections under Section 125 (flexible benefit plans), 402(a)(8) (salary redirection) and 402(h)(1)(B) -1- (simplified employee plans) of the Code, or to use such alternate definition of compensation as may be provided under Section 414(s) of the Code. Compensation for purposes of this Section shall be limited pursuant to Code Section 401(a)(17). (3) Subsection 3.6(d) is amended effective January 1, 1994, to read as follows: (d) The term "compensation" for purposes of this Section, shall include all amounts paid by the Employer to the Employee which are currently includible in the Employee's gross income. For Plan Years beginning prior to January 1, 1992, or such later date as permitted by regulations or notices, said compensation shall only include amounts paid by the Employer to the Employee during the period he is eligible to receive Matching Contributions and which amounts are currently includible in the Employee's gross income. For all Plan Years, the Employer shall have the right to increase the Employee's compensation, for purposes of this Section by the amount of any Employee salary redirection elections under Section 125 (flexible benefit plans), 402(a)(8) (salary redirection) and 402(h)(1)(B) (simplified employee plans) of the Code, or to use such alternate definition of compensation as may be provided under Section 414(s) of the Code. Compensation for purposes of this Section shall be limited pursuant to Code Section 401(a)(17). (4) Section 5.11 is amended effective January 1, 1993, to read as follows: Section 5.11 PARTICIPANT DIRECTED ROLLOVERS (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For purposes of this Section, an eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). -2- (c) For purposes of this Section, an eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. For purposes of this Section, a distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. (5) Section 11.5 is amended effective January 1, 1994, to read as follows: Section 11.5 COMPENSATION For purposes of this Article, compensation shall have the same meaning as assigned to it by Code Section 415 and shall be limited to such amount as required by Code 401(a)(17). * * * * * * * * * * * SIGNATURES ---------- IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment Number 7 to be executed this the 20th day of May , 1994, but effective ------- -------- as provided herein. Attest: Vencor, Incorporated [SIGNATURE IS ILLEGIBLE] By [SIGNATURE IS ILLEGIBLE] - --------------------------- ----------------------------- Secretary Title V.P -------------------------- -3- EX-10.10 10 AMENDMENT #8 VENCOR RETIREMENT SAVINGS PLAN EXHIBIT 10.10 AMENDMENT NUMBER 8 VENCOR, INCORPORATED RETIREMENT SAVINGS PLAN WHEREAS Vencor, Inc. ("Sponsoring Employer") adopted the Vencor, Incorporated Retirement Savings Plan ("Plan") effective as of January 1, 1986; and WHEREAS the Sponsoring Employer reserved the right to amend the Plan by action of its Board of Directors; and WHEREAS the Sponsoring Employer now desires to amend said Plan to reflect changes in the Plan; NOW, THEREFORE, the Plan is amended, effective August 1, 1995, except as otherwise indicated herein, in the following respects: (1) Section 1.10 is amended to read as follows: Section 1.10 COMPANY means Vencor, Inc. and all of the legal entities which are part of the controlled group or affiliated service group with Vencor, Inc. pursuant to the provisions of Code Sections 414(b), (c), (m) or (o). (2) Section 1.18 is amended to read as follows: Section 1.18 EMPLOYER means Vencor, Inc. and each of the legal entities, or any successor thereto which is a part of the Company and which has adopted the Plan for its eligible Employees with consent of the Sponsoring Employer. The Sponsoring Employer shall be Vencor, Inc. (3) Section 1.37 is amended to read as follows: Section 1.37 Plan means the Vencor, Inc. Retirement Savings Plan. (4) Subsection 6.1(e) is amended to read as follows: (e) The withdrawals under this Section shall in no way affect said Participant's continued participation in this Plan except by the reduction in account balances caused by such. (5) Subsection 6.1(f) is amended to read as follows: (f) A Participant shall present evidence to the Committee that the requested withdrawal is not in excess of the amount necessary to relieve the financial need of the Participant and that the need can not be satisfied from other resources that are reasonably available to the Participant. The determination by the Committee that the distribution will be necessary to satisfy an immediate and heavy financial need will be made on the basis of all relevant facts and circumstances. A distribution generally will be treated as necessary to satisfy a financial need if the Committee relies, without actual knowledge to the contrary, on the Participant's representation that the need cannot be relieved: 1. through reimbursement or compensation by insurance or otherwise; 2. by reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need; 3. by cessation of Salary Redirection under the Plan; or 4. by other distributions or non-taxable loans from the plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms. For purposes of this Subsection, the Participant's resources shall be deemed to include those of his spouse and minor children that are reasonably available to the Participant. (6) Appendix A is deleted. * * * * * * * * * * -2- SIGNATURES ---------- IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment Number 8 to be executed this the 13th day of August, 1995, but effective August 1, 1995, except as otherwise indicated herein. Attest: Vencor, Inc. SIGNATURE NOT LEGIBLE By SIGNATURE NOT LEGIBLE - ---------------------------- ---------------------------- Secretary Vice President Title Finance and Development ------------------------- -3- EX-10.17 11 AMEND TO VENCOR 1987 INCENTIVE COMP. PROGRAM EXHIBIT 10.17 AMENDMENTS TO THE VENCOR, INC. 1987 INCENTIVE COMPENSATION PROGRAM SEPTEMBER 27, 1995 The undersigned, JUNE N. KING, the duly elected and acting Assistant Secretary of VENCOR, INC., a Delaware corporation (the "Company"), hereby certifies that set forth below are Amendments to the Vencor, Inc. 1987 Incentive Compensation Program (the "Program"), which Amendments became effective as of September 27, 1995: Section 5.1 of the Program is hereby amended in its entirety to read as follows: "5.1. Number of Shares Subject to adjustment as provided in ---------------- Section 11.6, the number of shares of Common Stock which may be issued under the Program shall not exceed 6,900,000 shares of Common Stock." WITNESS the signature of the undersigned Assistant Secretary of the Company as of September 27, 1995. /s/ June N. King --------------------------------------- June N. King Assistant Secretary EX-10.18 12 FORM OF VENCOR INCENTIVE COMP PROGRAM PERFORMANCE EXHIBIT 10.18 VENCOR, INC. INCENTIVE COMPENSATION PROGRAM PERFORMANCE SHARE AWARD This Agreement is made as of ________________, 19___ (the "Grant Date"), by and between VENCOR, INC., a Delaware corporation (the "Company"), having its offices at 3300 Providian Center, Louisville, Kentucky 40202, and ______________________________ ("Employee"), who is serving as ____________________________________ of the Company (the "Position"). RECITALS: -------- A. The Company's 1987 Incentive Compensation Program (the "Plan") was adopted by the Board of Directors of the Company on May 27, 1987 and was approved by the shareholders on June 18, 1987. B. Pursuant to the Plan, shares of the Company's $.25 par value Common Stock (the "Common Stock") may be issued to officers and valued employees of the Company upon whose judgment, initiative and efforts the continued success and growth of the business of the Company largely depend. C. Shares of Common Stock may be issued under the Plan under such terms as the Executive Compensation Committee of the Board of Directors (the "Committee") shall determine. AGREEMENT: --------- NOW, THEREFORE, in consideration of Employee serving in the Position, the parties hereto agree as follows: 1. GRANT. Subject to the terms and conditions of this Agreement and the ----- Plan, which is hereby incorporated herein by reference, the Company hereby agrees to issue to Employee up to ____________ shares of Common Stock (the "Performance Shares"), in consideration of services to be performed by Employee in the Position with the Company or any of its subsidiaries after the date hereof and until completion of the final Performance Period. 2. VESTING AND ISSUANCE. Except as otherwise provided in this Agreement, -------------------- the Performance Shares shall not be issued to Employee unless Employee is serving in the Position, or in a comparable or higher position, as determined by the Committee, with the Company or a subsidiary thereof, throughout the applicable performance period (the "Performance Period") set forth below: Number of Shares of Common Stock Performance Period In addition, as conditions to Employee receiving any Performance Shares with respect to a Performance Period, (a) Employee must have met the applicable performance standards established by the Committee for a given Performance Period for the Position; and (b) Employee must have retained at least one-half of the Performance Shares which have previously been awarded to him or her pursuant to this Agreement. Subject to the foregoing, the number of Performance Shares to be issued upon completion of a Performance Period shall be determined by the Committee in its sole discretion, with the maximum number of Performance Shares that may be so issued to equal the sum of (i) the aggregate of the number of shares set forth in the foregoing table for such Performance Period and for all prior Performance Periods minus (ii) the number of shares for any prior ----- Performance Period that have previously been issued. Within three months after the end of each Performance Period, the Company shall determine whether the applicable performance standards have been met and shall make its determination in accordance with the foregoing as to the number of Performance Shares to be issued. Such Performance Shares shall be delivered within 30 days after such determination. All Performance Shares that are not issued in accordance with the foregoing in respect of any Performance Period through and including the final Performance Period (ending December 31, 19__) shall be forfeited by Employee and shall be of no further force or effect. 3. COMPLIANCE WITH SECURITIES LAWS. If Employee is an "officer" of the ------------------------------- Company as defined in Rule 16a-1 promulgated under the Securities Exchange Act of 1934 ("1934 Act"), then Employee will comply with the provisions of Section 16 of the 1934 Act in connection with any sale, transfer or other disposition of the Performance Shares. 4. NO SHAREHOLDER RIGHTS. Until the Performance Shares are issued to --------------------- Employee (or, upon Employee's death, to Employee's estate, pursuant to the terms of this Agreement), Employee shall have no rights with respect to the Performance Shares, including the right to vote or to receive any cash dividends with respect to, or the right to transfer, assign, alienate, pledge, hypothecate or otherwise dispose of, such Performance Shares. 5. EMPLOYMENT. The grant of the Performance Shares to Employee neither ---------- confers on Employee the right to continued service in the Position and/or employment by the Company or any of its subsidiaries nor affects the right of the Company or any of its subsidiaries to remove Employee from the Position, or to terminate Employee's employment with the Company or a subsidiary thereof, for any reason with or without cause. 6. WITHHOLDING TAXES. Employee agrees to pay promptly to the Company the ----------------- amount of any federal and state withholding taxes which become due as a result of the award of any Performance Shares. 2 7. REMOVAL AND REASSIGNMENT, TERMINATION, DEATH AND DISABILITY. ----------------------------------------------------------- (a) If Employee is removed from the Position and is reassigned to another position with the Company or any subsidiary thereof which is not a comparable or higher position, as determined by the Committee, with the Company or a subsidiary thereof, or if Employee's employment with the Company or a subsidiary thereof is terminated either by the Company or such subsidiary or by Employee for any reason prior to the completion of any applicable Performance Period, then, on the effective date of such removal and reassignment or of such termination, Employee shall forfeit his or her eligibility to receive any Performance Shares which have not yet been issued under this Agreement. (b) If prior to the completion of the applicable Performance Period and while serving in the Position or in a comparable or higher position, as determined by the Committee, with the Company or a subsidiary thereof, Employee retires from active full employment, then, on the effective date of such retirement, Employee shall forfeit his or her eligibility to receive any Performance Shares which have not yet been issued under this Agreement. (c) If prior to the completion of the applicable Performance Period and while serving in the Position or in a comparable or higher position, as determined by the Committee, with the Company or a subsidiary thereof, Employee dies or becomes permanently and totally disabled, as determined by the Committee, then all Performance Shares which have not yet been issued under this Agreement shall be fully vested in and issued to Employee or, in the case of Employee's death, shall be vested in and issued to Employee's estate, as of the date of Employee's disability or death. 8. ADJUSTMENTS. ----------- (a) Subject to Section 8(b) hereof, if the outstanding shares of Common Stock of the Company are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment shall be made in the number and kind of shares or other securities subject to this Agreement without change in the applicable Performance Period. (b) Despite the provisions of Section 8(a) hereof, upon dissolution or liquidation of the Company or upon a reorganization, merger or consolidation of the Company with one or more corporations, as a result of which the Company is not the surviving corporation, or upon the sale of all or substantially all the property of the Company, all applicable Performance Periods under Section 2 hereof shall lapse and all Performance Shares shall be fully vested in and issued to Employee. (c) Upon a Change in Control of the Company, all applicable Performance Periods under Section 2 hereof shall lapse, and all Performance Shares shall be fully vested in and issued to Employee. As used herein, "Change in Control" shall have the meaning set forth in Section 6.7 of the Plan. 3 9. CONFIDENTIALITY. Employee acknowledges that this Agreement and the --------------- award of Performance Shares to Employee is confidential, and Employee agrees not to disclose any of the terms of this Agreement except to duly authorized representatives of the Company acting in the course of their employment and as may otherwise be required by law. 10. BINDING EFFECT AND BENEFIT. This Agreement shall be binding upon the -------------------------- Company, its successors and assigns, and, subject to the conditions hereof, shall inure to the benefit of the legatees and personal representatives of Employee. 11. ENTIRE UNDERSTANDING AND WAIVER. This Agreement embodies the entire ------------------------------- understanding and agreement of the parties in relation to the subject matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind either party hereto. None of the terms and conditions of this Agreement may be changed, modified, waived or cancelled except by a writing, signed by the parties hereto specifying such change, modification, waiver or cancellation. A waiver by either party, at any time, of compliance with any of the terms and conditions of this Agreement shall not be considered a modification, cancellation or consent to a future waiver of such terms and conditions or of any preceding or succeeding breach thereof, unless expressly so stated. 12. APPLICABLE LAW. This Agreement shall be construed and enforced in -------------- accordance with the laws of the Commonwealth of Kentucky. IN WITNESS WHEREOF, the Company has executed this Agreement by its proper officer thereunto authorized and Employee has executed this Agreement, each as of the date first above written. VENCOR, INC. By: _______________________________ Title: ____________________________ ("Company") ____________________________________ ("Employee") 4 EXHIBIT 10.18 VENCOR, INC. INCENTIVE COMPENSATION PROGRAM AMENDMENT TO PERFORMANCE SHARE AWARD This Amendment is made as of March 29, 1996, to the Performance Share Award dated as of December 1, 1995 by and between VENCOR, INC., a Delaware corporation (the "Company"), having its offices at 3300 Providian Center, Louisville, Kentucky 40202, and _________________________________ ("Employee"), who is serving as ______________________________ of the Company (the "Position"). RECITALS: A. The Company and the Employee previously entered into a Performance Share Award Agreement (the "Performance Agreement") relating to the issuance of shares of the Company's common stock to Employee upon the attainment of certain performance goals and other conditions set forth therein ("Performance Shares"). B. The Company and the Employee believe that it is in their best interests that the grant of Performance Shares satisfy the requirements for an exemption from the deduction limitation set forth in the Omnibus Budget Reconciliation Act of 1993 ("OBRA"). AGREEMENT: ---------- NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: 1. AMENDMENT OF PERFORMANCE AGREEMENT. For the purpose of satisfying ----------------------------------- the requirements for an exemption from the deduction limitation set forth in OBRA, the last paragraph of Section 2 of the Performance Agreement is hereby amended to read in its entirety as follows: In addition, as conditions to Employee receiving any Performance Shares with respect to a Performance Period, (a) Employee must have met the applicable performance standards established by the Committee for a given Performance Period for the Position; and (b) as of the Determination Date (as defined below), Employee must have retained at least one-half of the Performance Shares which have previously been awarded to Employee pursuant to this Agreement. If the Committee so elects, it may establish different levels of performance standards, which if met would result in the issuance of less than the maximum number of Performance Shares provided for above. Within three months after the end of each Performance Period, the Committee shall determine (the "Determination Date") whether the applicable performance standards for such Performance Period have been met and the number of Performance Shares to be issued as a result thereof. Such Performance Shares shall be delivered within 30 days after the Determination Date (the "Scheduled Time"). All Performance Shares that are not issued in accordance with the foregoing in respect of any Performance Period shall be forfeited by Employee and shall be of no further force or effect. 2. APPLICABLE LAW. This Amendment shall be construed and enforced in --------------- accordance with the laws of the Commonwealth of Kentucky. 3. BINDING EFFECT AND BENEFIT. This Amendment shall be binding upon the --------------------------- Company, its successors and assigns, and, subject to the conditions hereof, shall inure to the benefit of the legatees and personal representatives of Employee. IN WITNESS WHEREOF, the Company has executed this Amendment by its proper officer thereunto authorized and Employee has executed this Agreement, each as of the date first above written. VENCOR, INC. By: _________________________ Title: _________________________ ("Company") ________________________________ ("Employee") EX-10.19 13 VENCOR NON-EMPLOYEE DIR. DEFERRED COMP PLAN EXHIBIT 10.19 VENCOR, INCORPORATED NON-EMPLOYEE DIRECTORS DEFERRED COMPENSATION PLAN ARTICLE 1 PURPOSES 1.1 PURPOSES. The purposes of this Non-Employee Directors Deferred -------- Compensation Plan ("Plan") of Vencor, Incorporated, a Delaware corporation ("Company"), are to encourage the Company's non-employee directors to invest in the future of the Company through ownership of an interest in the Company and to provide flexibility to the Company in attracting and retaining directors. ARTICLE 2 ELIGIBILITY AND PARTICIPATION 2.1 ELIGIBILITY. Any director of the Company who is not an employee of the ----------- Company or a subsidiary of the Company ("Director") is eligible to participate in the Plan. 2.2 PARTICIPATION. A Director shall become a participant in the Plan ------------- ("Participant") by filing an Election Form in accordance with the provisions of Section 5.1.a. A Participant shall remain a Participant until such time as the Participant has received all payments to which the Participant is entitled under the terms of the Plan. ARTICLE 3 SHARES SUBJECT TO PLAN 3.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 3.2, ---------------- the number of shares of the Company's common stock, par value $0.25 per share ("Common Stock"), reserved for issuance under the Plan is 30,000 shares. Any Common Stock issued under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. 3.2 ADJUSTMENTS. In the event of a merger, reorganization, consolidation, ----------- recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, share combination, share exchange or other change in the corporate structure of the Company affecting the Common Stock, the Committee (as hereinafter defined) shall substitute or adjust the total number and class of stock or securities which may be issued under the Plan and which are credited to a Participant's Deferred Stock Account as it determines to be appropriate and equitable to prevent dilution or enlargement of the rights of Participants. ARTICLE 4 ADMINISTRATION 4.1 THE COMMITTEE. The Plan shall be administered by the Executive ------------- Compensation Committee of the Board of Directors of the Company ("Board"), or by any other committee ("Committee") appointed by the Board consisting of two or more directors of the Company who are "disinterested persons" within the meaning of Rule 16b-3 (or any successor provision) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"). 4.2 AUTHORITY OF THE COMMITTEE. The Committee shall have sole discretion -------------------------- to make all determinations which may be necessary or advisable for the administration of the Plan. To the extent permitted by law and Rule 16b-3 promulgated under the Exchange Act, the Committee may delegate its authority as identified hereunder. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board, shall be final, conclusive and binding upon all persons, including the Company, Participants and their estates and beneficiaries. 4.3 SECTION 16 COMPLIANCE. It is the intention of the Company that the --------------------- Plan and the administration of the Plan comply in all respects with Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with Section 16(b) of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act. ARTICLE 5 DEFERRAL ELECTION 5.1 MAKING OF ELECTION. ------------------ a. Each Director may elect in writing, in the manner and on the form ("Election Form") prescribed by the Committee, to defer payment of all, but not less than all, of the fees which would otherwise be paid to such Director by the Company for services on the Board and committees thereof. An election shall be effective with respect to amounts which would otherwise be paid to the Participant beginning on or after the first day of the calendar quarter following the making of the election; provided, however, that in the case of those persons who are Directors on the date hereof, the initial election shall become -2- effective as of July 1, 1993. Once an election has been made, it shall remain in effect with respect to all future amounts which would otherwise be paid to the Participant as a Director until changed by the filing of a new election in the manner provided in Section 5.1.b. b. In the case of those persons who are Directors on the date hereof, the initial election, if any, to participate in the Plan shall be made by April 30, 1993. In the case of Directors elected or reelected at an annual meeting of the Company, an election or change in an existing election may only be made within 30 days following the annual meeting. In the case of a Director elected At other than an annual meeting, the initial election to participate in the Plan may only be made within 30 days following the Director's election to the Board. At the time of making any such election or change in an existing election, the Participant shall further elect, in accordance with procedures adopted by the Committee, (i) to have either 100% or 50% of the amount of such deferred fees be deemed invested in Common Stock ("Share Election"), or (ii) to have either 100% or 50% of such deferred fees deemed invested with interest ("Cash Election"); provided, however, that in no event shall a Share Election be effective until six months after the date of the Share Election, with the result that during such six-month period, the Participant shall be deemed to have made a Cash Election . 5.2 PARTICIPANT ACCOUNT. A Participant Account shall be established for ------------------- each Participant. Deferred compensation will be credited to the Participant's Participant Account as of the date such compensation would otherwise be payable to the Participant. A Participant Account shall include a Deferred Cash Account, if a Cash Election has been made, and/or a Deferred Stock Account, if a Share Election has been made. 5.3 DEFERRED CASH ACCOUNT. Each Deferred Cash Account shall be credited --------------------- with the amounts deferred on behalf of a Participant plus annual interest thereon as provided in Section 7.1. 5.4 DEFERRED STOCK ACCOUNT. Each Deferred Stock Account shall be credited ---------------------- with 110% of the amounts deferred to the Deferred Stock Account on behalf of a Participant. Deferred Stock Accounts shall also be credited as of the payment date for dividends on Common Stock in an amount equal to the dividends attributable to the number of shares of Common Stock credited to the Participant's Deferred Stock Account as of the record date set by the Board for the payment of dividends (the amounts referred to in the first two sentences of this Section 5.4 are hereinafter referred to as the "Cash Credits"). As of the last day of March, June, September and December of each year, there shall be credited to a Participant's Deferred Stock Account a number of shares of Common Stock equal to that whole number obtained by dividing (i) the amount of Cash Credits in the Deferred Stock Account as of such date, by (ii) the fair market value of the Common Stock (determined as provided in Section 6.1) on such date. Any amount of the Deferred Stock Account in excess of the number of shares of Common Stock credited to the Deferred Stock Account shall be treated as a Cash Credit and held in the Deferred Stock Account until the end of the following quarterly crediting date. -3- ARTICLE 6 FAIR MARKET VALUE 6.1 FAIR MARKET VALUE. For purposes of this Plan, the fair market value ----------------- of the Common Stock on any date shall be (i) if the Common Stock is listed on a national or regional exchange, or on the NASDAQ National Market System or a comparable market, the closing price of the Common Stock on such date, or (ii) if (i) above does not apply, the value determined by the Committee . ARTICLE 7 INTEREST 7.1 INTEREST ON DEFERRED CASH ACCOUNT. Interest will be credited to each --------------------------------- Deferred Cash Account at the announced prime rate of First National Bank of Louisville as the same shall exist from time to time, changing with each change in such announced prime rate. This assumed interest shall be compounded annually and treated as earned from the date deferred compensation is credited to the Deferred Cash Account to the date of withdrawal. ARTICLE 8 PAYMENT OF DEFERRED AMOUNTS 8.1 LIMITATION ON PAYMENT OF DEFERRED AMOUNTS. No payment may be made from ----------------------------------------- any Participant Account except as provided in this Article 8. 8.2 TIME FOR PAYMENT OF DEFERRED AMOUNTS. ------------------------------------ a. Payment of the amount in a Participant Account shall be made upon the earlier to occur of (i) 60 days following the date the Participant ceases to be a Director, (ii) the date selected by the Participant at the time of making a Cash Election or Share Election (which date may be different for the Cash Election and the Stock Election) or (iii) 60 days following a Change in Control (as defined in Section 8.2.b). Payment shall be made in the form of a lump sum, with payment from a Deferred Cash Account made in cash, and payment from a Deferred Stock Account made in Common Stock (except for any Cash Credits remaining in the Participant's Deferred Stock Account, which shall be paid in cash). b. For purposes of the Plan, a Change in Control shall occur upon (i) the acquisition by any person after the date hereof of beneficial ownership of 50% or more of the voting power of the Company's outstanding voting stock, (ii) five or more of the current members of the Board ceasing to be members of the Board unless any replacement director was elected by a vote of either at least 75% of the remaining directors, or of at least 75 % -4- of the shares entitled to vote on such replacement, or (iii) approval by the stockholders of the Company of (a) a merger or consolidation of the Company with another corporation if the stockholders of the Company immediately before such vote will not, as a result of such merger or consolidation, own more than 50% of the voting stock of the corporation resulting from such merger or consolidation, or (b) a complete liquidation of the Company or sale of all, or substantially all, of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not occur solely because 50% or more of the voting stock of the Company is acquired by (i) a trust which is part of an employee benefit plan maintained by the Company or its subsidiaries, or (ii) a corporation which, immediately following such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. ARTICLE 9 MISCELLANEOUS 9.1 ASSIGNABILITY. No right to receive payments hereunder shall be ------------- transferable or assignable by a Participant except by will or by the laws of descent and distribution. 9.2 AMENDMENT OR TERMINATION. The Plan may be amended, modified or ------------------------ terminated by the Board at any time or from time to time. Notwithstanding the foregoing, without the approval of stockholders of the Company (as may be required by Section 16 of the Exchange Act and the rules promulgated thereunder, any national securities exchange or system on which the Common Stock is then listed or reported or a regulatory body having jurisdiction with respect hereto), no such amendment, modification or termination may (i) materially increase the benefits accruing to Participants under the Plan, (ii) materially increase the total number of shares of Common Stock which may be issued under the Plan, except as provided in Section 3.2 or (iii) materially modify the eligibility requirements for participation in the Plan. No amendment, modification or termination shall, without the consent of a Participant, adversely affect such Participant's existing rights under the Plan. 9.3 FUTURE DIRECTOR TERMS. Nothing in the Plan, nor any action taken under --------------------- the Plan, shall be construed as giving any Participant a right to continue as a Director or require the Company to nominate or cause the nomination of a Participant for a future term as a Director . 9.4 PARTICIPANT'S RIGHTS UNSECURED. The right of any Participant to ------------------------------ receive payment of deferred amounts under the provisions of the Plan shall be an unsecured claim against the general assets of the Company. The maintenance of individual Participant Accounts is for bookkeeping purposes only. The Company is not obligated to acquire or set aside any particular assets for the discharge of its obligations, nor shall any Participant have any property rights in any particular assets held by the Company, whether or not held for the purpose of funding the Company's obligations hereunder. -5- 9.5 GOVERNING LAW. To the extent not preempted by Federal law, this Plan ------------- shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to its conflict of laws rules. IN WITNESS WHEREOF, the Company has caused the Plan to be executed by the Board this 16th day of March, 1993. VENCOR, INCORPORATED /s/ W. Bruce Lunsford By ------------------------------------ W. Bruce Lunsford, Chairman of the Board -6- EX-10.20 14 AMEND VENCOR NON-EMPLOYEE DIR. COMP. PLAN EXHIBIT 10.20 VENCOR, INC. ------------ AMENDMENT TO ------------ NON-EMPLOYEE DIRECTORS DEFERRED ------------------------------- COMPENSATION PLAN ----------------- SEPTEMBER 26, 1995 ------------------ Section 8.2(b) of the Plan is hereby amended to read, in its entirety, as follows: b. For purposes of the Plan, a Change in Control shall occur upon (i) the acquisition by any person after the date hereof of beneficial ownership of 50% or more of the voting power of the Company's outstanding voting stock, (ii) five or more of the current members of the Board ceasing to be members of the Board unless the replacement director was elected by a vote of either at least 75% of the remaining directors, or at least 75% of the shares entitled to vote on such replacement, or (iii) approval by stockholders of the Company of (a) a merger or consolidation of the Company with another corporation if the stockholders of the Company immediately before such vote will not, as a result of such merger or consolidation, own more than 50% of the voting stock of the corporation resulting from such merger or consolidation, or (b) a complete liquidation of the Company or sale of all, or substantially all, of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not occur as a result of the approval or consummation of the merger of The Hillhaven Corporation into the Company or solely because 50% or more of the voting stock of the Company is acquired by (i) a trust which is part of an employee benefit plan maintained by the Company or its subsidiaries, or (ii) a corporation which, immediately following such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock of the Company immediately prior to such acquisition. VENCOR, INC. By: /s/ W. Bruce Lunsford -------------------------------------- W. Bruce Lunsford, Chairman of the Board, President and Chief Executive Officer EX-10.22 15 FORM OF SEVERANCE AGREEMENT Exhibit 10.22 AGREEMENT This Agreement dated as of ________________, 199____ (this "Agreement"), between The Hillhaven Corporation, a Nevada corporation (the "Company"), and ____________________________ (the "Executive"). WITNESSETH: WHEREAS, the Executive is currently employed by the Company or one of its subsidiaries as its ______________________________ (the "Position"); and WHEREAS, the Executive has extensive management experience in long term care and the operation of the Company, and such experience is very important to the continued success of the Company, as well as to the orderly transition of the Company should a change in corporate control and ownership occur; and WHEREAS, changes in corporate control and ownership are common occurrences in the current business environment, which can be disruptive to a company's business and operations and detrimental to the best interests of its shareholders; and WHEREAS, the Company believes that it is in the best interests of the Company and its shareholders to enter into agreements with certain key officers, including the Executive, in order to ensure their retention and to promote their objectivity in reviewing proposed changes in control which may occur in the future. NOW, THEREFORE, the parties agree as follows: 1. Definitions. For purposes of this Agreement, the terms set forth in this Section shall have the following meanings: (a) a "Change in Control" of the Company shall be deemed to have occurred if: (i) any Person, alone or together with its Affiliates and Associates, is or becomes the beneficial owner directly or indirectly of securities of the Company representing 30% or more of the general voting power of the Company; (ii) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason other than death or disability to constitute at least a majority thereof; or (iii) any Person makes any filing under Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, with respect to the Company. (b) "Person" shall mean an individual, firm, corporation or other entity or any successor to such entity, together with all Affiliates and Associates of such Person, but "Person" shall not include the Company, National Medical Enterprises, Inc. ("NME"), any subsidiary of the Company or NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of the Company, any subsidiary of the Company, NME or any subsidiary of NME, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan or any Person who acquires 20% or more of the general voting power of the Company in a transaction or series of transactions approved prior to such transaction or series of transactions by the Board of Directors of the Company. (c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. (d) "Voting Stock" means shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. (e) "Cause" shall mean: the willful, substantial, continued and unjustified refusal of the Executive to perform the duties of his or her office to the extent of his or her ability to do so; any conduct on the part of the Executive which constitutes a breach of any statutory or common law duty of loyalty to the Company; any illegal or publicly immoral act by the Executive which materially and adversely affects the business of the Company; the physical or mental disability of the Executive as determined by the Board of Directors of the Company and resulting in his or her inability to perform his or her duties hereunder; or the death of the Executive. 2. Payments Upon Change in Control. (a) If a Change in Control of the Company occurs at any time and if at any time during the [one/two]-year period thereafter, the Company (i) terminates the Executive without Cause from the Position or from a comparable or higher position with the Company, (ii) assigns to the Executive responsibilities or title materially less than his or her responsibilities and title as of the date hereof, (iii) reduces his or her salary, (iv) reduces his or her fringe benefits other than in accordance with a reduction in fringe benefits applicable to substantially all employees of the Company, or (v) requires the Executive to relocate to any location beyond a 30-mile radius of his or her current principal place of employment, then in any such event, the Company shall pay the Executive a severance benefit in cash within 30 days after the occurrence of any such event in an amount equal to two years' base salary. (b) Whether or not any payment is made pursuant to Section 2(a), if a Change in Control of the Company occurs at any time and the Executive reasonably determines that any payment or distribution by the Company or any of its Affiliates or Associates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any restricted stock, stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exerciseability of any of the foregoing (individually and collectively, a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to the Executive an additional payment or payments (individually and collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes required to be paid by the Executive with respect to the receipt thereof under the terms of any Federal, state or local government or taxing authority (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed with respect to the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The Company shall pay the Gross-Up Payment to the Executive within 30 days of its receipt of written notice from the Executive that such Excise Tax has been paid or will be payable at any time in the future. 3. Assignment; Binding Effect. Neither this Agreement nor any rights or obligations hereunder may be assigned or pledged by the Executive. This Agreement and the rights and obligations of the parties hereunder shall be binding upon, and inure to the benefit of, the parties hereto, the heirs and legal representatives of the Executive and the successors and assigns of the Company. 4. No Right to Employment. Nothing herein shall confer upon the Executive any right to continue in the employ of the Company or a subsidiary thereof or shall interfere in any way with the right of the Company or any subsidiary to terminate such employment at any time. 5. Severability. Should any provision of this Agreement be declared illegal or unenforceable by any court of competent jurisdiction in any action or proceeding, and such provision cannot be modified to be enforceable, such provision shall immediately become null and void and the parties shall renegotiate such provision in good faith, leaving the remainder of this Agreement in full force and effect. 6. Notices. Any notice to be given hereunder shall be effective upon receipt, shall be in writing and shall be personally delivered or sent by registered or certified mail, postage prepaid to the following address or such other places as either party shall designate in writing: If to the Company: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Chief Executive Officer with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: General Counsel If to the Executive: _______________________________ _______________________________ _______________________________ 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. 8. Attorneys' Fees; Etc. In the event that the Executive brings any suit, action or other legal proceeding to enforce any of the terms of this Agreement, and the Executive prevails in any such suit, action or proceeding, the Company shall reimburse the Executive for all costs and expenses, including reasonable attorneys' fees, incurred by or for the account of the Executive in connection with such suit, action or proceeding. The Company shall pay such amount within ten days after receipt of the Executive's demand therefor. 9. Headings. The headings and captions used in this Agreement are for convenience of reference only, and shall not in any way limit or affect the construction or interpretation of any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. THE HILLHAVEN CORPORATION By: __________________________ Its: _________________________ ______________________________ (Type Executive's name here) EX-10.23 16 FORM OF AMEND TO SEVERANCE AGREEMENT EXHIBIT 10.23 AMENDMENT NO. 1 TO AGREEMENT This Amendment No. 1 to Agreement dated as of December 6, 1994 (this "Amendment"), between The Hillhaven Corporation, a Nevada corporation (the "Company"), and _____________ (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to that certain Agreement dated as of May 24, 1994 (the "Agreement"); and WHEREAS, the Agreement provides for certain payments by the Company to the Executive in the event that a Change of Control, as defined in the Agreement, occurs; and WHEREAS, the Board of Directors of the Company has authorized the Company to amend all compensation, incentive and benefit plans and other employment arrangements which contain a "Change of Control" provision in the manner set forth below; and WHEREAS, the Employee also desires to amend the Agreement in the manner set forth below. NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendment. The Agreement is hereby amended by deleting Section 1 in its entirety and substituting the following in lieu thereof: "1. Definitions. For purposes of this Agreement, the terms set forth in this Section shall have the following meanings: A. A "Change of Control" shall be deemed to occur if any of the following events has occurred: i. A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control shall not be deemed to occur if the "Person" described in the preceding sentence has acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent Board (as defined in (ii) below), and, provided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. ii. Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. iii. Consummation or effectiveness of: a. a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless 1. the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately before the Business Combination, and 2. the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 3. no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; b. a complete liquidation or dissolution of the Company; or c. the sale or other disposition of all or substantially all of the assets of the Company to any Person. B. "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. C. "Person," for the purpose of this Section, means an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) the 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of the date hereof) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. D. "Voting Stock" means shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. E. "Cause" shall mean: the willful, substantial, continued and unjustified refusal of the Executive to perform the duties of his or her office to the extent of his or her ability to do so; any conduct on the part of the Executive which constitutes a breach of any statutory or common law duty of loyalty to the Company; any illegal or publicly immoral act by the Executive which materially and adversely affects the business of the Company; the physical or mental disability of the Executive as determined by the Board of Directors of the Company and resulting in his or her inability to perform his or her duties hereunder; or the death of the Executive." 2. Effect on Agreement. Except as expressly amended by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. 3. Captions. The captions and headings used herein are for convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof. 4. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first set forth above. THE HILLHAVEN CORPORATION By:____________________________________ Its:___________________________________ ______________________________________ Executive EX-10.24 17 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.24 INDEMNIFICATION AGREEMENT This Agreement, made and entered into this 31st day of January, 1990 ("Agreement"), by and between The Hillhaven Corporation, a Nevada corporation ("Corporation"), and ("Indemnitee"): WHEREAS, highly competent persons have recently become more reluctant to serve or to continue to serve publicly-held corporations as directors or officers or in other capacities, unless they are provided with better protection from the risk of claims and actions against them arising out of their service to and activities on behalf of such corporations; and WHEREAS, the current difficulty of obtaining adequate insurance and the uncertainties related to indemnification have been increasing the difficulty of retaining or attracting and retaining such Persons; and WHEREAS, the Board of Directors of the Corporation (the "Board") has determined that in order to retain, or attract to the Corporation and retain, highly competent persons it would be in the best interests of the Corporation and its stockholder or stockholders for such persons to be assured that they will have the indemnity protection described herein; and WHEREAS, it is reasonable, prudent and necessary for the Corporation to obligate itself contractually to indemnify such persons to the fullest extent permitted by applicable law, so that such persons will serve or continue to serve the Corporation free from undue concern that they will not be adequately indemnified; and WHEREAS, this Agreement is a supplement and an addition to any rights granted under Article IX of the By-Laws of the Corporation in effect as of the date hereof or as from time to time amended, under the Amended and Restated Articles of Incorporation of the Corporation in effect as of the date hereof or as from time to time amended (the "Articles of Incorporation") and under any resolutions adopted pursuant thereto and shall not be deemed to diminish or abrogate any rights of Indemnitee thereunder; and WHEREAS, Indemnitee is willing to serve or to continue to serve and to take on additional service for or on behalf of the Corporation on the condition that he or she be indemnified according to the terms of this Agreement; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Corporation and Indemnitee do hereby covenant and agree as follows: Section 1. Definitions. For purposes of this Agreement: ----------- (a) "Change in Control" means a change in control of the Corporation occurring after the date hereof of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided, however, -------- ------- that, without limitation, such a Change in Control shall be deemed to have occurred if after the date hereof (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) (with the exception of National Medical Enterprises, Inc., a Nevada corporation ("NME") or any Affiliate or Associate (as such terms are used in Rule 12b-2 of the General Rules and Regulations under the Act) of NME is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization or a proxy contest, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (b) "Corporate Status" means the status of a person who is or was a director, officer, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. 2 (c) "Disinterested Director" means a director of the Corporation who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" means all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither at the time it is making a determination nor rendering advice pursuant hereto is, nor in the five years prior thereto has been, retained to represent: (i) the Corporation or Indemnitee in any other matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's rights under this Agreement. (f) "Proceeding" means any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section II of this Agreement to enforce his rights under this Agreement. Section 2. Services by indemnitee. Indemnitee agrees to serve or to ---------------------- continue to serve as a director, officer, employee, agent or fiduciary of the Corporation, and, at its request, as director, officer, employee, agent or fiduciary of certain other corporations and entities. Indemnitee may at any time and for any reason resign from any such position (subject to any other contractual obligation or any obligation imposed by operation of law). Section 3. Indemnification - General. The Corporation shall ------------------------- indemnify, and advance Expenses to, Indemnitee as provided in this Agreement to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may 3 thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. This Agreement shall not apply to any claims brought against the Indemnitee based on matters which antedate the date hereof, unless Indemnitee shall have been serving in a Corporate Status with respect to such claims, in which case this Agreement shall also apply to such claims. Section 4. Proceedings Other Than Proceedings by or in the Right of -------------------------------------------------------- the Corporation. Indemnitee shall be entitled to the rights of indemnification - --------------- provided in this Section if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Corporation. Pursuant to this Section, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. Section 5. Proceedings by or in the Right of the Corporation. ------------------------------------------------- Indemnitee shall be entitled to the rights of indemnification provided in this Section if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Corporation to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by or on behalf of Indemnitee and against judgments, penalties, fines and amounts paid in settlement in connection with any such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation. Notwithstanding the foregoing, no indemnification against such Expenses and against judgments, penalties, fines and amounts paid in settlement shall be made in respect of any claim, issue or matter in any such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Corporation if applicable law prohibits such indemnification; provided, however, that if -------- ------- applicable law so permits, indemnification against Expenses and against judgments, penalties, fines and amounts paid in settlement shall nevertheless be made by the Corporation in such event 4 if, and only to the extent that, the Second Judicial District Court of the County of Washoe of the State of Nevada, or the court in which such Proceeding shall have been brought or is pending, shall determine. Section 6. Indemnification for Expenses of a Party Who is Wholly or -------------------------------------------------------- Partly Successful. Notwithstanding any other provision of this Agreement, to the - ----------------- extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify Indemnitee against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with each successfully resolved claim, issue or matter. For the purposes of this Section and without limiting the foregoing, the termination of any claim, issue or matter in any such Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7. Indemnification for Expenses of a Witness. Notwithstanding ----------------------------------------- any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. Section 8. Advancement of Expenses. The Corporation shall advance all ----------------------- Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Corporation of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expanses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 9. Procedure for Determination of Entitlement to --------------------------------------------- Indemnification. - --------------- (a) To obtain indemnification under this Agreement in connection with any Proceeding, and for the duration thereof, Indemnitee shall submit to the Corporation 5 a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Corporation shall, promptly upon receipt of any such request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to Section 9(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in such case: (i) if a Change in Control shall have occurred, by Independent Counsel (unless Indemnitee shall request that such determination be made by the Board or the stockholders, in which case in the manner provided for in clauses (ii) or (iii) of this Section 9(b)) in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; (ii) if a Change in Control shall not have occurred, (A) by the Board by a majority vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of the Board consisting of Disinterested Directors is not obtainable, or even if such quorum is obtainable, if such quorum of Disinterested Directors so directs, either (x) by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (y) by the stockholders of the Corporation, as determined by such quorum of Disinterested Directors, or a quorum of the Board, as the case may be; or (iii) as provided in Section 10(b) of this Agreement. If it is so determined that Indemnitee is entitled to Indemnification, payment to Indemnitee shall be made within 10 days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) If required, Independent Counsel shall be selected as follows: (i) if a Change in Control shall not have occurred, Independent Counsel shall be selected by the Board, and the Corporation shall give written notice to 6 Indemnitee advising Indemnitee of the identity of Independent Counsel so selected; or (ii) if a Change in Control shall have occurred, Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event (i) shall apply), and Indemnitee shall give written notice to the Corporation advising the Corporation of the identity of Independent counsel so selected. In either event, Indemnitee or the Corporation, as the case may be, may, with in 7 days after such written notice of selection shall have been given, deliver to the Corporation or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 day after submission by Indemnitee of a written request for indemnification pursuant to Section 9(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or Indemnitee may petition the Second Judicial District Court of the State of Nevada, or other court of competent jurisdiction, for resolution of any objection which shall have been made by the Corporation or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 9(b) hereof. The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with its actions pursuant to this Agreement, and the Corporation shall pay all reasonable fees and expenses incident to the procedures of this Section 9(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement date of any judicial proceeding or arbitration pursuant to Section 11(a) (iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). Section 10. Presumptions and Effects of Certain Proceedings. ----------------------------------------------- (a) If a Change in Control shall have occurred, in making a determination with respect to entitlement to 7 indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. (b) If the person, persons or entity empowered or selected under Section 9 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) Prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a -------- ------- reasonable time, not to exceed an additional 30 days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith require(s) such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that -------- ------- the foregoing provisions of this Section 10(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 9(b) of this Agreement and if (A) within 15 days after receipt by the Corporation of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo ---- contendere or its equivalent, shall not (except as otherwise expressly provided - ---------- in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in 8 a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. Section 11. Remedies of Indemnitee. ---------------------- (a) In the event that (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(b) of this Agreement and such determination shall not have been made and delivered in a written opinion within 90 days after receipt by the Corporation of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within 10 days after receipt by the Corporation of a written request there for, or (v) payment of indemnification is not made within 10 days after a determination is deemed to have been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Nevada, or in any other court of competent jurisdiction, of Indemnitee's entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at Indemnitee's option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 11(a). The Corporation shall not oppose Indemnitee's rights to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section shall be conducted in all respects as a de novo trial or arbitration on the merits and -- ---- Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change in Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section the Corporation shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. 9 (c) If a determination shall have been made or deemed to have been made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) prohibition of such indemnification under applicable law. (d) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Agreement. (e) In the event that Indemnitee, pursuant to this Section, seeks a judicial adjudication of, or an award in arbitration to enforce, Indemnitee's rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses (of the kinds described in the definition of Expenses) actually and reasonably incurred by Indemnitee in such judicial adjudication or arbitration, but only if Indemnitee prevails therein. If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 12. Non-Exclusivity; Survival of Rights; Insurance; ----------------------------------------------- Subrogation. - ----------- (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Articles of Incorporation or By-Laws of the Corporation, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in Indemnitee's Corporate Status prior to such amendment, alteration or appeal. (b) To the extent that the Corporation maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Corporation or of any other corporation, 10 partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee, agent or fiduciary under such policy or policies. (c) In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. (d) The Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Section 13. Duration of Agreement. This Agreement shall continue --------------------- until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a director, officer, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Corporation; or (b) the final termination of all pending Proceedings in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement. This Agreement shall be binding upon the Corporation and its successor: and assigns and shall inure to the benefit of Indemnitee and Indemnitee's heirs, executors and administrators. Section 14. Severability. If any provision or provisions of this ------------ Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed 11 so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 15. Exception to Right of Indemnification or Advancement of ------------------------------------------------------- Expenses. Except as provided in Section 11(e), Indemnitee shall not be entitled - -------- to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any claim therein, brought or made by Indemnitee against the Corporation. Section 16. Identical Counterparts. This Agreement may be executed in ---------------------- one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Section 17. Headings. The headings of the paragraphs of this -------- Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 18. Modification and Waiver. No supplement, modification or ----------------------- amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 19. Notice by Indemnitee. Indemnitee agrees promptly to -------------------- notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. Section 20. Notices. All notices, requests, demands and other ------- communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to the home address according to the records of the Corporation on the day of the notice. (b) If to the Corporation to: 12 The Hillhaven Corporation 1148 Broadway Plaza Tacoma, WA 98401 Attention: Secretary or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. Section 21. Governing Law. The parties agree that this Agreement ------------- shall be governed by, and construed and enforced in accordance with, the laws of the State of Nevada. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. THE HILLHAVEN CORPORATION By_________________________________ Name: Title: _________________________________ Indemnitee 14 EX-10.25 18 AMEND HILLHAVEN BD OF DIR RETIREMENT PLAN EXHIBIT 10.25 THE AMENDED HILLHAVEN CORPORATION BOARD OF DIRECTORS RETIREMENT PLAN Effective January 1, 1995 SECTION 1 STATEMENT OF PURPOSE This Amended Board of Directors Retirement Plan (the "Plan") of The Hillhaven Corporation has been adopted to attract, retain, motivate and provide financial security to members of the Board of Directors who are not employees of the Company (the "Participants"). This Amended Plan applies to Directors whose Termination of Service occurs after December 31, 1994. SECTION 2 DEFINITIONS 2.1 AGREEMENT. "Agreement" means a written agreement substantially in the form of Exhibit A between The Hillhaven Corporation and a Participant. 2.2 ANNUAL BOARD RETAINER. "Annual Board Retainer" means the total annual retainer paid to a Director by The Hillhaven Corporation for Service on The Hillhaven Corporation's Board of Directors, excluding any separate fees paid for meeting attendance or service of any committees of the Board of Directors. 2.3 COMMITTEE. "Committee" means the members of the Executive Committee of the Board of Directors of The Hillhaven Corporation who are employees of the Company. 2.4 COMPANY. "Company" means The Hillhaven Corporation and its Subsidiaries. 2.5 CHANGE OF CONTROL EVENT. A "Change of Control Event" shall be deemed to occur if any of the following events has occurred: (i) A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control Event shall not be deemed to occur if the "Person" described in the preceding sentence has acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent Board (as defined in (ii) below), and provided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. (iii) Consummation or effectiveness of: a. a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless 1. the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately and before the Business Combination, and 2. the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at 2 least a majority of the members of the Board of Directors of the Surviving Corporation, and 3. no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; b. a complete liquidation or dissolution of the Company; or c. the sale or other disposition of all or substantially all of the assets of the Company to any Person. For purposes of determining whether a Change of Control Event has occurred, the following additional definitions apply: "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Person," shall mean an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of December 6, 1994) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. "Voting Stock" shall mean shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. 3 2.6 DIRECTOR. A "Director" is any member of the Board of Directors of The Hillhaven Corporation who is not an employee of the Company. 2.7 ELIGIBLE CHILDREN. "Eligible Children" means all natural or adopted children of a Participant under the age of 21, including any child conceived prior to the death of a Participant. 2.8 FINAL ANNUAL BOARD RETAINER. "Final Annual Board Retainer" means the Annual Board Retainer being paid to a Director at the time of his or her Termination of Service on the Board of Directors of The Hillhaven Corporation. 2.9 NORMAL RETIREMENT AGE. "Normal Retirement Age" under this Plan is age 65. 2.10 PARTICIPANT. "Participant" shall include any Director who is not an employee of The Hillhaven Corporation who enters into an agreement to participate in the Plan. 2.11 SERVICE. "Service" refers to service as a Director of The Hillhaven Corporation. 2.12 SUBSIDIARY. A "Subsidiary" of the Company is any corporation, partnership, venture or other entity in which the Company owns 50% of the capital stock or otherwise has a controlling interest as determined by the Committee, in its sole and absolute discretion. 2.13 SURVIVING SPOUSE. "Surviving Spouse" means the person legally married to the Participant for at least a one year period prior to the Commencement Date of Benefits hereunder. 2.14 TERMINATION OF SERVICE. "Termination of Service" means the cessation of a Participant's service as a Director of The Hillhaven Corporation for any reason whatsoever, whether voluntarily or involuntarily. 2.15 YEAR. A "Year" is a period of twelve consecutive calendar months. 2.16 YEARS OF SERVICE. "Year of Service" means each complete Year of Service as a Director of The Hillhaven Corporation. Years of Service shall be deemed to have begun as of the first day of the calendar month of service and to have ceased on the last day of the calendar month of service. 4 SECTION 3 RETIREMENT BENEFITS 3.1 RETIREMENT BENEFIT. (a) Upon the later of a Participant's Termination of Service or attainment of Normal Retirement Age, The Hillhaven Corporation agrees to pay to the Participant an annual Retirement Benefit for ten years in an amount equal to 100% of his or her Final Annual Board Retainer, subject to the limitation of Section 3.1(b) and the vesting of Section 3.2. (b) The Retirement Benefit shall not exceed $24,000 (100% of the Annual Board Retainer in 1993) increased by a compounded rate of six percent per year from 1994 to the year of the Participant's Termination of Service. 3.2 VESTING OF RETIREMENT BENEFIT. A Participant's interest in his Retirement Benefit shall vest in accordance with the following schedule:
YEARS OF SERVICE VESTED BENEFIT Less than 5 0% 5 50% 6 60% 7 70% 8 80% 9 90% 10 100%
All Years of Service as a Director shall count towards vesting credit. Vested Retirement Benefits are subject to offset pursuant to Section 5.6 and forfeiture pursuant to Section 5.7. 3.3 SURVIVOR BENEFIT. (a) If a Participant who is receiving a Retirement Benefit dies, his or her Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.4 and 3.5) the installments of the 5 Participant's Retirement Benefit for the remainder of the ten year period. (b) If a Participant, who has a vested interest under Section 3.2, dies while serving as a Director of The Hillhaven Corporation, his or her Surviving Spouse or Eligible Children shall be entitled at the Participant's death to receive (in accordance with Sections 3.4 and 3.5) the installments of the Retirement Benefit which would have been payable to the Participant in accordance with Section 3.1 for a period of ten years. The limitation set forth in Section 3.1(b) will be based upon the date of the Participant's death. (c) If a Participant, who has a vested interest under Section 3.2, dies after Termination of Service but at death is not receiving any Retirement Benefits under this Plan, his or her Surviving Spouse or Eligible Children shall be entitled at the Participant's death to receive (in accordance with Sections 3.4 and 3.5) the installments of the Retirement Benefit which would have been payable to the Participant in accordance with Section 3.1 for a period of ten years. 3.4 FORM AND DURATION OF BENEFIT PAYMENT. Retirement Benefits shall be paid in equal monthly installments over a period of ten years. Surviving Spouse payments shall be paid in equal monthly installments over the remainder of the ten year period. Eligible Children benefit payments shall be paid monthly over the remainder of the ten year period, but not beyond the date when the youngest of the Eligible Children reaches age 21. 3.5 RECIPIENTS OF BENEFIT PAYMENTS. If a Participant dies without a Surviving Spouse but is survived by any Eligible Children, then benefits will be paid to the Eligible Children or their legal guardian, if applicable. The total monthly benefit payment will be equal to the monthly benefit that a Surviving Spouse would have received, which will be paid in equal shares to each of the Eligible Children for the remainder of the ten year period or until the youngest of the Eligible Children attains age 21, whichever comes first. When any of the Eligible Children reaches age 21, his or her share will be reallocated equally to the remaining Eligible Children. If the Surviving Spouse dies after the death of the Participant but is survived by Eligible Children, the total monthly benefit previously paid to the Surviving Spouse will be paid in equal shares to each of the Eligible Children for the remainder of the ten year period or until the youngest of the Eligible Children attains age 21, whichever comes first. 6 When any of the Eligible Children reaches age 21, his or her share will be reallocated equally to the remaining Eligible Children. 3.6 CHANGE OF CONTROL. In the event of a Change of Control Event of The Hillhaven Corporation while this Plan remains in effect which results in a Participant's Termination of Service as a Director of The Hillhaven Corporation or a Participant's failure to be reelected as a Director of The Hillhaven Corporation when his or her term of office expires, (i) the Participant's Retirement Benefit hereunder will be fully vested in the Participant without regard to his or her Years of Service with The Hillhaven Corporation, and (ii) notwithstanding any other provisions of this Plan, the Participant will be entitled to receive the full Normal Retirement Benefit commencing at age 65. Notwithstanding the foregoing, Vested Retirement Benefits are subject to offset pursuant to Section 5.6 and forfeiture pursuant to the provisions of Section 5.7. SECTION 4 PAYMENT 4.1 COMMENCEMENT OF PAYMENTS. Payments under this Plan shall begin not later than the first day of the calendar month following the occurrence of an event which entitles a Participant (or his or her Surviving Spouse or Eligible Children) to payments under this Plan. 4.2 WITHHOLDING; EMPLOYMENT TAXES. To the extent required by the law in effect at the time payments are made, The Hillhaven Corporation shall report all payments hereunder and shall withhold therefrom any taxes required to be withheld by the Federal or any state or local government. 4.3 RECIPIENTS OF PAYMENTS. All payments to be made by The Hillhaven Corporation under this Plan shall be made to the Participant during his or her lifetime. All subsequent payments under the Plan shall be made by The Hillhaven Corporation to the Participant's Surviving Spouse, Eligible Children or their guardian, if applicable. SECTION 5 CONDITIONS RELATED TO BENEFITS 5.1 ADMINISTRATION OF PLAN. The Committee has been authorized to administer the Plan and to interpret, construe and apply its provisions in accordance with its terms. The Committee shall administer the Plan and shall establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. 7 5.2 NO RIGHTS TO ASSETS. Neither a Participant nor any other person shall acquire by reason of the plan any right in or title to any assets, fund or property of The Hillhaven Corporation and its subsidiaries whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which The Hillhaven Corporation, in its sole discretion, may set aside in anticipation of a liability hereunder. No trust shall be created in accordance with or by the execution or adoption of this Plan or any Agreement with a Participant, and any benefits which become payable hereunder shall be paid from the general assets of The Hillhaven Corporation. A Participant shall have only an unsecured contractual right to the amounts, if any, payable hereunder. 5.3 NO TENURE RIGHTS. Nothing herein shall constitute a contract of continuing service or in any manner obligate The Hillhaven Corporation to continue the Service of a Director, or obligate a Director to continue in the Service of The Hillhaven Corporation, and nothing herein shall be construed as fixing or regulating the compensation paid to a Director. 5.4 RIGHT TO TERMINATE OR AMEND. Except during any two year period after any Change of Control Event of The Hillhaven Corporation, The Hillhaven Corporation reserves the sole right to terminate the Plan at any time and to terminate an Agreement with any Participant at any time. In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled only to the vested portion of his or her accrued benefits under Section 3 of the Plan as of the time of the termination of the Plan or his or her Agreement. Benefits will be paid in the amounts specified and will commence at the time specified in Section 3 as appropriate. The Hillhaven Corporation further reserves the right in its sole discretion to amend the Plan in any respect except that Plan benefits cannot be reduced during any two year period after any Change of Control Event of The Hillhaven Corporation. No amendment of the Plan (whether there has or has not been a Change of Control Event of The Hillhaven Corporation) that reduced the value of the benefit theretofore accrued and vested by the Participant shall be effective. 5.5 ELIGIBILITY. Eligibility to participate in the Plan is expressly conditional upon a Director's furnishing The Hillhaven Corporation certain information and taking physical examinations and such other relevant action as may be reasonably requested by The Hillhaven Corporation. Any Participant who refuses to provide such information or to take such action shall not be enrolled as or shall thereupon cease to be a Participant under the Plan. Any Participant who commits suicide during the two year period beginning on the date of his or her Agreement, or who makes any material misstatement of information or non-disclosure of medical history, will not receive any benefits hereunder unless, in the sole discretion of the Committee, benefits in a reduced amount are awarded. 8 5.6 OFFSET. If at the time payments or installments are to be made hereunder, any Participant or his or her Surviving Spouse or both are indebted to The Hillhaven Corporation or its Subsidiaries, then the payments remaining to be made to the Participant or his or her Surviving Spouse or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness; provided, however, that an election by the Committee not to reduce any such payment or payments shall not constitute a waiver of any claim for such indebtedness. 5.7 CONDITIONS PRECEDENT. No Retirement Benefits will be payable hereunder to any Participant (i) whose Service with The Hillhaven Corporation is terminated because of willful misconduct or gross negligence in the performance of his or her duties or (ii) who within three years after Termination of Service becomes an employee, director or consultant to any third party engaged in any line of business in competition with the Company that accounts for more than ten percent of the gross revenues of the Company taken as a whole. SECTION 6 MISCELLANEOUS 6.1 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferrable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferrable by operation of law in the event of a Participant's or any person's bankruptcy or insolvency. 6.2 GENDER AND NUMBER. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vise versa. 6.3 NOTICE. Any notice required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of The Hillhaven Corporation, directed to the attention of the Secretary of the Committee. Such notice shall be deemed given as of the date of delivery or, if it is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. 6.4 VALIDITY. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 9 6.5 APPLICABLE LAW. This Plan shall be governed and construed in accordance with the laws of the State of Washington. 6.6 SUCCESSORS IN INTEREST. This Plan shall inure to the benefit of, and be binding upon, and be enforceable by, any corporate successor to The Hillhaven Corporation or successor to substantially all of the assets of The Hillhaven Corporation. 6.7 NO REPRESENTATION ON TAX MATTERS. The Hillhaven Corporation makes no representation to Participants regarding current or future income tax ramifications of the Plan. DATED this _____ day of February, 1995. THE HILLHAVEN CORPORATION By ________________________________ Its ____________________________ 10 EXHIBIT A THE HILLHAVEN CORPORATION BOARD OF DIRECTORS RETIREMENT PLAN AGREEMENT THIS AGREEMENT is made and entered into at Tacoma, Washington, as of ______________, 199___, by and between The Hillhaven Corporation (the "Company") and _____________________________________________("Director"). WHEREAS, THE HILLHAVEN CORPORATION has adopted a Board of Directors Retirement Plan (as amended or restated from time to time, the "Plan"); and WHEREAS, since the Director presently serves as a member of the Board of Directors of the Company and is not an employee of the Company, the Director is eligible to participate in the Plan; and WHEREAS, the Plan requires that an agreement be entered into between the Company and Director setting out certain terms and benefits of the Plan as they apply to the Director; NOW, THEREFORE, the Company and the Director hereby agree as follows: 1. The Plan, a copy of which is attached, is hereby incorporated into and made a part of this Agreement as though set forth in full herein. The parties shall be bound by, and have the benefit of, each and every provision of the Plan, including but not limited to the non-assignability provisions of Section 6.1 of the Plan. 2. The Director was born on ______________, 19___, and his or her present service as a member of the Board of Directors of the Company began on _______________, 19___. 3. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successors and assigns, and the Director and his or her surviving Spouse and Eligible Children. IT WITNESS WHEREOF, the parties hereto have signed and entered into this Agreement as of he date first above written. THE HILLHAVEN CORPORATION By: _________________________________ Its: ________________________________ _____________________________________ Director EX-10.26 19 HILLHAVEN DEFERRED SAVINGS PLAN EXHIBIT 10.26 DEFERRED SAVINGS PLAN OF THE HILLHAVEN CORPORATION Application will be made to the Internal Revenue Service for an advance determination that the Deferred Savings Plan of The Hillhaven Corporation (the "Plan") satisfies the requirements of Sections 401(a), 401(k) and other applicable provisions of the Internal Revenue Code. DEFERRED SAVINGS PLAN OF THE HILLHAVEN CORPORATION
ARTICLE SECTION CONTENTS PAGE - ------- ------- -------- ---- I DEFINITIONS 1 II COMMITTEE AND OTHER FIDUCIARIES 16 2.1 Duties and Relationship of Fiduciaries 16 2.2 Appointment of Committee 17 2.3 Powers and Duties of Committee 17 2.4 Funding Policy 20 2.5 Investment Manager 20 2.6 Organization of Committee - Allocation and Delegation of Duties 20 2.7 Compensation and Expenses of Committee 21 2.8 Records of the Committee 21 2.9 Resignation and Removal of Members 21 2.10 Appointment of Successors 22 III PARTICIPATION OF EMPLOYEES 23 3.1 Eligibility to Participate 23 3.2 Application for Participation 23 3.3 Committee to Determine Eligibility 24 3.4 Termination and Recommencement of Active Participation 24 3.5 Termination of Participation 25 3.6 Military Service 25 3.7 Leaves of Absence 25 IV COMPENSATION DEFERRAL CONTRIBUTIONS 27 4.1 Compensation Deferral Contributions by Participants 26 4.2 Elections to Change Compensation Deferral Contributions 28 4.3 Maximum Amount Subject to Deferral 29 4.4 Non-Applicability of Limitation on Compensation Deferrals by Highly Compensated Employees 29
(i)
ARTICLE SECTION CONTENTS PAGE - ------- ------- -------- ---- 4.5 Provisions for Return of Annual Compensation Deferral Contributions in Excess of Deferral Limitation 29 4.6 Employer's Contribution 31 4.7 Non-Applicability of Limitations on Matching Contributions for Highly Compensated Employees 32 4.8 Separate Accounts 32 4.9 Conditional Contributions 32 V DETERMINATION AND VESTING OF PARTICIPANTS' INTERESTS 34 5.1 Determination of Participants' Interests 34 5.2 Vesting of Participants' Interests 36 5.3 Forfeiture For Cause 38 5.4 Election of Former Vesting Schedule 38 5.5 Changes in Vesting Schedule 39 VI PAYMENT OF BENEFITS OTHER THAN DEATH BENEFITS 40 6.1 Termination of Employment 40 6.2 Commencement of Benefits 40 6.3 Normal Form of Benefits 41 6.4 Automatic Cashouts 41 6.5 Forfeitures; Restoration 42 6.6 Facility of Payment 43 6.7 Special Distribution Rules 43 6.8 Withdrawal of Compensation Deferrals by Participants 44 VII DISTRIBUTIONS UPON DEATH; DESIGNATIONS OF BENEFICIARIES 46 7.1 Form of Death Benefits Provided 46 7.2 Designation of Beneficiary 46 7.3 Additional Requirements for Distribution 47 VIII CONTINUANCE AND AMENDMENT OF PLAN 49 8.1 Continuance of the Plan Not a Contractual Obligation of the Company 49
(ii)
ARTICLE SECTION CONTENTS PAGE - ------- ------- -------- ---- 8.2 Plan Merger or Consolidation 49 8.3 Distribution of Trust Fund on Termination or Partial Termination of Plan 50 8.4 Amendments 50 IX ADMINISTRATION OF THE TRUST FUND 51 9.1 The Trust Agreement 51 X MISCELLANEOUS 52 10.1 Right of Company and Affiliates to Dismiss Employees 52 10.2 Benefits Provided Solely From the Trust Fund 52 10.3 Notice of Participants to be Filed with Committee 52 10.4 Plan Intended to Conform to Provisions of Federal Internal Revenue Code Relative to Employee's Trusts 52 10.5 Amendment and Successor Code or Act or Sections Thereof 53 10.6 Claims Procedure 53 10.7 Context to Control 55 10.8 Gender and Number 56 10.9 More Than One Capacity 56 10.10 Service of Process 56 10.11 Indemnification 56 10.12 Missing Participants 57 10.13 Administrative Mistake 57 10.14 Information to be Furnished to Committee 57 10.15 Spendthrift Trust Provisions 58 10.16 Withholding 59 10.17 Severability 60 XI TOP HEAVY PLAN RULES 61 11.1 Applicability 61 11.2 Definitions 61 11.3 Top-Heavy Status 62 11.4 Minimum Contributions 65 11.5 Maximum Annual Addition 66 11.6 Vesting Rules 67 11.7 Non-Eligible Employees 67
(iii) DEFERRED SAVINGS PLAN OF THE HILLHAVEN CORPORATION The undersigned, THE HILLHAVEN CORPORATION, a corporation organized and doing business under the laws of the State of Nevada, does hereby constitute and adopt the following Deferred Savings Plan, to be effective as of the Effective Date (as defined below), to wit: ARTICLE I DEFINITIONS When used herein, the following words shall have the following meanings unless the context clearly indicates otherwise: 1.1 "Act" shall mean the Employee Retirement Income Security Act of 1974 (Public Law 93-406), all amendments thereto and all regulations issued thereunder. 1.2 "Active Participant" shall mean a Participant who is employed by the Employer and who is currently making Employee Mandatory Compensation Deferral Contributions to the Plan. 1.3 "Administrator" - see "Committee," Paragraph 1.10. 1.4 "Affiliate" shall mean (a) Any corporation which is included in a controlled group of corporations, within the meaning of Section 414(b) of the Code, of which group the Company is also a member, (b) Any trade or business which is under common control with the Company within the meaning of Section 414(c) of the Code, (c) Any member of an affiliated service group, within the meaning of Section 414(m) of the Code, that includes the Company, and (d) Any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. Notwithstanding the foregoing, an entity shall be deemed to be an Affiliate only with respect to periods during which the test under Code Section 414(b), (c), (m), or (o), as applicable, is met. 1.5 "Age" for any specified year shall be deemed to have been attained at the arrival of the birthday during the latest of the number of years in question. 1.6 "Beneficiary" shall mean a person who under this Plan becomes entitled to receive a Participant's interest upon his death, unless otherwise indicated by the context. 1.7 "Board of Directors" shall mean the Board of Directors of THE HILLHAVEN CORPORATION. 1.8 "Claims Coordinator' shall mean the Claims Coordinator hereinafter provided for in Paragraph 10.6. 1.9 "Code" shall mean the Internal Revenue Code of 1986, all amendments thereto and all regulations issued thereunder. 1.10 "Committee" shall mean the Administration Committee hereinafter provided for in Article II. Each member of the Committee shall be a "Named Fiduciary" as defined by Section 402(a) of the Act. The Administration Committee shall also be the "Administrator" provided for in Section 3(16)(A) of said Act. 1.11 "Company" shall mean THE HILLHAVEN CORPORATION. 1.12 "Compensation," for any calendar year, means the entire amount of salary, wages and other remuneration reported by the Employer on Internal Revenue Service Form W-2 for such calendar year, subject, however, to the following adjustments: (a) There shall be excluded from "Compensation" all of the following amounts: (i) "Holiday" and de minimis gifts. -------------- (ii) Insurance premiums and any other imputed income not paid in cash to the Employee. (iii) Payments to an Employee designated as reimbursement for voluntary contributions of the Employee to an individual retirement arrangement. 2 (iv) Except as provided in Subparagraph (b) below, payments to or pursuant to any employee benefit plan, including, but not limited to pensions, retirement benefits, stock bonuses, stock options, stock appreciation rights and payments in lieu of dividends on shares of restricted stock. (v) In the case of an Employee working outside of the United States, amounts in excess of the Employee's base pay intended to reimburse the Employee for the higher cost of living outside of the United States, such as foreign service premiums or hardship allowances. (vi) Automobile, parking or other transportation-related allowances, if any. (vii) Club memberships or dues. (viii) Relocation allowances and distributions from a Deferred Compensation Master Plan of the Company or an Affiliate. (ix) Professional association dues. (x) Education or tuition allowances or reimbursements. (xi) Uniforms or uniform allowances. (xii) Any amount paid to a Covered Employee by the Employer on account of a period of time during which no duties are performed by the Covered Employee. (xiii) Any payments made or due under a plan maintained solely for the purpose of complying with workers compensation or unemployment compensation or disability insurance laws. (xiv) Any payment which solely reimburses the Employee for expenses incurred by the Employee. (xv) Any payments made to the Employee as severance pay. (b) "Compensation" for a Plan Year shall also include amounts which otherwise would be included in "Compensation" under the preceding provisions of this Paragraph 1.12 but which are deferred by a Participant 3 under this Plan in accordance with Section 401(k) of the Code or which are not includible in income by reason of a salary reduction arrangement recognized under Section 125 of the Code. (c) Notwithstanding the foregoing, no amount payable to an Employee by an Employer shall be deemed to be Compensation unless the Compensation (i) is payable to the Employee with respect to a period of time (A) during which the Employee is a Covered Employee and (B) following the date as of which such Covered Employee becomes an Active Participant, as provided in Paragraph 3.1, and (ii) does not exceed $200,000 in any Plan Year, as that amount may be adjusted by the Secretary of the Treasury. 1.13 "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of the Company. 1.14 "Compensation Deferral Contribution" shall mean the amount paid into the Trust Fund by the Employer at the election of the Employee pursuant to Paragraphs 4.1.1, 4.1.2 and 4.1.3. 1.15 "Computation Period" shall mean each Plan Year (calendar year) that includes or commences after an Employee's Employment Commencement Date. 1.16 "Contribution" shall mean any amount paid into the Trust Fund by the Employer in accordance with Article IV. 1.17 "Covered Employee" shall mean an Employee who is employed by an Employer in Category I, as that category is established and determined by the Employer, or such other categories as are designated by an Employer in resolutions adopted by the Employer, and from whose salary or wages income tax or social security tax is required by law to be and is being withheld by the Employer, provided, however, that no person shall be a Covered Employee hereunder (i) while a member of a collective bargaining unit covered by a collective bargaining agreement with respect to which retirement benefits were the subject of good faith bargaining between employee representatives and the Company or an Affiliate, which agreement does not specifically provide for coverage of such EmploYee under this Plan, (ii) while a nonresident alien and while receiving no earned income from the Company or an Affiliate which constitutes income from sources within the United States, (iii) while in Employment as a self-employed person, within the meaning of 4 Section 401(c)(1) of the Code, (iv) while a "leased employee" within the meaning of Code Section 414(n), or (v) while a Highly Compensated Employee. 1.18 "Effective Date" shall mean the earliest date following the date the Company ceases to be an Affiliate of National Medical Enterprises, Inc. (the "Spin-off Date") that it is administratively practicable to implement the Plan, such date to be determined by the Committee; provided, however, in no event shall the "Effective Date" be later than the sixtieth (60th) day following the Spin-off Date. 1.19 "Employee" shall mean a person who is employed by the Company or an Affiliate, and a person required to be treated as a "leased employee" pursuant to Code Section 414(n); provided, however, that an independent contractor shall not be deemed to be an Employee. 1.20 "Employee Mandatory Compensation Deferral Contributions" shall mean Employee Compensation Deferral Contributions made pursuant to Paragraphs 4.1.1 and 4.1.3. 1.21 "Employee Voluntary Compensation Deferral Contributions" shall mean Employee Compensation Deferral Contributions made pursuant to Paragraphs 4.1.2 and 4.1.3. 1.22 "Employer" means THE HILLHAVEN CORPORATION (or any covered division, operating unit, facility or part thereof designated by the Board of Directors in the event the Plan has not been extended to all such parts), and any Affiliate thereof which has adopted this Plan with the approval of THE HILLHAVEN CORPORATION (or any covered division, operating unit, facility or part of such Affiliate designated by the Board of Directors of such Affiliate with the approval of ThE HILLHAVEN CORPORATION in the event the Plan has not been extended to all such parts). "Employer" shall also mean any successor in interest to ThE HILLHAVEN CORPORATION, or any Affiliate thereof, resulting from merger, consolidation, or transfer of assets substantially as a whole, which may expressly agree in writing to continue this Plan as hereinafter provided, provided that in the case of such a successor in interest to an Affiliate, continuation of this Plan with respect to such successor shall be subject to approval of the Compensation Committee. 1.23 "Employment" - see "Service," Paragraph 1.38. 1.24 "Employment Commencement Date" shall mean each of the following: 5 (a) In the case of an Employee who is an Employee on the day prior to the date the Company ceases to be an Affiliate of National Medical Enterprises, Inc. (the "Spin-off Date'), the Employee's most recent date of hire by the Company or an Affiliate. (b) In the case of an Employee who is not an Employee on the day prior to the Spin-off Date, the date on or after the Spin-off Date on which an Employee first performs an Hour of Service in any capacity for the Company or an Affiliate with respect to which the Employee is compensated or is entitled to compensation by the Company or the Affiliate. (c) In the case of an Employee whose Employment terminates on or after the Spin-off Date and who is reemployed by the Company or an Affiliate, the term "Employment Commencement Date" shall mean either (i) his "Employment Commencement Date" prior to the Spin-off Date, as defined in (a) above, or his "Employment Commencement Date' coinciding with or following the "Spin-off Date, as defined in (b) above, or (ii) if the Participant incurs a One Year Break in service, "Employment Commencement Date" shall also mean the first day following the termination of Employment on which the Employee performs an Hour of Service for the Company or an Affiliate with respect to which he is compensated or entitled to compensation by the Company or Affiliate. 1.25 "Entry Date" shall mean the Effective Date, and each January 1 thereafter, except as otherwise provided in Paragraph 3.1(b). 1.26 "Fiduciary" shall include all of the following, to the extent they are deemed to be such under the Act: (a) Any administrator, officer, trustee, or custodian of the Plan; (b) Any person exercising any discretionary authority or discretionary control respecting management of the Plan; (c) Any person exercising authority or control respecting management or disposition of Plan assets; (d) Any person rendering investment advice for a fee or other compensation with respect to Plan property, or with the authority or responsibility to do so, except as provided otherwise in the Act; 6 (e) Any person who possesses any discretionary authority or responsibility in the administration of the Plan; and (f) Any person designated under or to whom fiduciary duties are delegated pursuant to Section 405(c)(1)(B) of the Act. 1.27 "Highly Compensated Employee" shall mean any Employee who is described below. (a) "Highly Compensated Employee" shall include any Employee who (i) was a Five Percent Owner during the Determination Year or the Look Back Year; (ii) received Compensation from an Employer in excess of $75,000 during the Look Back Year; (iii) received Compensation from an Employer in excess of $50,000 during the Look Back Year and was in the "top-paid group" of Employees for such Look Back Year; (iv) was at any time an officer during the Look Back Year and received Compensation greater than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code in such Look Back Year; or (v) was an Employee described in Subparagraph (ii), (iii), or (iv) above during the Determination Year and was a member of the group consisting of the 100 Employees paid the greatest Compensation during the Determination Year. (b) Determination of a Highly Compensated Employee shall be in accordance with the following definitions and special rules: (i) "Determination Year" means the Plan Year for which the determination of Highly Compensated Employee is being made. (ii) "Look Back Year" is the twelve (12) month period preceding the Determination Year. (iii) An Employee shall be treated as a Five Percent Owner for any Determination Year or Look Back Year if at any time during such Year such 7 Employee was a Five Percent Owner (as defined in Paragraph 11.2(b)). (iv) An Employee is in the "top-paid group" of Employees for any Determination Year or Look Back Year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during such Year. (v) For purposes of this Paragraph, no more than fifty (50) Employees (or, if lesser, the greater of three (3) Employees or ten percent (10%) of the Employees) shall be treated as officers. To the extent required by Code Section 414(q), if for any Determination Year or Look Back Year no officer of the Employer is described in this Section, the highest paid officer of the Employer for such year shall be treated as described in this section. (vi) If any individual is a "family member" with respect to a Five Percent Owner or of a Highly Compensated Employee in the group consisting of the ten (10) Highly Compensated Employees paid the greatest Compensation during the Determination Year or Look Back Year, then (A) such individual shall not be considered a separate Employee, and (B) any Compensation paid to such individual (and any applicable contribution or benefit on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the Five Percent Owner or Highly Compensated Employee. For purposes of this Subparagraph (vi), the term "family member" means, with respect to any Employee, such Employee's Spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. (c) For purposes of this Paragraph, the term "Compensation" means Limitation Earnings as defined in Paragraph 1.30; provided, however, the determination under this Subparagraph (c) shall be made without regard to Code Sections 125, 402(a)(8), and 401(h)(1)(B), and in the case of Employer contributions made pursuant to a salary reduction agreement, without regard to Code Section 403(b). 8 (d) For purposes of determining the number of Employees in the "top-paid" group under this Paragraph, the following Employees shall be excluded: (i) Employees who have not completed six (6) months of Service, (ii) Employees who normally work less than 17-l/2 hours per week, (iii) Employees who normally work not more than six (6) months during any Plan Year, and (iv) Employees who have not attained age 21, (v) Except to the extent provided in Treasury Regulations, Employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and Employer, and (vi) Employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3)). An Employer may elect to apply Subparagraphs (i) through (vi) above by substituting a shorter period of Service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or (as the case may be) than as specified in such Subparagraphs. (e) A former Employee shall be treated as a Highly Compensated Employee if (i) such Employee was a Highly Compensated Employee when such Employee incurred a Severance, or (ii) such Employee was a Highly Compensated Employee at any time after attaining age fifty-five (55). (f) Code Sections 414(b), (c), (m), and (o) shall be applied before the application of this Section. Also, the term "Employee" shall include "leased employees," within the meaning of Code Section 414(n), unless such leased Employee is covered under a "safe 9 harbor" plan of the leasing organization and not covered under a qualified plan of the Employer. (g) Notwithstanding the foregoing, for purposes of determining Covered Employee status only, the Committee may in its sole discretion establish rules and procedures for purposes of identifying Highly Compensated Employees, which rules and procedures may result in an Employee being deemed to be a Highly Compensated Employee, whether or not such Employee is an individual described in Code Section 414(q). 1.28 "Hour of Service" shall include: (a) Each hour for which an Employee is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate for the performance of duties during the applicable computation period. Such hours shall be credited to the Employee for the applicable computation period or periods as required by Labor Reg. Subsection 2530.200b-2. (b) Each hour for which back pay is awarded to the Employee or agreed to by the Company or an Affiliate. Such hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains and shall be calculated irrespective of mitigation of damages, but no Hour of Service shall be counted both under this paragraph and under the first paragraph of this Paragraph 1.28. (c) Any Hour of Service required to be credited to the Employee under any law of the United States or any rule or regulation issued thereunder; provided, however, that no hour shall be credited to the Employee both under this paragraph and under any of the other paragraphs of this Paragraph 1.28. (d) Each hour (i) for which the Employee is directly or indirectly paid, or entitled to payment, by reasons (such as vacation, sickness or disability) other than the performance of duties during the applicable computation period as required by Paragraphs (b) and (c) of Labor Reg. Subsection 2530.200b-2, and (ii) during a temporary layoff (even if of indefinite duration) or a Company or an Affiliate-approved leave of absence. Notwithstanding the foregoing, for purposes of crediting an Employee with Hours of Service under this Plan, an Employee shall be credited with 45 Hours of Service for each week for which the Employee is required to be credited with at least one Hour of Service under the above 10 provisions, subject to the limitations of Subparagraph (d) above. Except as determined by the Chief Executive Officer of the Company or his designee, or as required under Section 414 (a) of the Code, any service or employment completed by an individual as an employee of a corporation or trade or business prior to the date on which the corporation or trade or business becomes an Affiliate shall not be taken into account for purposes of determining Hours of Service or for any other purposes under this Plan. 1.29 "Investment Manager" means any fiduciary (other than (i) a trustee or a fiduciary named in this Plan instrument, or (ii) who is identified as a fiduciary pursuant to the procedure set forth in this instrument), (l) who has the power to manage, acquire or dispose of any asset of the Plan, (2) who has acknowledged in writing that he is a fiduciary with respect to the Plan, and (3) who is (i) registered as an investment adviser under the Investment Advisers Act of 1940; or (ii) is a bank, as defined in that Act; or (iii) is an insurance company qualified to manage, acquire or dispose of the assets of retirement plans under the laws of more than one State. 1.30 "Limitation Earnings" shall mean, for purposes of applying the limitations in Paragraphs 5.1(e) and (f) of this Plan, the entire amount paid to an Employee by the Company or an Affiliate which is included in the Employee's income for federal income tax purposes during a Plan Year including, but not limited to, commissions paid to salesmen, compensation for services on the basis of percentage of profits, commissions on insurance premiums, tips and bonuses, imputed income and excluding the following: (a) Company or Affiliate contributions to a plan of deferred compensation (whether funded or unfunded or qualified or non-qualified) which are not included in an Employees gross income for the taxable year in which contributed, salary reduction contributions which qualify for treatment under Section 401(k) or Section 125 of the Code which are made to any plan maintained by the Company or an Affiliate, Company or Affiliate contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation, except that any amount received by an Employee pursuant to an unfunded non- qualified plan may be considered to be "Compensation" for purposes of this Paragraph 5.1(h) in the Plan Year such amount is includible in the gross income of the Employee; 11 (b) Amounts realized from exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee becomes freely transferable, or no longer subject to a substantial risk of forfeiture; (c) Amounts realized in the sale, exchange or other disposition of stockacquired under a qualified stock option; (d) Other amounts which received special tax benefits, or contributions made by the Company or an Affiliate (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee). 1.31 "Named Fiduciary"(ies)" - see "Committee," Paragraph 1.10. 1.32 "Normal Retirement Date' shall be the Participant'S sixtieth (60) birthday. 1.33 "One Year Break in Service" means a Computation Period at the end of which the Employee's Employment is terminated and during which the Employee has not completed more than five hundred (500) Hours of Service. Such One Year Break in Service shall be deemed to occur on the last day of such Computation Period. Solely for purposes of determining whether an Employee has sustained a One Year Break in Service, an Employee's Hours of Service shall include the following: (a) Any period of absence by reason of the pregnancy of the Employee, by reason of the birth of a child of the Employee, by reason of the placement of a child with the Employee in connection with the adoption of the child by the Employee, or for purposes of caring for the child for a period beginning immediately following the birth or placement. (b) The number of Hours of Service with which an Employee described in Subparagraph (a) above shall be credited shall be -- (i) The number which otherwise normally would have been credited to the Employee but for the absence, or 12 (ii) If the number described in Subparagraph (i) above is not capable of being determined, eight (8) Hours of Service per day of such absence, provided that the total number of hours treated as Hours of Service under this Subparagraph (b) shall not exceed five hundred one (501) and that these Hours of Service shall be taken into account solely for purposes of determining whether or not the Employee has incurred a One Year Break in Service. (c) The Hours described in Subparagraph (b) shall be credited to the Computation Period -- (i) In which the absence from work begins, if the Employee would be prevented from incurring a One Year Break in Service in that Computation Period solely because the period of absence is treated as Hours of Service under this Paragraph 1.33, or (ii) In any other case, in the immediately following Computation Period. (d) The above provisions of Subparagraphs (a)-(c) of this Paragraph 1.33 shall not apply unless the Employee provides such timely information as the Committee may reasonably require to establish: (i) That the absence is for one or more of the reasons described in Subparagraph (a), and (ii) The number of days for which there was such an absence. 1.34 "Participant" shall mean any person for whom an account is maintained under this Plan and whose account, representing such person's interest in the Trust Fund, has not been distributed or otherwise disposed of in accordance with applicable law. 1.35 "Plan" shall mean the Deferred Savings Plan set forth in and by this document and the related Trust and all subsequent amendments thereto. 1.36 "Plan Year" shall mean a twelve-month period beginning on each January l and ending on each subsequent December 31; provided, however, the first Plan Year of the Plan shall be the period beginning on the Effective Date and ending December 31, 1990. 13 1.37 "Qualified Election" shall mean a Participant's designation of Beneficiary made under this Plan in accordance with the requirements of this Paragraph 1.37 and in the manner and form as prescribed by the Committee. No designation of Beneficiary other than or in addition to the Participant's Spouse shall be deemed to be a Qualified Election unless the Spouse, if any, of the Participant consents in writing to such designation of Beneficiary and acknowledges the effect of such consent. The Spouse's consent to a designation of Beneficiary must be witnessed by a notary public or a Plan Representative. Notwithstanding this consent requirement, if the Participant warrants to the Committee that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located or for any other reason as the Committee determines to be consistent with the requirements of Section 417 of the Code, a related designation of Beneficiary without spousal consent may be deemed a Qualified Election; provided, however, that the Committee may require the Participant in such case to produce such evidence of the Spouse's unavailability or other circumstances as the Committee deems to be appropriate. A Qualified Election under this provision will be valid only with respect to the Spouse who consented to the Qualified Election, or in the event of a Qualified Election to which the Spouse's consent has not been obtained, with respect to that Spouse whose consent was not obtained (e.g., that Spouse who cannot be located). Any change in a prior designation of Beneficiary by a Participant shall be subject to the foregoing rules. Subject to the foregoing (relating to a change by a Participant), the consent by a Spouse to a designation of Beneficiary shall be irrevocable. The number of changes in Beneficiary designations shall not be limited. A designation of Beneficiary which, by reason of a failure to obtain required spousal consent could not be given effect when made, may later be given effect if at the relevant date the Participant has no Spouse or is not then otherwise required to have spousal consent. 1.38 "Service" or "Employment" means service for or employment by the Company or an Affiliate, which service or employment is completed as an Employee. Except as determined in writing by the Chief Executive Officer of the Company or his designee, or as required under Section 414(a) of the Code, any service or employment completed by an individual as an employee of a corporation or trade or business prior to the date on which the corporation or trade or business becomes an Affiliate shall not be taken into account for purposes of determining Hours of Service or for any other purposes under this Plan. 14 1.39 "Spouse" shall mean, for purposes of payment of benefits following the death of a Participant, the person to whom the Participant was married on the date of such Participant's death. 1.40 "Total and Permanent Disability" means total and permanent incapacity of a Participant, due to physical impairment or legally established mental incompetence, to perform the usual duties of his Employment, which disability shall be determined by the Committee based on competent medical advice. 1.41 "Trust Agreement" means the Agreement between the Company and the Trustee or Trustees covering the administration of the Trust Fund and includes the succession of the Trustee or Trustees. 1.42 "Trust Fund" means the assets of the Trust established pursuant to this Plan and the Trust Agreement hereinafter referred to, out of which the benefits under this Plan shall be paid. 1.43 "Trustee" means the Trustee or Trustees of the Trust Fund established pursuant to this Plan and any successor Trustee or Trustees. 1.44 "Valuation Date" shall mean the last business day of each Plan quarter which shall be the last business day in each March, June, September, and December. These shall be the dates as of which the dollar value of each Participant's account is determined in accordance with the terms of the Trust Agreement and such dollar value, plus Participant Compensation Deferral Contributions and Employer Contributions credited to the Participant's account during the Plan quarter and minus any withdrawals or distributions during the Plan quarter, shall be the Participant's interest for all purposes until the next Valuation Date. 1.45 "Year of Service" shall mean each Computation Period in which the Employee has completed not less than one thousand (1,000) Hours of Service, except as modified by Paragraph 5.2 of Article V. Notwithstanding any provision of this Plan to the contrary, except as determined in writing by the Chief Executive Officer of the Company or his designee, or as required under Section 414(a) of the Code, any service or employment completed by an individual as an employee of a corporation or trade or business prior to the date on which the corporation or trade or business becomes an Affiliate shall not be taken into account for purposes of determining Hours of Service or for any other purposes under this Plan. 15 ARTICLE II COMMITTEE AND OTHER FIDUCIARIES 2.1 Duties and Relationship of Fiduciaries -------------------------------------- Each Fiduciary shall at all times discharge his duties in conformance with the provisions of the Act and as required for the administration of a qualified plan under the Code. It shall be the responsibility of every Fiduciary and of every person handling funds or other property of the plan to be bonded to the extent required by the Act. The Committee may direct the Trustee to pay the cost of all such bonds from the Trust assets, if and to the extent that the Company does not pay such costs in a timely fashion, and the Trustee shall be protected in relying on such directions. Each Fiduciary, and each member of the Board of Directors, the Compensation Committee, the Committee, the Claims Coordinator designated under paragraph 10.6.1 of Article x, the Trustee, and each executive officer (as such term is used in rules of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934) performing duties in connection with the Plan, shall be responsible only for acts and omissions in connection with the exercise of the Powers, duties and functions specifically allocated to such person under the terms of this Plan and the Trust Agreement. No person shall be responsible for any acts or omissions in connection with the powers, functions and duties allocated to any other person under the terms of this Plan and the Trust Agreement. Except to the extent provided in the Act or the Code, no person shall have any duty to question whether any other person is fulfilling the responsibilities imposed on such other Person by this Plan, the Trust Agreement, or the Act. No Person shall have any liability for a breach of fiduciary responsibility of any other person with respect to the Plan or the Trust unless such person participates knowingly in such breach, knowingly undertakes to conceal such breach, has actual knowledge of such breach and fails to take reasonable remedial action to remedy such breach, or, through negligence in performing his own specific fiduciary responsibilities, has enabled such other person to commit a breach of such other person's fiduciary responsibilities. Wherever this Plan or the Trust Agreement provides that a Fiduciary has the power to 16 appoint another person or entity with discretionary authority or control respecting the operation or administration of the Plan or the Trust Fund, the responsibility of the appointing Fiduciary with respect to such appointment shall be limited to the selection of the appointee and periodic review of the performance of the appointee in accordance with the standards of the Act. Any violation of fiduciary responsibilities by the appointee which is not a proximate result of the failure of the appointing Fiduciary properly to select or supervise the appointee, and in which breach the appointing Fiduciary did not otherwise participate, will not be considered to be a breach by the appointing Fiduciary. 2.2 Appointment of Committee ------------------------ The Committee shall be appointed by the Compensation Committee and shall consist of not less than three (3) nor more than five (5) Employees, the exact number of which shall be established by the Compensation Committee from time to time. Such members of the Committee shall hold office for a term certain, as designated by the Compensation Committee, unless a member resigns or is removed by the Compensation Committee prior to the expiration of the designated term of office. 2.3 Powers and Duties of Committee ------------------------------ The Committee shall have all discretionary powers necessary to supervise the administration of the Plan and control its operations, except such as may be expressly reserved to the Company, its Board of Directors, or the Compensation Committee. In addition to any powers and authority conferred on the Committee elsewhere in the Plan or by law, the Committee shall have, but not by way of limitation, the discretionary fiduciary power and authority to establish rules and regulations from time to time for the conduct of the Committee's business and the administration and effectuation of this Plan, to administer, interpret, construe and apply this Plan and to decide all questions which may arise or which may be raised under this Plan by any Employee, Participant, former Participant, Beneficiary or other person whatsoever, including but not limited to all questions relating to eligibility to participate in the Plan, the amount of Years of Service of any Participant, and the amount of benefits to which any Participant or his Beneficiary may be entitled. Further, the Committee shall have the discretionary power and authority to perform or cause to be performed such acts as it may deem in its sole 17 discretion to be necessary, appropriate or convenient in the efficient administration of the Plan. Any action taken in good faith by the Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon the participants and their Beneficiaries. All discretionary powers conferred upon the Committee shall be absolute. All such discretionary powers shall be exercised in a uniform and nondiscriminatorY manner. Any action taken by the Committee shall be by majority vote. In the event that the members reach a tie decision on an issue before the Committee, a temporary member shall be appointed by the Compensation Committee in order to create an odd number of voting members. The Compensation Committee may in its discretion appoint a standby temporary member to act in such capacity until replaced or removed. The Committee, from time to time, shall direct the Trustee concerning the payments to be made out of the Trust Fund pursuant to this Plan and shall have such other powers respecting the administration of the Trust Fund as may be conferred upon it hereunder or under the Trust Agreement. The Trustee shall invest and reinvest the Trust Fund, or any part thereof, in any manner that it deems advisable subject to the right hereby reserved to the Committee to direct the Trustee with respect to the investment and reinvestment of the Trust Fund, including the right to direct the Trustee to establish segregated investment funds for the investment of participant accounts, in accordance with participant directions &nd the provisions of the plan. In its sole discretion, the Committee may appoint an Investment Committee consisting of from three (3) to five (5) members to act in its place with respect to the direction of the Trustee as to the investment of the Trust Fund in accordance with this paragraph 2.3, the determination of a funding policy in accordance with paragraph 2.4, and the appointment of an Investment Manager in accordance with paragraph 2.5. With respect to its powers to direct the Trustee on the investment of the Trust Fund, the Committee shall have the power to direct the Trustee to invest and reinvest any and all money or property of any description at any time held by it and constituting part of the Trust Fund in accordance with the following powers: 18 The Committee, without previous application to or subsequent ratification of any court, tribunal or commission, or any federal or state governmental agency, except as hereinafter provided, may direct the Trustee to invest in bonds, notes, debentures, mortgages, commercial paper, preferred stock, common stocks, sell covered call options or invest in other securities, rights, obligations, or property, real or personal, including shares and certificates of participation issued by investment companies or investment trusts, trust funds of the Trust created for qualified employee benefit plans, annuity contracts, life insurance contracts, including ordinary and term life insurance contracts on the lives of key employees of the Company, for the benefit of the Trust Fund and the employee Participants as a whole in order to protect their interests in the premises. The Committee may direct the Trustee to invest in the stock or securities of the Employer, including any bonds or debentures of the Employer, provided, however, that such investments may be made only in "qualifying employer securities," as that term is defined in the Act. The Committee may direct the Trustee to sell, grant options therefor, exchange, pledge, or encumber, mortgage, deed in trust or other form of hypothecation, or otherwise dispose of the whole or any part of the Trust Fund on such terms and for such property or cash, or part cash and credit as the Committee may deem best, and it may direct the Trustee to retain, hold, maintain, or continue any securities or investments which the Trustee may hold as part of the Trust Fund for such length of time as the Committee may deem advisable, and generally, in all respects, the Committee may direct the Trustee to do all such other things and exercise each and every right, power and privilege in connection with and in relation to the Trust Fund as could be done, exercised or executed by an individual holding and owning said property in absolute and unconditional ownership including directing the Trustee as to the manner of voting any stock or securities, whether of the Employer or otherwise, held in said Trust Fund. The Committee, in directing the Trustee as to the investment of the Trust Fund, shall not be bound as to the character of any investment by any statute, rule of court, or custom governing the investment of trust funds other than the Act or the Code, and Amendments thereto, and other Regulations and Rulings thereunder which are valid interpretations of the Act, Code and Amendments. 19 The Committee shall have no right or authority to authorize the Trustee to make advances to a Participant or to make any distribution except as provided in Article VII herein. 2.4 Funding Policy -------------- The Committee, promptly upon its formation and periodically thereafter shall determine, at a duly constituted meeting of said Committee, a funding policy and method consistent with the objectives of the Plan, and with all requirements of law and an investment and reinvestment policy consistent therewith. All actions taken at such meeting, and the reasons therefor, shall be recorded in the minutes of the meeting. Such policy and method shall be communicated in writing to the Trustee and any then acting Investment Manager. and thereafter none of the powers of the Committee, the Trustee or any Investment Manager set forth herein shall be exercised in any manner inconsistent with such objectives. 2.5 Investment Manager ------------------ The Committee may, from time to time, and in writing, authorize or direct the Trustee to delegate the management of the plan assets or any part thereof, including the right to acquire and dispose of such assets, to an Investment Manager. Such authority or direction of the Trustee to so delegate may be revoked by the Committee at any time, and the Committee may authorize or direct the Trustee at any time to revoke any such delegation. 2.6 Organization of Committee - Allocation and Delegation of Duties --------------------------------------------------------------- The Committee may appoint one of its own members as Chairman, and may adopt such by-laws and regulations as it deems desirable for the conduct" of its affairs and appoint a secretary and one or more assistant secretary or secretaries. The Committee may, at any duly constituted meeting thereof, allocate specific fiduciary responsibilities, other than trustee responsibilities, among the members of the Committee. Any member of such Committee may also, at such meeting, designate other persons to carry out any fiduciary duties which are the responsibility of such member, other than trustee responsibilities. Either of such actions shall be recorded in the minutes of said meeting, and may be revoked at any time by action taken at another such meeting recorded in the minutes thereof, and communicated to the person to whom such duties were delegated. 20 Any determination of the Committee may be made by a majority of the Committee at a meeting thereof or without a meeting by a resolution or memorandum signed by all members, and, except as provided otherwise herein, shall be final and conclusive on the Employer, the Trustee, all Participants and Beneficiaries claiming any rights hereunder, and as to all third parties dealing with the Committee or with the Trustee. All notices, directions, information and other communications from the Committee to the Trustee shall be in writing. 2.7 Compensation and Expenses of Committee -------------------------------------- The members of the Committee shall serve without compensation but shall be reimbursed for any necessary expenditures incurred in the discharge of their duties as members of said Committee. The compensation of all agents, counsel, or other persons (who may be officers or members of the Employer) retained or employed by the Committee shall be fixed by the Committee, subject to the approval of the Compensation Committee. Any such reimbursement or payment shall be made by the Trustee out of the Trust Fund; provided, however, that all or any part of any such reimbursement or payment may be made by the Employer if it shall so determine. 2.8 Records of the Committee ------------------------ The Committee shall keep a record of all of its proceedings and shall keep or cause to be kept all such books of account, records and other data as may be necessary or advisable in its judgment for the administration of this Plan and to reflect properly the affairs thereof, and to determine the amounts of vested and forfeitable interests of the respective Participants in the Trust Fund, and the amount of all retirement benefits or other benefits hereunder. As a part thereof, it shall maintain or cause to be maintained a separate account for each Participant, which account in each year shall reflect such information required by Paragraph 5.1(c). Any person dealing with the Committee may rely on a certificate or memorandum signed by a person who, pursuant to a written resolution of the Committee, is authorized to execute such instrument. 2.9 Resignation and Removal of Members ---------------------------------- Any member of the Committee may resign at any time by giving written notice to the other members and to the Compensation Committee, effective as therein stated or otherwise upon receipt. Any member who leaves the 21 Employment of the Employer shall be deemed to have resigned as a member of the Committee on the date of his termination of Employment. Any member of the Committee may at any time be removed by the Compensation Committee. 2.10 Appointment of Successors ------------------------- Upon the death, resignation or removal of any member, the Compensation Committee shall at its next regular meeting, or at a special meeting or by unanimous written consent if so desired, appoint a successor member by resolution. Notice of appointment of a successor member shall be made by an authorized member of the Compensation Committee in writing to the Trustee and to the Committee. Until receipt by the Trustee of such written notice of any change in membership of the Committee, the Trustee shall not be charged with knowledge or notice of such change. 22 ARTICLE III PARTICIPATION OF EMPLOYEES 3.1 Eligibility to Participate -------------------------- (a) Any Employee shall be eligible to become an Active Participant as of the Effective Date, provided that on such Effective Date such person is a Covered Employee. (b) Any Employee who is not an Active Participant solely because he is not a Covered Employee shall be eligible to become an Active Participant following commencement or recommencement of Covered Employee status, provided the Committee receives his application to enroll in the Plan within thirty (30) days following the date the Covered Employee is notified of his status as a Covered Employee and receives an application to enroll, Such Covered Employee shall become an Active Participant as soon as administratively feasible following the Committee's receipt of the properly completed application to enroll, but in no event earlier than the first day of the first payroll period after the Committee's receipt of the application. Commencement or recommencement of active participation shall be subject to such requirements as the Committee reasonably may establish regarding applications to enroll and verification of eligibility and Covered Employee status. (c) Any Employee who has not become an Active Participant solely because of a failure or declination to enroll within the thirty (30) day period described in Paragraph 3.1(b) shall be eligible to become an Active Participant as of any subsequent Entry Date that such person is a Covered Employee. (d) Any Employee who previously was an Active Participant shall be eligible to become an Active Participant again, subject to the provisions of Paragraph 3.4. 3.2 Application for Participation ----------------------------- Active Participation in this Plan by Covered Employees is voluntary. In order to become an Active Participant, except as provided in Section 3.1(b), a Covered Employee must apply for participation prior to the 23 Entry Date on which he desires to become an Active Participant and must make Employee Mandatory Compensation Deferral Contributions hereunder as provided in Article IV. Except as provided in paragraph 3.4, each applicant who is determined by the Committee to be eligible for active participation shall become an Active Participant as of the next Entry Date following such application. 3.3 committee to Determine Eligibility ---------------------------------- As soon as feasible after a properly completed application of a Covered Employee is received by the Employer, the Employer shall certify to the Committee in writing such information as the Committee may require in order to perform its duties hereunder. Any such certification of information to the Committee pursuant to this Plan shall, for all purposes of the Plan, be binding on all interested parties provided that whenever any Employee proves to the satisfaction of the Employer that his period of employment or his compensation as so certified is incorrect, the Employer shall correct such certification. The determination of the Committee as to the identity of the respective Participants and as to their respective interests shall be binding upon the Company or Affiliates, the Trustee, the Employees, the Participants, and all BeneficiarieS. 3.4 Termination and Recommencement of Active Participation ------------------------------------------------------ A person shall cease to be an Active Participant upon cessation of status as a Covered Employee, or upon suspension of Employee Mandatory Compensation Deferral ContributionS in accordance with paragraph 4.2. A Participant shall not be entitled to a distribution of any portion of an amount solely by reason of cessation of Active Participant status. A Participant whose Active Participant status ceases solely because such person ceases to be a Covered Employee shall again be eligible to be an Active Participant following recommencement of Covered Employee status in accordance with the provisions of paragraph 3.1(b), the terms and conditionS of the Plan as then in effect and such requirements as the Committee reasonably may establish regarding applications to enroll and verification of eligibility and Covered Employee status. A Participant whose Active Participant status ends solely by reason of suspension of Employee Mandatory Compensation Deferral 24 Contributions shall be eligible to recommence Active participant status in accordance with the provisions of Article IV. 3.5 Termination of Participation ---------------------------- Following admission, participation of a Participant as such shall continue until such Participant's interest hereunder shall have been distributed pursuant to the provisions of Articles VI and VII hereof, or otherwise disposed of in accordance with applicable law. 3.6 Military Service ---------------- A Participant's Employment shall be deemed to have terminated when he leaves his Employment with the Company or an Affiliate to become a member of the Armed Forces of the United States. If he returns to the Employment by the Company or an Affiliate within ninety (90) days (or such longer period as may be prescribed by law) from the date he first became entitled to his discharge (and after submitting proof of his honorable discharge), he shall receive credit for vesting purposes for such time spent in the military and if, subsequent to his becoming a member of the Armed Forces of the United States, the unvested portion of his account is forfeited pursuant to Article VI, it shall be restored to what it was prior to such military leave (adjusted to reflect investment earnings or losses for the period of military service). His vested interest in any such restored account shall be determined as provided in Paragraph 6.7. 3.7 Leaves of Absence ----------------- An Employee's Employment shall not be considered terminated for purposes of the Plan during a period of leave of absence with the consent of the Company or an Affiliate, provided that he returns to the employ of the Company or an Affiliate at the expiration of such leave. Leaves of absence shall mean leaves granted by the Company or an Affiliate, in accordance with rules uniformly applied to all Employees, for reasons of health or public service or for reasons determined by the Company or an Affiliate to be in its best interests. 25 ARTICLE IV COMPENSATION DEFERRAL CONTRIBUTIONS 4.1 Compensation Deferral Contributions by Participants --------------------------------------------------- 4.1.1 Employee Mandatory Compensation Deferral Contributions ------------------------------------------------------ Subject to the limitations on contributions under this Article IV, commencing as of the Effective Date each Active Participant shall contribute to the Trust Fund under the Plan for each pay Period during which he is an Active Participant a sum equal to three percent (3%) of the Compensation which otherwise would have been paid to him by the Employed for such pay Period, excluding any port ion of such Compensation Payable to him by the Employer as a bonus. An Active Participant's election to make Employee Mandatory Compensation Deferrals with respect to Compensation otherwise Payable as a bonus shall be in accordance with Paragraph 4.1.3. The Employee Mandatory Compensation Deferral Contributions of Active Participants shall be collected by the Employer by payroll deductions and shall be paid over by the Employee to the Trustee to be held and administered in trust for said Participants. 4.1.2 Employee Voluntary Compensation Deferral Contributions ------------------------------------------------------ Subject to the limitations on contributions under this Article IV, any Active Participant who is making Employee Mandatory Compensation Deferral Contributions for a pay period in accordance with Paragraph 4.1.1 may also make Employee Voluntary Compensation Deferral Contributions to the Trust Fund under the Plan for each such pay Period in an amount not in excess of seven Percent (7%) of the Compensation which otherwise would have been Paid to him by the Employer for such pay period, excluding any Portion of Compensation Payable to him by the Employer as a bonus. An Active Participant's election to make Employee Voluntary Compensation Deferrals with respect to Compensation otherwise Payable as a bonus shall be in accordance with Paragraph 4.1.3. Notwithstanding the foregoing seven percent (7%) of Compensation limitation on an Active Participant's Employee Voluntary Compensation Contributions for a Payroll Period, prior to any Entry Date coinciding with the first day of a Plan Year the Committee may determine to increase the maximum percentage 26 amount each Active Participant may defer under this Paragraph 4.1.2 for such Plan Year, up to the maximum permissible under this Article IV and Paragraph 5.1(e). The Active Participant will notify the Committee of the amount he desires to contribute. Employee Voluntary Compensation Deferral Contributions shall be made by payroll deduction and shall be paid over by the Employer to the Trustee to be held and administered in trust for said Participant. The contributions described in this Paragraph 4.l.2 and Paragraph 4.1.3(b) shall be purely voluntary. 4.1.3 Separate Bonus Deferral Election -------------------------------- An Active Participant's election to make Compensation Deferrals shall not apply to that portion of his Compensation payable to him by the Employer as a bonus, unless such Active Participant makes a separate Compensation Deferral election with respect to that portion otherwise payable as a bonus, as follows: (a) An Active Participant who is making Employee Mandatory Compensation Deferrals for a pay period in accordance with Paragraph 4.1.1 may elect to make Employee Mandatory Compensation Deferrals for each pay period in an amount equal to three percent (3%) of that portion of his Compensation which would otherwise be payable to him by the Employer for the pay period as a bonus. (b) An Active Participant who is making Employee Mandatory Compensation Deferrals for a pay period with respect to that portion of his Compensation otherwise payable as a bonus may also elect to make Employee Voluntary Compensation Deferrals for each pay period in an amount equal to up to ninety-seven percent (97%) of that portion of his Compensation which would otherwise be payable to him by the Employer for the pay period as a bonus. (c) Notwithstanding any provision to the contrary in this Plan, the effective date of an Active Participant's Compensation Deferral election with respect to the portion of such Active Participant's Compensation otherwise payable to him by the Employer as a bonus shall be determined in accordance with rules prescribed by the Committee; provided, however, such rules shall not permit a Compensation Deferral election to be made by an Active Participant on a date that is later than a date otherwise determined in accordance with Article III or this Article IV. 27 4.1.4 Payover of Compensation Deferral Contributions ---------------------------------------------- The Compensation Deferral Contributions on behalf of Active Participants shall be paid over by the Employer to the Trustee as soon as practicable after the receipt thereof, but in any event not later than the close of the Plan Year following the Plan Year to which they pertain. 4.2 Elections to Change Compensation Deferral Contributions ------------------------------------------------------- (a) Upon written notice filed with the Committee prior to an Entry Date, an Active Participant may suspend his Employee Mandatory Compensation Deferral Contributions altogether as of such Entry Date. Such Participant may recommence making Compensation Deferral Contributions as of any subsequent Entry Date by filing appropriate forms with the Committee prior to such Entry Date so long as he is a Covered Employee on such Entry Date. Employee Voluntary Compensation Deferral Contributions shall be suspended automatically during any period in which the Participants Employee Mandatory Compensation Deferral Contributions are suspended. (b) Upon written notice filed with the Committee prior to an Entry Date, an Active Participant may increase, decrease, or suspend altogether his Employee Voluntary Compensation Deferral Contributions as of such Entry Date. (c) Participants shall not be permitted to make up suspended Compensation Deferral Contributions. 4.3 Maximum Amount Subject to Deferral ---------------------------------- No Participant shall be permitted to make Compensation Deferral Contributions to this Plan in excess of $7,000 during any calendar year, as that amount may be adjusted from time to time by the Secretary of the Treasury (the "Deferral Limitation"). In the event a Participant's Compensation Deferral Contributions exceed the Deferral Limitation for any calendar year for any reason, such excess contributions and any income allocable thereto shall be returned to the Participant, as provided in Paragraph 4.5. 28 4.4 Non-Applicability of Limitation on Compensation Deferrals by ------------------------------------------------------------ Highly Compensated Employees - ---------------------------- Participant Compensation Deferral Contributions under the Plan for the Plan Year by or on behalf of Highly Compensated Employees shall not exceed the limitations on such contributions under Section 401(k) of the Code because no Employee who is a Highly Compensated Employee is eligible to participate in this Plan. In the event Compensation Deferral Contributions are made on behalf of a Highly Compensated Employee in any Plan Year due to error or otherwise, such contributions shall be deemed to have been made due to a mistake of fact and shall be returned to the Employer in accordance with Paragraph 4.9. 4.5 Provisions for Return of Annual Compensation Deferral ----------------------------------------------------- Contributions in Excess of Deferral Limitation - ---------------------------------------------- (a) In the event that due to error or otherwise, an amount of a Participant's Compensation in excess of the Deferral Limitation as defined in Paragraph 4.3 is deferred for any calendar year under this Plan pursuant to such Participant's Compensation deferral agreement (but without regard to amounts deferred under any other plan), to the extent administratively feasible, the excess Compensation Deferral Contribution, if any, together with income allocable to such amount shall be distributed to the Participant on or before the first April 15 following the close of the calendar year in which such excess contribution is made. The amount of excess Compensation Deferral Contributions that may be distributed to a Participant under this Section for any taxable year shall be reduced by any excess Compensation Deferral Contributions previously distributed to such Participant in accordance with this Paragraph 4.5 for the Plan Year beginning with or within such taxable year. (i) Income on Compensation Deferral Contributions in excess of the Deferral Limitation shall be determined by multiplying the income for the calendar year allocable to the Participant's Compensation Deferral Contributions by a fraction, the numerator of which is the excess amount for the calendar year, and the denominator of which is the balance of the Participant's Compensation Deferral Account as of the last day of the calendar year, reduced by the gain allocable to such contributions for the calendar year and increased by the loss allocable to such contributions for the calendar year. 29 (ii) Allocable income for the period between the last day of the calendar year and the date of the corrective distribution may be calculated under the fractional method ((i) above), or under the "safe harbor" method set forth in the regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. Under the "safe harbor" method, allocable income is ten (10%) of the income calculated under the fractional method for the prior calendar year multiplied by the number of calendar months since the last day of the calendar year. A distribution on or before the 15th of the month is treated as made on the last day of the preceding month, a distribution after the 15th of the month is treated as made on the first day of the next month. (iii) The Committee shall not be liable to any Participant (or his Beneficiary, if applicable) for any losses caused by misestimating the amount of any Compensation Deferral Contributions in excess of the limitations of this Article IV and any income allocable to such excess. (b) In accordance with rules and procedures as may be established by the Committee, a Participant may submit a claim to the Committee in which he certifies in writing the specific amount of his Compensation Deferral Contributions for the current or preceding calendar year which, when added to amounts deferred for such calendar year under other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code, will cause the Participant to exceed the Deferral Limitation under Section 402(g) of the Code for the calendar year in which the deferral occurred. Any such claim must be submitted to the Committee no later than the March 1 of the calendar year following the calendar year of deferral. To the extent the amount specified by the Participant does not exceed the amount of the Participant's Compensation Deferral Contributions under the Plan for the applicable calendar year, the Committee shall treat the amount specified by the Participant in his claim as a Compensation Deferral Contribution in excess of the Deferral Limitation for such calendar year and return such excess and any income allocable thereto to the Participant, as provided in (a) above. (c) In the event that for any reason a Participant's Compensation Deferral Contributions in excess of the Deferral Limitation for any calendar year are not distributed to the Participant by the time prescribed in (a) above, such excess shall be held in the 30 Participant's Compensation Deferral Account until distribution can be made in accordance with the provisions of this Plan. (d) To the extent required by regulations under Section 402(g) or 415 of the Code, any excess Compensation Deferral Contributions distributed to a Participant in accordance with this Paragraph shall be treated as an Annual Addition under Paragraph 5.1(e) for the Plan Year for which the excess Compensation Deferral Contribution was made. 4.6 Employer's Contribution ----------------------- 4.6.1 Contribution ------------ Subject to amendment or termination of the Plan and applicable limitations herein, as of the last day of each pay period following the Effective Date, the Employer will contribute for each Active Participant who has completed at least three (3) Years of Service as of the last day of such pay period an amount equal to the Participant's Compensation Deferral Contributions pursuant to Paragraph 4.1 above for the pay period not in excess of the first four percent (4%) of the Participant's Compensation for the pay period. 4.6.2 Requirement for Net Profits --------------------------- Contributions by an Employer shall be made without regard to current or accumulated profits for the year; provided, however, that the Plan shall be designed to qualify as a profit sharing plan for purposes of Sections 401(a) et seq. of the Code. 4.6.3 Entity Contributing ------------------- The Contribution attributable to each Participant shall be made by his Employer. If a Participant has been employed by more than one Employer during any pay period, each such Employer shall be responsible for the portion of the Contribution attributable to the Compensation earned by the Participant from such Employer. 4.6.4 Time for Payment ---------------- The Employer shall make payment of its Contributions for each pay period in cash as soon as administratively practicable following the last day of such payroll period, provided that the total amount of the 31 Employer Contribution for each taxable year shall be paid in full not later than the date prescribed by the federal income tax law to entitle the Employer to a deduction for the year with respect to which said Contribution is made. 4.7 Non-Applicability of Limitations on Matching Contributions for -------------------------------------------------------------- Highly Compensated Employees - ---------------------------- Employer's Contributions under the Plan for the Plan Year can not exceed the limitations on contributions on behalf of Highly Compensated Employees under Section 401(m) of the Code because no Employee who is a Highly Compensated Employee is eligible to participate in this Plan. In the event Employer Contributions are made on behalf of a Highly Compensated Employee in any Plan Year due to error or otherwise, such contributions shall be deemed to have been made due to a mistake of fact and shall be returned to the Employer in accordance with Paragraph 4.9. 4.8 Separate Accounts ----------------- The Committee shall keep or cause to be kept separate accounts for each Participant; however, the Trustee shall not be required to make physical segregation of Contributions, and the Trustee shall be authorized to hold both Employer and Participant Compensation Deferral Contributions in a common trust fund if the Trustee decides that such would be preferable for reasons of investment or management. 4.9 Conditional Contributions ------------------------- Notwithstanding anything to the contrary herein contained, contributions of the Employer shall be, and hereby are, made subject to the conditions that (l) the Plan and Trust qualify as a tax exempt plan under Section 401 of the Code and (2) such contributions are deductible under Section 404 of the Code. In the event that the Commissioner of Internal Revenue shall determine that the Plan and Trust shall not qualify initially, any contribution of the Employer made while the Plan and Trust shall not have qualified shall be repaid to the Employer, in whole or in part, by the Trustee, within one year after the date of the denial of qualification of the Plan and Trust. In the event that the Commissioner of Internal Revenue shall determine that a deduction for the Employer's contribution shall be disallowed, the excess of such contribution over the amount that would have been contributed had there not occurred a mistake in determining the deductibility of the contribution shall be repaid to the Employer, in whole or in part, by the 32 Trustee, within one year after the disallowance of the deduction. In the case of a contribution of the Employer which is made by reason of mistake of fact, the excess of such contribution over the amount that would have been contributed had there not occurred a mistake of fact shall be repaid to the Employer, in whole or in part, by the Trustee, within one year after the payment of the contribution. With respect to contributions for which a deduction is disallowed or made by reason of mistake of fact, (l) earnings attributable to the excess contribution, shall not be returned to the Employer, but shall be applied as soon as administratively feasible to reduce Employer Contributions to the Plan, (2) losses attributable thereto shall reduce the amount to be repaid and (3) if the repayment of the excess would cause the balance of a Participant's account to be reduced to less than the amount of the Participant's account had the excess contribution not been made, the amount of the repayment shall be limited to the excess of the excess contribution over the amount of the Participant's account had the excess contribution not been made. Any amounts repaid to the Employer by the Trustee pursuant to this Paragraph shall be repaid without liability therefor on the part of the Trustee, to any Participant, Beneficiary or any other person whomsoever. The Trustee shall have no duty to inquire into the existence of a mistake of fact when informed thereof by the Committee. By way of example, and not by way of limitation, any contribution made by the Employer which causes the Plan or any other plan to be disqualified under the provisions of Section 401(k), 401(m) or 415 of the Code shall be deemed to have been made by a mistake of fact to the extent of the portion of such contribution which would cause such disqualification. 33 ARTICLE V DETERMINATION AND VESTING OF PARTICIPANTS' INTERESTS 5.1 Determination of Participants' Interests ---------------------------------------- Each participant shall be credited with: (a) Allocation of Contributions: The Employer Contributions to --------------------------- the Trust Fund for a pay period calculated in accordance with paragraph 4.6.1 shall be allocated to the accounts of Active participants who have completed at least three (3) Years of Service as of the last day of the pay period. Employee Compensation Deferral Contributions to the Trust Fund for a pay period shall be allocated to the accounts of participants in the actual amounts of Compensation Deferral Contributions on behalf of such participants for the pay period. (b) Investment of Participants' Accounts: Contributions on behalf of a participant shall be invested in the Investment Fund established by the Committee for this purpose. The Committee shall maintain an account for each participant showing the dollar value of his current interest in the Investment Fund as of each Valuation Date. (c) Allocation of Earnings of Investment Funds: Earnings, ------------------------------------------ losses, gains and changes in fair market value of the Investment Fund shall be allocated as of each Valuation Date to the accounts of participants. The amount of said earnings, losses, gains and changes in fair market value shall be allocated in the ratio which the dollar value of each participant's account in an Investment Fund prior to allocation hereunder and prior to allocation of contributions under subparagraph (a) above plus one-half (1/2) of his Employee Mandatory Compensation Deferral Employee Voluntary Compensation Deferral Contributions and Employer Contributions made since the previous allocation date, less any distribution since the previous allocation date, bears to the dollar value of the accounts of all participants prior to such allocation plus one-half (1/2) of their Employee Mandatory Compensation Deferral, Employee Voluntary Compensation Deferral Contribution, and Employer Contributions made since the previous allocation date, less any distribution since the previous allocation date. (d) Forfeitures: All amounts representing forfeitures described ----------- in paragraph 6.5, shall be used to restore forfeitures in accordance with paragraph 6.5 or to reduce the amount the Employer agrees to pay to the 34 Trustee as its Contribution hereunder and shall be allocated as a portion of the Employer Contribution under Paragraph 5.1(a). The amount represented by forfeitures shall not be applied to increase the benefits any Participant would otherwise receive hereunder at any time prior to the termination of the Trust or upon complete discontinuance by the Employer of contributions hereunder. (e) Overall Contribution Limitation: Notwithstanding the ------------------------------- foregoing provisions of this Paragraph 5.1, the annual additions allocated to the account of any Participant, together with the annual additions to his account in any other defined contribution plan, as defined in Section 414(i) of the Code maintained by the Company or an Affiliate shall not for any Plan Year (the "Limitation Year") exceed the lesser of (1) twenty-five percent (25%) of such Participant's Limitation Earnings or (2) $30,000 (or if greater, one-fourth (1/4) of the defined benefit dollar limitation set forth in Section 415(b) of the Code as in effect for the Plan Year). For purposes of this Subparagraph (e), annual additions for a Plan Year shall mean the sum for such Plan Year of (l) the Participant's share of Employer Contributions, (2) such Participant's Compensation Deferral Contributions, (3) any forfeitures allocated to the Participant, and (4) any amounts described in Section 415(l)(1) or 419(A)(d)(2) of the Code, but shall not include the amount of any rollover contributions as that term is used in Section 415(c)(2) of the Code or any transfers from another tax-qualified plan. (f) Combined Plan Limitation: In the event a Participant ------------------------ hereunder notifies the Committee that he also is a participant in any qualified defined benefit plan (within the meaning of Section 415(k) of the Code) of the Company or an Affiliate, then the benefit payable under such other defined benefit plan, or any of them, shall be reduced for so long and to the extent necessary to provide that the sum of the "defined benefit fraction" as defined and the "defined contribution fraction" as defined in Section 415(e) of the Code, for any Plan Year shall not exceed 1. (g) Corrective Adjustments: In the event that corrective ---------------------- adjustments in any Participant's account are required pursuant to Subparagraph 5.1(e), the annual addition to his account shall be reduced by one or more of the following corrective adjustments, as determined by the Committee: 35 (i) Return to the Employer of that portion, or all of the Employer Contributions under Subparagraph 5.1(a) required to ensure compliance with Subparagraph 5.1(e); (ii) Return to the Employer that portion, or all, of the Participant's Employee Voluntary Compensation Deferral Contributions under Paragraph 4.1 required to ensure compliance with Subparagraph 5.1(e); (iii) Return to the Employer that portion, or all, of a Participant's Employee Mandatory Compensation Deferral Contributions under Paragraph 4.1 required to ensure compliance with Subparagraph 5.1(e). The amount of any Participant's Compensation Deferral Contributions returned to the Employer in accordance with this Paragraph shall thereafter be paid to the Participant as current Compensation, after the withholding of any federal, state or local income taxes on such amount. (h) For purposes of Subparagraphs 5.1(e), (f), and (g), the status of an entity as an Affiliate shall be determined by reference to the percentage tests set forth in Code Section 415(h). 5.2 Vesting of Participants' Interests ---------------------------------- A Participant shall always be 100% vested in the value of all accounts attributable to his Compensation Deferral Contributions to this Plan. A Participant shall be vested in accounts attributable to Employer's Contributions to this Plan under Paragraph 4.6.1 of Article IV and allocated to him under Paragraph 5.1 of this Article V, in accordance with the following schedule (subject to the provisions of Section 5.3):
Years of Service Percentage Vested ---------------- ----------------- Less than 3 0% 3 30% 4 40% 5 60% 6 80% 7 100%
36 provided, that when any Participant shall reach his Normal Retirement Date or shall die or shall suffer Total and Permanent Disability (in each such case while an Employee), his entire interest in the Trust Fund shall become vested without regard to his period of Employment. Any portion of the interest of a Participant which shall not have become vested, as herein provided, shall be a forfeitable interest. Any interest in the Trust Fund shall be and become payable to such Participant or his Beneficiaries only as and to the extent provided in this Plan; and a Participant or former Participant" who dies having designated a Beneficiary, shall cease to have any interest hereunder or in his separate trust account, and his Beneficiary shall become entitled to payment thereof as herein provided by virtue of the terms of this Plan and not as a result of any transfer of said interest or account. For purposes of computing Years of Service for use in the application of Paragraph 4.6.1 and this Paragraph 5.2, the following rules shall apply: (a) Years of Service credited to a Participant subsequent to the Participant's incurring five (5) consecutive One Year Breaks in Service shall not be taken into account for purposes of calculating the percentage of vesting of that portion of such Participant's"account which is attributable to Employer Contributions made prior to the first such One Year Break in Service. (b) In the case of a Participant who has not completed at least three (3) Years of Service, if such a Participant sustains at least five (5) consecutive One Year Breaks in Service, Years of Service before the first such One Year Break in Service shall not be taken into account for purposes of the allocation of the Employer Contributions in accordance with Paragraph 4.6.1 or calculating the percentage of vesting of that portion of such Participant's account which is attributable to Employer Contributions made after the last such One Year Break in Service. (Such aggregate number of Years of Service before the first such break shall not include any Years of Service not required to be taken into account by reason of any prior One Year Break in Service.) 37 5.3 Forfeiture For Cause -------------------- To the extent permitted by applicable law, the Committee shall cause any and all of the Employer Contributions credited to a Participant'S account, including earnings credited thereon in accordance with Paragraph 5.1(c), to be forfeited (subject to the provisions of Section 6.5) if the participant has not completed at least-five (5) Years of Service and the Committee at any time determineS that: (a) The participant has been convicted in a court of law of the crime of embezzlement of funds or assets of the Employer or of its nursing home residents; (b) The participant has consciously and intentionally divulged Employer confidential information to the competitors of the Employer which is clearly and unequivocally detrimental to the Employer and such action has been fully and completely documented under oath; (c) The participant has engaged in other criminal conduct which is clearly and unequivocally detrimental to the Employer, and such conduct has been fully and completely documented under oath; or (d) Within the two (2) years immediately following his termination of Employment with the Employer, the participant engages in any capacity in a business other than National Medical Enterprises or one of its subsidiaries that is in substantial, direct competition with the business of, and in the geographical areas served by, any of the operating units, including the Corporate office of Hillhaven for which the Employee worked during the three (3) years immediately preceding his or her termination. 5.4 Election of Former Vesting Schedule ----------------------------------- In the event the vesting schedule of this Plan is amended within the meaning of Code Section 411(a)(10), then, to the extent required by said Section 411(a)(10), any participant who has completed at least three (3) Years of Service, may elect to have his vested interest in Employer Contributions determined without regard to such amendment by notifying the Committee in writing during the election period as hereafter defined. The election period shall begin on the date such amendment is adopted and shall end no earlier than the latest of the following dates: 38 (a) the date which is sixty (60) days after the date the amendment is adopted; (b) the date which is sixty (60) days after the day the amendment becomes effective; or (c) the date which is sixty (60) days after the day the Participant is issued written notice of the amendment by the Committee. Such election shall be available only to an individual who is a Participant at the time such election is made and such election shall be irrevocable. 5.5 Changes in Vesting Schedule --------------------------- In the event that the vesting schedule of this Plan is amended, the vested interest of any person who is a Participant on the date such amendment is adopted, or on the effective date of such amendment, if later, shall not be less than the vested interest computed under the Plan without regard to such amendment. 39 ARTICLE VI PAYMENT OF BENEFITS OTHER THAN DEATH BENEFITS 6.1 Termination of Employment ------------------------- (a) If a Participant's Employment terminates for any reason other than death, the Participant shall be entitled to a payment of his vested interest in the Trust in the form of distribution provided in Paragraph 6.3, commencing as provided in Paragraph 6.2. No distribution shall be made under this or any other provision of this Plan of any amount which has not become vested under the express provisions of this Plan. In the event a Participant's Employment terminates but his Employment has recommenced prior to the distribution of his entire vested interest, any undistributed portion of his vested interest shall remain in the Plan until such Participant's account again becomes distributable due to termination of Employment. (b) Notwithstanding the foregoing, if a Participant ceases to be an Employee by reason of a transaction described in Code Section 401(k)(10)(A)(ii) or (iii), such Participant shall be entitled to distribution of his entire vested interest in the Trust Fund under this Article VI as if, for purposes of this Plan only, such event constitutes a termination of Employment. 6.2 Commencement of Benefits ------------------------ (a) A Participant's vested interest in the Trust that becomes payable for any reason shall be distributed as soon as practicable following such Participant's attainment of age seventy (70) and not later than the April 1 following the calendar year in which the Participant attains age seventy and one-half (70 1/2), unless (i) the Participant elects, in accordance with the following provisions of this Paragraph 6.2, distribution as of an earlier date which is administratively practicable and acceptable to the Committee following the Committee's verification of termination of Employment and any other relevant information, or (ii) the provisions of Paragraph 6.4 apply. (b) In the case of a Participant whose distributable interest, determined as of the Valuation Date immediately preceding the date of the Participant's termination of Employment, adjusted as provided in Paragraph 1.44, exceeds thirty-five hundred dollars ($3,500), distribution shall be made as soon as 40 administratively practicable following the valuation Date coinciding with or next following the later of (i) the Participant's termination of Employment, or (ii) the receipt by the Committee of the properly completed application of the Participant, and any other required documentation to request distribution, including the Participant'S consent to the distribution in accordance with (d) below. The amount to be distributed shall be the Participant's account balance as of the Valuation Date last preceding the date of distribution, adjusted as provided in Paragraph l.44. (c) If a Participant described in (b) above fails to consent to distribution of his distributable interest following the Participant's termination of Employment such a Participant shall be deemed to have made an election to defer distribution. to attainment of age seventy (70), unless prior to and in accordance with (b) above, the Participant submits a request for an earlier distribution. (d) Any written consent by a Participant to receive distribution of his distributable interest prior to his attainment of age seventy (70) shall not be valid unless such consent is made both (A) after the Participant receives a written notice advising him of his right to defer distribution to his attainment of age seventy (70) and (B) within the ninety (90) day period ending on the Participant's "Benefit Payment Date." The notice to the Participant advising him of his right to defer distribution shall be given no less than thirty (30) nor more than ninety (90) days prior to the Participant's Benefit Payment Date. For purposes of this Subparagraph (d), "Benefit Payment Date" shall mean the first day of the first period for which the Participant's distributable interest is paid. 6.3 Normal Form of Benefits. The distributable interest of a ----------------------- Participant shall be paid in a single sum payment. 6.4 Automatic Cashouts ------------------ Notwithstanding the preceding provisions of this Article VI or the provisions of Article VII, if the value of a Participant's distributable interest, determined as of the Valuation Date immediately preceding the date of the Participant's termination of Employment, adjusted as provided in Paragraph 1.44 does not exceed thirty-five hundred dollars ($3,500), the Committee shall direct that the distributable interest be paid in a single 41 sum as soon as practicable following such termination of Employment, without regard to whether the Participant consents to payment prior to the Participant's attainment of age seventy (70). The amount to be distributed shall be the Participant's account balance as of the Valuation Date preceding the date his Employment terminated, adjusted as provided in Paragraph 1.44. 6.5 Forfeitures: Restoration ------------------------ (a) Any non-vested amounts held in the Trust shall be forfeited as of the earlier of the date the Participant's total distributable interest is paid to him, or the date such Participant incurs five (5) consecutive One Year Breaks in Service. (b) Any amounts forfeited by Participants during the Plan Year in accordance with Subparagraph (a) above shall be applied to reduce Employer Contributions to the Plan. (c) A Participant whose distributable interest is paid prior to sustaining five (5) consecutive One Year Breaks in Service and who subsequently is reemployed as an Employee prior to incurring five (5) consecutive One Year Breaks in Service, shall notify the Committee of such reemployment (and supply the Committee with such information regarding the Participant's Employment and participation as the Committee may require). As soon as practicable following such notification (and furnishing of such information to the Committee), if the Committee determines that the Participant is entitled to a restoration, the Participant shall be fully restored in amounts forfeited in accordance with (a) above (without adjustment of such forfeited amounts for Trust gain or loss occurring between the date of forfeiture and the date of restoration). Such restored amounts may be paid from forfeitures in the Plan Year of restoration, or succeeding Plan Years, if necessary. Any subsequent distribution of benefits shall be offset by an amount reflecting the distributable interest previously paid to the participant, so that the distribution is computed as follows: (i) First, the values P, AB, D, and R shall be determined, where P is the vested percentage applicable to such distribution, AB is the value for purposes of such distribution of the Participant's accounts attributable to Employer's Contributions to this Plan under Paragraph 4.6.1 and allocated to him under Paragraph 5.1, D is the amount previously 42 distributed to the Participant with respect to Employer Contributions to this Plan under Paragraph 4.6.1 and allocated to him under Paragraph 5.1, and R is the ratio of AB to the amount previously forfeited. (ii) Second, the Employee's vested portion of the accounts attributable to Employer's Contributions to this Plan under Paragraph 4.6.1 and allocated to him under Paragraph 5.1 shall not be less than amount ("X") determined by the formula: X = (P (AB + (R x D))) - (R x D). These rules shall in all cases be applied so that the distribution is determined in a manner consistent with Treas. Reg. (S) 1.411(a)-7(d). 6.6 Facility of Payment ------------------- If any payee under the Plan is a minor, or if the Committee reasonably believes that any payee is legally incapable of giving a valid receipt and discharge for any payment due him, the Administration Committee may have such payment, or any part thereof, made to the person (or persons or institution) whom it reasonably believes is caring for or supporting such payee, unless it has received due notice of claim therefor from a duly appointed guardian of such payee. Any such payment shall be a payment for the account of such payee and shall, to the extent thereof, be a complete discharge of any liability under the Plan to such payee. 6.7 Special Distribution Rules -------------------------- Notwithstanding the provisions of Paragraph 6.2 relating to distribution of benefits to a Participant prior to his attainment of age seventy (70), distribution of a Participant's vested interest in the Plan shall be paid or commence to be paid within sixty (60) days following the later of (i) the Plan Year in which he attains age sixty-two (62), or (ii) the Plan Year in which his termination of Employment occurs; provided, however, that if an election by the Participant is required to be made for distribution to commence, such election is filed with the Committee in a timely manner. 43 6.8 Withdrawal of Compensation Deferrals by Participants ---------------------------------------------------- Subject to the succeeding provisions of this Paragraph 6.8, while still employed by the Employer, a Participant may make a withdrawal of his Compensation Deferral Contributions. (a) A withdrawal of a Participant's Compensation Deferral Contributions may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that no Participant may make a withdrawal from such Account prior to a determination by the Committee that such Participant has a hardship need determined in accordance with (b) below, and such withdrawal is necessary on account of such need, in accordance with (c) below. (b) For purposes of this Paragraph 6.8, a withdrawal may be considered to be on account of a hardship need if the Committee determines that such withdrawal is necessary to meet an immediate and heavy financial need of the Participant. In accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code, an immediate and heavy financial need shall include, but shall not be limited to, the following: (i) A medical need incurred by the Participant, his Spouse or dependents; (ii) The purchase of primary residence for the Participant (excluding mortgage payments); (iii) Payment of tuition for the next semester or quarter of post-secondary education for the Participant, his Spouse, children, or dependents; (iv) The need to prevent either the eviction of the Participant from his principal residence or the foreclosure of a mortgage on such principal residence. (c) For purposes of this Paragraph 6.8, a withdrawal will be treated as necessary on account of a hardship need of the Participant to the extent the amount of the withdrawal is not in excess of the amount required to meet such hardship need and to the extent such hardship may not be satisfied from other resources reasonably available to the Participant. A distribution generally 44 may be treated as necessary on account of a hardship need of a Participant if the Committee reasonably relies on the Participant's written representations to the Committee that the hardship cannot be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by reasonable liquidation of assets, if such liquidation would not itself cause an immediate and heavy financial need, (iii) by the cessation of Participant Compensation Deferral Contributions to the Plan, or (iv) by other distributions or non-taxable loans from plans of the Company or any other Employer, or by borrowing from commercial sources on reasonable commercial terms. For purposes of this Paragraph 6.8, a Participant's resources shall be deemed to include those assets of his spouse and minor children that are reasonably available to the Participant. (d) The amount available for withdrawal shall not exceed the lesser of (i) the amount of the hardship need, or (ii) the Participant's Compensation Deferral Contributions (less any amounts previously withdrawn). The Participant's Compensation Deferral Contributions shall be determined as of the Valuation Date which occurs at least thirty (30) days prior to the delivery of the Participant's written request for withdrawal to the Committee, plus any Compensation that was deferred after such Valuation Date pursuant to such Participant's Compensation deferral agreement. If the total amount of the Participant's Compensation Deferral Contributions available for withdrawal, calculated as provided in this subsection (d) is more than five hundred dollars ($500) the minimum amount which may be withdrawn shall be five hundred dollars ($500). If the total amount of such Participant's Compensation Deferral Contributions available for withdrawal is five hundred dollars ($500) or less, the total available amount must be withdrawn. (e) Distribution of a hardship withdrawal shall be made within sixty (60) days after the approval by the Committee of the Participant's written request for the hardship withdrawal. 45 ARTICLE VII DISTRIBUTIONS UPON DEATH; DESIGNATIONS OF BENEFICIARIES 7.1 Form of Death Benefits Provided ------------------------------- (a) In the case of a Participant who dies before payment of his distributable interest, his interest which becomes available for distribution on account of death shall be paid to the Participant's Beneficiary in a single sum payment within one (1) year after the interest becomes available for distribution. (b) In the case of a Participant who dies after payment of his distributable interest, no benefits shall be payable to any person. (c) For purposes of this Paragraph 7.l, the value of a Participant's distributable interest shall be the Participant's account balance, adjusted as provided in Paragraph 1.44, as of the Valuation Date last preceding the date as of which the Participant's interest is distributed. (d) A Participant's interest in the Trust which becomes distributable by reason of the Participant's death shall be distributed as soon as practicable after the Committee receives the necessary documentation of the Participant's death. 7.2 Designation of Beneficiary -------------------------- (a) Whenever a Participant may be permitted to designate a Beneficiary to receive benefits under this Plan, such designation shall be made, pursuant to a Qualified Election, by the execution and delivery to the Committee of an instrument in a form satisfactory to the Committee. A Participant shall have the right to change or revoke any such Beneficiary designation by filing a new designation and notice of revocation with the Committee, and, subject to the rules governing Qualified Elections, no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. (b) If a deceased Participant shall have failed properly to designate a Beneficiary, or if the Administration Committee receives no response from a designated Beneficiary after giving notice to such 46 Beneficiary by certified mail to such person at his last known address as shown in the Plan's records (or if the certified letter is returned to the Committee by the United States Postal Service as undeliverable), or if for any reason the designations shall be legally ineffective, or if all Beneficiaries shall have predeceased the Participant, any distribution required to be made under the provisions of this Plan from the Trust Fund shall be made by payment: (i) in the form of a single sum, to the person to whom the Participant lawfully is married as of the date of the Participant's death, or if no such Spouse survives, (ii) in a single sum, to the qualified representative of Participant's estate who files notice of a claim with the Committee, provided however, that if no qualified representative of the deceased Participant's estate has filed notice of a claim within one year following the Participant's death, the Committee in its discretion may (I) make the distribution under this Subparagraph (b) to such persons as establish to the satisfaction of the Committee that they are heirs at law of the Participant, or (II) deposit such distributable amount into a general account at Trustee's bank which holds such undeliverable distributions; provided, however, that Trustee's bank may cause property held by it to escheat to the State of Washington or to such other state as may be required or permitted by applicable law. (c) The determination by the Committee as to which persons, if any, qualify within the foregoing categories (including the categories referred to in Subparagraphs (b)(i) and (ii)) shall be final and conclusive upon all persons. In the event that the deceased Participant was not a resident of Washington at the date of his death, the Committee, in its discretion, may require the establishment of ancillary administration in Washington. 7.3 Additional Requirements for Distribution ---------------------------------------- (a) The Committee or Trustee, or both, may require the execution and delivery of such documents, papers and receipts as the Committee or Trustee may determine necessary or appropriate in order to establish the fact of death of the deceased Participant and of the right and identity of any Beneficiary or other person or persons claiming any benefits under this Article VII. (b) The Committee or the Trustee, or both, may as a condition precedent to the payment of death benefits hereunder, require an inheritance tax release and/or such security as the Committee or Trustee, or both, 47 may deem appropriate as protection against possible liability for state or federal death taxes attributable to any death benefits. (c) Notwithstanding any other provision in this Article VII regarding the time within which a Participant's distributable interest will be paid, if, in the opinion of the Committee, there are or reasonably may be conflicting claims or other legal impediments to the payment of such distributable interest to a payee, such payment may be delayed for so long as is necessary to resolve such conflict, potential conflict, or other legal impediment, but not beyond the date permitted by applicable law. 48 ARTICLE VIII CONTINUANCE AND AMENDMENT OF PLAN 8.1 Continuance of the Plan Not a Contractual Obligation of the ----------------------------------------------------------- Company - ------- It is the expectation of the Company that it will continue this Plan indefinitely, but the continuance of this Plan is not assumed as a contractual obligation by the Company, and is not a consideration for or an inducement or condition of the employment of any person and the right is reserved to the Company by action of its Board of Directors at any time to discontinue this Plan, which action shall be binding on all Affiliates. The discontinuance of this Plan by the Company shall not have the effect of revesting in the Company or any Affiliate any part of the Trust Fund. Upon the termination or partial termination of the Plan or complete discontinuance of contributions by Board resolution or otherwise, the interests of affected Participants at such times shall thereupon be nonforfeitable and the Trustee shall continue to administer the Trust in accordance with the provisions hereof. Notwithstanding any provision to the contrary in this Paragraph, a termination or partial termination shall not be deemed to occur by reason of any event unless such event is required by Code Section 411 to be treated as a termination or partial termination, and further, Participant's interests in the Plan in the case of such event shall vest only to the extent required by Code Section 411. 8.2 Plan Merger or Consolidation ---------------------------- Notwithstanding the foregoing provisions hereof, no merger or consolidation of this Plan with any other plan, nor transfer of the assets or liabilities of this Plan to any other plan, shall be permitted or be effective unless the provisions of such merged, consolidated or transferee plan are such that each participant of this Plan would, if said new plan were terminated immediately following said merger consolidation or transfer, receive a benefit equal to or greater than each said participant would have received had this Plan been terminated immediately prior to such merger, consolidation or transfer. 49 8.3 Distribution of Trust Fund on Termination or Partial Termination ---------------------------------------------------------------- of Plan - ------- If the Plan shall at any time be deemed terminated or partially terminated within the meaning of Section 411 of the Code, the Committee shall determine or cause to be determined the value of the Trust Fund and of the respective interests of the Participants and the manner of disposition of Participants' interests. To the extent permitted by Code Section 401(k)(10)(A)(i) following the termination or partial termination of the Plan, the Committee may direct the Trustee to distribute each affected Participant's interest in the Trust Fund in accordance with the applicable provisions of Article VI without regard to whether such Participant's Employment is then terminated. 8.4 Amendments ---------- The Company, by action of the Compensation Committee, may at any time and from time to time amend this Plan; provided, however, that no amendment shall be made at any time pursuant to which the Trust Fund may be diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries; and provided further, that no amendment shall decrease the percentage of the interest of any Participant which shall theretofore have become vested, nor shall any amendment discriminate in favor of Employees who are officers, shareholders, or highly compensated Employees. Any amendment of the Plan by the Company shall be binding on each Affiliate, without any further action by any such Affiliate. Notwithstanding anything herein to the contrary, however, the Plan may be amended at any time if necessary to conform to the provisions and requirements of the Act and the Code, or any amendments thereto, or regulations issued pursuant thereto, or any similar act or any amendments thereto, and no such amendment shall be considered prejudicial to any interest of any Participant hereunder or his Beneficiaries. 50 ARTICLE IX ADMINISTRATION OF THE TRUST FUND 9.1 The Trust Agreement ------------------- Concurrently with the adoption of this Plan, the Company has executed a Trust Agreement providing for the administration of the Trust Fund by [to be determined], herein called "Trustee," containing such provisions as the Company has deemed appropriate with respect to the powers and authority of the Trustee as to the investment and reinvestment of the Trust Fund, the income therefrom and the general administration thereof, subject to the right of the Committee to direct the Trustee with respect to investment of the Trust Fund and to remove therefrom any such investment as hereinbefore provided, the limitations on the liability of the Trustee, on authority of the Committee to settle the accounts of the Trustee on behalf of all persons having any interest in the Trust Fund, and from time to time to appoint a new Trustee in place of any then acting Trustee of the Trust Fund. All taxes upon or in respect of the Trust Fund or its assets and all expenses of administration (including reasonable compensation of the Trustee, its agents and counsel) of the Trust Fund and special trust accounts established pursuant to this Plan shall be withdrawn by the Trustee from the Trust Fund, or, as to items clearly allocable to any special trust account, from such special trust account prior to distribution thereof, unless the Company shall elect to bear such expenses. At the election of the Company, any or all expense incurred in the preparation or adoption of the Plan or Trust Agreement may be chargeable to and withdrawn from the Trust Fund or said expenses may be borne by the Company. The Trust Agreement shall be deemed to form a part of this Plan, and any and all rights or benefits which accrue to any person under this Plan shall be subject to all the terms and provisions of said Trust Agreement insofar as they are not in direct conflict with this Plan. 51 ARTICLE X MISCELLANEOUS 10.1 Right of Company and Affiliates to Dismiss Employees ---------------------------------------------------- The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Company or Employer or any Affiliate and any Employee, or to be a consideration for or an inducement or condition of the Employment of any person. Neither the action of the Company in establishing this Plan nor any action taken by it or by the Committee under the provisions hereof, nor any provisions of this Plan shall be construed as giving to any Employee the right to be retained in its employ or the employ of an Affiliate or any right to any payment whatsoever except to the extent of the benefits provided for by this Plan to be paid from the Trust Fund. The Company and its Affiliates expressly reserve the right at any time to dismiss any Employee without any liability for any claim either against the Company or any of its Affiliates or against the Trust Fund for any payment whatsoever except to the extent provided for in this Plan. 10.2 Benefits Provided Solely From the Trust Fund -------------------------------------------- All benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and the Employer assumes no liability or responsibility therefor. 10.3 Notice of Participants to be Filed with Committee ------------------------------------------------- Whenever provision is made herein that a Participant may exercise any option or designate any Beneficiary, the action of each Participant shall be evidenced by a written notice thereof signed by the Participant on a form, if any, furnished by the Committee for such purpose and filed with such Committee, which shall not be effective until received by the Committee. 10.4 Plan Intended to Conform to Provisions of Federal Internal ---------------------------------------------------------- Revenue Code Relative to Employee's Trusts - ------------------------------------------ It is the intention of the Company that it shall be impossible for any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries. This Paragraph shall be construed to 52 follow the spirit and intent of the present Act, Code and Regulations or any future federal law and regulations governing trusts for the exclusive benefit of employees, to the end that the Trust Fund shall be incapable of such diversion, whether by operation or natural termination of the Trust by power of revocation, by amendment or by any other means, except as expressly allowed by any such law or regulations. 10.5 Amendment and Successor Code or Act or Sections Thereof ------------------------------------------------------- Whenever a reference is made in this Plan to the Code or Act or to a section of the Code or Act, such reference shall be deemed to refer to such Code or Act or section as the same may be amended from time to time, and to any successor Code or Act or section thereto. 10.6 Claims Procedure ---------------- 10.6.1 Filing of Claims ---------------- If a Participant, former Participant, or Beneficiary does not receive payment of the benefits to which such person believes he is entitled under the Plan or has any other grievance with respect to his benefits under the Plan, such person or his authorized representative (such person or his authorized representative, if any, is hereinafter referred to as the "Claimant") may make a claim in the manner herein provided. For purposes of this Paragraph 10.6, the pension benefit election form completed by a Participant or a Beneficiary shall not be deemed a claim, and such requesting party shall not be deemed a Claimant. All claims under the Plan shall be made in writing, signed by the Claimant and submitted to the Claims Coordinator to be designated from time to time by the Committee. The Claims Coordinator shall be designated by the Committee and may be, but need not be, an Employee or a member of the Committee. The Claims Coordinator may require all claims to be filed on forms supplied by him. Each claim shall contain sufficient information (other than information available to the Committee and the Claims Coordinator from their own records) to allow the Claims Coordinator to make a determination as to said claim; a claim shall not be deemed to be properly filed unless it contains such sufficient information. If a claim does not contain such sufficient information, the Claims Coordinator shall indicate to the Claimant any additional information which is necessary for the Claims Coordinator to make a determination as to the claim. The Claims Coordinator 53 shall consider each claim which is properly filed and shall issue his determination thereon in writing within ninety (90) days after the date on which such claim is properly filed, unless special circumstances require an extension of time for processing the claim, in which event the Claims Coordinator shall (a) furnish the Claimant with written notice of such extension within ninety (90) days after the date on which the claim is properly filed, and (b) issue his written determination on the claim not later than one hundred eighty (180) days after the date on which the claim is properly filed. If the claim is granted, the appropriate distribution, adjustment or other action shall be made or taken. If the Claims Coordinator denies the claim in whole or in part, he shall furnish a copy of his written determination to the Claimant upon the issuance thereof, and such written determination shall set forth, in a manner calculated to be understood by the Claimant, the following information: (a) The specific reasons for the denial; (b) Specific references to the pertinent Plan provisions upon which the denial is based; (c) An explanation of the appeals procedure and arbitration provisions of this Plan. If the Claims Coordinator takes no action on a claim within ninety (90) days after it is properly filed, the Claims Coordinator shall be deemed to have denied such claim for purposes of the appeals procedure set forth in Paragraph 10.6.2 of this Article X. 10.6.2 Appeals Procedure ----------------- If the Claims Coordinator denies a claim in whole or in part, the Claimant who made such claim may appeal from such denial. Such appeal must be submitted in writing and signed by the Claimant within sixty (60) days after the denial is communicated to the Claimant. The Committee may require appeals to be made on forms supplied by it. An appeal may be accompanied by such issues, comments and documentation as the Claimant deems pertinent. The Claimant may review pertinent documents at reasonable times throughout the period beginning with the communication to the Claimant of the denial of the claim and ending with the date of the communication to the Claimant of the decision reached by the Committee upon the Claimant's appeal. The Committee, in its discretion, may hold a hearing on any appeal upon reasonable notice to the Claimant. The Committee shall 54 issue its written decision on each appeal within sixty (60) days after the receipt thereof, unless special circumstances (such as the need to hold a hearing or obtain additional information) require an extension of the time for processing the appeal, in which event the Committee shall issue its decision as soon as possible but not later than one hundred twenty (120) days after the date on which the appeal was filed. Each decision issued by the Committee shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for the decision, specific references to the pertinent Plan provisions on which the decision is based and an explanation of the arbitration provisions set forth in Paragraph 10.6.3 of this Article X. If the Committee fails to issue a written decision on an appeal within one hundred twenty (120) days after the date on which the appeal was filed, the Committee shall be deemed to have denied the appeal. 10.6.3 Arbitration ----------- A Claimant may contest the Committee's denial of his appeal only by submitting the matter to arbitration. In such event, the Claimant and the Committee shall select an arbitrator from a list of names supplied by the American Arbitration Association in accordance with such Association's procedures for selection of arbitrators, and the arbitration shall be conducted in accordance with the rules of such Association. The arbitrator's authority shall be limited to the affirmance or reversal of the Committee's denial of the appeal, and the arbitrator shall have no power to alter, add to or subtract from any provision of this Plan or the Trust Agreement. Except as otherwise required by the Act, the arbitrator's decision shall be final and binding on all parties, if warranted on the record and reasonably based on applicable law and the provisions of this Plan and the Trust Agreement. No action for distribution of benefits or with respect to a Participant's, former Participant's or Beneficiary's interest in the Plan shall be brought in any court unless and until all of his rights and remedies under this Paragraph 10.6. including the arbitration provisions of this Paragraph 10.6.3. have been exhausted. 10.7 Context to Control ------------------ The headings of articles and paragraphs are included solely for convenience or reference, and if there be any conflict between such headings and the text of the Plan, the text shall control. 55 10.8 Gender and Number ----------------- Any gender, including neuter, shall include the other(s) and the singular shall include the plural, and vice versa. 10.9 More Than One Capacity ---------------------- Any person or group of persons may serve in more than one fiduciary capacity with respect to this Plan and/or the Trust created hereunder, including service both as a Trustee or Co-Trustee and as a member of the Committee. 10.10 Service of Process ------------------ Any member of the Committee who is then acting as such or the chief legal officer of The Hillhaven Corporation shall be authorized to receive service of process on behalf of the Plan. 10.11 Indemnification --------------- The Company hereby agrees to indemnify and hold harmless any member of the Committee, the Claims Coordinator, any member of the Compensation Committee and any member of the Board of Directors and any other Employee (including any "executive officer" as such term is used in rules of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934), and the estate and heirs of such Committee member, Claims Coordinator, Board member or Employee, from and against any and all liabilities, expenses, penalties, costs, damages or losses (including, without limitation, reasonable attorneys' fees and court costs) incurred by such Committee member, Board member, Employee, estate or heirs arising out of or in connection with any actual or alleged act or omission of such person in connection with the operation or administration of the Plan or the Trust Fund; provided, however, (a) the Company shall not indemnify or hold harmless any such Committee member, Claims Coordinator, Board member, Employee or estate or heirs from or against any such liability, expense, penalty, costs, damage or loss to the extent that such liability, expense, penalty, cost, damage or loss is covered by fiduciary liability insurance, (b) the Employer shall not indemnify or hold harmless any such Committee member, Claims Coordinator, Board member, Employee or estate or heirs from any liability, expense, penalty, cost, damage or loss arising out of or in connection with the willful misconduct of such Committee member, Claims Coordinator, Board member or Employee, and (c) in no event shall the Company's duty to indemnify any such Committee member, Claims 56 Coordinator, Board member, Employee, estate or heirs be satisfied out of Plan assets. 10.12 Missing Participants -------------------- If the Trustee is unable to effect delivery of any amount payable hereunder to the Participant entitled thereto, it shall so advise the Committee and the Committee shall give written notice by certified mail to such Participant at his or her last known address as shown in the Plan's records. If there is no response to such certified notice or the certified letter is returned to the Committee by the United States Postal Service as undeliverable, then in that event the Committee shall so advise the Trustee. The Trustee, upon such notice, shall deposit the amount payable to such Participant into a general account at Trustee's bank which holds such undeliverable distributions; provided, however, that Trustee's bank may cause property held by it to escheat to the State of Washington or to such other state as may be required or permitted by applicable law. 10.13 Administrative Mistake ---------------------- Notwithstanding anything to the contrary herein contained, if the Committee should discover that a mistake has been made in crediting Compensation Deferral Contributions or Employer contributions, or earnings to the account of any Participant, the Committee may request the Employer to make a special contribution to the account of said Participant and may take any other administrative action which it deems necessary or appropriate to remedy the mistake in question. If the Committee should discover that a mistake has been made in calculating the amount of any excess Compensation Deferral Contributions, or earnings on such excess amount, which amount is required to be distributed to a Participant, as provided in Paragraph 4.5, the Committee may take such administrative action as it deems necessary or appropriate to remedy the mistake in question. 10.14 Information to be Furnished to Committee ---------------------------------------- For the purpose of enabling the Committee to determine the portion of the Participant's interest in the Trust Fund which is vested and distributable, the Company or its Affiliate shall certify to the Committee in writing any of the following information specified by the Committee as soon as possible following the Participant's 57 (a) retirement, or (b) death, or (c) possible Total and Permanent Disability, (d) termination of Employment, or (e) the occurrence after termination of Employment of one or more One Year Break(s) in Service: (i) Name, address, and Social Security number; (ii) Date on which Participant shall have retired or died or on which his Employment otherwise terminated; (iii) Number of Years of Service; (iv) Reason for termination of Employment; and (v) The date upon which any One Year Break in Service occurs subsequent to a termination of Employment. 10.15 Spendthrift Trust Provisions ---------------------------- Except as otherwise provided under this Plan, all distributions by the Trustee shall be paid only to the person or persons entitled thereto, and all such payments shall be made directly into the hands of such person or persons and not into the hands of any other person or corporation whatsoever, to the end that said payments shall not be liable for the debts, contracts, or engagements of any such designated person or persons, or taken in execution by attachment or garnishment, or by any other legal or equitable proceedings; nor shall any such designated person or persons have any right to alienate, anticipate, commute, pledge, encumber, assign, or hypothecate any such payments or the benefits, proceeds or any interest arising out of this Plan and Trust. To the extent required under Section 414(p) of the Code, the value of a Participant's vested interest in the Trust Fund may be paid in accordance with the applicable provisions of a "qualifying domestic relations order" which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the Participant's vested interest in the Trust Fund. For purposes of this Paragraph 10.16, a "qualified domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement) which relates to the provision of 58 child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of the Participant, is made pursuant to a State domestic relations law (including community property law), and satisfies the requirements of Section 414(p) of the Code. Notwithstanding the requirements of Section 414(p) of the Code, the Committee may direct the Trustee to distribute all or a portion of a Participant's vested interest in the Trust fund to an alternate payee in accordance with a qualified domestic relations order which provides for distribution prior to the date the Participant attains age fifty (50). The Committee shall adopt procedures for determining the qualified status of an order and for the payment of benefits in accordance with such order. Such procedures shall be in writing, provide for the prompt notification upon the receipt of such order of each person specified in the order as entitled to benefits, and shall permit an alternate payee to designate a representative to receive copies of notices with respect to such order. Within a reasonable period of time after the receipt of a domestic relations order the Committee shall determine whether such order is a qualified domestic relations order and notify the Participant and alternate payee of such determination. Any requirement pursuant to Section 414(p) of the Code that any amount subject to or potentially subject to a domestic relations order be segregated shall be deemed satisfied by a notation on the books and records of the Plan that such amount is or may be so subject; provided, however, that each Participant and alternate payee, shall be obligated to keep the Committee fully informed of the status of any potential legal claims involving an account under the Plan and in the absence of any such information the Committee may rely on information previously supplied to it or may make such other determinations regarding the existence or non-existence of such claims as it deems reasonable under the circumstances, and shall have no liability for so doing. 10.16 Withholding ----------- There shall be deducted from all payments under this Plan the amount of any taxes required to be withheld by any federal, state or local government. The Participants and their Beneficiaries, distributees and personal representatives will bear any and all federal, foreign, state, local or other income or other taxes imposed on amounts paid under this Plan. 59 10.17 Severability ------------ In the event any provision of this Plan would invalidate the Plan, that provision shall be deemed null and void, and the Plan shall be construed as if it did not contain such provision. 60 ARTICLE XI TOP HEAVY PLAN RULES 11.1 Applicability ------------- (a) Notwithstanding any provision in this Plan to the contrary, the provisions of this Article XI shall apply in the case of any Plan Year in which the Plan is determined to be a Top-Heavy Plan under the rules of Paragraph 11.3. (b) Except as is expressly provided to the contrary, the rules of this Article XI shall be applied after the application of the Affiliate rules of Paragraph 1.5. 11.2 Definitions ----------- (a) For purposes of this Article XI, the term "Key Employee" shall mean any Employee or former Employee who, at any time during the Plan Year or any of the four (4) preceding Plan Years, is or was -- (i) An officer of the Company having an annual compensation greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A) for this Plan Year. However, no more than fifty (50) Employees (or, if lesser, the greater of three (3) or ten percent (10%) of the Employees) shall be treated as officers; (ii) One of the ten (10) employees having annual compensation from the Company of more than the limitation in effect under Code Section 415(c)(1)(A) and owning (or considered as owning within the meaning of Code Section 318) the largest interests in the Company. For this purpose, if two (2) Employees have the same interest in the Company, the employee having greater annual compensation from the Company shall be treated as having a larger interest; (iii) A Five Percent Owner of the Company; or (iv) A One Percent Owner of the Company having an annual compensation from the Company of more than one hundred fifty thousand dollars ($150,000). 61 (b) For purposes of this Paragraph 11.2, the term "Five Percent Owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Company or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Company. The rules of Subsections (b), (c). and (m) of Code Section 414 shall not apply for purposes of applying these ownership rules. Thus, this ownership test shall be applied separately with respect to every Affiliate. (c) For purposes of this Paragraph 11.2, the term "One Percent Owner" means any person who would be described in Paragraph (b) if "one percent (1%)" were substituted for "five percent (5%)" each place where it appears therein. (d) For purposes of this Paragraph 11.2, the rules of Code Section 318(a)(2)(C) shall be applied by substituting "five percent (5%)" for "fifty percent (50%)." (e) For purposes of this Article XI. the term "Non-Key Employee" shall mean any Employee who is not a Key Employee. (f) For purposes of this Article XI, the terms "Key Employee" and "Non-Key Employee" include their Beneficiaries. 11.3 Top-Heavy Status ---------------- (a) The term "Top-Heavy Plan" means, with respect to any Plan Year -- (i) Any defined benefit plan if, as of the Determination Date, the present value of the cumulative accrued benefits under the Plan for Key Employees exceeds sixty percent (60%) of the present value of the cumulative accrued benefits under the plan for all Employees, and (ii) Any defined contribution plan if, as of the Determination Date. the aggregate of the account balances of Key Employees under the Plan exceeds sixty percent (60%) of the present value of the aggregate of the account balances of all Employees under the plan. 62 For purposes of this Paragraph (a), the term "Determination Date" means, with respect to any Plan Year, the last day of the preceding Plan Year. In the case of the first Plan Year of any plan, the term "Determination Date" shall mean the last day of that Plan Year. The present value of account balances under a defined contribution plan shall be determined as of the most recent Valuation Date that falls within a twelve (12) month period ending on the Determination Date. The present value of accrued benefits under a defined benefit plan shall be determined as of the same Valuation Date used for computing plan costs for minimum funding. The present value of the cumulative accrued benefits of a Non- Key Employee shall be determined under either: (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by affiliated companies, within the meaning of Code Sections 414(b), (c), (m) or (o); or (ii) if there is no such method, as if such benefit accrued not more rapidly than the lowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code. (b) Each plan maintained by the Company required to be included in an Aggregation Group shall be treated as a Top-Heavy Plan if the Aggregation Group is a Top-Heavy Group. (i) The term "Aggregation Group" means -- (A) Each Plan of the Company in which a Key Employee is a Participant, and (B) Each other plan of the Company which enables any plan described in Subdivision (A) to meet the requirements of Code Sections 401(a)(4) or 410. Also, any plan not required to be included in an Aggregation Group under the preceding rules may be treated as being part of such group if the group would continue to meet the requirements of Code Sections 401(a) (4) and 410 with the plan being taken into account. If an Aggregation Group is not a Top Heavy Group, no plan included in the Top Heavy Group shall be a Top Heavy Plan, whether or not such Plan would be a Top Heavy Plan under any other test. 63 (ii) The term "Top-Heavy Group" means any Aggregation Group if the sum (as of the Determination Date) of -- (A) The present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in the group, and (B) The aggregate of the account balances of Key Employees under all defined contribution plans included in the group exceeds sixty percent (60%) "of a similar sum determined for all Employees. (iii) For purposes of determining -- (A) The present value of the cumulative accrued benefit of any Employee, or (B) The amount of the account balance of any Employee, such present value or amount shall be increased by the aggregate distributions made with respect to the Employee under the plan during the five (5) year period ending on the Determination Date. The preceding rule shall also apply to distributions under a terminated plan which, if it had not been terminated, would have been required to be included in an Aggregation Group. Also, any rollover contribution or similar transfer initiated by the Employee and made after December 31, 1983 to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a Top-Heavy Plan (or whether any Aggregation Group which includes such plan is a Top-Heavy Group). (c) If any individual is a Non-Key Employee with respect to any plan for any Plan Year, but the individual was a Key Employee with respect to the plan for any prior Plan Year, any accrued benefit for the individual (and the account balance of the individual) shall not be taken into account for purposes of this Paragraph 11.3. (d) If any individual has not received any Compensation from the Company (other than benefits under the Plan) at any time during the five (5) year period ending on the Determination Date, any accrued benefit for 64 such individual (and the account balance of the individual) shall not be taken into account for purposes of this Paragraph 11.3 11.4 Minimum Contributions --------------------- For each Plan Year in which the Plan is Top-Heavy, the minimum contributions for that year shall be determined in accordance with the rules of this Paragraph 11.4. (a) Except as provided below, the minimum contribution (including amounts deferred under a cash or deferred arrangement under Section 401(k) of the Code) for each Non-Key Employee who satisfies the requirements of Article III to be a Participant in the Plan (including but not limited to the "One Year of Service" requirement, but without regard to any requirements (i) that a Participant complete a minimum number of Hours of Service in order to share in an allocation of Company Contributions for a year, other than the "One Year of Service" requirement for participation, as set forth in Article III, (ii) that a Participant elected to make Compensation Deferral Contributions to the Plan, or (iii) relating to the Non-Key Employee's level of Compensation) shall be not less than three percent (3%) of his Compensation. (b) Subject to the following rules of this Paragraph (b), the percentage set forth in Paragraph (a) above shall not be required to exceed the percentage at which contributions (including amounts deferred under a cash or deferred arrangement under Section 401(k) of the Code) are made (or are required to be made) under the Plan for the year for the Key Employee for whom the percentage is the highest for the year. This determination shall be made by dividing the contributions for each Key Employee by so much of his total compensation for the year as does not exceed two hundred thousand dollars ($200,000). For purposes of this Paragraph (b), all defined contribution plans required to be included in an Aggregation Group shall be treated as one plan. However, the rules of this Paragraph (b) shall not apply to any plan required to be included if an Aggregation Group if the plan enables a defined benefit plan to meet the requirements of Code Sections 401(a)(4) or 410. (c) The requirements of this Paragraph 11.4 must be satisfied without taking into account contributions under chapters 2 or 21 of the Code, title II of the Social Security Act, or any other Federal or State law. 65 (d) In the event a Participant is covered by both a defined contribution and a defined benefit plan maintained by the Company, both of which are determined to be top-heavy, the defined minimum benefit will be satisfied under the defined benefit plan, offset by any contributions under the defined contribution plan, in accordance with regulations issued under Code Section 416(f). (e) In no instance may the Plan take into account an Employee's compensation in excess of the first two hundred thousand dollars ($200,000) (or such greater amount as may be permitted pursuant to Section 416(d) (2) of the Code). For purposes of this Paragraph 11.4, an Employee's Compensation shall be determined in accordance with the rules of Code Section 415. 11.5 Maximum Annual Addition ----------------------- (a) Except as set forth below, in the case of any Top-Heavy Plan the rules of 415 of the Code shall be applied by substituting "1.0" for "1.25." (b) The rule set forth in Paragraph (a) above shall not apply if the requirements of both Subparagraphs (i) and (ii), below, are satisfied. (i) The requirements of this Subparagraph (i) are satisfied if the rules of Paragraph 11.4(a) above would be satisfied after substituting "four percent (4%)" for "three percent (3%)" where it appears therein. (ii) The requirements of this Subparagraph (ii) are satisfied if the Plan would not be a Top-Heavy Plan if "ninety percent (90%)" were substituted for "sixty percent (60%)" each place it appears in Paragraph 11.3(a)(ii). (c) The rules of Paragraph (a) shall not apply with respect to any Employee as long as there are no -- (i) Company Contributions," forfeitures, or voluntary nondeductible contributions allocated to the Employee under a defined contribution plan maintained by the Company, or (ii) Accruals by the Employee under a defined benefit plan maintained by the Company. 66 11.6 Vesting Rules ------------- In the event that the Plan is determined to be Top-Heavy in accordance with the rules of Paragraph 11.3, then the vested status of each Non.Key Employee as of such date shall be equal to the vested status determined under the vesting provisions of this Plan as then in effect, or if better, under the vesting schedule set forth below:
Years of Service Nonforfeitable Percentage ---------------- ------------------------- 2 20% 3 40% 4 60% 5 80% 6 or more 100%
11.7 Non-Eligible Employees ---------------------- The rules of this Article XI shall not apply to any Employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and the employer or employers. If the Plan is or becomes a Top.Heavy Plan, as defined in Paragraph 11.1(b), in any Plan Year, the provisions of this Article XI shall Supersede any conflicting provisions in the Plan. IN WITNESS WHEREOF, this document has been executed this 31st day of January, 1990. THE HILLHAVEN CORPORATION By [NOT LEGIBLE] ------------------------------ By [NOT LEGIBLE] ------------------------------ EX-10.27 20 HILLHAVEN ANNUAL INCENTIVE PLAN, AMENDED 12/6/94 EXHIBIT 10.27 THE HILLHAVEN CORPORATION ANNUAL INCENTIVE PLAN Adopted December 28, 1989 Amended as of December 6, 1994 1. Purposes. The purpose of the Annual Incentive Plan (the "Plan") of The Hillhaven Corporation (the "Company") is to promote the interests of the Company and its stockholders by basing a portion of selected employees' compensation on the performance of such employee, his or her Operating Unit and the Company. 2. Definitions. a. "Fair Return to Stockholders" shall be determined with reference to inflation, financial leverage of the Company and such other factors as may have a bearing on the return on a stockholder's investment taking into account the overall performance of the Company as measured against the business plans approved by the Board of Directors of the Company. b. "Operating Unit" means any division, subsidiary or other functional unit within the Company which is designated by the Committee to constitute an Operating Unit. c. "Performance Goals" are the annual performance objectives established by the Committee for the Company, Operating Unit, or an employee for the purpose of determining whether, and the extent to which, awards under the Plan will be made for that Year. d. "Year" means the Company's fiscal year. 3. Administration. The Plan shall be administered by the Compensation Committee (the "Committee") of the Company's Board of Directors (the "Board"). The Committee shall have the discretion to (a) determine the Plan participants; (b) determine Performance Goals at the beginning of each Year; (c) determine whether the Performance Goals have been met; (d) determine what constitutes a Fair Return to Stockholders; (e) determine the total amount of funds available for distribution as bonuses at the end of a Year; and (f) determine the award, if any, to each participant each year. Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan, to make all other determinations necessary or advisable for the administration of the Plan and to correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems desirable to carry the Plan into effect. Any change in the Fair Return to Stockholders shall be approved by the Board. Any action taken or determination made by the Committee shall be conclusive on all parties. 4. Eligible Persons. Any key employee of the Company that the Committee determines, in its discretion, will be responsible for producing profits of the Company or otherwise have a significant effect on the operations of the Company shall be eligible to participate in the Plan. Committee members are not eligible to participate in the Plan. No employee shall have a right to be selected under the Plan. 5. Amount Available for Awards. The amount of Company profits available for awards under the Plan in any Year shall be determined by the Committee. 6. Determination of Awards. The Committee shall select the Plan participants prior to each Year. The Committee shall determine the award to each participant for each Year, taking into consideration, as it deems appropriate, the performance for the Year of the Company or an Operating Unit, as the case may be, in relation to the Performance Goals theretofore established by the Committee, and the performance of the respective participants during such Year. The fact that an employee is selected as a participant for any Year shall not mean such employee will necessarily receive an award for that Year under the Plan. 7. Distribution of Awards. Awards under the Plan for a particular Year shall be paid in cash after the end of that Year. 8. Change in Control. In the event of a Change in Control Event, the Committee may, in its sole discretion, determine that all or any portion of conditions associated with any award under the Plan have been met. A Change of Control Event shall be deemed to occur if any of the following events has occurred: a. A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control Event shall not be deemed to occur if the "Person" described in the preceding sentence has 2 acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent Board (as defined in (ii) below), and provided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. b. Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. c. Consummation or effectiveness of: (1) a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless (a) the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately and before the Business Combination, and (b) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 3 (c) no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (2) a complete liquidation or dissolution of the Company; or (3) the sale or other disposition of all or substantially all of the assets of the Company to any Person. For purposes of determining whether a Change of Control Event has occurred, the following additional definitions apply: "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Person," means an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of December 6, 1994) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. 4 "Voting Stock" means shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. 9. Termination of Employment. A participant must be actively employed at the end of a Year in order to be entitled to payment of the full amount of any award for that Year. In the event active employment of a participant shall be terminated before the end of a Year for any reason other than discharge for cause or voluntary resignation, such participant shall receive such portion of his or her award for the Year as may be determined by the Committee. A participant discharged for cause or who voluntarily resigns shall not be entitled to receive any award for the Year, unless otherwise determined by the Committee. For purposes of this Plan the term "discharge for cause" shall mean any discharge for violation of the policies and procedures of the Company or for other job performance or conduct which, as determined by the Committee, is detrimental to the best interests of the Company. 10. No Guarantee of Employment. Participation in the Plan shall not constitute an assurance of continued employment for any period. 11. Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Washington. 12. Effective Date. The Plan effective date is January 31, 1990. THE HILLHAVEN CORPORATION By ________________________________ Its ____________________________ 5 EX-10.28 21 HILLHAVEN AMENDED/RESTATED DEFERRED COMP PLAN EXHIBIT 10.28 THE HILLHAVEN CORPORATION DEFERRED COMPENSATION PLAN (AMENDED AND RESTATED, EFFECTIVE OCTOBER 1, 1994) TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.1 Selection by Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 Eligibility; Commencement of Participation . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 3 DEFERRAL COMMITMENTS/INTEREST CREDITING . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 Minimum and Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Company Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.3 Election to Defer; Effect of Election Form . . . . . . . . . . . . . . . . . . . . . . . . 10 3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.5 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.6 Installment Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.7 FICA and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . . . . 12 4.3 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 5 RETIREMENT BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.3 Death Prior to Completion of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . . . . 13
i ARTICLE 7 TERMINATION BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 8 DISABILITY WAIVER AND BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.2 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE 9 BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . . . . . . . . . . . . . . . . 16 9.3 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 10 LEAVE OF ABSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.3 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 12 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 13 OTHER BENEFITS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 14 CLAIMS PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 14.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ii 14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 15 TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 15.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 15.2 Interrelationship of the Plan and the Trust . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 16 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.4 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.5 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.6 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16.11 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16.12 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16.13 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16.14 Distribution in the Event of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16.15 Legal Fees to Enforce Rights After a Change of Control Event . . . . . . . . . . . . . . . 24 16.16 Taxes and Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 16.17 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
iii THE HILLHAVEN CORPORATION DEFERRED COMPENSATION PLAN AMENDED AND RESTATED, EFFECTIVE OCTOBER 1, 1994 PURPOSE The purpose of this Plan is to provide specified benefits to a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of The Hillhaven Corporation, a Nevada corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. This Plan represents a combination and continuation of The Hillhaven Corporation Deferred Compensation Master Plan, Third Restatement and The Hillhaven Corporation Senior Management Deferred Compensation Plan (either a "Predecessor Plan"). All amounts previously deferred under and account balances maintained under either of such plans shall, as of October 1, 1994, become subject to the terms and conditions of The Hillhaven Corporation Deferred Compensation Plan as set forth herein, and as this instrument may be amended from time to time. Notwithstanding the foregoing sentence, any Participant in pay status shall receive payment of his or her deferred compensation pursuant to the terms of the Predecessor Plan and any short-term payout election made pursuant to the Predecessor Plan shall be paid out pursuant to the election made thereunder. ARTICLE 1. DEFINITIONS For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean with respect to a Participant the sum of (i) his or her Deferral Amount, plus (ii) his or her company contributions, contributed under Section 3.2 hereof plus (iii) interest credited in accordance with all the applicable interest crediting provisions of this Plan, less (iv) all distributions. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. 1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual Salary, paid annually to a Participant as an Employee under any Employer's annual bonus plan or plans. 1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary and/or Annual Bonus to be paid during a Plan Year that a Participant elects to have and is deferred in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount deferred and withheld prior to such event. 1.4 "Base Annual Salary" shall mean the annual compensation, including commissions, overtime, and incentive payments (other than amounts considered part of the Annual Bonus), but excluding severance pay, compensation received as a result of deferral, any equity-based compensation and fringe benefits (including but not limited to relocation expenses, non-monetary awards, directors fees and other fees, automobile, educational, uniform, professional dues, and employee expense allowances), paid to a Participant for employment services rendered to any Employer before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any Employer. Notwithstanding the foregoing, the Company may elect to permit directors fees to be included in the definition of Base Annual Salary by written notice to affected Participants. 1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.6 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.7 "Board" shall mean the board of directors of the Company. 1.8 A "Change of Control Event" shall be deemed to occur if any of the following events has occurred: (i) A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control Event shall not be deemed to occur if the "Person" described in the preceding sentence has acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent 2 Board (as defined in (ii) below), and provided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. (iii) Consummation or effectiveness of: a. a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless 1. the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately and before the Business Combination, and 2. the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 3. no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; 3 b. a complete liquidation or dissolution of the Company; or c. the sale or other disposition of all or substantially all of the assets of the Company to any Person. For purposes of determining whether a Change of Control Event has occurred, the following additional definitions apply: "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Person," means an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of December 6, 1994) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. "Voting Stock" means shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. 1.9 "Claimant" shall have the meaning set forth in Section 14.1. 1.10 "Code" shall mean the Internal Revenue Code of 1986, as may be amended from time to time. 1.11 "Committee" shall mean the committee described in Article 12. 1.12 "Company" shall mean The Hillhaven Corporation, a Nevada corporation. 4 1.13 "Crediting Rate" shall mean, starting October 1, 1994 and for each Plan Year starting thereafter, an interest rate determined and announced by the Committee before the Plan Year for which it is to be used that is equal to 110% of the Moody's Rate. The Moody's Rate for a Plan Year shall be an interest rate that (i) is published in Moody's Bond Record under the heading of "Moody's Corporate Bond Yield Averages -- Av. Corp," and (ii) is equal to the average corporate bond yield published for the month which precedes the enrollment date for the Plan Year for which the rate is to be used. The Crediting Rate for the last quarter of 1994 shall equal 9.46%. 1.14 "Deferral Amount" shall mean the sum of all of a Participant's Annual Deferral Amounts. 1.15 "Deduction Limitation" shall mean the following described limitation on the annual benefit that may be distributed pursuant to the provisions of this Plan. The limitation shall be applied to distributions under this Plan as set forth in this Plan. If the Company determines in good faith prior to a Change of Control Event that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change of Control Event is deductible, the Company may defer all or any portion of the distribution. Any amounts deferred pursuant to this limitation shall continue to be credited with interest in accordance with Section 3.5 below. The amounts so deferred and interest thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Company in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Company during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change of Control Event. 1.16 "Disability" shall mean a period of disability during which a Participant qualifies for benefits under the Participant's Employer's long-term disability plan. 1.17 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.18 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.19 "Employee" shall mean a person who is an employee of any Employer. 1.20 "Employer(s)" shall mean the (i) the Company, (ii) its wholly-owned subsidiaries, (iii) partnerships in which the Company or a wholly- owned subsidiary owns in excess of 5 50% and (iv) any Employer that has entered into a contract with the Company or a subsidiary for the receipt of management services at one or more facilities owned by such Employer if the Employer has been selected by the Committee to participate in the Plan. Obligations of each Employer hereunder shall be separate except where The Hillhaven Corporation has by specific action of its Board of Directors or other written agreement executed by a duly authorized officer agreed that it and/or its wholly-owned subsidiaries will undertake joint and several liability. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as may be amended from time to time. 1.22 "Participant" shall mean any Employee who was a Participant in either of the Predecessor Plans before October 1, 1994 and still has an Account Balance maintained hereunder or an Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) a) whose Plan Agreement has not terminated. By addendum to this Plan, the Board or the Committee may permit directors of any of the Employers to become Participants hereunder regardless of whether they are Employees. 1.23 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be evidenced by this instrument and, with respect to each Participant, by his or her one or more Plan Agreements, as may be amended from time to time. 1.24 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between the Company and a Participant. A Participant may be required to enter into more than one Agreement depending on the entity employing him or her any time and the manner in which the Company and another Employer have agreed to allocate and assume responsibility for liabilities accrued hereunder. 1.25 "Years of Plan Participation" shall mean the total number of full Plan Years a Participant has been a Participant in the Plan. For purposes of a Participant's first Plan Year of participation only, any partial Plan Year of participation shall be treated as a full Plan Year. 1.26 "Plan Year" shall be the calendar year. 1.27 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 6 1.28 "Retirement", "Retires" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the attainment of age 60. 1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.30 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.31 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.32 "Termination of Employment" shall mean the ceasing of employment with all Employers voluntarily or involuntarily, for any reason other than death. 1.33 "Trust" shall mean the grantor, or "rabbi" trust, within the meaning of Code Section 671, known as The Hillhaven Corporation Master Executive Deferred Compensation Trust established pursuant to The Hillhaven Corporation Master Trust Agreement for Executive Deferral Plans, dated as of October 1, 1994, between the Company and the trustee named therein, as amended from time to time. 1.34 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.35 "Years of Service" shall mean the total number of full 12 month periods of service in which a Participant has been employed by one or more Employers. Any partial year of employment or service shall not be counted. Except as may be determined by the Committee, service with an entity prior to its becoming an Employer or a unit thereof shall not be taken into account. ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY 2.1 Selection by Committee. Participation in the Plan shall be limited to a select group of management or highly compensated Employees. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 Enrollment Requirements. Individuals participating in either Predecessor Plan as of October 1, 1994 need not complete any initial enrollment materials except as may be necessary to defer compensation in Plan Years starting on or after January 1, 1995. 7 Individuals initially selected to participate in this Plan after October 1, 1994 may commence participation as soon as they complete, execute and return to the Committee a Plan Agreement, Election Form and Beneficiary Designation Form, provided such documents are returned within 30 days of selection. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary. 2.3 Eligibility; Commencement of Participation. In the case of Employees selected for participation in this Plan after October 1, 1994, participation in this Plan shall commence on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet in a timely fashion all such requirements that he or she shall not be eligible toparticipate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. ARTICLE III. DEFERRAL COMMITMENTS/INTEREST CREDITING 3.1 Minimum and Maximum Deferral. (a) Minimum. For each Plan Year, a Participant may elect to defer Base Annual Salary and/or Annual Bonus that would otherwise be received during a Plan Year in the following minimum and maximum amounts for each type of deferral elected.
Minimum Maximum Deferral Amount Amount -------- ------- ------- Base Annual Salary 1% 100% Annual Bonus 1% 100%
If no election is made, the amount deferred for each type of compensation shall be zero. All amounts deferred under this Section 3.1(a) shall at all times be fully vested and nonforfeitable. (b) Short Plan Year. If a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the minimum Base Annual Salary deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12. 8 3.2 Company Contribution. (a) Subject to amendment or termination of the Plan and applicable limitations herein, as of the last day of each pay period, each Employer shall credit to the account of each Participant in its employ as of the last day of such period an amount equal to a percentage of the Participant's Annual Deferral Amount for the period, not in excess of the first 4% of the Participant's Base Annual Salary and Annual Bonus received during such period based on the Participant's Years of Service as of the last day of the pay period, as follows:
Years of Service Percentage of Compensation ---------------- -------------------------- (up to first 4%) Less than 1 25% At least 1 but less than 2 50% At least 2 but less than 3 75% 3 or more 100%
(b) A Participant shall be vested in amounts attributable to Employer contributions (and earnings) credited to his or her Account Balance, as follows:
Years of Service Percentage Vested ---------------- ----------------- Less than 3 0% 3 30% 4 40% 5 60% 6 80% 7 or more 100%
Notwithstanding the foregoing, a Participant shall become fully vested in Employer contributions and earnings credited to his or her Account Balance if and when the Participant, while employed by an Employer, attains age 60, dies or incurs a Disability, or upon the occurrence of a Change of Control Event. (c) Notwithstanding any other provision of this Plan including Section 3.2(b), the Committee shall have the right in its sole discretion to cause any or all of the Employer contributions credited to an Account Balance, including earnings, to be forfeited if the Committee at any time determines that: (i) The Participant has consciously and intentionally divulged Employer confidential information to the competitors of the Employer which is clearly and 9 unequivocally detrimental to the Employer, and such action has been fully and completely documented under oath; (ii) The Participant has engaged in criminal conduct which is clearly and unequivocally detrimental to the Employer, and such conduct has been fully and completely documented under oath; or (iii) Within the two years immediately following his or her Termination of Employment date, the Participant engages in any capacity in a business, other than National Medical Enterprises or one of its subsidiaries, that is in substantial, direct competition with the business of, and in the geographical areas served by, any of the operating units, including the corporate office of the Company for which the Employee worked during the 3 years immediately preceding his or her Termination of Employment date. 3.3 Election to Defer; Effect of Election Form. In connection with a Participant's commencement of participation in the Plan, the Participant shall make a deferral election by delivering to the Committee a completed and signed Election Form, which election and form must be accepted by the Committee for valid election to exist. For each succeeding Plan Year, a new Election Form must be delivered to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no Election Form is timely delivered for a Plan Year, no Annual Deferral Amount shall be withheld for that Plan Year. 3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld each payroll period in accordance with the Participant's election as a percentage of Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant. 3.5 Interest Crediting Prior to Distribution. Prior to any distribution of benefits under Articles 4, 5, 6, 7 or 8, interest shall be credited and compounded quarterly on a Participant's Account Balance as though the quarterly portion of the Participant's Annual Deferral Amount and Employer contributions were made in two installments, half at the beginning of the quarter and half at quarter-end. Provided, that portion of the Annual Deferral Amount deferred from an annual bonus (and Employer contribution attributable thereto) shall be treated as credited at the beginning of the quarter in which the bonus is paid. The rate of interest for crediting shall be the Crediting Rate. 3.6 Installment Distributions. In the event a benefit is paid in installments under Articles 5, 6, 7, 8 or 11, installment payment amounts shall be determined in the following manner: 10 (a) Interest Rate. The interest rate to be used to calculate installment payment amounts shall be a fixed interest rate that is determined by averaging the Crediting Rates for the Plan Year in which installment payments commence and the four (4) preceding Plan Years. If a Participant has completed fewer than five (5) Plan Years, or if the Plan has been in existence fewer than five (5) Plan Years, this average shall be determined using the Crediting Rates for the Plan Years during which the Participant participated in the Plan. (b) "Deemed" Installment Payments. For purposes of calculating installment payment amounts only (and notwithstanding the fact that installment payments shall be paid monthly), installment payments for each 3 month period, starting with the date that the Participant became eligible to receive a benefit under this Plan (the "Eligibility Date") and continuing thereafter for each additional 3 month period until the Participant's Account Balance is paid in full, shall be deemed to have been paid in one sum as of the first day of each such 3 month period. (c) Amortization. Based on the interest rate determined in accordance with Section 3.6(a) above and the "deemed" form of installment payments determined in accordance with Section 3.6(b) above, the Participant's Account Balance shall be amortized in equal quarterly installment payments over the term of the specified payment period (starting as of the Eligibility Date and stated in quarters rather than months). (d) Monthly Payments. The quarterly installment payment determined in Section 3.6(c) above shall be divided by 3, and the resulting number shall be the monthly installment payment that is to be paid each month during the specified monthly installment payment period in accordance with the other terms and conditions of this Plan. 3.7 FICA and Other Taxes. For each Plan Year in which an Annual Deferral Amount is being withheld, the Participant's Employer(s) shall ratably withhold from that portion of the Participant's Base Annual Salary that is not being deferred, the Participant's share of FICA and other employment taxes. If necessary, the Committee shall reduce the Annual Deferral Amount in order to comply with this Section 3.7. ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION 4.1 Short-Term Payout. Subject to the Deduction Limitation, in connection with each annual election to defer compensation, a Participant may, but need not, elect to receive a future "Short-Term Payout" from the Plan with respect to the Annual Deferral 11 Amount for such Plan Year. The Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus interest credited in the manner provided in Section 3.5 above on that amount. Subject to the other terms and conditions of this Plan, each Short-Term payout elected shall be paid within 60 days of the first day of the Plan Year that is a number of years, not less than three, elected by the Participant, beginning on the first day of the Plan Year following the Plan Year in which the Annual Deferral Amount is actually deferred. 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. 4.3 Withdrawal Election. A Participant may elect, at any time, to withdraw all of his or her vested Account Balance prior to the time such Account Balance is otherwise due and payable in whole or in part, subject to a 10% withdrawal penalty (the net amount shall be referred to as the "Withdrawal Amount"). No partial withdrawals of that balance shall be allowed. The Participant shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The penalty shall be equal to 10% of the Participant's vested Account Balance determined immediately prior to the withdrawal. Provided, the penalty shall not apply to any portion of the vested Account Balance that is otherwise payable to the Participant during the year of the withdrawal. The Participant shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan in the future. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. ARTICLE 5 RETIREMENT BENEFIT 5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 Payment of Retirement Benefits. A Participant, in connection with his or her commencement of participation in the Plan, or, if later, during the enrollment period for the Plan Year beginning in January 1995, shall elect on an Election Form to receive 12 the Retirement Benefit in a lump sum or in equal monthly payments (the latter determined in accordance with Section 3.6 above) over a period, stated in an even number of years, of not less than two but not more than fifteen years. The Participant may change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 3 years prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires. 5.3 Death Prior to Completion of Retirement Benefits. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of months and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT 6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, if a Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance. 6.2 Payment of Pre-Retirement Survivor Benefits. A Participant, in connection with his or her commencement of participation in the Plan or, if later, during the enrollment period for the Plan Year starting in January 1995, shall elect on an Election Form whether the Pre- Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or in equal monthly payments (the latter determined in accordance with Section 3.6 above) over a period of 60, 120 or 180 months. The Participant may change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is less than $50,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or in installment payments that do no exceed five years in duration. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the 13 Participant's death. In no event may the Beneficiary select the manner of payment either before or after the Participant's death. ARTICLE 7 TERMINATION BENEFIT 7.1 Termination Benefits. Subject to the Deduction Limitation, if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's vested Account Balance, with interest credited in the manner provided in Section 3.5 above. 7.2 Payment of Termination Benefit. The Termination Benefit shall be paid commencing within 60 days of the Termination of Employment as follows: (a) A Termination Benefit of $50,000 or less shall be paid in a lump sum. (b) A Termination Benefit in excess of $50,000 shall be paid in 60 approximately equal monthly installments. (c) Notwithstanding (b), the Committee in its sole discretion may authorize a lump sum payment or installments over a period of less than five years. If payment is made in installments, the interest rate to be credited to the Account Balance during the installment payout shall be the otherwise applicable rate determined in accordance with Section 3.6. ARTICLE 8 DISABILITY WAIVER AND BENEFIT 8.1 Disability Waiver. (a) Eligibility. By participating in the Plan, all Participants are eligible for this waiver. (b) Waiver of Deferral. A Participant who is determined by the Committee to be suffering from a Disability shall, if the Disability originated while the Participant was employed by an Employer, become fully vested in his or her Account Balance and shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary or Annual Bonus for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections. 14 (c) Return to Work. If a Participant returns to employment with an Employer after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year of his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above. 8.2 Disability Benefit. A Participant suffering a Disability shall, for all purposes under this Plan, continue to be considered to be employed by an Employer and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right, in its sole and absolute discretion and for purposes of this Plan only, to terminate a Participant's employment at any time after such Participant is determined to be permanently disabled under the Participant Employer's long-term disability plan. ARTICLE 9 BENEFICIARY DESIGNATION 9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Committee, must be signed by that Participant's spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent. 15 9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 LEAVE OF ABSENCE 10.1 Paid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Article 3. 10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION 11.1 Termination. Any Employer reserves the right to terminate the Plan at any time with respect to its participating Employees by the action of its board of directors. Upon the termination of the Plan, all Plan Agreements of a Participant shall terminate and his or 16 her Account Balance, determined as if he or she had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired on the date of Plan termination, shall be paid to the Participant as follows. Prior to a Change of Control Event, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or in monthly installments for up to 15 years, with interest credited during the installment period as provided in Section 3.6. After a Change of Control Event, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments by paying the Participant's remaining Account Balance in one lump sum amount. 11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification, or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying Participant's remaining Account Balance in one lump sum amount. 11.3 Effect of Payment. The full payment of the applicable benefit under Articles 5, 6, or 7 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 12 ADMINISTRATION 12.1 Committee Duties. This Plan shall be administered by a Committee which shall consist of the Compensation Committee of the Board. Members of the Committee may be Participants under this Plan. The Committee shall have the authority in its sole and unfettered discretion to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including claims for benefits and interpretations of this Plan, as may arise in connection with the Plan. 17 12.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members. 12.5 Employer Information. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. ARTICLE 13 OTHER BENEFITS AND AGREEMENTS The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 CLAIMS PROCEDURES 14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. The claim must state with particularity the determination desired by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 18 14.2 Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; 19 (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 14.5 Legal Action. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 15 TRUST 15.1 Establishment of the Trust. The Company shall establish the Trust, and the Employers shall transfer over to the Trust such assets as the Employers determine, in their sole discretion, are necessary to assist in providing funds to meet the Employers' liabilities created hereunder. 15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Agreement. ARTICLE 16 MISCELLANEOUS 16.1 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of any Employer. Any and all of all Employers' assets shall be, and remain, the general, unpledged unrestricted assets of the Employers. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future and a Participant shall have only an unsecured contractual right to the amounts, if any, payable hereunder, against the Company or a particular Employer, as reflected in the Participant's one or more Plan Agreements. 16.2 Employer's Liability. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 20 16.3 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable, except that the foregoing shall not apply to any family support obligations set forth in a court order. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 16.4 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.5 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.6 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were also in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 16.7 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the State of Washington without regard to its conflicts of laws principles. 16.9 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: 21 Plan Administrator of the Deferred Compensation Plan The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Caller Service 2264 Tacoma, Washington 98402 Attn: Senior Vice President, Human Resources and Administration cc: General Counsel Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand- delivered, or sent by mail, to the last known address of the Participant. 16.10 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.11 Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 16.12 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.13 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. 22 16.4 Distribution in the Event of Taxation. (a) General. If, for any reason, all or any portion of a Participant's benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld, a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid vested Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) Trust. If the Trust terminates and benefits are distributed from the Trust to a Participant, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.15 Legal Fees to Enforce Rights After a Change of Control Event. The Company is aware that upon the occurrence of a Change of Control Event, the Board (which might then be composed of new members) or a shareholder of the Company, or of any successor corporation might then cause or attempt to cause the Company or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change of Control Event, it should appear to any Participant that the Company or the Trustee has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel of his or her choice at the expense of the Company to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company or any successor thereto in any jurisdiction. 16.16 Taxes and Withholding. The Participant's Employer(s), or the trustee of the Trust, may withhold from any distribution under this Plan any and all employment and income taxes that are required to be withheld under applicable law. 23 16.17 Severability. If and to the extent any provision hereof is held to be void or unenforceable, the Plan shall remain in full-force and effect with such provision severed as though such provision had not been included in the original Plan. IN WITNESS WHEREOF, the Company has executed this Plan document as of October 1, 1994. THE HILLHAVEN CORPORATION, a Nevada corporation By:____________________________________________ Title:_________________________________________ 24 EX-10.29 22 HILLHAVEN SUPP. EXEC. RETIREMENT PLAN EXHIBIT 10.29 THE HILLHAVEN CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1994 TABLE OF CONTENTS
PAGE Section 1 - Statement of Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Actual Final Average Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.5 Change of Control Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.6 Date of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Date of Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.8 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 Early Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.10 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.11 Eligible Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Employment or Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Existing Retirement Benefit Plans Adjustment Factor . . . . . . . . . . . . . . . . . 5 2.15 Final Average Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.16 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.17 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.18 Prior Service Credit Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.19 Projected Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.20 Projected Final Average Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.21 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.22 Surviving Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.23 Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.24 Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.25 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3 - Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Normal Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2 Early Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.3 Vesting of Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.5 Duration of Benefit Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.6 Recipients of Benefit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
i 3.7 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.8 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4 - Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Commencement of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Withholding; Unemployment Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Recipients of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.4 No Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.5 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5 - Conditions Related to Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.1 Administration of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.2 No Right to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.3 No Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.4 Right to Terminate or Amend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.5 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.6 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.7 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 6 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.1 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.6 Successors in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.7 No Representation on Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii THE HILLHAVEN CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1994 SECTION 1 - STATEMENT OF PURPOSE The Supplemental Executive Retirement Plan (the "Plan") was originally adopted effective January 31, 1990, by The Hillhaven Corporation ("THC") to attract, retain, motivate and provide financial security to highly compensated management employees (the "Participants") who render valuable services to THC and its Subsidiaries. The Plan is hereby amended and restated, effective October 1, 1994. SECTION 2 - DEFINITIONS 2.1 Acquisition. "Acquisition" refers to a company of which substantially all of its assets or a majority of its capital stock are acquired by, or which is merged with or into, THC or a Subsidiary. 2.2 Actual Final Average Earnings. "Actual Final Average Earnings" means the highest average monthly Earnings for any 60 consecutive months during the ten years, or actual employment period if less, preceding Termination of Employment. 2.3 Agreement. "Agreement" means a written agreement substantially in the form of Exhibit A between THC (or a Subsidiary or both) and a Participant. 2.4 Committee. "Committee" means the Compensation Committee of the Board of Directors of THC. 2.5 Change of Control Event. A "Change of Control Event" shall be deemed to occur if any of the following events has occurred: (i) A Person, alone or together with its Affiliates and Associates, or "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, after the date hereof, the beneficial owner of 20% or more of the general voting power of the Company. Notwithstanding the preceding sentence, a Change of Control Event shall not be deemed to occur if the "Person" described in the preceding sentence has acquired 20% or more of the general voting power of the Company as consideration in a transaction or series of related transactions involving the Company's acquisition (by stock acquisition, merger, asset purchase or otherwise) of one or more businesses approved prior to such transactions or series of transactions by the Incumbent Board (as defined in (ii) below), andprovided that, if such transaction or series of transactions results in the merger, consolidation or reorganization of the Company and such Person, the Company is the surviving entity following such merger, consolidation or reorganization. (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such person were a member of the Incumbent Board. (iii) Consummation or effectiveness of: a. a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless 1. the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately and before the Business Combination, and 2. the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and 3. no Person (other than any Person who, immediately prior to the Business Combination, had beneficial ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; 2 b. a complete liquidation or dissolution of the Company; or c. the sale or other disposition of all or substantially all of the assets of the Company to any Person. For purposes of determining whether a Change of Control Event has occurred, the following additional definitions apply: "Affiliate or Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Person" shall mean an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company, any subsidiary of the Company, any employee benefit plan or employee stock plan (including a trust relating thereto) of the Company or any subsidiary of the Company, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. "Person" shall also not include National Medical Enterprises, Inc. ("NME"), any subsidiary of NME, any Affiliate or Associate of NME, any employee benefit plan or employee stock plan of NME or any subsidiary of NME to the extent that such entities, individually or collectively, own any or all of (x) 8,878,147 shares of the Company's common stock (approximately 31% of the general voting power of the Company as of December 6, 1994) registered in the name of NME or any subsidiary of NME as of the date of this Agreement, or (y) such additional number of shares of the Company's common stock issued to NME or any subsidiary of NME in exchange for shares of the Company's Series C Preferred Stock or Series D Preferred Stock so long as such exchange has been approved in advance by the Incumbent Board. "Voting Stock" shall mean shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. 2.6 Date of Employment. "Date of Employment" means the date on which a person became an Employee of THC or a Subsidiary, or the date on which a person became an employee of NME or a subsidiary of NME prior to the divestiture of THC by NME. Where a person is an employee of an entity that is acquired by THC or a Subsidiary through an Acquisition, "Date of Employment" means the effective date of the Acquisition; provided, the Committee, in its sole discretion, may approve as a Date of Employment the date on which a person began to perform services for the acquired entity in a position comparable to one at THC which would have been eligible for participation in the Plan. 3 2.7 Date of Enrollment. For purposes of determining benefits under the Plan, "Date of Enrollment" means the date on which an Employee first becomes a Participant in the Plan. 2.8 Disability. "Disability" means any Termination of Employment during the life of a Participant and prior to Normal Retirement or Early Retirement by reason of a Participant's total and permanent disability, as determined by the Committee, in its sole and absolute discretion. A Participant, who makes application for and qualifies for disability benefits under THC's Group Long-Term Disability Plan or under any similar plan provided by THC or a Subsidiary, as now in effect or as hereinafter amended (the "LTD Plans"), shall usually qualify for Disability under this Plan, unless the Committee determines that the Participant is not totally and permanently disabled. A Participant who fails to qualify for disability benefits under the LTD Plans (whether or not the Participant makes application for disability benefits thereunder) shall not be deemed to be totally and permanently disabled under this Plan, unless the Committee otherwise determines, based upon the opinion of a qualified physician or medical clinic selected by the Committee to the effect that a condition of total and permanent disability exists. 2.9 Early Retirement. "Early Retirement" means any Termination of Employment during the life of a Participant prior to Normal Retirement and after the Participant attains age 55 and has completed ten Years of Service or attains age 62 with no minimum Years of Service. 2.10 Earnings. "Earnings" means the base salary paid to a Participant by THC or a Subsidiary prior to any reduction as a result of participation in The Hillhaven Corporation Deferred Compensation Plan, Retirement Savings Plan, Deferred Savings Plan, or Flexible Benefit Plan (Code Section 125), excluding bonuses, car and other allowances and other cash and non-cash compensation. 2.11 Eligible Children. "Eligible Children" means all natural or adopted children of a Participant under the age of 21, including any child conceived prior to the death of a Participant. 2.12 Employee. "Employee" means any person who regularly performs Services on a full-time basis (that is, works a minimum of 32 hours a week) for THC or a Subsidiary and receives a salary plus employee benefits normally made available to persons of similar status. 2.13 Employment or Service. "Employment" or "Service" means any continuous period during which an Employee is actively engaged in performing services for THC and its Subsidiaries plus the term of any leave of absence approved by the Committee plus any continuous period of service performed with NME or a subsidiary of NME immediately prior to the divestiture of THC by NME. Service with an entity prior to its 4 becoming a Subsidiary or a unit thereof or of THC shall be determined by the Committee in its absolute discretion. 2.14 Existing Retirement Benefit Plans Adjustment Factor. "Existing Retirement Benefit Plans Adjustment Factor" means the assumed benefit the Participant would be eligible for under Social Security and all retirement plans of THC and its Subsidiaries whether or not he participates in such plans. This Factor will be used for calculating all benefits under the Plan and is a projection of the benefits payable under the Social Security regulations and retirement plans in effect on June 1, 1984 and once established for a Participant will not thereafter be altered to reflect any reduction in benefits under Social Security or such retirement plans unless the Participant is transferred to different retirement plans or unless such company sponsored retirement plans are substantially altered in terms of benefit provided. The existing Retirement Benefit Plans Adjustment Factor is expressed as a percentage and is determined by specific formula as approved by the Committee. 2.15 Final Average Earnings. "Final Average Earnings" means the lesser of (i) Actual Final Average Earnings or (ii) if the Participant has completed at least 60 months of Service, Projected Final Average Earnings; provided that in the case of a Participant who receives one or more Promotions, as described in Section 2.19 hereof, and whose most recent (or only) Promotion is less than 60 months prior to his or her Termination of Employment, "Final Average Earnings" shall mean Actual Final Average Earnings. 2.16 Normal Retirement. "Normal Retirement" means any Termination of Employment during the life of a Participant on or after the date on which the Participant attains age 65. 2.17 Participant. "Participant" means any Employee selected to participate in this Plan by the Committee, in its sole and absolute discretion and who completes a Plan Agreement with either THC or one or more Subsidiaries or any combination of them. An Employee shall be eligible for selection upon completion of a Year of Service in an eligible position. The Date of Enrollment shall be retroactive to the date of appointment to an eligible position. A Participant may be required to enter into more than one Agreement depending on the entity employing him or her at any time and the manner in which THC and such entity have agreed to allocate and assume responsibility and liability for benefits accrued hereunder. 5 2.18 Prior Service Credit Percentage. "Prior Service Credit Percentage" means the percent to be applied to a Participant's Years of Service with THC and its subsidiaries (and NME and its subsidiaries prior to the divestiture of THC by NME) which is Prior to his Date of Enrollment in the Plan, in accordance with the following formula:
Years of Service Prior Service Credit After Date of Enrollment Percentage ------------------------ -------------------- During 1st year 25 During 2nd year 35 During 3rd year 45 During 4th year 55 During 5th year 75 After 5th year 100
2.19 Projected Earnings. "Projected Earnings" means the actual Earnings of an Employee on the Date of Enrollment plus an assumed increase of 8% per annum. In the case of a Participant who receives one or more Promotions, his or her Date of Enrollment for purposes of this Section 2.19 shall be the effective date of his or her new salary pursuant to the most recent Promotion. For purposes of this Section 2.19, a "Promotion" shall be a substantial increase in duties and responsibilities with an attendant substantial increase in compensation, as determined by the Committee in its absolute discretion. 2.20 Projected Final Average Earnings. "Projected Final Average Earnings" means the average of a Participant's Projected Earnings during the 60 months preceding Termination of Employment. 2.21 Subsidiary. A "Subsidiary" of the Company is (i) any corporation, partnership, venture or other entity in which the Company owns 50% of the capital stock or otherwise has a controlling interest, or (ii) any employer that has entered into a contract with THC or a Subsidiary (as defined in clause (i) of this Section 2.21) for the receipt of management services at one or more facilities owned by such entity, and, in either case, which has adopted this Plan with the consent of the Committee. 2.22 Surviving Spouse. "Surviving Spouse" means the person legally married to a Participant for at least one year prior to the Participant's death or Termination of Employment. 2.23 Termination of Employment. "Termination of Employment" means the ceasing of the Participant's Employment for any reason whatsoever, whether voluntarily or involuntarily. 6 2.24 Year. A "Year" is a period of twelve consecutive calendar months. 2.25 Year of Service. "Year of Service" means each complete Year (up to a maximum of 20) of continuous Service (up to age 65) as an Employee of THC and its Subsidiaries beginning with the Date of Employment with THC and its Subsidiaries or with NME and its subsidiaries immediately prior to the divestiture of THC by NME. Years of Service shall be deemed to have begun as of the first day of the calendar month of Employment and to have ceased on the last day of the calendar month of Employment. SECTION 3 - RETIREMENT BENEFITS 3.1 Normal Retirement Benefit. (a) Upon a Participant's Normal Retirement, the Company agrees to pay to the Participant a monthly Normal Retirement Benefit for the Participant's lifetime which is determined in accordance with the Benefit Formula set forth below, adjusted by the Vesting Percentage in Section 3.3 Except as provided below, the amount of such monthly Normal Retirement Benefit will be determined by using the following formula: R = A x [B1 + [B2 x C]] x [2.7% - D] x E R = Normal Retirement Benefit A = Final Average Earnings B1 = Years of Service After Date of Enrollment B2 = Years of Service Prior to Date of Enrollment C = Prior Service Credit Percentage D = Existing Retirement Benefit Plans Adjustment Factor E = Vesting Percentage
Note: B1 and B2 Years of Service combined cannot exceed 20 years. (b) In the event of the death or Disability of a Participant at any age or the Normal or Early Retirement of a Participant after age 60, the Normal or Early Retirement Benefit will be determined on the basis of a Prior Service Credit Percentage of 100. (c) If a Participant who is receiving a Normal Retirement Benefit dies, his Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Normal Retirement Benefit. 7 (d) If a Participant who is eligible for Normal Retirement dies while an Employee of the Company after attaining age 65, his Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) the installments of the Normal Retirement Benefit which would have been payable to the Surviving Spouse or Eligible Children in accordance with this Section 3.1 as if the Participant had retired on the day before he died. 3.2 Early Retirement Benefit. (a) Upon a Participant's Early Retirement, THC shall pay the Participant a monthly Early Retirement Benefit for the Participant's lifetime commencing on the first day of the calendar month following the date he attains age 65, calculated in accordance with Section 3.1 and Section 3.3 with the following adjustments: (i) Only the Participant's actual Years of Service, adjusted appropriately for the Prior Service Credit Percentage, as of the date of Early Retirement shall be used. (ii) For purposes of determining the Actual Final Average Earnings and Projected Final Average Earnings, only the Participant's Earnings and Projected Earnings as of the date of Early Retirement shall be used. (iii) To arrive at the payments to commence at age 65 the amount calculated under paragraphs (a)(i) and (a)(ii) of this Section 3.2 will be reduced by .42% for each month Early Retirement commences before age 62. (b) Upon the written request of the Participant prior to Termination of Employment, the Committee, in its sole and absolute discretion, may authorize payment of the Early Retirement Benefit at a date prior to the Participant's attainment of age 65; provided, however, that in such event the amount calculated under paragraphs a(i), (ii) and (iii) of this Section 3.2 shall be further reduced by .42% for each month that the date of the commencement of payment precedes the date on which the Participant will attain age 62. (c) If a Participant dies after commencement of payment of his Early Retirement Benefit, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Early Retirement Benefit. (d) If a Participant dies after his Early Retirement but before benefits have commenced, or while on Disability, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the benefit that would have been payable on the date the Participant elected to have benefits commence. 8 (e) If a Participant dies after becoming eligible for Early Retirement but before taking Early Retirement or while on Disability, the Surviving Spouse or Eligible Children shall entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Early Retirement Benefit determined as if the Participant had retired on the day prior to his death, with payments commencing on the first of the month following the Participant's death. The benefits payable to a Surviving Spouse or Eligible Children under this paragraph shall be no less than the benefits payable to a Surviving Spouse or Eligible Children under Section 3.4 as if the Participant had died immediately prior to age 55. 3.3 Vesting of Retirement. A Participant's interest in his Retirement Benefit shall, subject to Sections 5.5 and 5.7, vest in accordance with the following schedule:
Years of Service Vesting ---------------- ------- Less than 5 -0- 5 but less than 6 25% 6 through 20 5% per year additional
Notwithstanding the foregoing, a Participant who is at least 60 years old and who has completed at least 5 Years of Service will be fully vested, subject to Sections 5.5 and 5.7, in his Retirement Benefits. No Years of Service will be credited for Service after age 65 or for more than 20 years. 3.4 Termination. Upon any Termination of Employment of the Participant before Normal Retirement or Early Retirement for reasons other than death or Disability, THC shall pay, commencing at age 65, to the Participant a Retirement Benefit calculated under Sections 3.1 and 3.3 but with the following adjustments: (a) Only the Participant's actual Years of Service, adjusted appropriately for the Prior Service Credit Percentage, as of the date of Termination of Employment shall be used. (b) For purposes of determining the Actual Final Average Earnings and the Projected Final Average Earnings as used in Section 3.1, only the Participant's Earnings and Projected Earnings prior to the date of his Termination of Employment shall be used. (c)(i) If a Participant dies after commencement of payment of his Retirement Benefit under this Section 3.4, the Surviving Spouse or Eligible Children shall be entitled at the Participant's death to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Retirement Benefit. 9 (ii) If a Participant, who has a vested interest under Section 3.3, dies after Termination of Employment but at death is not receiving any Retirement Benefits under this Plan, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6), commencing on the date when the Participant would have attained age 65, 50% of the Retirement Benefit which would have been payable to the Participant at age 65. (iii) If a Participant, who has a vested interest under Section 3.3, dies while still actively employed by THC or a Subsidiary or on Disability before he was eligible for Early Retirement, his Surviving Spouse or Eligible Children shall be entitled at Participant's death to receive (in accordance with Sections 3.5 ad 3.6) 50% of the Retirement Benefit calculated as if Participant were age 55 and eligible for Early Retirement on the day before Participant's death; however, the combined reductions for Early Retirement and early payment shall not exceed 35.28% of the amount calculated under paragraphs a(i) and (ii) of Section 3.2. (d) To arrive at the payments to commence at age 65, the amount calculated under paragraphs (a), (b), (c)(i) and (c)(ii) of this Section 3.4 will be reduced by the maximum percentage reduction for Early Retirement at age 55 (i.e., 35.28%). 3.5 Duration of Benefit Payment. Normal and Early Retirement Benefit payments shall be for the life of the Participant. Surviving Spouse Benefit payments shall be for the Surviving Spouse's lifetime. All benefits payable to the Surviving Spouse are subject to actuarial reduction if the Surviving Spouse is more than 3 years younger than the Participant. Eligible Children Benefit payments shall be made until the youngest of the Eligible Children reaches 21. 3.6 Recipients of Benefit Payments. If a Participant dies without a Surviving Spouse but is survived by any Eligible Children, then benefits will be paid to the Eligible Children or their legal guardian, if applicable. The total monthly benefit payable will be equal to the monthly benefit that a Surviving Spouse would have received without actuarial reduction. This benefit will be paid in equal shares to all Eligible Children until the youngest of the Eligible Children attains age 21. 10 If the Surviving Spouse dies after the death of the Participant but is survived by Eligible Children, then the total monthly benefit previously paid to the Surviving Spouse will be paid in equal shares to all Eligible Children until the youngest of the Eligible Children attains age 21. When any of the Eligible Children reaches 21, his share will be reallocated equally to the remaining Eligible Children. 3.7 Disability. Any Participant who is under Disability upon reaching age 65 will be paid the Normal Retirement Benefit in accordance with Sections 3.1 and 3.3. Upon a Participant's Disability while an Employee of the Company, the Participant will continue to accrue Years of Service during his Disability until the earliest of: (a) Recovery from Disability, (b) 65th birthday, or (c) Death. If a Participant is receiving Disability payments, he shall not be entitled to receive an Early Retirement Benefit. For purposes of calculating the foregoing benefits, the Participant's Actual Final Average Earnings and Projected Final Average Earnings shall be determined using his Earnings and Projected Earnings up to the date of Disability. 3.8 Change in Control. In the event of a Change of Control Event while this Plan remains in effect, (i) a Participant's Retirement Benefits hereunder (a) will be determined on the basis of receiving full Prior Service Credit under Sections 3.1 and 3.2 for all Years of Service prior to his Date of Enrollment and (b) will be fully vested in the Participant without regard to his Years of Service with THC and its Subsidiaries, and (ii) notwithstanding any other provisions of the Plan, a Participant will be entitled to receive the Normal Retirement Benefit on or after age 60 with no reduction by virtue of paragraphs (a)(iii) and (b) of Section 3.2. SECTION 4 - PAYMENT 4.1 Commencement of Payments. Payments under this Plan shall begin not later than the first day of the calendar month following the occurrence of an event which entitles a Participant (or a Surviving Spouse or Eligible Children) to payments under this Plan. 11 4.2 Withholding; Unemployment Taxes. To the extent required by the law in effect at the time payments are made, THC shall withhold from payments made hereunder any taxes required to be withheld by the Federal or any state or local government. 4.3 Recipients of Payments. All payments to be made by THC under the Plan shall be made to the Participant during his lifetime. All subsequent payments under the Plan shall be made by THC to Participant's Surviving Spouse, Eligible Children or their legal guardian, if applicable. 4.4 No Other Benefits. THC shall pay no benefits hereunder to the Participant, his Surviving Spouse, Eligible Children or their legal guardian, if applicable, by reason of Termination of Employment or otherwise, except as specifically provided herein. 4.5 Withdrawal Election. A Participant or his or her beneficiary, as the case may be, may elect, at any time after he or she commences to receive benefit payments under this Plan, to receive those payments in a lump sum equal to 90% of the actuarial equivalent value of his or her remaining vested benefits hereunder. No election to partially accelerate benefits shall be allowed. The Participant shall make this election by giving the Plan Administrator advance written notice of the election in a form determined from time to time by the Committee. The actuarial equivalent of the Participant's remaining vested benefit hereunder shall be, as determined by the Committee in its absolute discretion, the single premium required, at the time of distribution, to purchase the Participant's remaining vested benefits hereunder as a nonqualified annuity from an insurance company rated AAA by both Moody's and Standard and Poors. The Participant shall be paid the reduced benefit amount within 60 days of his or her election. Once such amount is paid, the Participant's participation in the Plan shall permanently terminate for all purposes. SECTION 5 - CONDITIONS RELATED TO BENEFITS 5.1 Administration of Plan. The Committee is hereby authorized to administer the Plan and is given the authority in its sole and unfettered discretion to interpret, construe and apply its provisions in accordance with its terms. The Committee shall administer the Plan and shall establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. Members of the Committee shall not be eligible to participate in the Plan while serving as a member of the Committee. 5.2 No Right to Assets. Neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of THC and its Subsidiaries whatsoever, including, without limiting the generality of the foregoing, any specific funds or assets which THC, in its sole discretion, may set aside in anticipation of a liability hereunder. No trust shall be created in accordance with or by the execution or 12 adoption of this Plan or any Agreement with a Participant, and any benefits which become payable hereunder shall be paid from the general assets of THC; provided, that one or more grantor trusts described in Section 671 of the Internal Revenue Code of 1986, as amended, may be established to fund the Plan in whole or in part, and benefits under this Plan may be paid in whole or in part from such trust or trusts. A Participant shall have only an unsecured contractual right to the amounts, if any, payable hereunder, against THC or one or more Subsidiaries, as reflected in the Participant's one or more Agreements. 5.3 No Employment Rights. Nothing herein shall constitute a contract of continuing employment or in any manner obligate THC and its Subsidiaries to continue the service of a Participant, or obligate a Participant to continue in the service of THC and its Subsidiaries, and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant. 5.4 Right to Terminate or Amend. Except during any two-year period after any Change of Control Event of THC, THC reserves the sole right to terminate the Plan at any time and to terminate an Agreement with any Participant at any time. In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled to only the vested portion of his accrued benefits under Section 3 of the Plan as of the time of the termination of the Plan or his Agreement. All further vesting and benefit accrual shall cease on the date of Plan or Agreement termination. Benefit payments would be in the amounts specified and would commence at the time specified in Section 3 as appropriate. THC further reserves the right in its sole discretion to amend the Plan in any respect except that Plan benefits cannot be reduced during any two-year period after any Change of Control Event of THC. No amendment of the Plan (whether there has or has not been a Change of Control Event of THC) that reduces the value of the benefits theretofore accrued by and vested with respect to the Participant shall be effective. 5.5 Eligibility. Eligibility to participate in the Plan is expressly conditional upon an Employee's furnishing to THC certain information and taking physical examinations and such other relevant action as may be reasonably requested by THC. Any Employee Participant who refuses to provide such information or to take such action shall not be enrolled as or cease to be a Participant under the Plan. Any Participant who commits suicide during the two-year period beginning on the date of his Agreement, or who makes any material misstatement of information or non-disclosure of medical history, will not receive any benefits hereunder unless, in the sole discretion of the Committee, benefits in a reduced amount are awarded. 13 5.6 Offset. If at the time payments or installments of payments are to be made hereunder, any Participant or his Surviving Spouse or both are indebted to THC and its Subsidiaries, then the payments remaining to be made to the Participant or his Surviving Spouse or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness; provided, however, that an election by the Committee not to reduce any such payment or payments shall not constitute a waiver of any claim for such indebtedness. 5.7 Conditions Precedent. No Retirement Benefits will be payable hereunder to any Participant (i) whose Employment with THC or a Subsidiary is terminated because of his willful misconduct or gross negligence in the performance of his duties or (ii) who within 3 years after Termination of Employment becomes an employee with or consultant to any third party engaged in any line of business in competition with THC and/or its Subsidiaries (a) in a line of business in which Participant has performed Services for THC and its Subsidiaries provided that a person who is also an employee of NME shall not be construed to be a third party engaged in competition with THC and/or its Subsidiaries or (b) that accounts for more than 10% of the gross revenues of THC and its Subsidiaries taken as a whole. Notwithstanding the foregoing paragraph, the Committee, in its sole discretion, may approve the payment of Retirement Benefits to an Employee who would otherwise be ineligible under (ii) above if the Committee determines that it is in THC's best interest to do so. SECTION 6 - MISCELLANEOUS 6.1 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance any provision hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any person's bankruptcy or insolvency. THC may assign this Plan to any Subsidiary which employs any Participant. 6.2 Gender and Number. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa. 6.3 Notice. Any notice required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of THC, directed to the attention of the Secretary of the Committee. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. 14 6.4 Validity. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 6.5 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Washington. 6.6 Successors in Interest. This Plan shall inure to the benefit of, be binding upon, and be enforceable by, any corporate successor to THC or successor to substantially all of the assets of THC. 6.7 No Representation on Tax Matters. THC makes no representation to Participants regarding current or future income tax ramifications of the Plan. IN WITNESS WHEREOF, THC has executed this instrument effective October 1, 1994. THE HILLHAVEN CORPORATION, a Nevada corporation By ------------------------------------------ Its -------------------------------------- 15 EX-10.30 23 HILLHAVEN INDIVIDUAL RETIREMENT ANNUITY PLAN EXHIBIT 10.30 HILLHAVEN INDIVIDUAL RETIREMENT ANNUITY PLAN 1. Purpose: To assist the Hillhaven Corporation ("the Company") in ------- retaining employees and to promote employee interest in saving for retirement years. 2. Eligibility: All full time Category I employees of the Company or its ----------- subsidiaries ("Employees") are eligible to participate in The Hillhaven Individual Retirement Annuity Plan (the "Plan"). Employees may elect to enroll in the Plan at any time during their full time employment with the Company or one of its subsidiaries. For purposes of this Plan, "Category I" employees are all full-time employees of The Hillhaven Corporation who are assigned to the Corporate Office in Tacoma, Washington, working a minimum of 30 hours per week; regional office staff; and at the facility level, administrators, assistant administrators, directors of nursing, and administrators in training. 3. The Plan: Participating Employees may elect to contribute a minimum of -------- $300 to a maximum of $2,000 into their respective Plan accounts each calendar year. The maximum contribution is established by Federal law as the maximum amount that may be contributed annually as an Individual Retirement Account (IRA) contribution. Interest is accrued on Employees' accounts on a tax-deferred basis; interest is credited to accounts monthly. Participating Employees' contributions are conveyed to a financial institution selected by the Company; the institution maintains an account for each participating Employee. 4. Company Contributions: The Company will contribute to participating --------------------- Employee Plan accounts according to the participating Employee's tenure with the Company as described below. Company contributions will be prorated based on the participating Employee's hire date anniversary. o After completion of two years' service, the Company will contribute 33% of Employee contribution to a minimum of $55.56 per month or $666.67 annually. o After completion of five years' service, the Company will contribute 50% of Employee contribution to a maximum of $83.33 per month or $1,000 each year. o After completion of ten years' service, the Company will contribute 100% of Employee contribution to a maximum of $2,000 each year. 1 5. Service With Prior Employer: Employees who became Hillhaven Employees --------------------------- as a result of an acquisition of their prior employer by the Company may enroll in the Plan immediately. Prior service credit will be honored for contributions when the Employee has been a Hillhaven Employee for one year. 6. Alternate IRA Accounts: Employees may elect to participate in a ---------------------- qualified IRA other than provided by this Plan. To qualify for matching contributions from the Company as described in paragraph 4, the Participating Employee must submit written proof of deposit to a qualified IRA to the Corporate Employee Relations department by December 1 each year. The appropriate Company contribution will be paid to the participating Employee in a lump sum before the end of the calendar year. 7. Amendment and Termination: This Plan may be amended or terminated at ------------------------- any time at the sole discretion of the Compensation Committee of the Board of Directors. September 1, 1989 2 EX-10.31 24 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.31 AGREEMENT --------- This Agreement, made and entered into as of the ____ day of ____________, 19__ ("Agreement"), by and between Vencor, Inc., a Delaware corporation ("Company"), and __________________________ ("Indemnitee"): RECITALS: -------- A. Highly competent persons are becoming more reluctant to serve publicly held corporations as officers, counsel or other key employees or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation. B. The increasing difficulties of obtaining adequate insurance and the uncertainties relating to indemnification may impair the ability of the Company to continue to attract and retain such persons. C. The Board of Directors of the Company (the "Board") has determined that the potential inability to attract and retain such persons is detrimental to the best interest of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future. D. It is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified. E. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that she be so indemnified. AGREEMENT: --------- NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as an officer, ---------------------- employee, agent or fiduciary of the Company, and may at the request of the Company, agree to serve as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in any such position. 2. INDEMNIFICATION - GENERAL. The Company shall indemnify and advance ------------------------- Expenses (as hereinafter defined) to Indemnitee as provided in this Agreement and to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of the Agreement. This Agreement shall also apply to any claims brought against the Indemnitee which antedate the date hereof, so long as Indemnitee was serving in a Corporate Status (as hereinafter defined) with respect to any such claims. 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. -------------------------------------------------------------------- Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of her Corporate Status, she is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by her or on her behalf in connection with such Proceeding or any claim, issue or matter therein, if she acted in good faith and in a manner she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe her conduct was unlawful. 4. PROCEEDING BY OR IN THE RIGHT OF THE COMPANY. Indemnitee shall be -------------------------------------------- entitled to the rights of indemnification provided in this Section 4 if, by reason of her Corporate Status, she is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by her or on her behalf in connection with such Proceeding if she acted in good faith and in a manner she reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification against such Expenses and against judgments, penalties, fines and amounts paid in settlement shall be made in respect of any claim, issue or matter in any such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company if applicable law prohibits such indemnification; provided, however, that, if applicable law so permits, indemnification against Expenses shall nevertheless be made by the Company in such event if and only to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine. 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY --------------------------------------------------------------- SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the - ---------- extent that Indemnitee is, by reason of her Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, she shall be indemnified against all Expenses actually and reasonably incurred by her or on her behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by her or on her behalf in connection with each successfully resolved claim, issue or matter. If Indemnitee is not successful with respect to a claim, issue or matter, Indemnitee's right to indemnification for Expenses with regard to such claim, issue or matter shall be governed by Sections 3 and 4 of this Agreement. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other ----------------------------------------- provision of this Agreement, to the extent that Indemnitee is or is threatened to be made, by reason of her Corporate Status, a witness in any Proceeding, she shall be indemnified against all Expenses actually and reasonably incurred by her or on her behalf in connection therewith. 2 7. ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable ----------------------- Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. ------------------------------------------------------------- (A) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (B) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) (unless Indemnitee shall request that such determination be made by the Board of Directors or the stockholders, in which case by the person or persons or in the manner provided for in clauses (ii) or (iii) of this Section 8(b)) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, if such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) by the stockholders of the Company; or (iii) as provided in Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (C) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising her of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the 3 preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within seven (7) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. ---------------------------------------------- (A) If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. (B) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such sixty (60) day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within fifteen (15) days after 4 receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made at such meeting, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made at such meeting, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (C) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that her conduct was unlawful. 10. REMEDIES OF INDEMNITEE. ---------------------- (A) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and such determination shall not have been made and delivered in a written opinion within ninety (90) days after receipt by the Company of the request for indemnification, or (iv) payment of indemnification is not made pursuant to Section 6 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a). The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (B) In the event that a determination shall have been made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 10 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (C) If a determination shall have been made or deemed to have been made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced 5 pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (D) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. (E) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by her in such judicial adjudication or arbitration, but only if she prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION. ----------------------------------------------------------- (A) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Restated Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in her Corporate Status prior to such amendment, alteration or repeal. (B) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (C) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (D) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 12. DURATION OF AGREEMENT. This Agreement shall continue until and --------------------- terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as an officer, employee, agent or fiduciary of the Company or a director, officer, employee, agent or 6 fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) the final termination of all pending Proceedings in respect of which Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and her heirs, executors and administrators. 13. SEVERABILITY. If any provision or provisions of this Agreement shall ------------ be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES. ---------------------------------------------------------------- Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any claim therein, brought or made by her against the Company. 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more ---------------------- counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. 16. HEADINGS. The headings of the paragraphs of this Agreement are -------- inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 17. DEFINITIONS. For purposes of this Agreement: ----------- (A) "Change in Control" means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of 7 Directors thereafter; or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute a majority of the Board of Directors. (B) "Corporate Status" describes the status of a person who is or was an officer, employee, agent or fiduciary of the Company or a director, officer, employee, agent or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (C) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (D) "Effective Date" means _______________________, 19__. (E) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of expert, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (F) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. (G) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce her rights under this Agreement. 18. MODIFICATION AND WAIVER. No supplement, modification or amendment of ----------------------- this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company -------------------- in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. 20. NOTICES. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed 8 by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (A) If to Indemnitee, to: ______________________________ ______________________________ ______________________________ (B) If to the Company to: Vencor, Inc. 3300 Providian Center Louisville, KY 40202 Attn: President and Chief Executive Officer cc: General Counsel or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 21. GOVERNING LAW. The parties agree that this Agreement shall be governed ------------- by, and construed and enforced in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: VENCOR, INC. By:______________________ By:_________________________ INDEMNITEE _____________________________ 9 EX-10.32 25 FORM OF VENCOR CHANGE-IN-CONTROL SEVERANCE AGR. EXHIBIT 10.32 CHANGE-IN-CONTROL SEVERANCE AGREEMENT ------------------------------------- THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT (the "Agreement") is made as of the ____ day of _____________, 19__, by and between VENCOR, INC., a Delaware corporation ( "Vencor"), and ___________________________ (the "Employee"). RECITALS: -------- A. The Employee is employed by Vencor, either directly or through one of its wholly owned subsidiaries (collectively, the "Company"). B. The Company recognizes that the Employee's contribution to the Company's growth and success has been and continues to be significant. C. The Company wishes to encourage the Employee to remain with and devote full time and attention to the business affairs of the Company and wishes to provide income protection to the Employee for a period of time in the event of a Change in Control. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT: --------- 1. DEFINITIONS. ----------- A. "BASE SALARY" shall mean the Employee's regular annual rate of ----------- base pay in gross as of the date in question as elected under Paragraph 3(a). B. "CAUSE" shall mean the Employee's (i) conviction of or plea of ----- nolo contendere to a crime involving moral turpitude; or (ii) willful and material breach by Employee of his duties and responsibilities, which is committed in bad faith or without reasonable belief that such breaching conduct is in the best interests of the Company, but with respect to (ii) only if the Board of Directors adopts a resolution by a vote of at least 75% of its members so finding after giving the Employee and his attorney an opportunity to be heard by the Board of Directors. C. CHANGE IN CONTROL. The term "Change in Control" shall mean any ----------------- one of the following events: (i) An acquisition (other than directly from Vencor) of any voting securities of Vencor (the "Voting Securities") by any "Person" (as defined in Paragraph 1(f) hereof) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 under the 1934 Act) of 20% or more of the combined voting power of Vencor's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in an acquisition by (i) Vencor or any of its subsidiaries, (ii) an employee benefit plan (or a trust forming a part thereof) maintained by Vencor or any of its subsidiaries or (iii) any Person in connection with an acquisition referred to in the immediately preceding clauses (i) and (ii) shall not constitute an acquisition which would cause a Change in Control. (ii) The individuals who, as of ____________, 19__, constituted the Board of Directors of Vencor (the "Incumbent Board") cease for any reason to constitute over 50% of the Board; provided, however, that if the election, or nomination for election by Vencor's stockholders, of any new director was approved by a vote of over 50% of the Incumbent Board, such new director shall, for purposes of this Section 6.7(b), be considered as though such person were a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of Vencor (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. (iii) Approval by stockholders of Vencor of a merger, consolidation or reorganization involving Vencor, unless each of the following events occurs in connection with such merger, consolidation or reorganization: (A) the stockholders of Vencor, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, over 50% of the combined voting power of all voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Company") over which any Person has Beneficial Ownership in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (B) the individuals who were members of the Incumbent Board consolidation or reorganization constitute over 50% of the members of the board of directors of the Surviving Company; and (C) no Person (other than Vencor, any of its subsidiaries, any employee benefit plan [or any trust forming a part thereof] maintained by Vencor, the Surviving Company or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of 20% or more of the then outstanding Voting Securities) has Beneficial Ownership of 20% or more of the combined voting power of the Surviving Company's then outstanding voting securities. (iv) Approval by Vencor's stockholders of a complete liquidation or dissolution of Vencor. (v) Approval by stockholders of an agreement for the sale or other disposition of all or substantially all of the assets of Vencor to any Person (other than a transfer to a subsidiary of Vencor). (vi) Any other event that the Committee shall determine constitutes an effective Change in Control of Vencor. 2 (vii) Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by Vencor which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by Vencor, and after such share acquisition by Vencor, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. D. "CHANGE-IN-CONTROL DATE" shall mean the date immediately prior to ---------------------- the effectiveness of the Change in Control. E. "GOOD REASON." The Employee shall have good reason to terminate ----------- employment with the Company if (i) the Employee's title, duties, responsibilities or authority is reduced or diminished from those in effect on the Change-in-Control Date without the Employee's written consent; (ii) the Employee's compensation is reduced; (iii) the Employee's benefits are reduced, other than pursuant to a uniform reduction applicable to all managers of the Company; or (iv) the Employee is asked to relocate his office to a place more than 30 miles from his business office on the Change-in-Control Date. F. "PERSON" shall have the meaning ascribed to such term in Section ------ 3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). G. "PRIOR YEAR'S BONUS" shall mean the full amount of bonuses and/or ------------------ performance compensation (other than Base Salary and awards under the Company's 1987 Incentive Compensation Program) to the Employee from Vencor and its subsidiaries in respect of services for the most recent calendar year immediately preceding the date in question. H. "TERMINATION OF EMPLOYMENT" shall mean (i) the termination of the ------------------------- Employee's employment by the Company other than such a termination in connection with an offer of immediate reemployment by a successor or assign of the Company or a purchaser of the Company or its assets under terms and conditions which would not permit the Employee to terminate his employment for Good Reason or otherwise during any Window Period; or (ii) the Employee's termination of employment with the Company for Good Reason or during any Window Period. I. "WINDOW PERIOD" shall mean either of two 30-day periods of time ------------- commencing 30 days after (i) a Change in Control and (ii) one year after a Change in Control. 2. TERM. The initial term of this Agreement shall be for a three-year ---- period commencing on _______________, 19__ (the "Effective Date"). The Term shall be automatically extended by one additional day for each day beyond the Effective Date that the Employee remains employed by the Company until such time as the Company elects to cease such extension by giving written notice of such election to the Employee. In such event, the Agreement shall terminate on the third anniversary of the effective date of such election notice. Notwithstanding the foregoing, this Agreement shall automatically terminate if and when the 3 Employee terminates his employment with the Company or two years after the Change-in-Control Date, whichever first occurs. 3. SEVERANCE BENEFITS. If at any time following a Change in Control and ------------------ continuing for two years thereafter, the Company terminates the Employee without Cause, or the Employee terminates employment with the Company either for Good Reason or during any Window Period, then as compensation for services previously rendered the Employee shall be entitled to the following benefits: A. CASH PAYMENT. The Employee shall be paid cash equal to two times ------------ the greater of: (i) the sum of the Employee's Base Salary and Prior Year's Bonus as of the Termination of Employment, or (ii) the sum of the Employee's Base Salary and Prior Year's Bonus as of the Change-in-Control Date. Payment shall be made in a single lump sum upon the Employee's effective date of termination unless the Employee shall have elected another method on the signature page hereof. B. CONTINUATION OF BENEFITS. ------------------------ (i) For a period of two year(s) following the Termination of Employment, the Employee shall be treated as if he or she had continued to be an employee for all purposes under the Company's Health Insurance Plan and Dental Insurance Plan; or if the Employee is prohibited from participating in such plan, the Company shall otherwise provide such benefits. Following this continuation period, the Employee shall be entitled to receive continuation coverage under Part 6 of Title I or ERISA ("COBRA Benefits") treating the end of this period as a termination of the Employee's employment if allowed by law. (ii) For a period of two year(s) following the Termination of Employment, the Company shall maintain in force, at its expense, the Employee's life insurance in effect under the Company's Voluntary Life Insurance Benefit Plan as of the Change-in-Control Date or as of the date of Termination of Employment, whichever coverage limits are greater. (iii) For a period of two year(s) following the Employee's Termination of Employment, the Company shall provide short-term and long-term disability insurance benefits to Employee equivalent to the coverage that the Employee would have had had he remained employed under the Company's disability insurance plans applicable to Employee on the date of Termination of Employment, or, at the Employee's election, the plans applicable to Employee as of the Change-in-Control Date. Should Employee become disabled during such period, Employee shall be entitled to receive such benefits, and for such duration, as the applicable plan provides. C. RETIREMENT SAVINGS PLAN. To the extent not already vested ----------------------- pursuant to the terms of such plan, the Employee's interests under the Company's Retirement Savings Plan shall be automatically fully (i.e., 100%) vested, without regard to otherwise applicable percentages for the vesting of employer matching contributions based upon the Employee's years of service with the Company. 4 D. PLAN AMENDMENTS. The Company shall adopt such amendments to its --------------- employee benefit plans, if any, as are necessary to effectuate the provisions of this Agreement. 4. GOLDEN PARACHUTE TAX REIMBURSEMENT. Whether or not any payments are ---------------------------------- made pursuant to Section 3 above, if a Change in Control of the Company occurs at any time and the Employee reasonably determines that any payment or distribution by the Company to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any restricted stock, stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exerciseablility of any of the foregoing (individually and collectively, the "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to the Employee an additional payment or payments (individually and collectively, the "Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that, after payment by the Employee of all taxes required to be paid by the Employee with respect to the receipt thereof under the terms of any federal, state or local government or taxing authority (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed with respect to the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The Company shall pay the Gross-Up Payment to the Employee within 30 days of its receipt of written notice from the Employee that such Excise Tax has been paid or will be payable at any time in the future. 5. NO MITIGATION REQUIRED OR SETOFF PERMITTED. In no event shall ------------------------------------------ Employee be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Employee under the terms of this Agreement, and all such amounts shall not be reduced whether or not Employee obtains other employment. Further, the Company's obligations to make any payments hereunder shall not be subject to or affected by any setoff, counterclaims or defenses which the Company may have against Employee or others. 6. WAIVER OF OTHER SEVERANCE BENEFITS. The benefits payable pursuant to ---------------------------------- this Agreement are in lieu of any other severance benefits which may otherwise be payable by the Company to the Employee upon termination of employment pursuant to a Company-wide severance program (including, without limitation, any benefits to which Employee might otherwise be entitled under any other severance or change in control or similar agreement previously entered into between Employee and Company). 7. EMPLOYMENT AT WILL. Notwithstanding anything to the contrary ------------------ contained herein, the Employee's employment with the Company is not for any specified term and may be terminated by the Employee or by the Company at any time, for any reason, with or without cause, without any liability, except with respect to the payments provided hereunder or as required by law or any other contract or employee benefit plan. 8. DISPUTES. Any dispute or controversy arising under, out of, or in -------- connection with this Agreement shall, at the election and upon written demand of either party, be finally determined and settled by binding arbitration in the City of Louisville, Kentucky, in accordance with 5 the Labor Arbitration rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The Company shall pay all costs of the arbitration and all attorneys' and accountants' fees of the Employee in connection therewith, including any litigation to enforce any arbitration award. 9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall not be terminated ----------------------------- by the voluntary or involuntary dissolution of the Company or by any merger or consolidation where the Company is not the surviving corporation, or upon any transfer of all or substantially all of the Company's stock assets or any other Change in Control. In the event of such merger, consolidation or transfer, or other Change in Control, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the surviving corporation or corporation to which such stock or assets of the Company shall be transferred. 10. NOTICES. Any notice or other communication hereunder shall be in ------- writing and shall be effective upon receipt (or refusal of receipt) if delivered personally, or sent by overnight courier if signature for the receiving party is obtained, or sent by certified or registered mail, postage prepaid, to the other party at the address set forth below: If to the Company: Vencor, Inc. 3300 Providian Center Louisville, KY 40202 Attention: Secretary If to Employee: __________________________________ __________________________________ __________________________________ Either party may change its specified address by giving notice in writing to the other. 11. INDEMNIFICATION. The Company shall indemnify, defend and hold the --------------- Employee harmless from and against any liability, damages, costs and expenses (including attorneys' fees) in connection with any claim, cause of action, investigation, litigation or proceeding involving him by reason of his having been an officer, director, employee or agent of the Company, except to the extent it is judicially determined that the Employee was guilty of gross negligence or willful misconduct in connection with the matter giving rise to the claim for indemnification. This indemnification shall be in addition to and shall not be substituted for any other indemnification or similar agreement or arrangement which may be in effect between the Employee and the Company or may otherwise exist. The Company also agrees to maintain adequate directors and officers liability insurance, if applicable, for the benefit of Employee for the term of this Agreement and for five years thereafter. 12. ERISA. Many or all of the employee benefits addressed in Paragraph ----- 3(c) and (d) exist under plans which constitute employee welfare benefit plans ("Welfare Plans") within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Any payments pursuant to this Agreement which could cause any of such Plans not to constitute a Welfare Plan shall be deemed instead to be made pursuant to a separate "employee pension benefit plan" within the meaning of Section 3(2) of ERISA or a "top hat" plan under Section 201(2) of ERISA as to which the applicable portions of the document constituting the Welfare Plan shall be deemed to be incorporated by reference. None of the benefits hereunder may be assigned in any way. 6 13. SEVERABILITY. The invalidity or unenforceability of any provision of ------------ this Agreement shall not affect the validity or enforceability of any other provision, which other provisions shall remain in full force and effect. 14. INTERPRETATION. The headings used herein are for convenience only and -------------- do not limit or expand the contents of this Agreement. Use of any male gender pronoun shall be deemed to include the female gender also. 15. NO WAIVER. No waiver of a breach of any provision of this Agreement --------- shall be construed to be a waiver of any other breach of this Agreement. No waiver of any provision of this Agreement shall be enforceable unless it is in writing and signed by the party against whom it is sought to be enforced. 16. SURVIVAL. Any provisions of this Agreement creating obligations -------- extending beyond the term of this Agreement shall survive the expiration or termination of this Agreement, regardless of the reason for such termination. 17. AMENDMENTS. Any amendments to this Agreement shall be effective only ---------- if in writing and signed by the parties hereto. 18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of ---------------- the parties with respect to the subject matter hereof. 19. GOVERNING LAW. This Agreement shall be interpreted in accordance with ------------- and governed by the law of the State of Delaware. 20. COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. VENCOR, INC. EMPLOYEE By:____________________________ _____________________________________ W. Bruce Lunsford Chairman, President and Chief Executive Officer Form of Cash Benefit Payment to Employee per Section 3(a): _____ One lump sum payment _____ Equal monthly installment payments over the two-year period. 7 EX-10.33 26 SERVICES AGREEMENT EXHIBIT 10.33 _____________________________________________________________________________ SERVICES AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION _____________________________________________________________________________ TABLE OF CONTENTS ------------------
Page ---- I. CERTAIN MANAGEMENT RELATED SERVICES................... 2 1.01. Services to be Made Available by NME........... 2 1.02. Services to be Made Available by the Company... 3 1.03. Limitations on Obligation to Provide Services.. 4 1.04. Standards and Levels of Services............... 6 1.05. Payment for Services........................... 6 1.06. Term for Which Services to be Provided.......... 9 II. JOINT PURCHASING AGREEMENTS........................... 10 2.01. Joint Purchasing............................... 10 2.02. Limitation on Joint Purchasing Obligations..... 12 III. USE OF PREMISES....................................... 12 3.01. Old Hillhaven Operations....................... 12 3.02. Medical Ambulatory Care, Inc................... 13 IV. MISCELLANEOUS......................................... 13 4.01. Independent Contractor Status.................. 13 4.02. Insurance...................................... 13 4.03. Disclaimer; Limited Liability.................. 14 4.04. Confidentiality................................ 14 4.05. Retention of Records........................... 15 4.06. Entire Agreement; Amendment.................... 16 4.07. Waivers........................................ 17 4.08. Legal Enforceability........................... 17 4.09. Further Assurances............................. 18 4.10. Assignment..................................... 18 4.11. Dispute Resolution Procedures.................. 19 4.12. Parties in Interest............................ 20 4.13. Governing Law.................................. 21 4.14. Notices........................................ 21 4.15. Construction................................... 22 4.16. Counterparts................................... 22
i January 4, 1990 THIS SERVICES AGREEMENT, dated as of January 31, 1990 (the "Agreement"), is by and between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME"), on behalf of itself and its affiliates other than the Company Group (as hereinafter defined) (NME and such affiliates being herein sometimes collectively referred to as the "NME Group"), and THE HILLHAVEN CORPORATION, a Nevada corporation (the "Company"), on behalf of itself and its affiliates other than the NME Group (the Company and such affiliates being herein sometimes collectively referred to as the "Company Group"). WHEREAS, NME and the Company are, as of the date hereof, entering into a Reorganization and Distribution Agreement providing for a reorganization of certain of the businesses heretofore conducted by NME's long-term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share, of the Company (the "Distribution") on or about January 31, 1990 (the date on which the Distribution shall actually occur being herein referred to as the "Distribution Date"). WHEREAS, as a result of said reorganization and the Distribution, substantially all of NME's long-term care business will be conducted by the Company Group, and the Company will become a separate publicly held company. WHEREAS, by reason of the expertise and experience of certain personnel of NME and the Company, such personnel are uniquely suited to perform certain services for the other that would otherwise be unavailable to the other. WHEREAS, the Company and NME desire to provide for access to such personnel and for the exchange of certain services for a limited period of time following the Distribution. NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. CERTAIN MANAGEMENT RELATED SERVICES SECTION 1.01. Services to be Made Available by NME. Subject to the ------------------------------------ terms and provisions of this Agreement, NME shall provide, deliver and/or make available, or cause to be provided, delivered and/or made available to members of the Company Group, and the Company Group shall accept, (i) the services set forth in Schedule 1 hereto, (ii) such other services of a substantial character ---------- as the parties may from time to time hereafter agree upon and (iii) such Incidental Services (as hereinafter defined) 2 January 4, 1990 as the Company may from time to time reasonably request (subject, in each case, however, to the provisions of Section 1.03 below). For the purposes of this Agreement, "Incidental Services" shall mean occasional consulting or advisory services and access to personnel and data which involve an insubstantial commitment of the resources of the party providing such services (the "Provider"), which determination shall be made by the Provider in the exercise of its reasonable judgment. The foregoing services may be rendered by NME or by another member of the NME Group or by third parties as NME shall determine (including the specific individuals and corporate facilities by which the services are rendered); provided, however, that before any services which heretofore have been rendered - -------- ------- by NME or another member of the NME Group are contracted out to third parties, NME shall so notify the Company and the Company may discontinue such services upon notice to NME in accordance with the provisions of this Agreement. SECTION 1.02. Services to be Made Available by the Company. Subject -------------------------------------------- to the terms and provisions of this Agreement, the Company shall provide, deliver and/or make available, or cause to be provided, delivered and/or made available to members of the NME Group, and the NME Group shall accept, (i) the services set forth in Schedule 2 hereto, (ii) such other services of a ---------- substantial character as the parties may from time to time 3 January 4, 1990 hereafter agree upon and (iii) such Incidental Services as NME may from time to time reasonably request (subject, in each case, however, to the provisions of Section 1.03 below). The foregoing services may be rendered by the Company or another member of the Company Group or by third parties as the Company shall determine (including the specific individuals and corporate facilities by which the services are rendered); provided, however, that before any services which -------- ------- heretofore have been rendered by the Company or another member of the Company Group are contracted out to third parties, the Company shall so notify NME and NME may discontinue such services upon notice to the Company in accordance with the provisions of this Agreement. The services to be provided pursuant to Sections 1.01 and 1.02 above are herein collectively referred to as the "Services." SECTION 1.03. Limitations on Obligation to Provide Services. --------------------------------------------- (a) Notwithstanding the provisions of Section 1.01 or 1.02, neither party shall be required to make available to the other any Services to the extent that doing so would (i) violate the terms of any contract or obligation of such party in effect at that time or (ii) require, in the opinion of such party's 4 January 4, 1990 legal counsel, the procurement of additional licenses or permits not required by such party for the operation of its own business. (b) The provisions of Sections 1.01 and 1.02 shall apply only to Services relating to or arising out of or in connection with matters which the Provider is in a position to provide by reason of past participation, involvement or familiarity with such matters and, in addition, which the other party (the "Recipient") has a reasonable requirement to obtain from the Provider. Except as may be necessary to effect a separation of matters relating to the NME Group from those relating to the Company Group directly or indirectly arising out of the reorganization and Distribution, nothing in this Agreement will require the Provider to provide or develop additional systems or support programs or to render Services in quantities substantially greater than the quantities taken by the operations of the Recipient during the twelve-month period immediately preceding the Distribution Date, or in a manner or methods different from the manner or methods employed for the benefit of the Provider, or, in performing Services hereunder, to make any change or addition which will require capital expenditures. (c) The duties of the parties under this Agreement are subject to interruption or discontinuance at any time and from time to time, without liability to the other party or any other person for any loss, damage or expense which may result there- 5 January 4, 1990 from, for force majeure or other causes beyond such party's control. SECTION 1.04. Standards and Levels of Services. -------------------------------- (a) The standards and technologies employed in the provision of each Service shall be as determined from time to time by the Provider hereunder in accordance with the Provider's then-existing requirements for comparable services for itself and its affiliates but giving due consideration to the historical requirements for such Service by the Recipient. (b) The Provider will use reasonable efforts to make the Services available in substantially the same manner as it makes the same Services available for its own operations, but the Provider shall not be liable to the Recipient or any other person for any loss, damage or expense which may result therefrom, for negligent performance by the Provider or from changing its manner of rendering the Services if the Provider deems the same necessary or desirable in the conduct of its own operations. SECTION 1.05. Payment for Services. -------------------- (a) The Recipient agrees to pay the Provider for the Services requested pursuant to Section 1.01 or 1.02, upon presentation to it of reasonably detailed invoices therefor, the 6 January 4, 1990 applicable fee therefor set forth in Schedule 1 or 2 hereto or, if no specific fee is so set forth or in the case of Services not specifically set forth in Schedule 1 or 2, such amount as the parties may in good faith agree upon; provided, however, that no fee shall be charged hereunder with respect to the - -------- ------- provision of Incidental Services (other than the reimbursement to the Provider of actual out-of-pocket expenses incurred by it in rendering such Incidental Services). For the purposes of such Schedules 1 and 2, "Cost" shall mean the direct and indirect expenses incurred by the Provider in connection with furnishing the applicable Service (including, but not by way of limitation, the salaries and related fringe benefits (calculated at the rate of 30% of base salary) of the Provider's employees allocable to the provision of the applicable Services, all travel and out-of-pocket expenses incurred by such employees in rendering such Services, applicable data processing charges and all other out-of-pocket costs). In any case where such Schedules provide that the applicable fees for a Service may subsequently be adjusted to "Fair Market Value" at the option of the Provider, the Provider shall give written notice to the Recipient of its intention to do so, effective sixty days after the Recipient's receipt of such notice (the "Effective Date"). For the purposes hereof, "Fair Market Value" shall mean the cost at which a particular Service could be obtained from an unaffiliated third party in any arms' length 7 January 4, 1990 transaction. Following receipt of any such notice, the parties shall negotiate in good faith to arrive at the Fair Market Value of the applicable Service. In the event the parties are unable to agree upon such Fair Market Value within thirty days after the Recipient's receipt of the Provider's notice, the Recipient may, at its option, elect to discontinue such Service as of a date specified by the Recipient, but in no event later than the Effective Date. If the Recipient does not so elect, the issue of Fair Market Value shall be promptly submitted to arbitration in Los Angeles, California, at the equal expense of NME and the Company, pursuant to the rules then obtaining of the American Arbitration Association. The decision of such arbitrator(s) shall be final and binding on the parties hereto, and judgment may be entered thereon in any court of competent jurisdiction. Pending such determination, the Provider shall continue to provide such Services without interruption and the Recipient thereof shall continue to pay there for at the rate in effect prior to receipt of the Provider's notice; provided, however, that the Fair Market Value rate -------- ------- determined in such arbitration shall be retroactively effective as of the Effective Date. The difference between the prior rate in effect and the Fair Market Value for the period between the Effective Date and the date of the determination of Fair Market Value shall be paid by the Recipient within thirty days after the determination of Fair Market Value. 8 January 4, 1990 (b) Invoices for Services rendered hereunder shall be rendered within thirty days after the end of each calendar month, covering the Services rendered pursuant to this Agreement during the preceding calendar month, and payment therefor shall be made within thirty days after receipt of such invoice. The Provider shall cause to be kept accurate books and records with respect to the costs and expenses incurred in connection with the Services provided hereunder where the fees to be paid there for are based on such costs or expenses and the Recipient shall be permitted to inspect such books and records with respect to such costs and expenses during normal business hours upon reasonable notice. SECTION 1.06. Term for Which Services to be Provided. -------------------------------------- (a) Subject to the provisions of Section 1.03 above and further provisions hereof, the Services called for hereby shall be provided for the applicable term set forth in Schedule l or 2 hereto or, if no specific term is so set forth, for such period as shall be mutually agreed upon by the parties. To the extent that any of the Services are rendered by a Provider after the time Bet forth above, at the request of the Recipient as part of ongoing projects, the term therefor shall be deemed extended accordingly. (b) Notwithstanding any other provision of this Agreement, the obligation of the Provider to provide Services and 9 January 4, 1990 of the Recipient to accept Services may be terminated by mutual agreement of the parties (which shall not be unreasonably withheld by either party). In addition, if the Recipient desires to discontinue one or more of the Services, or a part of a particular Service, during the term of this Agreement, the Recipient shall give the Provider at least 90 days' prior written notice requesting discontinuance of such Service or part thereof and specifying the date of discontinuance. If the requested discontinuance by the Recipient would result in the Provider incurring or absorbing expenses which the Provider would not have incurred or absorbed but for the discontinuance prior to the expiration of the term contemplated hereby, the Recipient shall reimburse the Provider for such reasonable expenses. Once so discontinued, a Service need not again be rendered by the Provider unless the Provider, in its sole discretion, is willing to do so upon terms and conditions to be agreed upon. ARTICLE II. JOINT PURCHASING AGREEMENTS SECTION 2.01. Joint Purchasing. NME and the Company acknowledge that ---------------- various members of their respective Groups participate in joint or shared purchasing arrangements, as more fully described in Schedule 3 hereto, and as ---------- amended from time to time. Following the Distribution, the parties agree to cooperate with each other with respect to such joint or shared purchasing 10 January 4, 1990 arrangements. The primary negotiating party (as outlined in Schedule 3, but as may be from time to time changed by agreement of the parties) agrees to use all reasonable efforts to consider the unique needs of the other party when negotiating the respective agreements. Each party agrees that in each case where such party has had negotiating responsibility for any shared purchasing arrangement, such party (herein referred to as the "Contracting Party") shall give the other party (the "Joint Purchaser") the opportunity to continue to participate in such joint or shared purchasing arrangements for a period of up to three years after the Distribution Date on terms no less favorable than those of the Contracting Party. It is the parties' intention that this opportunity to participate in shared or joint arrangements continue notwithstanding anticipated changes in the contracting or joint purchase relationships. In areas where regional contracts become beneficial to both parties, the Company and NME will use all reasonable efforts to coordinate and negotiate agreements to the mutual benefit of each party. In particular, food and nutritional agreements are well suited to this approach and are the primary responsibility of NME with advice and consent of the Company. It is expressly understood and agreed, however, that neither party shall be under any obligation, express or implied, to continue to so participate, if after a good faith effort to 11 January 4, 1990 resolve disputes, the party concludes that participation in the arrangement is not in its best interest. Neither party shall be entitled to compensation hereunder for normal administrative expenses incurred by such party in administering such agreements. SECTION 2.02. Limitation on Joint Purchasing Obligations. ------------------------------------------ Notwithstanding the foregoing provisions, neither party shall be required to continue any joint or shared purchasing arrangement to the extent that to do so would violate the contractual arrangement such party has with any third party supplier or vendor or is otherwise unacceptable to such third party supplier or vendor. ARTICLE III. USE OF PREMISES SECTION 3.01. Old Hillhaven Operations. The Company shall provide ------------------------ NME with the use of such office space and attendant services, facilities and equipment located at the Company's headquarters at 1148 Broadway Plaza, Tacoma, Washington, as shall be reasonably required for NME's personnel (not to exceed ten people) engaged in the management of the operations of Old Hillhaven and the Old Hillhaven Subsidiaries (as such terms are defined in the Distribution Agreement) until such time as NME 12 January 4, 1990 shall have relocated such operations to other facilities, but in no event later than December 31, 1990. The foregoing shall be made available to NME free of charge. SECTION 3.02. Medical Ambulatory Care, Inc. The Company shall ---------------------------- provide Medical Ambulatory Care, Inc., a subsidiary of NME ("MAC"), with the use of such office space and attendant services, facilities and equipment located at the Company's headquarters at 1016 South 28th Street, Tacoma, Washington as are currently utilized by MAC until such time as MAC shall have relocated its operations to other facilities, but in no event later than May 31, 1990 for a fee of $5,980 per month (which sum includes a charge of $1,500 per month for utilities and other services). ARTICLE IV. MISCELLANEOUS SECTION 4.01. Independent Contractor Status. Each party shall render ----------------------------- and perform the services as an independent contractor in accordance with its own standards, subject to its compliance with the provisions of this Agreement and with all applicable laws, ordinances and regulations. SECTION 4.02. Insurance. Except to the extent otherwise provided in --------- the Distribution Agreement or the Insurance 13 January 4, 1990 Agreement (as defined in the Distribution Agreement), neither party shall have any obligation to obtain or provide the other party with any level of insurance in respect of the services provided or received under this Agreement, or to provide the other party with the benefits of any such insurance now or hereafter held by such party. SECTION 4.03. Disclaimer; Limited Liability. ----------------------------- (a) Neither party makes any express or implied representations, warranties, or guarantees relating to the services or the quality or results of services to be performed under this Agreement. (b) Neither party shall be liable to the other for any expense, claim, loss or damage, including, but not by way of limitation, indirect, special, consequential or exemplary damages suffered by such party, other than by reason of such party's intentional failure to perform, or gross negligence in performing, the services under this Agreement. SECTION 4.04. Confidentiality. Subject to any contrary requirement --------------- of law and the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential, and shall cause it; employees and agents to keep strictly confidential, any information of or 14 January 4, 1990 concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligations under, any provision of this Agreement; provided, however, that such obligation to maintain -------- ------- confidentiality shall not apply to information which (i) at the time of disclosure was in the public domain, (ii) after disclosure enters the public domain not as a result of acts by the receiving party, (iii) was already independently in the possession of the receiving party at the time of disclosure or (iv) is received by the receiving party from a third party who did not receive such information from the disclosing party under an obligation of confidentiality. The confidentiality obligations contained in this Section 4.04 shall expire three (3) years after the furnishing of such information. SECTION 4.05. Retention of Records. Each of NME and the Company -------------------- shall retain, and shall cause each member of its respective Group to retain, pursuant to NME's Record Retention Program, a copy of which has been made available to each party, all information relating to the other and the other's subsidiaries, except as otherwise required by law or except to the extent that such information is in the public domain or in the possession of the other party; provided, that after the expiration of the applicable retention period -------- set forth in such Program, such information shall not be destroyed or otherwise disposed of at any time, unless, prior to such destruction or disposal, (a) the party proposing to destroy or otherwise dispose 15 January 4, 1990 of such information, shall provide no less than 90 days prior written notice to the other, specifying in reasonable detail the information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the information as was requested at the expense of the party requesting such information. SECTION 4.06. Entire Agreement; Amendment. This Agreement, the --------------------------- Distribution Agreement and the other agreements referred to herein or therein or entered into in connection herewith or therewith set forth the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by either party hereto which is not embodied in this Agreement or such other agreements, the Schedules or Exhibits hereto or thereto, or the written statements or other documents delivered pursuant hereto or thereto, and neither party hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. This Agreement may be amended or modified only by 16 January 4, 1990 a written instrument executed by both parties hereto or by their successors and permitted assigns. SECTION 4.07. Waivers. No failure or delay on the part of NME or the ------- Company in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by NME or the Company there from shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 4.08. Legal Enforceability. Any provision of this Agreement -------------------- which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision or remedies otherwise available to any party hereto. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an 17 January 4, 1990 inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. SECTION 4.09. Further Assurances. Subject to the provisions hereof, ------------------ each of NME and the Company shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each of NME and the Company shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders and decrees, obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority and promptly provide the other with all such information as the other may reasonably request in order to be able to comply with the provisions of this Section. SECTION 4.10. Assignment. This Agreement shall not be assignable or ---------- otherwise transferable, in whole or in part, directly or indirectly, voluntarily or by operation of law, whether by merger, sale of assets or otherwise, by either party hereto without the prior written consent of the other, and any 18 January 4, 1990 attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided, however, that (i) this Agreement and all -------- ------- of the provisions hereof shall be binding upon, inure to the benefit of and be enforceable by NME and the Company and their respective affiliates and successors and permitted assigns and (ii) in the event of any sale or other disposition of any member of the NME Group or the Company Group that is a recipient of any services hereunder, the provisions of this Agreement inuring to the benefit of such member may be assigned to the purchaser of such member provided that such purchaser shall execute and deliver to the other party an instrument in form and substance satisfactory to the other party agreeing to assume and be bound by the terms and provisions hereof. SECTION 4.11. Dispute Resolution Procedures. Except as otherwise ----------------------------- provided in Section 1.05(a) above with respect to disputes over the determination of Fair Market Value, all disputes arising out of or relating to this Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et seq. The parties hereby -- --- agree to submit to the jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such purpose. Either party may initiate the procedure set forth in this Section by providing the other party with notice setting forth the nature of the dispute 19 January 4, 1990 (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Section, the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Section shall be construed to impair the right of either party to appeal from such judgment. SECTION 4.12. Parties in Interest. Nothing in this Agreement, ------------------- expressed or implied, is intended or shall be construed to confer any right, benefit or remedy upon any person, firm or corporation other than NME and the Company and their respective affiliates and successors and permitted assigns. 20 January 4, 1990 SECTION 4.13. Governing Law. This Agreement shall be governed by and ------------- construed and enforced in accordance with the laws of the State of California. SECTION 4.14. Notices. All notices, consents, requests, ------- instructions, approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue Post Office Box 4070 Santa Monica, California 90404 Telecopy No.: (213) 315-6506 Attention: Raymond L. Mathiasen Senior Vice President, Corporate Financing and Accounting with copies to: National Medical Enterprises, Inc. 2700 Colorado Avenue Post Office Box 4070 Santa Monica, California 90404 Telecopy No.: (213) 315-6688 Attention: General Counsel and 21 January 4, 1990 NME Properties, Inc. 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy No. (206) 756-4743 Attention: Senior Vice President - Operations If to the Company: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-4901 Telecopy No.: (206) 756-4714 Attention: President with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-4901 Telecopy No.: (206) 756-4845 Attention: General Counsel SECTION 4.15. Construction. In this Agreement, ------------ (i) unless the context otherwise requires, the terms "herein," "hereof," "hereto" and "hereunder" refer to this Agreement; and (ii) the titles and headings of the sections and subsections hereof and the table of contents hereof are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 22 January 4, 1990 SECTION 4.16. Counterparts. This Agreement may be executed in ------------ several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By /S/ Marcus E. Powers -------------------------------- Name: Marcus E. Powers --------------------------- Title: Senior Vice President -------------------------- THE HILLHAVEN CORPORATION By /S/ Christopher J. Marker -------------------------------- Name: Christopher J. Marker --------------------------- Title: President -------------------------- 23 January 4, 1990 Schedule 1 to Services Agreement ------------------ SERVICES TO BE PROVIDED BY NME ------------------------------
Description of Service Fee Term ---------------------- --- ---- 1A. Advice and assistance with respect to the restructuring and/or sale of At the hourly 3 years retirement housing and nursing rates set forth in home partnerships. Schedule 1-A attached for the personnel indicated. In other cases, at NME's Cost. 1B. Consulting services of Free of charge, Remainder Messrs. Daniel P. Baty and Marvin other than pass- of term of Wilensky under consulting through of any consulting agreements dated December 3, 1986 additional charges agreements and March 2, 1988, respectively. to NME under said consulting agreements directly attributable to services rendered to the Company.
Schedule 3 to Services Agreement ------------------ SHARED PURCHASING AGREEMENTS ----------------------------
Primary Negotiating Responsibility Categories - -------------- ---------- Equipment --------- *Company Food Distribution Systems Company Bathing Tubs/Systems NME Micro Computers *Company Charting Systems NME Wheelchair Replacement Parts NME Scales, including Electronic NME Hoyer Lifts NME Therapy Tubs NME Pressure Packs *Company Physical Therapy Equipment *Company Dietary Equipment *Company Wire Shelving, Carts NME Wheelchairs, Patient Aids NME Electronic Thermometers NME Patient Aids *NME Mailing Machines, Scales *Company Enteral Feeding Pumps Company Small Volume Copiers *NME Large Volume Copiers NME Televisions Supplies -------- *NME Overnight Express NME Needles and Syringes *Company Office Supplies and Computer Supplies *Company Laundry/Dietary Chemicals *NME Medical Distributor Agreement *Company General Electric Lamps NME Respiratory Supplies *Company Housekeeping Chemicals *NME Dressings *NME Urologicals NME Surgical Tapes NME Business Forms *Company Patient Safety Aids Company Paint and Accessories *NME Vaseline Gauze Dressings Company Arts and Craft Supplies *Company Paper Products *Company Poly Bags
_____________________ * Require advance planning and coordination prior to negotiating contract. January 4, 1990 Schedule 3 to Services Agreement ------------------ SHARED PURCHASING AGREEMENTS (continued) ----------------------------
Primary Negotiating Responsibility Pharmaceuticals - -------------- --------------- *NME Pharmaceutical Contract Vendors *NME Prime Vendor Wholesalers *NME I.V. Solutions and Sets
January 4, 1990 Schedule 2 to Services Agreement ------------------ SERVICES TO BE PROVIDED BY THE COMPANY(continued) --------------------------------------
Description of Service Fee Term ---------------------- --- ---- - Maintain and distribute reports In addition to the on fixed asset management foregoing fees, to system which automatically the extent that interface with accounts payable custom reports are and general ledger requested by MAC, applications. NME shall reimburse the - Process summarized financial Company for the information from automatic Company's Cost for interfaces with all applications any systems in the form of a general ledger analysts or (monthly and year-to-date). programmers preparing such - Process monthly and customized reports. financial reports, such as: income statements, balance sheets, operational analysis with budget interface, variance reports, cost report trial balances and income tax schedules. - Maintain and transmit bank reconciliation interface data to Bank of New York. - Provide hardware support for micro computers and software support for accounting application enhancements and micro computer software.
January 4, 1990 Schedule 2 to Services Agreement ------------------ SERVICES TO BE PROVIDED BY THE COMPANY (continued) --------------------------------------
Description of Service Fee Term ---------------------- --- ---- 2C. Accounting services and financial Free of charge At least information preparation for Old through completion through Hillhaven and the Old Hillhaven of all reports for completion of Subsidiaries, including, without NME's fiscal year all reports limitation, balance sheet and ending May 31, for NME's income statement preparation, 1990. Thereafter, fiscal year general ledger maintenance and at Company's Cost, ending preparation of such other determined May 31, 1990 financial reports and information pursuant to Thereafter, as NME may reasonably request. Section 1.05(a). as agreed upon by the parties. Data processing, information Free of charge, 5 years. system services and related support except to the Thereafter, facilities related to the extent that custom for such maintenance of accounting systems reports are longer term and preparation of financial requested by NME, as shall be information for Old Hillhaven and in which case NME agreed upon. the Old Hillhaven Subsidiaries as shall reimburse may from time to time be required the Company for after the services described in the Company's Cost Item 2C above are no longer to be for any systems furnished. analysts or programmers preparing such reports.
January 4, 1990 Schedule 2 to Services Agreement ------------------ SERVICES TO BE PROVIDED BY THE COMPANY --------------------------------------
Description of Service Fee Term ---------------------- --- ---- 2A. Advice and assistance in connection Company's Cost 3 years with the management and operations subject to of Westminster Health Care Limited adjustment to Fair and subsidiaries. Market Value at the option of the Provider after initial six-month term. 2B. Accounting application hardware, $3,000 per month 3 years software and data processing through May 31, support to MAC, including the 1990. Thereafter, following: at the rate of $5,000 per month - Process accounts receivable as from time to input, maintain history files time adjusted to and distribute operational reflect usage or reports, insurance invoices, volume changes UB-82 intermediary invoices and subsequent to the medical primary and cross-over Distribution Date, invoices. as hereinafter provided. - Process accounts payable batch terminal input, maintain history From and after files and distribute processing June 1, 1990, the reports, vendor reports, annual rate in effect 1099's and checks. shall be increased 2% for each - Process payroll input, maintain increase in the history file and distribute number of MAC processing reports, payroll units required to registers, quarterly tax be processed by reports, annual W-2's and the Company from checks. the number of MAC units being processed as of the Distribution Date.
January 4, 1990 Schedule 1-A to Services Agreement ------------------ SCHEDULE OF HOURLY RATES FOR ---------------------------- CONSULTING SERVICES -------------------
Distribution June 1, June 1, Date through 1991 through 1992 through May 31, 1991 May 31, 1992 May 31, 1993 ------------ ------------ ------------ Senior Vice President - $90 $100 $110 Operations Vice President, Finance 70 77 85 Controller 45 50 55 Tax Manager 40 45 50 All other administrative and accounting staff 30 35 40
January 4, 1990 EX-10.34 27 GOVERNMENT PROGRAMS AGREEMENT EXHIBIT 10.34 - -------------------------------------------------------------------------------- GOVERNMENT PROGRAMS AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I CERTAIN DEFINITIONS
section 1.1 "Cost Report".................................... 2 Section 1.2 "Departing NME Member" .......................... 2 Section 1.3 "New Hillhaven Group"............................ 2 Section 1.4 "NME Group"...................................... 2 Section 1.5 "Open Cost Reports".............................. 2 Section 1.6 "Regulations".................................... 2 Section 1.7 "Related Parties"................................ 2 Section 1.8 "Termination Cost Report"........................ 3 ARTICLE II COST REPORT FILING Section 2.1 Termination Cost Reports......................... 3 Section 2.2 Prior Cost Reports............................... 3 Section 2.3 Open Cost Reports and Other Matters ............. 3 Section 2.4 Cost Reporting Program........................... 4 Section 2.5 Recapture........................................ 4 Section 2.6 Supporting Documentation......................... 4 ARTICLE III COOPERATION AND EXCHANGE OF INFORMATION Section 3.1 Timely Notification.............................. 5 Section 3.2 Other Action..................................... 5 Section 3.3 Exchange of Information.......................... 5 Section 3.4 Retention of Records............................. 5 Section 3.5 Confidentiality.................................. 6 ARTICLE IV MISCELLANEOUS Section 4.l Expenses......................................... 6 Section 4.2 Notices.......................................... 6 Section 4.3 Compliance by Subsidiaries....................... 7 Section 4.4 Successors and Assigns........................... 7 Section 4.5 Titles and Headings.............................. 8 Section 4.6 Legal Enforceability............................. 8 Section 4.7 Governing Law.................................... 8 Section 4.8 Dispute Resolution Procedures.................... 8
GOVERNMENT PROGRAMS AGREEMENT GOVERNMENT PROGRAMS AGREEMENT, dated as of January 31, 1990 (this "Agreement"), between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME") , on behalf of itself and the NME Group (as hereinafter defined) and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven"), on behalf of itself and the New Hillhaven Group (as hereinafter defined). _________________ WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement (as amended to the date hereof, the "Distribution Agreement") providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group including, without limitation, any businesses heretofore disposed of (collectively, the "Business"), and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of capital stock of New Hillhaven (the "Distribution") on or about January 31, 1990 (the "Distribution Date"); WHEREAS, pursuant to the Distribution Agreement, NME and New Hillhaven will, among other things, provide for the transfer of certain assets and rights of the Business to New Hillhaven and the assumption of certain liabilities and obligations of the Business by New Hillhaven; WHEREAS, except to the extent set forth in this Agreement, all of the assets, rights, liabilities and obligations of the Business relating to governmental health care programs, including without limitation Medicare and Medicaid programs (collectively, the "Government Programs"), are included in the assets, rights, liabilities and obligations of the Business that are being transferred to and assumed by New Hillhaven pursuant to the Distribution Agreement; and WHEREAS, NME and New Hillhaven desire to provide specifically for the treatment as between NME and New Hillhaven of certain matters relating to or affecting the Government Programs as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS ------------------- As used in this Agreement, the following defined terms shall have the meanings set forth below (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): Section 1.1 "Cost Report" means the annual cost report, required to ----------- be filed as of the end of a provider cost year, or for any other required period, with federal and/or state agencies or their designated intermediaries with respect to reimbursement under the Regulations. Section 1.2 "Departing NME Member" means (i) any direct or indirect -------------------- subsidiary of NME which, as a result of the Distribution, will become a member of the New Hillhaven Group or (ii) any direct or indirect subsidiary of NME which has transferred its interests in long term care facilities pursuant to the transactions contemplated by the Distribution Agreement. Section 1.3 "New Hillhaven Group" means New Hillhaven and its present ------------------- and future direct and indirect subsidiaries and, in addition, any partnerships in which New Hillhaven or any such subsidiary has or will have an interest. Section 1.4 "NME Group" means NME and its present and future direct --------- and indirect subsidiaries (including Old Hillhaven, as defined in Section 2.2), other than members of the New Hillhaven Group. Section 1.5 "Open Cost Reports" means any Cost Reports that are or ----------------- will be, and Termination Cost Reports that will be, in various stages of audit, appeal, reopening and/or litigation, including any Cost Report filed by Old Hillhaven that is considered by Old Hillhaven to be closed but which, within the applicable statute of limitations, is reopened by action of any federal or state agency seeking to make corrections, adjustments or new determinations on issues previously considered to have been settled. Section 1.6 "Regulations" means all federal and state regulations ----------- governing payments by federal or state agencies under Government Programs. Section 1.7 "Related Parties" means parties which are deemed to be --------------- related under 42 C.F.R. (S) 413.17 by virtue of ownership or control and/or under applicable state regulations with respect to Medicaid. 2 Section 1.8 "Termination Cost Report" means a Cost Report covering ----------------------- the period from June 1, 1989 to and including the Distribution Date, to be prepared and filed by New Hillhaven on behalf of members of the NME Group with federal or state agencies under the Regulations. ARTICLE II COST REPORT FILING ------------------ Section 2.1 Termination Cost Reports. It is the intent of the ------------------------ parties to treat the transactions contemplated by the Distribution Agreement (the "Transactions") as being among Related Parties. New Hillhaven and the Departing NME Members shall be solely responsible for preparing and filing all Termination Cost Reports required by the Regulations as a consequence of the Transactions. Each such Termination Cost Report shall be filed on a timely basis, subject to any extensions that may be granted, and prepared in a manner consistent with the previous Cost Report filings for the Departing NME Member, including all elections taken therein. Section 2.2 Prior Cost Reports. The Hillhaven Corporation, a ------------------ Tennessee corporation and a Wholly-owned subsidiary of NME ("Old Hillhaven"), has filed Cost Reports with respect to the Business for all Departing NME Members for all periods prior to the Distribution Date, as required by the Regulations. Section 2.3 Open Cost Reports and Other Matters. In addition to Open ----------------------------------- Cost Reports, the federal and state agencies may make adjustments resulting from the audit of the NME home office and any subsidiary or any other person or entity deemed to be a Related Party which has provided services to Old Hillhaven and New Hillhaven. The parties hereto acknowledge and agree that among the assets, rights, liabilities and obligations of the Business being transferred to and assumed by New Hillhaven pursuant to the Distribution Agreement are the accounts receivable and accounts payable recorded on the books of Old Hillhaven or of any direct or indirect subsidiary thereof relating to Open Cost Reports, any other asset or liability (whether or not recorded on the books of Old Hillhaven or of any such subsidiary) relating to Open Cost Reports and all other administrative responsibilities and financial or other obligations relating to such Open Cost Reports. Any benefit or detriment resulting from the finalization of the Open Cost Reports, other than with respect to such Open Cost Reports relating to facilities subject to Management Agreements (as defined in the Distribution Agreement), shall accrue to or be the responsibility of New Hillhaven, and New Hillhaven shall indemnify and hold harmless NME and all members of the NME Group from and against any loss, liability, claim, expense or damage arising out of any Open 3 Cost Report. New Hillhaven shall be responsible for the preparation and filing of all Costs Reports relating to each facility subject to a Management Agreement as long as such Agreement is in effect. Section 2.4 Cost Reporting Program. NME is a party to a License ---------------------- Agreement, dated March 20, 1987 (the "License Agreement"), with Peat Marwick Main & Co. ("PMM") pursuant to which NME has acquired the exclusive right to use PMM's cost report preparation package, known as "CompuCost," a copy of which has previously been furnished to New Hillhaven. The License Agreement has been amended to grant to New Hillhaven the non-exclusive right to use the CompuCost package until the expiration of the License Agreement in 1992. Following the Distribution, both NME and New Hillhaven shall have rights to use the CompuCost package. For so long as New Hillhaven elects to use the CompuCost package, New Hillhaven shall pay promptly to NME upon demand 50% of any and all costs and expenses required to be paid to PMM pursuant to the License Agreement. New Hillhaven shall be under no obligation to continue the use of such cost reporting package and, at its election, New Hillhaven may terminate such arrangement and make other arrangements either directly with PMM or any other cost reporting vendor of New Hillhaven's choice. Except as otherwise provided in the Services Agreement dated as of the Distribution Date between NME and New Hillhaven, NME shall not be responsible for any training in the proper use of the software program. Section 2.5 Recapture. If there shall occur any event (other than --------- an event arising solely from the Distribution as provided in the Distribution Agreement) which (i) results in recapture or other costs under the Regulations being imposed upon NME or any member of the NME Group and (ii) relates to the Business, New Hillhaven shall indemnify and hold harmless NME and all such members from and against any loss, liability, claim, expense or damage arising therefrom. Section 2.6 Supporting Documentation. (a) NME shall furnish to New ------------------------ Hillhaven, annually within 30 days after the end of NME's fiscal year and from time to time at New Hillhaven's written request and upon reasonable notice, the book basis of the assets, the actual depreciation for the period and the liability and interest expense for all retained assets which are the subject of separate lease arrangements between the parties. In addition, the related property records will be made available to program auditors and to New Hillhaven for their inspection and audit subject to reasonable notification of such audits. If New Hillhaven has such access to the foregoing information and records, New Hillhaven shall be solely responsible for supporting the basis of the assets and liabilities reflected on its Cost 4 Report (except where inaccurate information has been provided to New Hillhaven by NME) and for making appropriate arrangements for the review of the documentation referred to above in support of these bases. (b) Each party hereto will furnish to the other party, annually within 75 days after the end of such party's fiscal year and from time to time at such other party's request and upon reasonable notice, such information set forth in subsection (a) above and such other information as will enable such other party to file its home office cost reports in a timely manner. ARTICLE III COOPERATION AND EXCHANGE OF INFORMATION --------------------------------------- Section 3.1 Timely Notification. Each party shall notify the other ------------------- of all significant issues (determined in good faith by the notifying party) arising out of an audit with respect to the Termination Cost Reports and/or any other material or significant issues relating to the Government Programs. NME shall participate in Providing information with respect to such issues, including making available its records relating to such Government Programs. Section 3.2 Other Action. New Hillhaven shall have the right to take ------------ all reasonable and appropriate action in connection with the conduct of any audit or other proceeding with respect to reimbursement under the Regulations, provided that New Hillhaven shall not take any such action which could - -------- reasonably be expected to have an adverse impact on NME or any member of the NME Group with respect to such reimbursement. Section 3.3 Exchange of Information. Each of NME and New Hillhaven ----------------------- shall cooperate with the other and provide the other with information upon request in connection with the preparation or filing of a Cost Report or in conducting any audit or other proceeding relating to Government Programs. Section 3.4 Retention of Records. Each of NME and New Hillhaven -------------------- shall retain, and shall cause its subsidiaries to retain, pursuant to NME's Record Retention Program, a copy of which has been made available to New Hillhaven, all Termination Cost Reports, Cost Reports, schedules, workpapers, and other records and documents related to the Business and the Regulations filed through the Distribution Date ("Information"), except as otherwise required by law or except to the extent that such Information is in the public domain or in the possess ion of the other party; provided, that after the -------- expiration of the 5 applicable retention period set forth in such Program, such Information shall not be destroyed or otherwise disposed of at any time, unless, prior to such destruction or disposal, (a) the party proposing to destroy or otherwise dispose of such Information, shall provide no less than 90 days' prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the Information as was requested at the expense of such requesting party. Section 3.5 Confidentiality. Subject to any contrary requirement of --------------- law and the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any information of or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligations under, any provision of this Agreement; provided, however, that such obligation to maintain ----------------- confidentiality shall not apply to information which (i) at the time of disclosure was in the public domain, (ii) after disclosure enters the public domain not as a result of acts by the receiving party, (iii) was already independently in the possession of the receiving party at the time of disclosure or (iv) is received by the receiving party from a third party who did not receive such information from the disclosing party under an obligation of confidentiality. ARTICLE IV MISCELLANEOUS ------------- Section 4.1 Expenses. Unless otherwise expressly provided in this -------- Agreement, each party shall bear any and all expenses that result from its fulfillment of its obligations under the Agreement. Section 4.2 Notices. All notices, consents, requests, instructions, ------- approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other party in writing): 6 If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-6514 Attention: Senior Vice President, Government Programs with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-6688 Attention: General Counsel If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4714 Attention: President with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4845 Attention: General Counsel Section 4.3 Compliance by Subsidiaries. Each of the parties hereto -------------------------- agrees to take all necessary steps to cause its present and future subsidiaries to comply with the provision: of this Agreement. Section 4.4 Successors and Assigns. This Agreement and all of the ---------------------- provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, except that New Hillhaven may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of NME. 7 Section 4.5 Titles and Headings. Titles and headings to sections herein ------------------- are inserted for the convenience of reference only and are not intended to be a part or to affect the meaning or interpretation of this Agreement. Section 4.6 Legal Enforceability. Any provision of this Agreement which -------------------- is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision or remedies otherwise available to any party hereto. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. Section 4.7 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. Section 4.8 Dispute Resolution Procedures. All disputes arising out of or ----------------------------- relating to this Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et seq. The -- --- parties hereby agree to submit to the jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such purpose. Either party may initiate the procedure set forth in this Section by providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Section, the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Section shall be construed to impair the right of either party to appeal from such judgment. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By: /s/ Marcus E. Powers ------------------------------- Name: Marcus E. Powers Title: Senior Vice President THE HILLHAVEN CORPORATION By: /s/ Christopher J. Marker ------------------------------- Name: Christopher J. Marker Title: Ptesident 9 EX-10.35 28 INSURANCE AGREEMENT EXHIBIT 10.35 - -------------------------------------------------------------------------------- INSURANCE AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE Parties ....................................................... 1 Recitals ....................................................... 1 Section 1. Allocation of Existing Benefits and Liabilities............................................. 2 Section 2. Cooperation and Joint Insurance......................... 3 Section 3. Amendment of Documents.................................. 5 Section 4. Access to Records and Other Information............................................. 5 Section 5. Successors and Assigns.................................. 6 Section 6. Counterparts............................................ 6 Section 7. Governing Law........................................... 6 Section 8. No Impairments of Other Rights.......................... 6 Section 9. Subrogation............................................. 6 Section 10. Titles and Headings..................................... 7 Section 11. Subsidiaries............................................ 7 Section 12. No Third Party Beneficiaries............................ 7 Section 13. Schedules............................................... 7 Section 14. Construction............................................ 7 Section 15. Entire Agreement; Amendment............................. 7 Section 16. Waivers................................................. 8 Section 17. Confidentiality......................................... 8 Section 18. Notices................................................. 8 Section 19. Legal Enforceability.................................... 9
i Section 20 Survival of Agreements.................................. 10 Signatures ....................................................... 10 Schedules Schedule 1.02(a) - Fully Reserved Policies Schedule 1.02(b) - Allocation of Retroactive Rate Adjustments under Pre-Distribution Date Documents Schedule 1.03(c) - Reallocation of Claims Payments Under Pre-Distribution Date Documents Schedule 2.02(a) - Post-Distribution Date Insurance Coverage Schedule 2.02(b) - Allocations Relating to Post-Distribution Date Documents
ii INSURANCE AGREEMENT dated as of January 31, 1990 (this "Agreement") between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME"), and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven"). All capitalized terms used herein without definition shall have the meanings assigned to them in the Distribution Agreement (as defined below). WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement (as amended to the date hereof, the "Distribution Agreement") providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share, of New Hillhaven (the "Distribution") on or about January 31, 1990 (the "Distribution Date"); and WHEREAS, NME or The Hillhaven Corporation, a Tennessee corporation ("Old Hillhaven"), or one of Old Hillhaven's subsidiaries (the "Old Hillhaven Subsidiaries") has entered into various agreements relating to the conduct of the long term care business, substantially all of which (with the exception of certain minor businesses) will be transferred to New Hillhaven in connection with the Distribution; and WHEREAS, claims in respect of liabilities of Old Hillhaven and Old Hillhaven Subsidiaries remain outstanding as of the date hereof and claims and obligations under policies of insurance held by NME which covered or related to properties and assets to be transferred to New Hillhaven remain outstanding as of the Distribution Date; and WHEREAS, the parties desire to provide for cooperation in the acquisition of insurance and the handling of claims and the joint purchase of certain insurance to cover their properties and liabilities (each policy of insurance which heretofore covered or hereafter covers properties or liabilities of Old Hillhaven, the Old Hillhaven Subsidiaries, New Hillhaven or the New Hillhaven Subsidiaries is hereinafter referred to as a "Document" and are collectively referred to as "Documents"); and WHEREAS, the parties desire to enter into this Agreement in order to define the relationship between the parties regarding insurance of their respective properties and liabilities and the exercise of certain rights, remedies and options by the respective parties hereto under the Documents. NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Allocation of Existing Benefits and Liabilities. ----------------------------------------------- 1.01 Claims in Process. Any claims made against insurers under the ----------------- Documents prior to the Distribution Date and unpaid as of such date shall be for the account of the party whose asset after the Distribution Date is the basis for the claim. For the purposes of this Agreement, a Leased Facility shall be deemed to be a New Hillhaven asset, and with regard to such Leased Facilities, New Hillhaven shall be deemed to be "the party whose asset is the basis of the claim." If the Proceeds of the claim are received by a party other than the party entitled to receive such proceeds pursuant to this Section 1.01, such receiving party shall pay over such proceeds to such other party. In the event that any deductible, co-insurance or self-insured retention in respect of such claim has not been paid or accounted for prior to the Distribution Date, it shall be charged to the account of the party entitled to receive or who receives the benefit of the claim payment; provided, however, that if the Document under -------- ------- which the claim was made provides for any aggregate deductible, co-insurance or self-insured retention or if the claim is not fully covered because the aggregate policy limits have been exhausted, the allocation of payments under such Document shall be reallocated in accordance with the procedure shown in Schedule 1.03(c). 1.02 Retroactive Rate Adjustments. Retroactive adjustments in respect ---------------------------- of the Documents listed on Schedule 1.02(a) shall be paid by NME or any Subsidiary of NME designated by it, and New Hillhaven shall have no liability therefor regardless of the reason for the adjustment. Such adjustments in respect of all Documents other than those listed on Schedule 1.02(a) shall be allocated between NME and New Hillhaven in accordance with the formulae shown on Schedule 1.02(b). 2 1.03 Incurred But Not Reported Claims. (a) The parties shall do all -------------------------------- things necessary to assure that all Documents which provide coverage remain applicable to New Hillhaven and its Subsidiaries and its assets after the Distribution Date, to the extent they were applicable prior to the Distribution Date. (b) The parties shall do all commercially reasonable things necessary to assure continued coverage for incurred but not reported claims and incidents which have not been filed with insurers which would have been covered under Documents which provide coverage on a claims made basis had they been made and reported prior to the Distribution Date. (c) Indemnity payments under Documents in respect of claims made after the Distribution Date arising out of occurrences prior to the Distribution Date shall be for the account of the party whose asset after the Distribution Date was the basis for the claim; provided, however, that if the Document under -------- ------- which the claim was made provides for any aggregate deductible, co-insurance or self-insured retention or if the claim is not fully covered because the aggregate policy limits have been exhausted, the allocation of payments under such Document shall be reallocated in accordance with the procedure shown in Schedule 1.03(c). Section 2. Cooperation and Joint Insurance. ------------------------------- 2.01 Joint Insurance Coverage. For fiscal year 1990 ("FY90") , the ------------------------ parties have acquired insurance coverage as shown on Schedule 2.02(a). If any party desires to cancel or non-renew its participation in coverage under an existing Document under which both parties and/or their respective Subsidiaries are insured, it shall notify the other party in writing not later than ninety (90) days prior to the end of the policy period. Premiums payable under joint coverage shall be as shown on Schedule 2.02(a) for FY90 and as agreed upon at the time of purchase or renewal for future fiscal years. Deductibles, co- insurance, self-insured retentions, policy limits and retroactive rate adjustments shall be allocated among the parties and their covered Subsidiaries based upon experience in accordance with the formula provided for in Schedule 2.02(b). 2.02 Cooperation in Acquiring Insurance. NME and New Hillhaven shall ---------------------------------- cooperate with each other in 3 the purchase of insurance coverage as shown on Schedule 2.02(a) for periods commencing after the Distribution Date with the aim of obtaining appropriate insurance coverage on the best available terms and conditions and at the most reasonable rates, always taking into account the quality of the insurers with which coverage is being placed. Each party shall be entitled to purchase its own separate coverage in the event it believes that, after a good faith attempt to obtain appropriate joint coverage (which shall include an attempt to agree upon allocation of premium on an other than pro rata basis in the event the insurer views one party as a higher risk than the other), its own interests dictate that course of action. In situations in which the parties are required by law to maintain separate coverage or to make changes in existing joint coverage, they shall cooperate in so doing. 2.03 Joint Liability and Claims. (a) In the event that a claim by a third party is made against both NME and New Hillhaven (or a Subsidiary of either party and the other party or a Subsidiary thereof) (a "Joint Claim"), Article IV of the Distribution Agreement shall govern to the extent applicable to the facts. In the event that no indemnification is provided for under said Article IV and there is no other existing agreement or indemnification with respect to such Joint Claim, NME and New Hillhaven agree to handle such Joint Claim in accordance with this Section 2.03. NME and New Hillhaven shall jointly defend such Joint Claim and shall attempt to agree upon the appropriate allocation of any uninsured liability or expenses. In the event that NME and New Hillhaven cannot agree upon an appropriate allocation, the issue shall be referred to arbitration in accordance with the procedures described in subsection (b) below, but only after a final determination of liability (through final court judgment, settlement or otherwise) has been made. Neither NME or New Hillhaven, nor any Subsidiary of either of them, shall institute any court proceedings against the other involving a Joint Claim. In the event that NME and New Hillhaven purchase separate liability coverage, each of them shall make known to its insurer this agreement and assure itself that the terms of such coverage do not conflict with this Agreement and obligate the insurer under the Document to abide by the allocation of liability and expenses determined in accordance herewith unless it agrees with the other insurer as to a different allocation which does not affect any uninsured liabilities of either party. 4 (b) All disputes arising out of or relating to the Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure sections 638 et seq. The parties hereby agree to submit to the -- --- jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such purpose. Either party may initiate the procedure set forth in this Schedule 2.03(b) by providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Schedule 2.03(b), the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Schedule 2.03(b) shall be construed to impair the right of either party to appeal from such judgment. Section 3. Amendment of Documents. So long as New Hillhaven is ---------------------- covered by any Document, NME will not enter into any material amendment, change or modification of any such Document which would materially adversely affect New Hillhaven's rights under such Document without the express prior written consent to such amendment, change or modification by New Hillhaven. Section 4. Access to Records and Other Information. In order to --------------------------------------- enable it to prosecute any claim or determine coverage thereunder, either party, at its expense, may at any reasonable time examine or copy any letter, account, or other documentation or information in the possession or control of the other party or any affiliate of such party relating to or connected with any Document with respect to a policy period during which such party or an affiliate was covered thereby and relating to 5 prior losses which are the subject of this Agreement. The other party shall, at the request and expense of the requesting party, take reasonable steps to obtain for the requesting party any information or documents in the possession of any third party relating to or in connection with the Documents and identified by the requesting party. Section 5. Successors and Assigns. This Agreement and all of the ---------------------- provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Neither party hereto may assign its rights or delegate its obligations under this Agreement without the prior written consent of the other party. Section 6. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, but such counterparts shall together constitute one and the same instrument. Section 7. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. Section 8. No Impairments of Other Rights. Nothing in this Agreement ------------------------------ is intended or shall be construed to impair, diminish or otherwise adversely affect any other rights either party may have or may obtain against any person other than the other party to this Agreement under the Documents or otherwise. Section 9. Subrogation. Each party agrees that the other party shall ----------- be subrogated to such party's rights and remedies under the Documents to the extent of the portion of any amounts recoverable thereunder determined in accordance with the terms of this Agreement regarding allocation of liabilities, losses, claims and expenses. Each party further agrees to cooperate with the other party in connection with the other party's enforcement of any such rights and remedies and agrees not to take any actions that would prejudice the exercise of such right of subrogation. This Section is not intended to result in any reallocation of amounts recoverable under this Agreement. It is intended to avoid any waiver of subrogation. 6 Section 10. Titles and Headings. Titles and headings to sections ------------------- herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 11. Subsidiaries. Each of the parties hereto shall cause to ------------ be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date; provided, however, that this Section 11 shall not apply to -------- ------- any obligation of Health Facilities Insurance Corp. Ltd., Hospital Underwriting Group, Inc. or Cascade Insurance Company Ltd. pursuant to any Document under which any of them is an insurer. Section 12. No Third Party Beneficiaries. This Agreement is solely ---------------------------- for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Section 13. Schedules. The Schedules hereto shall be construed with --------- and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Section 14. Construction. In this Agreement, ------------ (i) unless the context otherwise requires, the terms "herein", "hereof," "hereto", and "hereunder" refer to this Agreement; and (ii) the headings of the sections and subsections hereof and the table of contents hereof are inserted for convenience only and do not constitute a part of this Agreement. Section 15. Entire Agreement; Amendment. This Agreement, the --------------------------- Distribution Agreement and the other agreements referred to herein or therein or entered into in connection herewith or therewith set forth the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, 7 inducement or statement of intention has been made by either party hereto which is not embodied in this Agreement or such other agreements, the Schedules or Exhibits hereto or thereto, or the written statements or other documents delivered pursuant hereto and thereto, and neither party hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. This Agreement may be amended or modified only by a written instrument executed by both parties hereto or by their successors and permitted assigns. Section 16. Waivers. No failure or delay on the part of NME or New ------- Hillhaven in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by NME or New Hillhaven therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Section 17. Confidentiality. Subject to any contrary requirement of --------------- law and the right of each party to enforce its rights hereunder in any legal action, each party shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any information of or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligations under, any provision of this Agreement; provided, however, that such obligation to maintain -------- ------- confidentiality shall not apply to information which (i) at the time of disclosure was in the public domain, (ii) after disclosure enters the public domain not as a result of acts by the receiving party, (iii) was already independently in the possession of the receiving party at the time of disclosure or (iv) is received by the receiving party from a third party who did not receive such information from the disclosing party under an obligation of confidentiality. Section 18. Notices. All notices, consents, requests, instructions, ------- approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, 8 telegraphed, telexed or by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-8329 Attention: Vice President, Risk Management with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-6688 Attention: General Counsel If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4743 Attention: Director, Risk Management with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4845 Attention: General Counsel Section 19. Legal Enforceability. Any provision of this -------------------- Agreement which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision 9 or remedies otherwise available to any party hereto. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. Section 20. Survival of Agreements. Except as otherwise contemplated by ---------------------- this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By /s/ Marcus E. Powers -------------------------------- Name: Marcus E. Powers Title: Senior Vice President THE HILLHAVEN CORPORATION By /s/ Christopher J. Marker -------------------------------- Name: Christopher J.Marker Title: President 10 EXHIBIT X Worker's Compensation Page 1 Allocation of "Current Year" Premium Year Ended 5-31-01
Month #1 Ending 6-30-00 - ----------------------- % Relationship of Hillhaven In- Allocation of Premium Billings Allocation of curred Losses to NME Incurred Premium Billing Paid Allocate Prior to Premium Billing Losses From Preceding Year Through 6-30-00 6-30-00. for 6-30-00 - -------------------------- --------------- -------- ------------- Hillhaven $ 7,440,000 = 62% 1,860,000 0 1,860,000 NME - Total $12,000,000 = 100% 3,000,000 0 3,000,000 Month #6 Ending 11-30-00 - -------------------------- % Relationship of Hillhaven In- Allocation of Pre- Premium Billing Allocation of curred Losses to NME Incurred mium Billing Paid Allocated Prior Premium Billing Losses From Preceding Year Through 11-30-00 to 11-30-00 for 11-30-00 - -------------------------- -------------------- ----------------- --------------- Hillhaven 7,440,000 = 62% 11,160,000 9,300,000 1,860,000 NME - Total 12,000,000 = 100% 18,000,000 15,000,000 3,000,000 Comparison of Hillhaven % Factors For First 6 Months of Current Year - ---------------------------------- % Used % Developed From 11-30-00 Premium Billing Paid Amount Due from For 1st 6 Mos. Incurred Loss Data Diff Through 11-30-00 Hillhaven - --------------- ---------------------- ----- ---------------- --------- 62% 63% +1% 18,000,000 +180,000
EXHIBIT X Page 2 Month #12 Ending 5-31-01 - ------------------------
% Relationship of Hill- haven Incurred Losses Allocation of Premium Premium Billing Allocation of to NME Incurred Losses from Billing Paid Through Allocated Prior Premium Billing 11-30-00 Incurred Loss Data 5-31-01 to 5-31-01 For 5-31-01 --------------------------- ------- ---------- ------------ Hillhaven 3,150,000 = 63% 22,680,000 20,790,000 1,890,000 NME - Total 5,000,000 = 100% 36,000,000 33,000,000 3,000,000 Comparison of Hillhaven % Factors For Last 6 Months of Current Year - --------------------------------- % Used % Developed From 04-30-01 Prem. Billing Amount Due Last 6 Mos. Incurred Loss Data Diff. Pd. Thru 5-31-01 to Hillhaven - ------------ ------------------ ----- ---------------- ------------ 63% 61% -2% 36,000,000 -720,000
EXHIBIT X Worker's Compensation Page 3 Allocation of "Retrospective" Premium Related to Fiscal Year 5-31-01 Allocation Made During 5-31-04
Allocation of First 5-31-01 Shortfall Payment 6-30-03 - ------- % Relationship of Hill- Allocation of Premium Billing Allocation of haven Incurred Losses to NME Premium Billing Allocated Prior Premium Billing Incurred Losses From Most Recent Thru to @ Incurred Loss Data 6-30-03 6-30-03 6-30-03 ------------------ ------------- ------- ----------- Hillhaven 15,128,000 = 61% 23,058,000 21,960,000 1,098,000 NME - Total 24,800,000 = 100% 37,800,000 36,000,000 1,800,000 Allocation of Second 5-31-01 Shortfall Payment 9-30-03 - ------- % Relationship of Hill- Allocation of Premium Billing Allocation of haven Incurred Losses to NME Premium Billing Allocated Prior Premium Billing Incurred Losses From Most Recent Thru To @ Loss Data 9-30-03 6-30-03 09-30-03 --------- ----------- ------------ -------- Hillhaven 5,806,000 = 61.5% 24,292,500 23,058,000 1,234,500 NME - Total 25,700,000 = 100% 39,500,000 37,800,000 1,700,000
Schedule 1.02(a) FULLY RESERVED POLICIES ----------------------- 1. Cascade Insurance Company, Ltd. (Workers' Compensation). 2. HFIC (General and Professional Liability). Schedule 1.02(b) ALLOCATION OF RETROACTIVE RATE ADJUSTMENTS UNDER ------------------------------------------------ PRE-DISTRIBUTION DATE DOCUMENTS ------------------------------- 1. Workers Compensation Program with American International Group, Inc. -------------------------------------------------------------------- affiliates. ----------- Definition of Terms ------------------- "AIG Premiums" -- Premium billings received from American International Group, - -------------- Inc. and affiliates, including special assessments, (AIG), insurance brokerage fees, Crawford ASC charges and data processing timesharing fees charged by Risk Sciences Group. "AIG Program" -- The overall NME Worker's Compensation Program insured through - ------------- AIG. "Hillhaven Incurred Losses" -- Total Incurred Losses of Old Hillhaven and its - --------------------------- Subsidiaries and Affiliates, including New Hillhaven, and excluding Arkmo Lumber & Supply Company, Inc. and Medical Ambulatory Care, Inc. and the campus facilities subject to Management Agreements (as defined in the Distribution Agreement). "Current Year Premiums" -- AIG Premiums paid during the applicable Policy - ----------------------- Period. I-2 "Incurred Losses" -- The sum of all losses including indemnity and medical - ----------------- amounts paid and reserved and allocated loss adjustment expenses paid and reserved. "NME Incurred Losses" -- total Incurred Losses for all NME Subsidiaries and - --------------------- Affiliates (including Hillhaven Incurred Losses) which are insured through the AIG Program for each applicable policy period. (Total incurred medical losses for California acute hospitals and the NME corporate office are not insured through the AIG Program.) "Policy Period" -- The effective date and time that coverage begins to the - --------------- effective date and time that coverage terminates. "Retrospective Premiums" -- AIG Premiums paid for a particular Policy Period - ------------------------ during any period subsequent to such Policy Period. Allocation ---------- The allocation of AIG Premiums to New Hillhaven will be based on the relationship of Hillhaven Incurred Losses to NME Incurred Losses with the objective that when the final premium payment has been made, New Hillhaven will have been allocated its share of total AIG Premiums for that Policy Period based on the relationship of Hillhaven Incurred I-3 Losses to the NME Incurred Losses. As of the date of this Agreement, no final premium payment has been made for any Policy Period under the AIG Program. Until a final premium payment is made for a Policy Period, New Hillhaven's share of each AIG Premium payment will be determined using the formulas described below. Any Retrospective Premiums will be allocated and billed or refunded to New Hillhaven when the AIG Premium is paid by NME. The following formula will be used for the allocation: A) Based on the most recent Incurred Loss data pertaining to the relevant Policy Period, the percentage relationship of Hillhaven Incurred Losses to NME Incurred Losses will be calculated. B) The percentage developed in A) will be multiplied by the total Current Year and Retrospective Premiums paid by NME relating to the relevant Policy Period. C) New Hillhaven's share of the AIG Premiums developed in B) will be compared to the total AIG Premiums previously billed to Old Hillhaven and New Hillhaven for the relevant Policy Period. The difference represents the Retrospective Premiums which will be billed or refunded to New Hillhaven. Examples of the AIG Premium allocation calculation for Current Year and Retrospective Premiums are shown on Exhibit X. I-4 Schedule 1.03(c) REALLOCATION OF CLAIMS PAYMENTS UNDER ------------------------------------- PRE-DISTRIBUTION DATE DOCUMENTS ------------------------------- In the event payment in respect of a claim is made under a Document for the policy period covered thereby not covered by Section 1.02(b) in respect of which any aggregate deductible, co-insurance or self-insured retention or aggregate policy limit has, after taking into account such claim, been exceeded, uninsured payments in respect of said Document shall be reallocated among those parties having made claims thereunder as follows: (1) The total value all claims covered under the Document shall be calculated; (2) The total value of claims of New Hillhaven under the Document for the policy period covered thereby shall be calculated; (3) A percentage (the "Hillhaven percentage") shall be derived by dividing (2) by (1); (4) The Hillhaven percentage shall be multiplied by either (a) or (b) below, as appropriate: (a) In the event the aggregate deductible, co- insurance or self-insured retention has been exceeded, to the amount of such aggregate; or (b) In the event the aggregate policy limit has been exceeded, to the amount by which such limit has been exceeded; (5) The amount or amounts determined in (4) shall be taken together and compared to the sum of any deductibles, co-insurance payments, self-insured retentions and payments in excess of policy limits, of New Hillhaven as well as previous reallocations under the Document; I-5 (6) The difference determined in (5) shall be paid by New Hillhaven to NME if New Hillhaven has previously paid less than its share or by NME to New Hillhaven if New Hillhaven has previously paid more than its share. Each claim made under a Document shall necessitate a new calculation and reallocation payment under Section 1.03(c). I-6 Schedule 2.02(a) ---------------- POST-DISTRIBUTION DATE INSURANCE COVERAGE ----------------------------------------- A. GENERAL AND PROFESSIONAL LIABILITY INSURANCE. -------------------------------------------- i. Primary insurance. ----------------- 1. Provider - New Hillhaven purchases from Health Facilities -------- Insurance Corp. ("HFIC"), NME's wholly-owned captive insurance company. 2. June 1, 1989 - May 31, 1990 ("FY90") - Policy limit - $15 ------------------------------------ million per occurrence and in the aggregate; first dollar coverage on a claims made basis. No deductible. 3. Cost - Guaranteed cost program for FY90 (full risk ---- transfer with no retrospective adjustments), with a total cost, including administrative fees, of $82 per bed for $15 million limit. Estimated cost of $3,444,000 (42,000 beds). 4. Post FY90 - New Hillhaven and HFIC to negotiate rates and --------- determine whether to continue annually. ii. Excess liability coverage. ------------------------- 1. FY90 Provider - New Hillhaven will remain under the NME ------------- plan. Policy limit of underlying coverage for FY90 - $75 million, on a claims made basis per occurrence and in the aggregate. 2. Cost - Pass through cost of $8 per bed. ---- 3. Post FY90 - Both parties to determine whether to continue --------- present arrangements. iii. Medi$ave (New Hillhaven's pharmacy subsidiary). ---------------------------------------------- 1. Provider - Hospital Underwriting Group ("HUG"), an -------- association captive insurance company. 2. FY90 - Claims made coverage with five year discovery ---- period; $500,000 deductible per claim. Policy limit - $25 million per occurrence and $30 million in the aggregate, on a claims made basis. 3. Cost - $150,000 annual premium with limits as per HUG ---- policy with $75 million excess through various London policies. 4. Medi$ave is to expense and pay the deductible (currently $500,000 per claim) as incurred, beginning June l, 1989. 5. Post FY90 - Medi$ave will purchase such coverage outside of the --------- HUG program. B. PROPERTY INSURANCE. ------------------ i. All risk property. ----------------- 1. Provider. Aetna Casualty & Surety Company and American Motorists -------- Insurance Company. 2. FY90 - Hillhaven, including Medi$ave, will stay with the NME ---- program; the coverage is written on a replacement cost basis; the costs passed through to New Hillhaven from NME will be determined by the rate set by the insurers multiplied by the replacement costs of the properties insured. Policy limit - $500 million per occurrence. 3. Cost - $.04 per $100 of values with a $25,000 per claim ---- deductible is the current rate for FY90. ii. California earthquake insurance. ------------------------------- 1. Provider. Covered by all risk property policy for first $25 -------- million, and by various other insurers for an additional $150 million. Total policy limit - $175 million, per occurrence and in the aggregate. Deductible - $25,000 per claim, except for California where it is 5% of the total values at the time of loss at the location where the loss occurred, subject to a maximum of $2 million in any one occurrence. 2. Cost - No additional cost for FY90. ---- iii. Contingent Property insurance. ----------------------------- 1. Provider - Covered by all risk property policy on buildings only. -------- Excludes earthquake and flood. 2. Cost - Additional premium as charged by underwriter. ---- iv. Flood insurance. --------------- 1. Provider - Covered by all risk property policy for first $25 -------- million, and by various other insurers for an additional $150 million. Total policy limit - $175 million per occurrence and in the aggregate. Deductible - $25,000 per occurrence. 2. Cost - No additional cost for FY90. ---- v. Loss of rents insurance. ----------------------- 1. Provider - To be determined; on properties leased by New -------- Hillhaven from NME, the Lease Agreement requires that New Hillhaven purchase loss of rents insurance to protect NME. 2. New Hillhaven to secure coverage from the insurance market effective on distribution, or endorse to current NME property policy with a cost pass through. vi. Business interruption insurance. ------------------------------- 1. Provider - NME's current property policy as written; 180 day -------- extended period of indemnity coverage provided in current all risk property insurance policy. C. CRIME AND FIDELITY INSURANCE. ---------------------------- 1. Provider - NME/Arkwright. -------- 2. Cost - New Hillhaven to be allocated $200,000 for this coverage ---- for FY90. Policy limit - $100 million. Deductible - $25,000 per claim. 3. Post FY90 - New Hillhaven/Medi$ave to obtain separate coverage --------- effective June 1, 1990. D. AUTOMOBILE INSURANCE. -------------------- i. Liability. --------- 1. Provider - NME/Kemper/Lexington. -------- 2. Cost - $625 per vehicle, direct cost pass through to New ---- Hillhaven; $100,000 deductible per incident, plus claims handling fee. Policy limit - $5 million combined single limit. 3. Post FY90 - To be determined; New Hillhaven may obtain separate --------- coverage. ii. Comprehensive and collision. --------------------------- 1. Provider - New Hillhaven self-insures. -------- 2. Post FY90 - New Hillhaven may obtain insurance, or may continue --------- to self-insure. E. FIDUCIARY LIABILITY INSURANCE. ----------------------------- 1. Provider - New Hillhaven to obtain separate coverage. -------- F. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. -------------------------------------------- 1. Provider - New Hillhaven to obtain separate coverage with -------- reasonably approved limits. G. TRAVEL ACCIDENT INSURANCE. ------------------------- 1. Provider - New Hillhaven purchases from AIG Life Insurance -------- Company through Raleigh, Mann and Powell. The policy covers New Hillhaven, Medi$ave and MAC. Policy limit - $350,000 per accident for scheduled employees and $100,000 per accident for non-scheduled employees, subject to $1 million aggregate per accident. No deductible. 2. Cost - Annual premium is approximately $6,630. ---- 3. Post FY90 - New Hillhaven to continue to purchase this coverage --------- and to determine whether other entities should be included in this program. H. OFFICERS' PERSONAL UMBRELLA LIABILITY INSURANCE. ----------------------------------------------- 1. Provider - Prudential Property & Casualty Company. -------- 2. Cost - $520 per person for $5.0 million policy limit, passed ---- through to New Hillhaven; the aggregate annual cost to New Hillhaven is approximately $20,000 per year. Policy limit - $5 million per occurrence and in the aggregate. Deductible - $300,000 for officers. 3. Post FY90 - New Hillhaven to secure its own coverage. --------- I. LAWYERS' PROFESSIONAL LIABILITY INSURANCE. ----------------------------------------- 1. Provider - National Union Indemnity Company. -------- 2. Cost - $8,500 per attorney for $10.0 million policy limit, passed ---- through to New Hillhaven. Policy limit - $10 million per occurrence and in the aggregate. Deductible - $100,000 per lawyer and $250,000 for the corporation. 3. Post FY90 - New Hillhaven to secure its own coverage. --------- J. SEC LIABILITY INSURANCE. ----------------------- 1. New Hillhaven to consider on a case-by-case basis. K. BONDS. ----- 1. Provider - New Hillhaven currently purchases bonds separately -------- from NME for, e.g., patient trust funds, utility, construction/performance, litigation appeal, liquor license, notary and self insurance. Spin-off to have no expected cost impact, but may impact bonding capacity, premium and security requirements. L. COURSE OF CONSTRUCTION INSURANCE. -------------------------------- 1. Provider - New Hillhaven purchases from Aetna or Fred S. James. -------- Should not be affected by spin-off. M. WORKERS' COMPENSATION INSURANCE. ------------------------------- 1. Provider - AIG. -------- 2. Cost - Costs allocated to New Hillhaven on basis described in ---- Schedule 2.02(b). 3. FY 90 et seq. - Various state statutes may require separate ------------ coverages; costs and allocations to be determined; in states where NME self- insures, New Hillhaven will reapply in its own name and renegotiate related surety bonds. Schedule 2.02(b) ALLOCATIONS RELATING TO POST-DISTRIBUTION ----------------------------------------- DATE DOCUMENTS -------------- 1. Deductibles, Co-Insurance, Self-Insured Retentions -------------------------------------------------- and Policy Limits ----------------- (a) Each party shall bear the responsibility for deductibles, co-insurance payments, self-insured retentions and payments in excess of policy limits that are measured on a per occurrence basis. (b) In the event any aggregate deductible, coinsurance payment, self- insured retention or policy limit is exceeded, such payments will be reallocated in accordance with the procedures provided in Schedule 1.03(c). 2. Workers Compensation -------------------- Definition of Terms ------------------- See Schedule 1.02(b). Current Year Premiums --------------------- The Current Year Premiums will be allocated to New Hillhaven and billed monthly based on the following formula: A) The allocation of AIG Premiums for the first six months of the current Policy Period will be based on the percentage relationship of Hillhaven Incurred Losses to NME Incurred Losses from the preceding Policy Period. B) The Premium payment allocation for the last six months of the Policy Period will be based on the percentage relationship of Hillhaven Incurred Losses to NME Incurred Losses developed from the current year's actual Incurred Loss data through November 30th of each Policy Period. C) The percentage developed in B) above will be compared to the percentage developed in A). Any difference from this comparison will be multiplied by the total AIG Premiums paid through November 30th. Any amount due to or from New Hillhaven as a result of this difference will be included in the December allocation and billing to New Hillhaven. D) The percentage of Hillhaven Incurred Losses to NME Incurred Losses through April 30th will be compared to the percentage developed in B). Any difference from this comparison will be multiplied by the total AIG Premiums paid through May 31st. Any amount due to or from New Hillhaven as a result of this difference will be included in the May allocation and billing to New Hillhaven so that the total Current Year Premiums allocated and billed to New Hillhaven will represent the percentage relationship of Hillhaven Incurred Losses to NME Incurred Losses for the current Policy Period. Retroactive Rate Adjustments ---------------------------- To be calculated and allocated by use of the formula provided in Schedule 1.02(b). EX-10.36 29 EMPLOYEE AND EMPLOYEE BENEFITS AGREEMENT EXHIBIT 10.36 ---------------------------------------- EMPLOYEE AND EMPLOYEE BENEFITS AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION ---------------------------------------- TABLE OF CONTENTS
Page ARTICLE I ...................................................... 2 1.1. Definitions ........................................ 2 ARTICLE II Employee Benefit Plans .......................... 4 2.1. New Hillhaven Deferred Savings Plan ................ 4 2.2. Old Hillhaven Annuity Plan ......................... 4 2.3. NME Retirement Plan and NME ESOP ................... 4 ARTICLE III Executive and Incentive Compensation Plans of New Hillhaven ........................ 5 3.1. New Hillhaven AIP .................................. 5 3.2. New Hillhaven LTIP ................................. 5 3.3. New Hillhaven Stock Incentive Plan ................. 5 3.4. New Hillhaven SERP ................................. 6 3.5. New Hillhaven DCMP ................................. 6 3.6. New Hillhaven Senior DCP ........................... 6 3.7. New Hillhaven Directors' Option Plan ............... 6 ARTICLE IV Executive and Incentive Compensation Plans of NME and Old Hillhaven ................ 7 4.1. NME AIP ............................................ 7 4.2. NME LTIP ........................................... 7 4.3. NME Stock Incentive Plan ........................... 8 4.4. NME SERP ........................................... 9 4.5. Old Hillhaven Deferred Compensation Plan ........... 9 4.6. Old Hillhaven Short Term DCP ....................... 10 4.7. NME Deferred Compensation Plan ..................... 10 4.8. Excluded Employees ................................. 10 ARTICLE V Employee Welfare Benefit Plans .................. 10 5.1. New Hillhaven Welfare Plans ........................ 10 5.2. Welfare Benefits and Liabilities ................... 11 ARTICLE VI Indemnification ................................. 11 6.1. In General ......................................... 11 6.2. Procedures for Indemnification ..................... 11 ARTICLE VII Assumption of Liability ......................... 12
Page ARTICLE VIII No Acceleration of Benefit Entitlement or Payment..................................... 12 ARTICLE IX Dispute Resolution Procedures.................... 13 ARTICLE X Miscellaneous.................................... 13 10.1. Entire Agreement; Amendment......................... 13 10.2. Access to Information............................... 14 10.3. No Right to Continued Employment.................... 14 10.4. No Third Party Beneficiaries........................ 14 10.5. Successors and Assigns.............................. 14 10.6. Notices............................................. 14 10.7. Termination......................................... 15 10.8. Counterparts........................................ 15 10.9. Governing Law....................................... 15 10.10. Construction........................................ 15
EMPLOYEE AND EMPLOYEE BENEFITS AGREEMENT, dated as of January 31, 1990, between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("NME"), and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven") and a wholly-owned subsidiary of The Hillhaven Corporation, a Tennessee corporation ("Old Hillhaven"), which in turn is wholly-owned by NME. WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement (the "Distribution Agreement") providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share, of New Hillhaven (the "Distribution") on or about the date hereof; WHEREAS, NME and New Hillhaven have determined that it is appropriate and desirable for all of the employees (with certain exceptions) of Old Hillhaven and its subsidiaries who are engaged in the business to be conducted by New Hillhaven to become employees of New Hillhaven and for New Hillhaven to assume any and all obligations of NME, Old Hillhaven and any of their subsidiaries with respect to employee benefits, employee welfare and any other matters relating to the compensation and employment of such New Hillhaven Employees and all employees, past or present, of Old Hillhaven and its subsidiaries, excluding certain persons or entities identified herein who are not New Hillhaven Employees; and WHEREAS, NME and New Hillhaven have determined that it is necessary and desirable to make certain agreements regarding employee benefits, employee welfare and other matters relating to the compensation and employment of New Hillhaven Employees in order to effect such determinations in connection with the above-mentioned transactions; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereto hereby agree as follows: ARTICLE I 1.1. Definitions. ----------- Capitalized terms used in this Agreement shall have the meanings herein specified. Capitalized terms that are used in this Agreement and which are not defined herein shall have the meanings specified in the Distribution Agreement. "Agreement": this Employee and Employee Benefits Agreement, together --------- with the Exhibits attached hereto, as the same may be amended from time to time in accordance with the terms hereof. "Code": the Internal Revenue Code of 1986, as amended, or any ---- successor legislation. "Distribution Date": January 31, 1990. ----------------- "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended. "New Hillhaven AIP": the Annual Incentive Plan of New Hillhaven for ----------------- certain New Hillhaven employees. "New Hillhaven DCMP": the New Hillhaven Deferred Compensation Master ------------------ Plan for certain New Hillhaven employees who generally are members of management. "New Hillhaven Deferred Savings Plan": the New Hillhaven Deferred ----------------------------------- Savings Plan for certain non-highly compensated employees. "New Hillhaven Directors' Option Plan": the New Hillhaven Directors' ------------------------------------ Stock Option Plan for members of the New Hillhaven Board of Directors who are not New Hillhaven employees. "New Hillhaven Employee" (hereinafter sometimes also called ---------------------- "Employee"): any individual who, immediately prior to the Distribution Date, was employed by NME or Old Hillhaven or any of the Old Hillhaven Subsidiaries and who, immediately after the Distribution Date, is employed by New Hillhaven or a Subsidiary of New Hillhaven. "New Hillhaven Employee Plans": the New Hillhaven AIP, the New ---------------------------- Hillhaven DCMP, the New Hillhaven LTIP, the New Hillhaven Senior DCP, the New Hillhaven SERP, the New Hillhaven Stock Incentive Plan, the New Hillhaven Welfare Plans, and each other employee benefit plan or arrangement, whether or not subject to ERISA, to be maintained by New 2 Hillhaven or a Subsidiary of New Hillhaven for the benefit of eligible New Hillhaven employees. "New Hillhaven LTIP": the Long Term Incentive Plan of New Hillhaven ------------------ for key executives of New Hillhaven. "New Hillhaven Senior DCP": the New Hillhaven Senior Management ------------------------ Deferred Compensation Plan for certain highly compensated New Hillhaven executives. "New Hillhaven SERP": the New Hillhaven Supplemental Executive ------------------ Retirement Plan for certain highly compensated or managerial New Hillhaven employees. "New Hillhaven Stock Incentive Plan": the New Hillhaven 1990 Stock ---------------------------------- Incentive Plan for certain key New Hillhaven employees. "New Hillhaven Welfare Plans": the "employee welfare benefit plans" --------------------------- (as defined in ERISA Section 3(1)) to be established by New Hillhaven or Subsidiaries of New Hillhaven for the benefit of their eligible employees in accordance with Section 5.1(a). "NME AIP": the NME Annual Incentive Plan for key employees of NME, ------ Old Hillhaven and other Subsidiaries of NME. "NME Deferred Compensation Plan": the NME Deferred Compensation Plan ------------------------------ for certain employees of NME, Old Hillhaven and other Subsidiaries of NME. "NME Employee Plans": the NME AIP, the NME LTIP, the Old Hillhaven ------------------ Deferred Compensation Plan, the Old Hillhaven Short Term DCP, the NME SERP, the NME Stock Incentive Plan, the NME Deferred Compensation Plan, NME ESOP, NME Retirement Plan and each other employee benefit plan or arrangement, whether or not subject to ERISA, maintained by NME or Old Hillhaven for the benefit of its eligible employees. "NME ESOP": the NME Employee Stock Ownership Plan for certain -------- participating facilities. "NME LTIP": the NME Long Term Incentive Plan for certain key -------- management employees of NME. "NME Retirement Plan": the Employees' Retirement Plan of NME for ------------------- certain participating facilities. "NME SERP": the NME Supplemental Executive Retirement Plan for -------- certain executive officers of NME and other management employees of NME. 3 "NME Stock Incentive Plan": the NME 1983 Stock Incentive Plan for ------------------------ certain key employees of NME. "Old Hillhaven Annuity Plan": the Old Hillhaven Individual Retirement -------------------------- Annuity Plan which is a contributory individual retirement account available to certain employees. "Old Hillhaven Deferred Compensation Plan": the two Old Hillhaven ---------------------------------------- Corporation Deferred Compensation Plans, effective January 1, 1989, for certain key management employees of Old Hillhaven, in the one case, and for certain selected key management employees of Old Hillhaven, in the other case. "Old Hillhaven Short Term DCP": the Old Hillhaven Short Term Deferred ---------------------------- Compensation Plan for certain selected key management employees of Old Hillhaven. ARTICLE II Employee Benefit Plans ---------------------- 2.1. New Hillhaven Deferred Savings Plan. New Hillhaven has adopted ----------------------------------- the New Hillhaven Deferred Savings Plan, which shall be effective as soon as practicable after the Distribution Date but in no event later than 60 days after the Distribution Date. The New Hillhaven Deferred Savings Plan is in substantially the form provided in Exhibit A hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven Deferred Savings Plan effective as of a date following the Distribution Date. 2.2. Old Hillhaven Annuity Plan. New Hillhaven has assumed the Old -------------------------- Hillhaven Annuity Plan; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate such Plan effective as of a date following the Distribution Date. 2.3. NME Retirement Plan and NME ESOP. NME shall cause the NME -------------------------------- Retirement Plan to be amended effective as of the Distribution Date to provide for the continued coverage under the NME Retirement Plan of each of the Old Hillhaven facilities covered under the NME Retirement Plan identified in Exhibit K hereto immediately prior to the Distribution Date; provided, however, that no individual employed in any such facility shall be entitled to participate in the NME Retirement Plan during any period that such individual is 4 employed as a Category I employee. ARTICLE III Executive and Incentive Compensation Plans of New Hillhaven. ----------------------------------------------------------- 3.1. New Hillhaven AIP. ----------------- (a) New Hillhaven has adopted the New Hillhaven AIP, which shall be effective as of the Distribution Date. The New Hillhaven AIP is in substantially the form provided in Exhibit B hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven AIP effective as of a date following the Distribution Date. (b) The New Hillhaven AIP has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 3.2. New Hillhaven LTIP. ------------------ (a) New Hillhaven has adopted the New Hillhaven LTIP, which shall be effective as of the Distribution Date. The New Hillhaven LTIP is in substantially the form provided in Exhibit C hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven LTIP effective as of a date following the Distribution Date. (b) The New Hillhaven LTIP has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 3.3. New Hillhaven Stock Incentive Plan. ---------------------------------- (a) New Hillhaven has adopted the New Hillhaven Stock Incentive Plan, which shall be effective as of the Distribution Date. The New Hillhaven Stock Incentive Plan is in substantially the form provided in Exhibit D hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven Stock Incentive Plan effective as of a date following the Distribution Date. (b) The New Hillhaven Stock Incentive Plan has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 5 3.4. New Hillhaven SERP. ------------------ (a) New Hillhaven has adopted the New Hillhaven SERP, which shall be effective as of the Distribution Date. The New Hillhaven SERP is in substantially the form provided in Exhibit E hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven SERP effective as of a date following the Distribution Date. (b) The New Hillhaven SERP has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 3.5. New Hillhaven DCMP. ------------------ (a) New Hillhaven has adopted the New Hillhaven DCMP, which shall be effective as soon as practicable after the Distribution Date but in no event later than 60 days after the Distribution Date. The New Hillhaven DCMP is in substantially the form provided in Exhibit F hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven DCMP effective as of a date following the Distribution Date. (b) The New Hillhaven DCMP has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 3.6. New Hillhaven Senior DCP. ------------------------ (a) New Hillhaven has adopted the New Hillhaven Senior DCP, which shall be effective as soon as practicable after the Distribution Date but in no event later than 60 days after the Distribution Date. The New Hillhaven Senior DCP is in substantially the form provided in Exhibit G hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven Senior DCP effective as of a date following the Distribution Date. (b) The New Hillhaven Senior DCP, has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. 3.7. New Hillhaven Directors' Option Plan. ------------------------------------ (a) New Hillhaven has adopted the New Hillhaven Directors' Option Plan, which shall be effective as of the Distribution Date. The New Hillhaven Directors' Option Plan 6 is in substantially the form provided in Exhibit H hereto; provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven Directors' Option Plan effective as of a date following the Distribution Date. (b) The New Hillhaven Directors' Option Plan has been approved by NME, as the beneficial owner of all of the outstanding capital stock of New Hillhaven. ARTICLE IV Executive and Incentive Compensation Plans of NME and Old Hillhaven. ------------------------------------------------------------------- 4.1. NME AIP. NME shall take all action necessary (including ------- amending the NME AIP, if required) to provide that with respect to any New Hillhaven Employee who was a participant in the NME AIP on the Distribution Date, no forfeiture of the right of such Employee to receive any NME AIP award for the fiscal year ending May 31, 1990 shall occur by virtue of the transfer of such Employee's employment with NME, Old Hillhaven or any Old Hillhaven Subsidiary as effected by the Distribution, and such awards shall be paid to such Employees by New Hillhaven after the end of such fiscal year. As of the Distribution Date, NME shall (a) estimate prorated AIP awards for such New Hillhaven Employees based upon the financial performance of Old Hillhaven and its subsidiaries for the period beginning June 1, 1989 and ending on the Distribution Date and (b) accrue an amount equal to such estimated prorated NME AIP awards as a liability to be assumed by New Hillhaven in connection with the Distribution. 4.2. NME LTIP. NME shall take all action necessary (including -------- amending the NME LTIP, if required) to provide that (a) with respect to any New Hillhaven Employee who was a participant on May 31, 1989 in Cycle V beginning June 1, 1987 or Cycle VI beginning June 1, 1988 of the NME LTIP, (i) awards to any such New Hillhaven Employee for such Performance Cycle (as such term is defined in the NME LTIP) shall entail a cash award opportunity that is equivalent to the cash award opportunity that would have been applicable to such Employee for such Performance Cycle had the Distribution not occurred; (ii) with respect to the cash award opportunities of New Hillhaven Employees for Cycle V and Cycle VI, New Hillhaven shall establish a single transitional Performance Cycle beginning on the Distribution Date and ending on May 31, 1991, which transitional Performance Cycle shall provide for an interim pay-out following May 31, 1990 based on cash award opportunities that are equivalent to participants' cash award 7 opportunities for Cycle V and a final pay-out following May 31, 1991 based on cash award opportunities that are equivalent to participants' cash award opportunities for Cycle VI and (iii) with respect to the pay-out Corresponding to Cycle V following May 31, 1990, NME shall accrue, as a liability to be assumed by New Hillhaven in connection with the Distribution, an amount estimated by NME to be equal to the prorated awards that would have been earned by New Hillhaven Employees who were participants in Cycle V of the NME LTIP during the period beginning June 1, 1987 and ending on the Distribution Date and (b) with respect to any New Hillhaven Employee who was a participant in Cycle VII beginning June 1, 1989 of the NME LTIP as of the Distribution Date (i) awards to any such New Hillhaven Employee for Cycle VII shall entail a cash award opportunity that is equivalent to the cash award opportunity that would have been applicable to such Employee for such Performance Cycle had the Distribution not occurred and (ii) the pay-out under Cycle VII shall occur following May 31, 1992. New Hillhaven shall assume the payment of the awards specified in Sections 4.2(a) and (b) as of the Distribution Date, and, except as provided in Section 4.2(a)(iii), the amounts payable under such awards shall be based on New Hillhaven performance after the Distribution Date. 4.3. NME Stock Incentive Plan. NME shall take all action necessary ------------------------ (including obtaining the consent of holders of restricted share grants and stock options and amending the NME Stock Incentive Plan, if required) to provide that (a) any stock options issued to New Hillhaven Employees under the NME Stock Incentive Plan which vest on or before the Distribution Date are exercisable during the two-year period beginning on the Distribution Date, unless by their terms they would expire sooner for reasons other than termination of employment, in which case such period of exercisability shall extend only to such expiration dates; (b) to the extent that restricted shares and stock options issued under the NME Stock Incentive Plan and held by New Hillhaven Employees are scheduled to vest after the Distribution Date, such restricted shares and stock options shall be replaced as of the Distribution Date by New Hillhaven restricted shares and New Hillhaven stock options, the fair market value of such New Hillhaven restricted shares and New Hillhaven stock options being equal to the fair market value of the restricted shares and stock options being replaced, with the replacement restricted shares and the replacement stock options having equivalent vesting schedules to the vesting schedules for the restricted stock and the stock options being replaced and (c) with respect to the dividends payable to holders of unvested NME restricted shares that are foregone by New Hillhaven Employees as a result of the replacement of NME restricted shares with New Hillhaven restricted shares, (i) NME will estimate the 8 dollar amount of dividends foregone by each such New Hillhaven Employee based on a consideration of NME's projected quarterly dividend rates and the number of unvested NME restricted shares each such Employee would have held on each future dividend payment date following the distribution Date were it not far the replacement of unvested NME restricted shares with New Hillhaven restricted shares and (ii) New Hillhaven restricted shares will be granted to each such employee as of the Distribution Date, such that the aggregate fair market value of each such Employee's grant will equal the estimated dollar amount of dividends foregone as determined in Section 4.3(c)(i) and the vesting schedule of each such Employee's grant will replicate the Vesting schedule of the unvested NME restricted shares which would have been a basis for a dividend payment to the Employee. The purchase price of New Hillhaven Common Stock under the replacement stock options shall be equal to 50% of the fair market value of the shares of New Hillhaven Common Stock Purchasable under such stock options. For purposes of this Section 4.3, "fair market value" shall mean (i) for New Hillhaven Common Stock, the fair Market value per share on the Distribution Date as determined by the Board of Directors of NME or a committee thereof for Purposes of adjusting the exercise price of outstanding NME Stock options or convertible securities, as conclusively set forth in a certificate of the Secretary or an Assistant Secretary of NME delivered to New Hillhaven as soon as practicable after the Distribution Date, provided that if such fair market value is less than $2 on such date, the fair market value shall be deemed to be $2 on such date, and (ii) for NME Common Stock, the average of the reported last per share sales price reguLar way on the Composite Tape of the New York Stock Exchange for the ten consecutive trading days immediately preceding the record date for the Distribution, provided that if such fair Market value exceeds $40, the fair market value stall be deemed to be $40. 4.4. NME SERP. NME shall take all action necessary (including -------- amending the NME SERP, if required) to provide that (a) all Nev Hillhaven employees shall be terminated as participants in the NME SERP as at the Distribution Date without any vesting of such Employees' benefits with respect to the NME SERP and (b) all New Hillhaven Employees who are participants in the NME SERP on the Distribution Date shall become participants in the New Hillhaven SERP as of the Distribution Date, shall be provided with benefits identical to their NME SERP benefits as of the Distribution Date and shall receive full credit under the New Hillhaven SERP for years of credited service and vesting earned under the NME SERP. 4.5. Old Hillhaven Deferred Compensation Plan. NME shall have ---------------------------------------- caused Old Hillhaven to take all action necessary (including amending the Old Hillhaven Deferred 9 Compensation Plan, if required) to provide that (a) such Plan shall have been terminated effective no less than 30 calendar days prior to the Distribution Date and (b) all vested and unvested balances under the Old Hillhaven Deferred Compensation Plan shall have been paid to the participants under the Plan in lump-sum cash payments no later than 22 calendar days after the Old Hillhaven Deferred Compensation Plan was terminated. 4.6 Old Hillhaven Short Term DCP. NME shall have caused Old ---------------------------- Hillhaven to take all action necessary (including amending the Old Hillhaven Short Term DCP, if required) to provide that (a) such Plan shall have been terminated prior to the Distribution Date and (b) all balances under such Plan shall be paid to the participants under the Plan in lump-sum cash payments on or prior to the Distribution Date. 4.7 NME Deferred Compensation Plan. NME shall take all action ------------------------------ necessary to provide that all New Hillhaven Employees shall be terminated as participants in the NME Deferred Compensation Plan as of the Distribution Date and that all Participants' account balances, which consist of employee deferrals under the Plan and accrued interest thereon, shall be paid out under the terms of the Plan as soon as practicable following the Distribution Date. 4.8 Excluded Employees. Notwithstanding any other section of this ------------------ Agreement, the term "New Hillhaven Employee" shall be deemed not to include the persons identified in Exhibit J hereto for the purposes of this Article IV. ARTICLE V Employee Welfare Benefit Plans ------------------------------ 5.1 New Hillhaven Welfare Plans. --------------------------- (a) New Hillhaven has adopted the New Hillhaven Welfare Plans, which shall be effective as of the Distribution Date and which in material respects are the same as the employee welfare benefit plans maintained by Old Hillhaven for the benefit of Old Hillhaven employees as of the Distribution Date (the "Old Hillhaven Welfare Plans"); provided, however, that this Agreement may not be construed or interpreted to restrict New Hillhaven's right or authority to amend or terminate the New Hillhaven Welfare Plans effective as of a date following the Distribution Date. (b) In the case of any New Hillhaven Employee or any dependent of such person who was covered under a 10 corresponding Old Hillhaven Welfare Plan immediately prior to the date on which the New Hillhaven Employee became a New Hillhaven Employee, the New Hillhaven Welfare Plans shall not deny or restrict coverage or benefits based on length of service, pre-existing conditions or other provisions which would not have restricted or denied coverage or benefits for such individual had such individual continued to participate in the Old Hillhaven Welfare Plans. 5.2. Welfare Benefits and Liabilities. New Hillhaven shall assume -------------------------------- and shall be solely responsible for all claims incurred before, on or after the Distribution Date in connection with the New Hillhaven Welfare Plans by individuals who are New Hillhaven Employees, including dependents thereof. Neither NME or Old Hillhaven nor any affiliate of NME or Old Hillhaven shall have any liability in connection with the New Hillhaven Welfare Plans arising out of any such claims on or after the Distribution Date. ARTICLE VI Indemnification --------------- 6.1. In General. Each party hereto or any of the Subsidiaries of ---------- each such party to whom certain responsibilities and liabilities have been allocated hereunder (the "Indemnifying Party") shall indemnify, defend and hold harmless each other party and any such Subsidiary of such party (the "Indemnitee"), including the Indemnitee's respective directors, officers, employees, agents and Affiliates (and the heirs, executors, successors and assigns of any of the foregoing) from and against any and all losses, liabilities, claims, damages, obligations, payments, costs and expenses, matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown (including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions) arising out of or due to the failure or alleged failure of the Indemnifying Party to pay, perform or otherwise discharge in due course any of its responsibilities or liabilities. 6.2. Procedures for Indemnification. The procedures for ------------------------------ indemnification set forth in the Distribution Agreement are incorporated herein by reference. 11 ARTICLE VII Assumption of Liability ----------------------- New Hillhaven shall, effective as of the Distribution Date, assume and be solely responsible for all liabilities, obligations, claims and payments, matured or unmatured, known or unknown, absolute or contingent, accrued or unaccrued, arising out of this Agreement and the transactions contemplated thereby, including without limitation all liabilities, obligations, claims and payments, matured or unmatured, known or unknown, absolute or contingent, accrued or unaccrued, in respect of claims made by or on behalf of New Hillhaven Employees and any employees, past or present, of Old Hillhaven or a Subsidiary of Old Hillhaven, excluding the persons or entities identified in Exhibit I hereto who are not New Hillhaven Employees and excluding the persons identified in Exhibit J hereto with respect to claims made in connection with the employment of any such person with NME, relating to acts or omissions arising before, on or after the Distribution Date, including but not limited to claims, grievances or disputes concerning wrongful termination, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Consolidated Omnibus Budget Reconciliation Act, ERISA, the Fair Labor Standards Act or any other similar federal or state employee-related statute which could give rise to an employer liability. ARTICLE VIII No Acceleration of Benefit Entitlement or Payment. ------------------------------------------------- Any person who is an employee of Old Hillhaven or any Old Hillhaven Subsidiary (excluding the persons or entities identified in Exhibit I hereto) immediately prior to the Distribution shall be an employee of New Hillhaven or a Subsidiary of New Hillhaven immediately after the Distribution, and, except as provided in Sections 4.5, 4.6 and 4.7 with respect to the Old Hillhaven Deferred Compensation Plan, the Old Hillhaven Short Term DCP and the NME Deferred Compensation Plan, and except as provided by the terms of the NME Retirement Plan and the NME ESOP, to the extent permitted by law, each of the pension and welfare and other plans and benefit arrangements, policies and practices of NME or Old Hillhaven shall be amended to provide that a transfer of any such employee's employment with Old Hillhaven or any Old Hillhaven Subsidiary to New Hillhaven or a Subsidiary of New Hillhaven as effected by the Distribution shall not be deemed to be a termination of employment or separation from service or other event giving 12 rise to an entitlement or payment under any such plan, arrangement, policy or practice. ARTICLE IX Dispute Resolution Procedures ----------------------------- All disputes arising out of or relating to this Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et seq. The parties hereby agree to submit to the -- --- jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such purpose. Either party may initiate the procedure set forth in this Article by providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Article, the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Article shall be construed to impair the right of either party to appeal from such judgment. ARTICLE X Miscellaneous ------------- 10.1. Entire Agreement; Amendment. This Agreement and the other --------------------------- agreements referred to herein or therein or entered into in connection herewith or therewith set forth the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by either party hereto which is not embodied in this Agreement or such other agreements, the 13 Annexes, Schedules or Exhibits hereto or thereto, or the written statements or other documents delivered pursuant hereto or thereto, and neither party hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. This Agreement may be amended or modified only by a written instrument executed by both parties hereto or by their successors and permitted assigns. 10.2. Access to Information. NME and New Hillhaven shall each --------------------- cooperate with the other and each agree to provide the other with such information as may be reasonably requested and necessary in order effectively to administer and maintain the NME Employee Plans and the New Hillhaven Employee Plans and the undertakings contemplated herein. 10.3. No Right to Continued Employment. Nothing herein shall be -------------------------------- construed to confer upon any New Hillhaven Employee any right to be retained in the employ of New Hillhaven or any Subsidiary of New Hillhaven. 10.4. No Third Party Beneficiaries. This Agreement is solely for the ---------------------------- benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. 10.5. Successors and Assigns. This Agreement and all of the ---------------------- provisions hereof shall be binding upon and inure to the benefit of the parties hereof and their respective successors and permitted assigns. 10.6. Notices. All notices, consents, requests, instructions, ------- approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90904 Telecopy no.: (213) 315-6567 Attention: Senior Vice President, Human Resources 14 with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90904 Telecopy no.: (213) 315-6688 Attention: General Counsel If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4714 Attention: President with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4714 Attention: General Counsel 10.7. Termination. This Agreement may be terminated in the event ----------- that the Distribution Agreement is terminated and the Distribution abandoned prior to the Distribution Date. In the event of such termination, no party shall have any liability of any kind to the other party. 10.8. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same agreement. 10.9. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. 10.10. Construction. In this Agreement, ------------ (i) unless the context otherwise requires, the terms "herein," "hereof," "hereto," and "hereunder" refer to this Agreement; and (ii) the headings of the sections and subsections hereof and the table of contents hereof are inserted for convenience only and do not constitute a part of this Agreement. 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By: /s/ Marcus E. Powers ----------------------------- Name: MARCUS E. POWERS Title: SENIOR VICE PRESIDENT THE HILLHAVEN CORPORATION By: /s/ Christopher J. Marken ----------------------------- Name: CHRISTOPHER J. MARKEN Title: PRESIDENT EXHIBIT I EXCLUDED PERSONS AND ENTITIES ---------------- Persons: Daniel P. Baty* Martin Bradford Deborah L. Carlson Patrick Carter Laura A. Ficke David R. Mayeux Timothy M. McCoy Timothy L. Pullen Marvin Wilensky* Employees of the Following Entities: Medical Ambulatory Care, Inc. AK, Inc. ________________________ *Notwithstanding the provisions of this Agreement, liabilities with respect to these employees will be assumed by New Hillhaven to the extent described in Exhibit B of the Assignment and Assumption Agreement, dated as of January 31, 1990, between the subsidiaries of NME signatories thereto, on the one hand, and New Hillhaven, on the other hand. EXHIBIT J EXCLUDED EMPLOYEES ------------------ Mr. Richard K. Eamer Mr. Leonard Cohen EXHIBIT K COVERED OLD HILLHAVEN FACILITIES -------------------------------- 1. Alvarado Convalescent and Rehabilitation Hospital San Diego, California 2. Hillhaven Health Care Center Monterey Park, California 3. Fifth Avenue Convalescent Hospital San Rafael, California 4. Hillside Manor Convalescent Hospital San Rafael, California 5. Pine Towers Convalescent Hospital San Francisco, California 6. Hillhaven Victorian San Francisco, California 7. Pasatiempo Development Tacoma, Washington EX-10.37 30 FORM OF ASSIGNMENT AND ASSUMPTION OF LEASE AGR. EXHIBIT 10.37 ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT -------------------------------------------- ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT (this "Agreement") dated as of January 31, 1990 between the subsidiary of National Medical Enterprises, Inc. ("NME") signatory hereto ("Assignor") and the subsidiary of The Hillhaven corporation, a Nevada corporation ("New Hillhaven"), signatory hereto ("Assignee"). WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share, of New Hillhaven (the "Distribution") on or about January 31, 1990; and WHEREAS, Assignor is the tenant under that certain lease described in Exhibit A attached hereto wherein Assignor leased that certain real property described in Exhibit B attached hereto (the "Lease") and, in connection with the Distribution, Assignor desires to assign all of its interest under the Lease except for certain rights to renew or extend the term of the Lease and Assignee desires to assume all of Assignor's obligations thereunder. NOW, THEREFORE, the parties agree as follows: 1. Assignment of Lease. Assignor hereby assigns to Assignee all of ------------------- the interest of Assignor in the Lease; provided, however, Assignor shall retain -------- ------- all rights, if any, to renew or extend the term of the Lease to the extent set forth in Exhibit C hereto. 2. Assumption of Lease Obligations. Assignee hereby assumes all of ------------------------------- the obligations of Assignor under the Lease arising after the date hereof. 3. Further Assurances. Assignor and Assignee agree, from time to ------------------ time upon request therefor, to execute and deliver to the other party any confirmatory instruments and perform any other acts which the other party may reasonably request in order to carry out the purposes of this Agreement. 4. Notices. All notices, consents,requests, instructions, approvals ------- and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other party in writing): [Name of Assignor] c/o National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. box 4070 Santa Monica, California 90404 Telecopy No.: (213) 315-8329 Attention: President with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy No.: (213) 315-6688 Attention: General Counsel If to Assignee: [Name of Assignee] c/o The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-4901 Telecopy No.: (206) 756-4743 Attention: President with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-4901 Telecopy No.: (206) 756-4845 Attention: General Counsel 5. Successors and Assigns. This Agreement and all of the provisions ---------------------- hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, except that Assignee may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Assignor. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. [Name of Assignor] By ________________________________ Name: Title: [Name of Assignee] By ________________________________ Name: Title: GUARANTY -------- Performance of the obligations of Assignee pursuant to the above Agreement is hereby irrevocably and unconditionally guaranteed by the undersigned as primary obligor. The Hillhaven Corporation, (a Nevada corporation) By ________________________________ Name: Title: 3 EX-10.38 31 FORM OF MANAGEMENT AGREEMENT EXHIBIT 10.38 ------------------------------------------------------------------ MANAGEMENT AGREEMENT dated as of January 31, 1990 between FIRST HEALTHCARE CORPORATION and [OWNER] ------------------------------------------------------------------ MANAGEMENT AGREEMENT TABLE OF CONTENTS
Page ---- Section 1. Retention of Managers............................. 2 Section 2. Responsibilities of Manager....................... 2 A. Employees............................................ 2 B. Fiscal Year; Budgets................................. 3 C. Bank Accounts; Payment of Facility Expenses; Distribution of Facility Net Cash Flow............. 4 D. Operational Policies................................. 6 E. Charges.............................................. 6 F. Information.......................................... 7 G. Certification........................................ 7 H. Capital Equipment and Improvements................... 7 I. Supplies and Non-Capital Equipment................... 3 J. Ancillary Services................................... 8 K. Legal Matters........................................ 9 L. Bookkeeping and Accounting........................... 9 M. Collection of Accounts............................... 10 N. Reports.............................................. 10 O. Insurance............................................ 10 Section 3. Term; Termination................................. 11 Section 4. Management Fees................................... 13 A. Basic Management Fee................................. 13 B. Expense Reimbursement................................ 13 C. Incentive Fee........................................ 14 D. Late Charges......................................... 15 E. Method of Payment.................................... 16 F. Determination of Incentive Fee for Fiscal Year Ending May 31, 1990........................... 16 Section 5. Proprietary Interest.............................. 17 Section 6. No Guaranty of Profitability...................... 17 Section 7. Owner Inspection.................................. 17 Section 8. Maintenance of Minimum Bank Balance............... 17
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Page ---- Section 9. Default........................................... 18 A. By Manager........................................... 18 B. By Owner............................................. 19 Section 10. Remedies Upon Default............................ 21 A. Remedies of Manager.................................. 21 B. Remedies of Owner.................................... 21 C. Rights Cumulative; No Waiver......................... 22 D. Dispute Resolution Procedures........................ 22 Section 11. Miscellaneous.................................... 24 A. Relationship of the Parties; Disclaimer of Liability; Indemnification......................... 24 B. Assignment; Binding Effect........................... 24 C. Entire Agreement; Amendment.......................... 25 D. Notices.............................................. 25 E. Representatives...................................... 26 F. Attorney's Fees...................................... 27 G. Construction......................................... 27 H. Legal Enforceability................................. 27 I. Counterparts......................................... 28 J. Governing Law........................................ 28
ii MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT (the "Agreement") dated as of January 31, 1990, between First Healthcare Corporation, a Delaware corporation ("Manager"), and _______________________, a ________________ corporation ("Owner"). WITNESSETH: ---------- WHEREAS, National Medical Enterprises, Inc., a Nevada corporation ("NME"), and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"), are, as of the date hereof, entering into a Reorganization and Distribution Agreement providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's common stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of capital stock of New Hillhaven on or about January 31, 1990 (the "Distribution Date"); and WHEREAS, Manager, as of the Distribution Date will be a wholly-owned subsidiary of New Hillhaven; WHEREAS, Owner has been managing the long term care facility described below and Owner wishes Manager to continue to so manage said facility; WHEREAS, Owner owns the license to operate that certain long term care facility known as __________ and located at __________ (the "Facility") and has the sole right to operate the same; WHEREAS, the Facility is located in proximity to an acute care hospital (the "Hospital") the license relating to which is owned by Owner or an affiliate of Owner; WHEREAS, Manager is an experienced and qualified manager in the field of nursing home management; and WHEREAS, Owner desires to engage Manager, and Manager desires, to manage the Facility pursuant to the terms and conditions set forth herein. NOW THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Retention of Manager. Owner hereby retains Manager to provide -------------------- management services in connection with the Facility under the terms and conditions set forth herein. 2. Responsibilities of Manager. During the Term, as defined below, --------------------------- Manager shall provide the following management, consulting and advisory services to Owner in connection with the operation of the Facility: A. Employees. Subject to Owner's review and approval, which --------- approval shall not be unreasonably withheld or delayed, Manager shall recruit, select, employ, train, direct, promote and terminate all 2 Facility personnel including the Administrator and Director of Nursing; establish the salary levels, personnel policies and employee benefits with respect thereto; and establish employee performance standards as needed during the Term to ensure the efficient operation of all departments within and services offered by the Facility. Manager shall be responsible for the payment of employee payroll, benefits and related employee expenses (including payroll taxes) as part of Facility operating expenses (payable out of Facility funds) and the distribution of employee income tax withholding forms at year end. B. Fiscal Year; Budgets. The fiscal year for the Facility shall -------------------- be June l through May 31. At least forty-five (45) days prior to the start of each fiscal year, Manager shall prepare and submit to Owner for its review and approval, which approval shall not be unreasonably withheld or delayed, an annual operating budget and an annual capital expenditure budget for the following year (collectively, the "Budgets"). In addition, Manager shall concurrently prepare and submit to Owner for its review and approval, which approval shall not be unreasonably withheld or delayed, budget projections for the two years following such annual Budgets. Representatives of Owner and Manager shall meet promptly thereafter to 3 resolve any disagreements concerning such Budgets and projections. Thereafter, Manager shall be entitled to make or to commit Owner to make expenditures which are reflected in the Budgets or which are not expected to result in total "routine" expenses accrued during the then current fiscal year exceeding the budgeted amount therefor by 5% or more (the "Budget Threshold"). Except for emergency repairs referred to in Section 2H. hereof, any unbudgeted expenditures and/or expenditures in excess of the Budget Threshold shall be subject to Owner's approval, which approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Manager shall have the right to propose reasonable adjustments to the budget applicable to the fiscal year ending May 31, 1990, which adjustments Owner may in its reasonable discretion implement to the extent feasible. C. Bank Accounts; Payment of Facility Expenses; Distribution of ------------------------------------------------------------ Facility Net Cash Flow. Manager shall, consistent with its current banking ---------------------- arrangements, open and maintain a checking account(s) in the name of Owner and/or the Facility, as appropriate, for the benefit and account of Owner in a bank of Owner's selection and shall deposit therein all moneys received in the course of the operation of the Facility. Manager shall be responsible for the payment 4 of, and shall pay for the benefit of Owner, all expenses incurred in the operation of the Facility, including, but not limited to, payment of payroll, benefits and related employee expenses, repayment of working capital loans and the interest thereon, and Facility debt service payments, all of which shall be paid by check drawn on such accounts. Manager shall apply revenues derived from the Operation of the Facility in the following order: (i) Subject to the provisions of Section 4E. hereof, payment of Facility operating expenses (which shall include any and all costs, expenses or fees associated with the operation of the Facility) other than debt service. (ii) Payment of Facility debt service expenses, including working capital loans, if any. (iii) Deposit into bank account(s) to satisfy the requirements of Section 8 hereof. (iv) The balance of the cash, if any, to Owner. Within 5 days after each month end, Manager will furnish to Owner a statement setting forth in reasonable detail all facility expenses, payments and cash flows for the prior month. Any shortfalls in cash for such period shall be promptly remitted by Owner to Manager, and any excess cash for such period shall be 5 promptly remitted by Manager to Owner, in each case without interest thereon. Owner will advance to Manager prior to the expiration of the first month of the Term an amount of cash equal to the shortfall projected by Manager to result from facility operations for such period. Notwithstanding the foregoing, Owner may, at its option, elect to settle daily any shortfall in cash or excess cash on the basis of information provided to Owner by Manager. D. Operational Policies. Subject to Owner's prior written -------------------- approval, which approval shall not be unreasonably withheld or delayed, Manager shall develop all admissions and operational polices and procedures necessary to establish and maintain the standard of patient care appropriate for the Facility. Manager shall accept patients from the Hospital consistent with the standard of patient care which the Facility can provide. E. Charges. Subject to Owner's prior written approval, which ------- approval shall not be unreasonably withheld or delayed, manager shall establish the schedules of recommended charges, including any and all special charges for services rendered to patients and residents of the Facility. F. Information. Subject to Owner's prior written approval, ----------- which approval shall not be 6 unreasonably withheld or delayed, Manager may develop any necessary informational material, mass media releases and other related publicity materials in connection with the Facility. G. Certification. Manager shall use its best efforts to obtain ------------- and maintain in the name of Owner or Manager, as appropriate under applicable federal or state law, and at the expense of Owner (i) certification of the Facility as a provider of services under Title XVIII (Medicare) and/or XIX (Medicaid) of the Social Security Act, and (ii) licensure of the Facility as a long term care facility under all applicable federal and state laws. H. Capital Equipment and Improvements. Manager shall advise ---------------------------------- Owner as to capital equipment and improvements of the Facility which are needed to maintain certification and licensure, to maintain or upgrade the quality of the Facility and said equipment, or to replace obsolete or run- down equipment. Owner shall review and act upon (which action may include a rejection thereof) Manager's recommendations as expeditiously as possible. Subject to Owner's prior written approval for any capital expenditure in excess of $25,000, Manager shall make all necessary and approved repairs, replacements and maintenance within the budgetary limits set forth in the annual capital 7 expenditure budget prepared by Manager pursuant to Section 2B. hereof. Notwithstanding any contrary provisions in this Agreement, Manager shall be entitled, without Owner's consent, to make or commit Owner to make unbudgeted expenditures and/or expenditures in excess of the Budget Threshold for the purposes of emergency repairs involving manifest danger to persons or property or required to avoid suspension of any necessary service at the Facility. I. Supplies and Non-Capital Equipment. Manager shall purchase ---------------------------------- supplies and non-capital equipment needed to operate the Facility within the budgetary limits set forth in the annual operating budget prepared by Manager pursuant to Section 2B. hereof. Manager shall purchase such supplies and non-capital equipment from vendors covered by Owner's or Manager's existing national purchasing agreements unless Owner approves in advance purchases from other sources. J. Ancillary Services. Subject to Owner's prior written ------------------ approval, which approval shall not be unreasonably withheld or delayed, Manager shall negotiate for the provision of necessary ancillary services through qualified contractors and shall review and analyze the performance of said ancillary services contractors, on an ongoing basis, and, if necessary, 8 shall negotiate additional or alternative contractual arrangements therefor. Where economically practical and to the extent permitted by law, Manager shall endeavor to utilize ancillary services provided by Owner and other providers related to Owner, including any such services provided pursuant to the Services Agreement dated as of January 31, 1990 between NME and New Hillhaven. K. Legal Matters. Manager shall, through Manager's legal ------------- counsel, coordinate all legal matters and proceedings with Owner's counsel. Except for disputes between Owner and Manager, Owner shall reimburse Manager for the reasonable cost of Manager's outside counsel. Manager shall obtain Owner's written approval, which approval shall not be unreasonably withheld or delayed, prior to commencing any legal action in any court in Owner's name or on Owner's behalf. Owner and Manager shall cooperate with one another in connection with any such legal matter or proceeding. L. Bookkeeping and Accounting. Manager shall provide -------------------------- bookkeeping and accounting procedures necessary for the operation of the Facility and the preparation of proper financial records. Bookkeeping and accounting procedures and systems shall be in accordance with the operating capital and cash programs 9 developed by Manager, which programs shall conform to generally accepted accounting principles consistently applied. M. Collection of Accounts. Manager shall issue bills and collect accounts and monies owed for services and materials furnished by the Facility, and shall be entitled to enforce the rights of Owner or the Facility as creditor under any contract or in connection with the rendering of any services; provided, however, that any expenses incurred by Manager -------- ------- in so doing shall be treated as Facility operating expenses, which shall be payable out of Facility funds. N. Reports. Manager shall prepare and provide to Owner in a ------- timely manner any reasonable operational and financial information and reports which may from time to time be specifically requested by Owner. The Chief Executive Officer of the Hospital and the Facility Administrator shall endeavor to meet at least monthly in order to discuss the business and operation of the Facility. O. Insurance. Owner, at its own expense, shall obtain and --------- maintain all necessary insurance coverage pertaining to the Facility and its operations for the mutual protection of Owner, Manager, employees of the Facility and volunteers of the Facility, 10 provided that if Manager is able to procure any such insurance coverage at lesser expense than that to be incurred by Owner, Manager will so advise Owner and undertake to obtain such insurance at Owner's expense. Such insurance shall include, but not be limited to, property damage insurance covering the Facility and the furniture, fixtures and equipment situated therein, and comprehensive general liability and professional liability insurance. Such insurance shall be in such amounts, in such form and written by such carriers reasonably selected by Owner. Such insurance shall designate Manager as an additional insured and shall provide for written notice to Manager at assayed 15 days prior to cancellation or material modification. Owner shall provide Manager with annual certificates evidencing such insurance. Manager shall cooperate with and assist Owner in obtaining necessary information for insurance purposes. 3. Term; Termination. The initial term of this Agreement (the ----------------- "Term") shall commence on the day after the Distribution Date and continue until May 31, 1990, and thereafter for a period of one year commencing June l, 1990, unless earlier terminated as herein provided. This Agreement shall automatically renew annually for additional terms of one year each commencing each succeeding June 1. Notwithstanding anything to the contrary contained herein, 11 Owner shall be entitled to terminate this Agreement (a) on May 31, 1991 and (b) at any time after May 31, 1992, in either case upon at least 90 days' prior written notice; provided, however, that upon any termination of this Agreement -------- ------- by Owner other than for cause, Owner shall pay to Manager upon termination a fee equal to the product of three multiplied by the average monthly Basic Fee computed pursuant to Section 4 hereof for the three full months immediately preceding the termination of this Agreement. Manager shall be entitled to terminate this Agreement at any time after May 31, 1992 upon at least 90 days' prior written notice. Upon any termination of this Agreement for any reason Manager and Owner, as the case may be, will cooperate in the orderly transfer of employees of the Facility so as to limit or avoid liability for severance pay whenever possible. For all employees of the Facility, other than the Administrator and the Director of Nursing, Owner will assume the liabilities and expenses related to employee terminations by Manager. For the Administrator and the Director of Nursing, Manager will assume all liabilities and expenses related to termination of the employment of such persons by Manager. Upon any termination of this Agreement for any reason, Manager shall assist Owner with an orderly transition of the Facility's operations. 12 4. Management Fees. For services performed hereunder, Owner shall --------------- pay to Manager the following: A. Basic Management Fee. Commencing with the commencement of -------------------- Facility operations, Owner shall pay to Manager a basic monthly management fee ("Basic Fee") equal to five and one-half percent (5-1/2%) of the Net Revenues generated during the immediately preceding month. "Net Revenues" shall mean all revenues generated by the Facility, less revenue deductions which include all contractual allowances to third-party payors and write- offs of bad debts. If the services of Manager commence or terminate other than on the first day of a month, the compensation set forth in this Section 4A. shall be prorated for the number of days for which services are actually rendered. B. Expense Reimbursement. Owner shall reimburse Manager for the --------------------- following items: (i) Salary, benefits and related employee expenses payable with respect to all Facility personnel including the Administrator and Director of Nursing; (ii) Out-of-pocket travel and other expenses incurred by the Administrator and Director of Nursing and other employees or agents of Manager in connection with the performance of its obligations 13 hereunder, all in accordance with the Budgets; and (iii) Any other items set forth in this Agreement as reimbursable items. C. Incentive Fee. In addition to the amounts payable hereunder, ------------- Owner shall pay an annual incentive fee ("Incentive Fee") to Manager as follows: after the end of each fiscal year of the Term, actual net income (loss) for such fiscal year shall be compared against net income (loss) projected in the Budgets for such year, and Manager shall be entitled to an Incentive Fee equal to the product of the relevant amount set forth in Column (C) below multiplied by the aggregate Basic Fee for such year. Manager shall furnish to Owner a statement within 60 days after the close of the fiscal year, setting forth in reasonable detail the calculations by which the Incentive Fee for such year has been derived. Owner shall pay the Incentive Fee to Manager within thirty days after the receipt of such statement unless Owner contests the amount of, or basis for deriving, such Incentive Fee. 14
(A) (B) (C) Actual Net Income Actual Net Loss as a Percentage of as a Percentage of Budgeted Net Income Budgeted Net Loss Incentive Fee - ------------------- ------------------ ------------- less than 90% less than -0- 91% or equal to 110% 1% 92% 109% 2% 93% 108% 3% 94% 107% 4% 95% 106% 5% 96% 105% 6% 97% 104% 7% 98% 103% 8% 99% 102% 9% 101% more than or equal to 100% less than 100% 10%
In addition to the amount of Incentive Fee determined above, if actual net income exceeds budgeted net income, or if the actual net loss is less than the budgeted net loss, for such fiscal year, Manager shall also be entitled to additional Incentive Fee in an amount equal to 20% multiplied by the difference between actual net income (loss) minus budgeted net income (loss). If unanticipated transfers from the Hospital to the Facility of residents whose care requirements exceed those of nursing home residents generally cause the Facility's actual net income (loss) to be less (greater) than budgeted net income (loss), the parties will discuss good faith adjustments, in order to preserve Manager's ability to earn an incentive fee. D. Late Charges. Owner shall pay to Manager, to the extent ------------ permitted by applicable law, interest on 15 any amount owing to Manager under this Agreement which is not paid when due, for any period for which any of the same is overdue (without regard to any grace period), at a rate equal to the lesser of (i) two percent in excess of the rate announced from time to time by The Chase Manhattan Bank, N.A. as its prime or reference rate, as such rate may change from time to time, or (ii) the maximum rate of interest permitted by applicable law. E. Method of Payment. Owner shall pay the amounts set forth in ----------------- Sections 4A. and 4B. hereof monthly, in arrears, no later than ten days after Manager furnishes Owner with invoices and reasonable supporting documentation for such amounts. Owner shall pay the amount owing pursuant to Section 4C. hereof for any fiscal year within 30 days after Manager furnishes Owner with financial reports supporting the amounts owing. Owner shall pay any amounts owing pursuant to Section 4D. hereof upon Manager's demand. Manager shall be entitled to disburse all Facility expenses other than the foregoing Manager's Basic Fee and Incentive Fee and the expenses reimbursable pursuant to Section 4B. hereof out of the accounts provided for in Section 2C. hereof. F. Determination of Incentive Fee for Fiscal Year Ending May 31, ------------------------------------------------------------- 1990. For the period commencing ---- 16 the first day of the Term to and including May 31, 1990, Owner shall pay to Manager an Incentive Fee, prorated for the number of days for which services were actually rendered, in accordance with the provisions of Section 4C. 5. Proprietary Interest. The systems, methods, procedures and -------------------- controls employed by Manager, including, without limitation, any operating manuals and computer software developed by Manager, and any written materials or brochures developed by Manager to document the same are to remain the property of Manager, and Owner shall not, at any time, utilize, distribute, copy or otherwise employ or acquire any such materials or brochures without Manager's prior written consent, which Manager may withhold in its sole discretion. 6. No Guaranty of Profitability. Owner acknowledges that Manager ---------------------------- does not guarantee that the Facility will be profitable. 7. Owner Inspection. During the Term, Owner shall have the right, ---------------- upon request and at reasonable times, to inspect the Facility and to inspect and/or audit all books and records pertaining to the operation thereof. 8. Maintenance of Minimum Bank Balance. Owner shall maintain a ----------------------------------- minimum cash balance in the account(s) referred to in Section 2C. hereof greater than or equal to such amount as Manager and Owner reasonably agree is 17 necessary for the proper operation of, or improvements or repairs to, the Facility. 9. Default. Either party may terminate this Agreement in the event ------- of any of the following events ("Events of Default") by or with respect to the other party: A. By Manager. With respect to Manager, the following shall ---------- constitute Events of Default hereunder: (i) Manager shall fail to keep, observe or perform any material agreement, term or provision of this Agreement including without limitation the provisions of Section 2G. hereof, and such failure shall continue for a period of 30 days after notice thereof shall have been given to Manager by Owner, which notice shall specify the event or events constituting the failure; provided, however, that Manager shall not be deemed to be in -------- ------- violation of this Agreement, and no Event of Default shall have occurred, if Manager is prevented from performing any of its obligations hereunder for any reason beyond its control, including, without limitation, strikes, shortages, war, acts of God, lack of Owner's financial resources, or any statute, regulation or rule of federal, state or local government or agency thereof; or (ii) Manager shall be dissolved or shall apply for or consent to the appointment of a receiver, 18 trustee or liquidator of Manager or of all or a substantial part of its assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or arrangement with creditors or taking advantage of any insolvency law; or an order, judgment or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Manager a bankrupt or insolvent or approving a petition seeking reorganization of Manager, or appointing a receiver, trustee or liquidator of Manager or of all or a substantial part of Manager's assets, and such order shall remain undismissed, undischarged or unbounded for a period of 60 days. B. By Owner. With respect to Owner, the following shall -------- constitute Events of Default hereunder: (i) Owner shall fail to keep, observe or perform any material agreement, term or provision of this Agreement and such failure shall continue for a period of 30 days after notice thereof shall have been given to Owner by Manager, which notice shall specify the event or events constituting the failure; provided, however, that Owner shall not be deemed -------- ------- to be in violation of this Agreement, and no Event of Default 19 shall have occurred, if Owner is prevented from performing any of its obligations hereunder for any reason beyond its control, including, without limitation, strikes, shortages, war, acts of God, or any statute, regulation or rule of federal, state or local government or agency thereof; or (ii) Owner shall be dissolved or shall apply for or consent to the appointment of a receiver, trustee or liquidator of Owner or of all or a substantial part of Owner's assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit or creditors, file a petition or an answer seeking reorganization or arrangement with creditors or taking advantage of any insolvency law; or an order, judgment or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Owner a bankrupt or insolvent or approving a petition seeking reorganization of Owner, or appointing a receiver, trustee or liquidator of Owner or of all or a substantial part of its assets, and such order shall remain undismissed, undischarged or unbounded for a period of 60 days. 20 10. Remedies Upon Default. --------------------- A. Remedies of Manager. Upon the occurrence and during the ------------------- continuation of an Event of Default by Owner, Manager may, in its discretion, do any one or more of the following: (i) terminate this Agreement, terminate the employment of any or all employees of the Facility and declare all sums earned but unpaid to the date of termination to be immediately due and payable; or (ii) exercise any other right or remedy available to it under applicable law, including without limitation the right to recover damages for the breach hereof. B. Remedies of Owner. Upon the occurrence and during the ----------------- continuation of any Event of Default by Manager, Owner may, in its discretion do any one or more of the following: (i) terminate this Agreement, whereupon Manager shall terminate the employment of any or all of the employees of the Facility and neither party shall have any further obligation whatsoever under this Agreement; or (ii) exercise any other right or remedy available to it under applicable law, including without limitation the right to recover damages for the breach hereof; provided, -------- however, that nothing contained herein shall terminate Manager's right to ------- receive all amounts due and owing to Manager through the date of termination. 21 C. Rights Cumulative; No Waiver. No right or remedy herein conferred ---------------------------- upon or reserved to either of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereafter legally existing. The failure of either party hereto to insist at any time upon the strict observance or performance of any of the provisions of this Agreement or to exercise any right or remedy as provided in this Agreement shall not impair any such right or remedy or be construed as a waiver or relinquishment thereof with respect to subsequent defaults. Every right and remedy given by this Agreement to the parties hereof may be exercised from time to time and as often as may be deemed expedient by the parties hereto, as the case may be. D. Dispute Resolution Procedures. All disputes arising out of or ----------------------------- relating to this Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et -- seq. The parties hereby agree to submit to the jurisdiction of the --- Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such purpose. Either party may initiate the procedure set forth in this Subsection by 22 providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Subsection, the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the reward rendered by the referee shall be entered in the Superior Court. Nothing in this Section shall be construed to impair the right of either party to appeal from such judgment. 23 11. Miscellaneous. ------------- A. Relationship of the Parties; Disclaimer of Liability; ---------------------------------------------------- Indemnification. The relationship of Manager to Owner shall be that of an --------------- independent contractor, and all acts performed by Manager pursuant to this Agreement during the Term shall be deemed to be performed in its capacity as an independent contractor. Manager shall not be liable for any loss, expense, cost or liability relating to the Facility incurred by or asserted against Owner, unless such loss, expense, cost or liability results from the negligence or willful misconduct of Manager. Owner shall indemnify and hold Manager harmless from and against any and all loss, expense, cost or liability incurred by or asserted against Manager arising from or related to the Facility; provided, however, that Owner shall not be obligated to -------- ------- indemnify Manager for any loss, expense, cost or liability which results from Manager's negligence or willful misconduct. Manager shall indemnify Owner and hold Owner harmless from and against any and all loss, expense, cost or liability arising from or related to Manager's negligence or willful misconduct. B. Assignment; Binding Effect. This Agreement shall not be -------------------------- assigned by either party without the prior written consent of the other party, which 24 consent shall not be unreasonably withheld. Notwithstanding the foregoing, either party may assign its rights and obligations hereunder to an entity controlling, controlled by or under common control with such party. This Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties. C. Entire Agreement; Amendment. This Agreement sets forth the --------------------------- entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by either party hereto which is not embodied in this Agreement or the written statements or other documents delivered pursuant hereto and neither party hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. This Agreement may be amended or modified only by a written instrument executed by both parties hereto or by their successors and permitted assigns. D. Notices. All notices, consents, requests, instructions, ------- approvals and other communications hereunder shall be given in writing and shall be deemed 25 to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to Manager: FIRST HEALTHCARE CORPORATION c/o THE HILLHAVEN CORPORATION 1148 Broadway Plaza Tacoma, Washington 98401 Attention: Executive Vice President/Operations Telecopy no.: (206) 756-4743 With copies to: THE HILLHAVEN CORPORATION 1148 Broadway Plaza Tacoma, Washington 98401 Attention: General Counsel If to Owner: THE HILLHAVEN CORPORATION (Tennessee) c/o NATIONAL MEDICAL ENTERPRISES, INC. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Attention: Executive Vice President With copies to: NATIONAL MEDICAL ENTERPRISES, INC. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Attention: General Counsel Telecopy no.: (213) 315-6688 E. Representatives. Owner and Manager shall each designate one --------------- or more representatives for the purpose of giving approvals required hereunder and meeting approximately quarterly to discuss Facility operations and annually to discuss Budgets. 26 F. Attorney's Fees. In the event either party brings an action --------------- to enforce this Agreement, the prevailing party in such action shall be entitled to recover from the other all costs incurred in connection therewith, including reasonable attorney's fees. Reasonable attorney's fees shall include reasonable charges allocated for internal counsel. G. Construction. In this Agreement, ------------ (i) unless the context otherwise requires, the terms "herein", "hereof", and "hereunder" refer to this Agreement; and (ii) the headings of the sections and subsections hereof and the table of contents hereof are inserted for convenience only and do not constitute a part of this Agreement. H. Legal Enforceability. Any provision of this Agreement which -------------------- is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision or remedies otherwise available to any party hereto. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto 27 acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. I. Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be an original, but all of which together shall constitute but one and the same instrument. J. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. [OWNER] By________________________________ Name: Title: FIRST HEALTHCARE CORPORATION By_______________________________ Name: Title: 28 EX-10.39 32 REORGANIZATION AND DISTRIBUTION AGREEMENT EXHIBIT 10.39 [Conformed Copy] AGREEMENT TO AMEND REORGANIZATION AND DISTRIBUTION AGREEMENT AGREEMENT TO AMEND, dated January 30, 1990 (this "Amendment Agreement"), between National Medical Enterprises, Inc., a Nevada corporation ("NME"), and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). WITNESSETH; WHEREAS, the parties to this Amendment Agreement are parties to a Reorganization and Distribution Agreement, dated as of January 8, 1990 (the "Original Agreement", which term shall include the Annexes, Exhibits and Schedules thereto); and WHEREAS, the parties to this Amendment Agreement deem it advisable that the Original Agreement be amended and restated to read in its entirety as set forth in Exhibit A hereto. NOW THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto hereby agree as follows: 1. The Original Agreement shall be amended and restated, effective as of January 8, 1990, to read in its entirety as set forth in Exhibit A hereto. 2. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of California. 3. This Amendment Agreement may be executed simultaneously in two or more counterparts and by the different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and this Amendment Agreement shall become effective when one or more counterparts have been signed by each party and delivered to the other party. IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed as of the date and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By /s/ MARCUS E. POWERS -------------------------------- Name: Marcus E. Powers Title: Senior Vice President and General Counsel THE HILLHAVEN CORPORATION By /s/ CHRISTOPHER J. MARKER -------------------------------- Name: Christopher J. Marker Title: President 2 EXHIBIT A ================================================================================ REORGANIZATION AND DISTRIBUTION AGREEMENT effective as of January 8, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION ================================================================================ TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS Section 1.01 General................................................... 1 Section 1.02 Exhibits, etc............................................. 7 ARTICLE II PRELIMINARY ACTION Section 2.01 Cooperation Prior to the Distribution .................... 7 Section 2.02 Plan of Reorganization and Related Transactions............................................. 8 Section 2.03 Cash Management and Bank Accounts After the Distribution Date.................................... 8 Section 2.04 Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of the Distribution Date.................... 9 Section 2.05 No Representations or Warranties; Consents................................................. 10 Section 2.06 Conveyancing and Assumption Instruments................... 10 Section 2.07 Further Assurances........................................ 11 ARTICLE III THE DISTRIBUTION Section 3.01 Conditions Precedent to the Distribution............................................. 11 Section 3.02 The Distribution.......................................... 12 ARTICLE IV INDEMNIFICATION Section 4.01 Indemnification by NME.................................... 12 Section 4.02 Indemnification by New Hillhaven ......................... 13 Section 4.03 Limitations on Indemnification Obligations.............................................. 13 Section 4.04 Procedure for Indemnification............................. 13 Section 4.05 Remedies Cumulative....................................... 16 Section 4.06 Survival of Indemnities................................... 16 ARTICLE V CERTAIN ADDITIONAL MATTERS Section 5.01 Resignations.............................................. 17 Section 5.02 Outside Auditors.......................................... 17 Section 5.03 Relationships; Name Changes............................... 17 Section 5.04 Post-Distribution Adjustments............................. 18
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Page ARTICLE VI ACCESS TO INFORMATION AND SERVICES Section 6.01 Provision of Corporate Records............................ 18 Section 6.02 Access to Information..................................... 19 Section 6.03 Provision of Services..................................... 19 Section 6.04 Production of Witnesses................................... 20 Section 6.05 Reimbursement............................................. 20 Section 6.06 Retention of Records...................................... 20 Section 6.07 Confidentiality........................................... 20 ARTICLE VII MISCELLANEOUS Section 7.01 Entire Agreement; Amendment............................... 21 Section 7.02 Survival of Agreements.................................... 21 Section 7.03 Expenses.................................................. 21 Section 7.04 Governing Law............................................. 22 Section 7.05 Notices................................................... 22 Section 7.06 Construction.............................................. 23 Section 7.07 Successors and Assigns.................................... 23 Section 7.08 Termination............................................... 23 Section 7.09 Subsidiaries.............................................. 23 Section 7.10 No Third Party Beneficiaries.............................. 23 Section 7.11 Further Assurances........................................ 23 Section 7.12 Annexes, Exhibits and Schedules........................... 24 Section 7.13 Legal Enforceability...................................... 24
ii ANNEXES I. Plan of Reorganization II. Long Term Care Subsidiaries of NME Prior to the Plan of Reorganization III(a). Subsidiaries of Old Hillhaven after the Plan of Reorganization Is Effected III(b). Subsidiaries of New Hillhaven After the Plan of Reorganization Is Effected EXHIBITS A. Benefits Agreement B. Distribution Agency Agreement C. Government Programs Agreement D. Guarantee Agreement E. Insurance Agreement F. Form of Lease Agreement G. Form of Lease Assumption Agreement H. Form of Management Agreement I. New Hillhaven By-Laws J. New Hillhaven Charter K-1. Form of New Hillhaven Subsidiary Note to be issued by FHC K-2. Form of New Hillhaven Subsidiary Note to be issued by Medi$ave Pharmacies, Inc. L. Note Guarantee Agreement M. Revolving Credit and Term Loan Agreement N. Rights Agreement O. Services Agreement P. Tax Sharing Agreement Q. Warrant and Registration Rights Agreement SCHEDULES 4.01(b) NME Responsibility for Information Statement 4.02(b) New Hillhaven Responsibility for Information Statement iii REORGANIZATION AND DISTRIBUTION AGREEMENT, effective as of January 8, 1990 (this "Agreement"), between NATIONAL MEDICAL ENTERPRISES INC., a Nevada corporation ("NME"), and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven") and a wholly-owned subsidiary of The Hillhaven Corporation, a Tennessee corporation ("Old Hillhaven") which in turn is wholly-owned by NME. _________________________________ WHEREAS, the NME board of directors has determined it is appropriate and desirable to separate the long term care business presently conducted by NME through Old Hillhaven and the other businesses of NME by transferring certain assets and related liabilities of Old Hillhaven and certain of its subsidiaries to New Hillhaven and distributing approximately 85% of the outstanding shares of New Hillhaven Common Stock on a pro rata basis to the holders of NME Common Stock; and WHEREAS, NME and New Hillhaven have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect such separation and such distribution and to set forth other agreements that will govern certain other matters following such distribution and, in connection therewith, have entered into a Reorganization and Distribution Agreement dated as of January 8, 1990 (the "Original Agreement"); and WHEREAS, NME and New Hillhaven have further determined that it would be desirable to amend certain provisions of the Original Agreement and to enter into an amended and restated version thereof, as set forth below (the Original Agreement as so amended and restated being herein called the "Agreement") NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.01 General. As used in this Agreement and the Annexes, ------- Exhibits and Schedules hereto, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): Action: any action, suit, arbitration, inquiry, proceeding or ------ investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. Affiliate: as defined in Regulation 12b-2 promulgated under the --------- Exchange Act, as such Regulation is in effect on the date hereof. Agent: Manufacturers Hanover Trust Company, the distribution agent ----- appointed by NME under the Distribution Agency Agreement to assist in the distribution of copies of the Information Statement and to distribute certificates for shares of New Hillhaven Common Stock in connection with the Distribution. Ancillary Agreements: all of the agreements, instruments, -------------------- understandings, assignments or other arrangements entered into in connection with the transactions contemplated hereby, including, without limitation, the Benefits Agreement, the Distribution Agency Agreement, the Government Programs Agreement, the Guarantee Agreement, the Insurance Agreement, the Lease Agreements, the Lease Assumption Agreements, the Management Agreements, the New Hillhaven Subsidiary Notes, the Note Guarantee Agreement, the Revolving Credit and Term Loan Agreement, the Rights Agreement, the Services Agreement, the Tax Sharing Agreement and the Warrant and Registration Rights Agreement. Benefits Agreement: the Employee and Employee Benefits Agreement, to ------------------ be dated as of the Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit A, providing for, among other things, the establishment of executive and incentive compensation plans for New Hillhaven and certain adjustments under NME benefit plans. Commission: the Securities and Exchange Commission. ---------- Conveyancing and Assumption Instruments: collectively, the various --------------------------------------- agreements, instruments and other documents to be entered into to effect the transfer of assets and the assumption of Liabilities, effective on or prior to the Distribution Date, in the manner contemplated by this Agreement and the Ancillary Agreements. Distribution: the distribution to holders of NME Common Stock of ------------ approximately 85% of the shares of New Hillhaven Common Stock to be owned by NME immediately following completion of the Plan of Reorganization. 2 Distribution Agency Agreement: the Distribution Agency Agreement, ----------------------------- dated as of January 8, 1990, between NME and the Agent, the proposed form of which is attached as Exhibit B, providing for, among other things, the dissemination of the Information Statement to NME shareholders as of the Record Date and the distribution of certificates evidencing shares of New Hillhaven Common Stock to such shareholders. Distribution Date: January 31, 1990. ----------------- Exchange Act: the Securities Exchange Act of 1934, as amended. ------------ FHC: First Healthcare Corporation, a Delaware corporation and --- Subsidiary of NME which will become a New Hillhaven Subsidiary pursuant to the Plan of Reorganization. FORM 10: the Registration Statement on Form 10 to be filed by New ------- Hillhaven with the Commission to effect the registration of the New Hillhaven Common Stock pursuant to the Exchange Act. Government Programs Agreement: the Government Programs Agreement, to ----------------------------- be dated as of the Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit C, providing for, among other things, the administration of certain matters, including cost reports, under Medicare and Medicaid programs. Guarantee Agreement: the Guarantee Reimbursement Agreement, to be ------------------- dated as of the Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit D, providing for, among other things, a guarantee fee and the reimbursement by New Hillhaven to NME of amounts paid by NME in respect of certain guarantee, lease or other obligations. Information Statement: the information statement, constituting a --------------------- part of the Form 10, in the form to be distributed to the holders of NME Common Stock as of the Record Date in connection with the Distribution, and as it may be amended or supplemented subsequent to such dissemination. Insurance Agreement: the Insurance Agreement, to be dated as of the ------------------- Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit E, providing for, among other things, the allocation of certain insurance claims and joint insurance arrangements on a transitional basis. 3 Lease Agreements: the Lease Agreements, to be dated on or prior to ---------------- the Distribution Date, between an NME Subsidiary, on the one hand, and FHC, on the other hand, the proposed form of which is, together with the proposed related Guarantee of Lease of New Hillhaven, attached as Exhibit F, respectively providing for, among other things, the lease on a triple net basis by FHC of long term care facilities or retirement housing centers and the guarantee by New Hillhaven of such lease obligations of FHC. Lease Assumption Agreements: the Assignment and Assumption of Lease --------------------------- Agreements, to be dated on or prior to the Distribution Date, between NME or an NME Subsidiary, on the one hand, and a New Hillhaven Subsidiary, on the other hand, the proposed form of which, together with the proposed related Guaranty of New Hillhaven, is attached as Exhibit G, providing for, among other things, the assumption by a New Hillhaven Subsidiary of certain obligations and the assignment to a New Hillhaven Subsidiary of certain rights under leases or subleases and the guarantee of such obligations by New Hillhaven. Liabilities: any and all debts, liabilities and obligations, ----------- absolute or contingent, mature or unmature, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement), including all costs and expenses relating thereto, and those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. Management Agreements: the Management Agreements, to be dated as of --------------------- the Distribution Date, between FHC, as manager, and certain NME Subsidiaries, the proposed form of which is attached as Exhibit H, providing for, among other things, the management by FHC of such facilities. New Hillhaven BY-Laws: the By-Laws of New Hillhaven, attached as --------------------- Exhibit I and as in effect at the date hereof. New Hillhaven Charter: the Amended and Restated Articles of --------------------- Incorporation of New Hillhaven, attached as Exhibit J and as in effect at the date hereof. New Hillhaven Common Stock: the common stock, par value $0.15 per -------------------------- share, of New Hillhaven. New Hillhaven Employee: any individual who, immediately prior to the ---------------------- Distribution, was employed by NME or Old Hillhaven or any of the Old Hillhaven Subsidiaries 4 and who, immediately after the Distribution, is to be employed by New Hillhaven or a Subsidiary of New Hillhaven. New Hillhaven Liabilities: all of (i) the Liabilities of New ------------------------- Hillhaven or any New Hillhaven Subsidiary under this Agreement or any of the Ancillary Agreements to which any of them is a party and (ii) the Liabilities arising out of any of the documents or instruments executed and delivered by New Hillhaven or any New Hillhaven Subsidiary pursuant to the transactions contemplated by the Plan of Reorganization or pursuant to any supplemental agreement contemplated by Section 2.07. New Hillhaven Subsidiaries: the corporations identified in Annex -------------------------- III(b) hereto, which are now Subsidiaries of NME but which immediately following the Distribution will be Subsidiaries of New Hillhaven. New Hillhaven Subsidiary Notes: the promissory notes, to be dated ------------------------------ the Distribution Date, of (i) FHC, the proposed form of which is attached as Exhibit K-1, to be issued to Old Hillhaven and (ii) Medi-$ave Pharmacies, Inc., the proposed form of which is attached as Exhibit K-2, to be issued to Hillhaven Inc., in each case pursuant to the Plan of Reorganization. NME Board: the Board of Directors of NME. --------- NME Common Stock: the common stock, par value $0.15 per share, of ---------------- NME. NME Liabilities: all of the Liabilities of NME or any NME Subsidiary --------------- under this Agreement or any of the Ancillary Agreements to which any of them is a party. NME Subsidiary: any corporation that will be a Subsidiary of NME -------------- immediately following the Distribution, including, without limitation, Old Hillhaven and the Old Hillhaven Subsidiaries. Note Guarantee Agreement: the Note Guarantee Agreement, to be dated ------------------------ as of the Distribution Date, among New Hillhaven, NME and the payees on the New Hillhaven Subsidiary Notes, the proposed form of which is attached as Exhibit L, providing for, among other things, the guarantee by New Hillhaven of all the obligations of the obligors on the New Hillhaven Subsidiary Notes. Old Hillhaven Subsidiary: any corporation that was a Subsidiary of ------------------------ Old Hillhaven prior to the Distribution, other than New Hillhaven and the New Hillhaven Subsidiaries. 5 Plan of Reorganization: the series of transactions, more ---------------------- particularly described on Annex I hereto, providing, effective on or prior to the Distribution Date, for the transfer of assets and liabilities to New Hillhaven and New Hillhaven Subsidiaries, as contemplated by this Agreement and the Information Statement. Record Date: the close of business on January 12, 1990. ----------- Revolving Credit and Term Loan Agreement: the Revolving Credit and ---------------------------------------- Term Loan Agreement, to be dated as of the Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit M, providing for, among other things, borrowings by New Hillhaven from NME from time to time in order to meet the working capital and other cash flow needs of certain of New Hillhaven's retirement housing and other discontinued operations and for capital improvements on long term care facilities. Rights: the preferred stock purchase rights, to be issued pursuant ------ to the Rights Agreement, which will initially be evidenced by the New Hillhaven Common Stock certificates. Rights Agreement: the Rights Agreement, to be dated as of the ---------------- Distribution Date, between New Hillhaven and Manufacturers Hanover Trust Company of California, as Rights Agent, the proposed form of which is attached as Exhibit N, providing for, among other things, the issuance of the Rights. Services Agreement: the Services Agreement, to be dated as of the ------------------ Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit O, providing for, among other things, the provision on a transitional basis of certain management and incidental services and certain joint purchasing and space-sharing arrangements. Subsidiary: any corporation of which more than 50% of the ---------- outstanding shares of stock having ordinary voting power to elect a majority of the board of directors (other than stock having such power only by reason of the happening of a contingency) is at the time directly or indirectly owned by NME or New Hillhaven, as the case may be. Tax Sharing Agreement: the Tax Sharing Agreement, to be dated as of --------------------- the Distribution Date, between NME and New Hillhaven, the proposed form of which is attached as Exhibit P, providing for, among other things, the allocation of liabilities with respect to federal, state and local income 6 taxes and the procedures for filing returns with respect to such taxes. Warrant and Registration Rights Agreement: the Warrant and ----------------------------------------- Registration Rights Agreement, to be dated as of the Distribution Date, among NME, New Hillhaven and Manufacturers Hanover Trust Company of California, as Warrant Agent, the proposed form of which is attached as Exhibit Q, providing for, among other things, the issuance of warrants to purchase New Hillhaven Common Stock and certain registration rights with respect to such stock and the New Hillhaven Common Stock to be retained by NME. Section 1.02 Exhibits, etc. References to an "Exhibit" or to an ------------- "Annex" or to a "Schedule" are, unless otherwise specified, to one of the Exhibits or Annexes or Schedules attached to this Agreement, and references to a "Section" are, unless otherwise specified, to one of the Sections of this Agreement. ARTICLE II PRELIMINARY ACTION ------------------ Section 2.01 Cooperation Prior to the Distribution. ------------------------------------- (a) Form 10; Information Statement. NME and New Hillhaven ------------------------------ have prepared, and New Hillhaven shall file with the Commission, the Form 10, which shall include or incorporate by reference the Information Statement. NME and New Hillhaven shall use reasonable efforts to cause the Form 10 to become effective under the Exchange Act. NME and New Hillhaven shall also prepare, and NME shall cause to be mailed, prior to midnight, January 12, 1990, to the holders of NME Common Stock as of the Record Date, the Information Statement, which shall set forth appropriate disclosures concerning New Hillhaven, the Distribution and other matters. (b) Benefit Plan Registrations. NME and New Hillhaven shall -------------------------- cooperate in preparing, filing with the Commission and causing to become effective any registration statements or amendments thereto which are necessary to be so filed prior to the Distribution Date and appropriate to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by the Benefits Agreement. (c) Blue Sky. NME and New Hillhaven shall take all such action -------- as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection 7 with the transactions contemplated by this Agreement and the Ancillary Agreements. (d) Listing. NME and New Hillhaven have prepared, and New ------- Hillhaven shall file and pursue, an application to effect the listing of the New Hillhaven Common Stock and the Rights on the American Stock Exchange ("ASE") Section 2.02 Plan of Reorganization and Related Transactions. It is ----------------------------------------------- the intention of the parties hereto that the transactions contemplated by this Section 2.02 shall, to the extent practicable, be effected in the order in which such transactions are set forth in this Section 2.02. (a) Corporate Action. All necessary corporate action on the ---------------- part of NME, New Hillhaven, the New Hillhaven Subsidiaries, Old Hillhaven and the Old Hillhaven Subsidiaries necessary to implement the transactions contemplated hereby and by the Plan of Reorganization shall be taken. (b) Plan of Reorganization. All of the transactions ---------------------- contemplated by the Plan of Reorganization shall be substantially completed as provided therein. Annex II identifies and indicates the ownership of all of the Subsidiaries of Old Hillhaven immediately prior to implementation of the Plan of Reorganization. Annexes III(a) and III(b) identify and indicate the ownership of all of the Subsidiaries of Old Hillhaven and New Hillhaven, respectively, immediately after implementation of the Plan of Reorganization. (c) Ancillary Agreements. Each of the Ancillary Agreements -------------------- shall be executed and delivered by the parties thereto, with such additions, deletions or other changes as may be authorized by the respective boards of directors of the parties hereto. (d) NME Capital Contribution. NME shall have made, either ------------------------ directly or through one or more of its Subsidiaries, capital contributions to New Hillhaven of assets sufficient to increase the Stockholders' equity of New Hillhaven to at least $170 million, after giving effect to the transaction contemplated by the Plan of Reorganization. Section 2.03 Cash Management and Bank Accounts After the ------------------------------------------- Distribution Date. All cash management systems and bank accounts currently in - ----------------- place will be subject to the procedures set forth in a memorandum to be initialed by the parties hereto. 8 Section 2.04 Transfers Not Effected Prior to the Distribution; ------------------------------------------------- Transfers Deemed Effective as of the Distribution Date. To the extent that any - ------------------------------------------------------ transfers and assumptions contemplated by this Article II and Article III shall not have been consummated prior to the Distribution Date, the parties shall cooperate to effect such transfers as promptly following the Distribution Date as shall be practicable, it nonetheless being agreed and understood by the parties that neither party shall be liable in any manner to any other party for any failure of any of the transfers or assumptions contemplated by this Article II or Article III to be consummated prior to the Distribution Date. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; provided, however, that NME, Old Hillhaven and their -------- ------- respective Subsidiaries and New Hillhaven and the New Hillhaven Subsidiaries shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all assets and assumption of all Liabilities contemplated to be transferred or assumed pursuant to this Article II and Article III. In the event that any such transfer of assets or assumption of Liabilities has not been consummated, effective as of and after the Distribution Date, the party retaining such asset or Liability shall thereafter hold such asset for the party entitled thereto (at the expense of the party entitled thereto) and retain such Liability for the account of the party by whom such Liability is to be assumed, and take such other action as may be reasonably requested by the party to whom such asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or Liability been transferred or assumed as of the Distribution Date. As and when any such asset or Liability becomes transferable or assumable, such transfer or assumption shall be effected forthwith. The parties agree that, as of the Distribution Date, each party hereto shall be deemed to have assumed in accordance with the terms of this Agreement and the Ancillary Agreements all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such party is required to assume pursuant to the terms hereof and thereof. New Hillhaven shall take all necessary steps, with the assistance of NME if appropriate, to effect any transfer of assets or assumption of Liabilities not transferred or assumed effective as of the Distribution Date, and NME shall reimburse New Hillhaven for all out-of-pocket expenses incurred in effecting such transfer or assumption, provided that (i) New Hillhaven shall have provided back-up for such expenses reasonably acceptable to NME and (ii) NME shall have approved in advance any item of expense in excess of $5,000 to be incurred after the Distribution Date, which approval shall not be unreasonably withheld. 9 Section 2.05 No Representations or Warranties; Consents. Each of ------------------------------------------ the parties hereto understands and agrees that no party hereto is, in this Agreement or in any Ancillary Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning, any assets of such party or (ii) as to the legal sufficiency to convey title to any asset of the execution and delivery of this Agreement or any Ancillary Agreement, including, without limitation, any Conveyancing and Assumption Instruments, it being agreed and understood that all such assets are being transferred "as is, where is" and that the party to which such assets are to be transferred hereunder shall bear the economic and legal risk that any conveyances of such assets shall prove to be insufficient or that such party or any of its Subsidiaries' title to any such assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable laws or judgments, it being agreed and understood that the party to which any assets are transferred shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of laws or judgments are not complied with. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all amendatory agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state health care laws and all necessary consents, approvals, agreements, filings and applications. Section 2.06 Conveyancing and Assumption Instruments. In connection --------------------------------------- with the transfers of assets (other than capital stock) and the assumptions of Liabilities contemplated by this Agreement, and except as otherwise provided in the Plan of Reorganization, the parties shall execute or cause to be executed by the appropriate entities the Conveyancing and Assumption Instruments in such forms as the parties shall agree. The transfer of capital stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or 10 other legal entities involved and, to the extent required by applicable law, by notation on public registries. Section 2.07 Further Assurances. Each of NME and New Hillhaven ------------------ agrees to execute, acknowledge and deliver, and to cause their respective Subsidiaries to execute, acknowledge and deliver, any assurances, documents and instruments of transfer reasonably requested by the other and will take any other action consistent with the terms of this Agreement that may reasonably be requested by the other for the purpose of consummating the transactions contemplated by this Agreement. In particular, the parties agree to enter into any supplemental agreements necessary or appropriate to provide for temporary operation by NME or its Subsidiaries of facilities intended to be transferred to New Hillhaven or its Subsidiaries in cases where any necessary consents or approvals have not been obtained, or any other required actions have not been completed, prior to the Distribution Date. ARTICLE III THE DISTRIBUTION ---------------- Section 3.01 Conditions Precedent to the Distribution. In no event ---------------------------------------- shall the Distribution occur unless prior to such time the following conditions shall have been satisfied: (i) the transactions contemplated by Section 2.02 shall have been consummated in all material respects, except to the extent waived by NME; (ii) the New Hillhaven Common Stock and the Rights shall have been approved for listing on the ASE, subject to official notice of issuance; (iii) the New Hillhaven Charter and New Hillhaven By-Laws shall have been adopted and shall be in effect; and (iv) the Form 10 shall have become effective under the Exchange Act and no stop order which has not been lifted shall be in effect with respect thereto; provided, however, that the satisfaction of such conditions shall not create any - -------- ------- obligation on the part of NME to effect the Distribution or in any way limit NME's power of termination set forth in Section 7.08 or alter the consequences of any such termination from those specified in such Section. 11 Section 3.02 The Distribution. New Hillhaven shall take all steps ---------------- required by NME or the Agent to effect the transactions contemplated by the Distribution Agency Agreement. Prior to the Distribution, and in connection with the Plan of Reorganization, New Hillhaven shall cause to be issued to NME or Subsidiaries of NME (i) a certificate or certificates representing a sufficient number of shares of New Hillhaven Common Stock so that one share of New Hillhaven Common Stock may be distributed for each share of NME Common Stock held by NME shareholders on the Record Date and (ii) a certificate or certificates representing a sufficient number of shares of New Hillhaven Common Stock so that, after giving effect to the issuance of the shares referred to in clause (i) above, NME and Subsidiaries of NME will own in the aggregate 15% of the outstanding New Hillhaven Common Stock. ARTICLE IV INDEMNIFICATION --------------- Section 4.01 Indemnification by NME. ---------------------- (a) NME Liabilities. Except as otherwise set forth in an --------------- Ancillary Agreement, NME shall indemnify, defend and hold harmless New Hillhaven, each New Hillhaven Subsidiary and each of their directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing (the "New Hillhaven Indemnitees") from and against the NME Liabilities and any and all losses, liabilities, claims, damages, obligations, payments, costs and expenses, matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown, including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions (collectively, "Indemnifiable Losses" and, individually, an "Indemnifiable Loss"), of the New Hillhaven Indemnitees arising out of or due to the failure or alleged failure of NME to pay, perform or otherwise discharge in due course any of the NME Liabilities. (b) Exchange Act Liabilities. NME shall also indemnify, defend ------------------------ and hold harmless each of the New Hillhaven Indemnitees from and against any and all Indemnifiable Losses of the New Hillhaven Indemnitees arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any portion of the Information Statement specified in Schedule 4.01(b), 12 or the omission or alleged omission to state in any such portion a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Section 4.02 Indemnification by New Hillhaven. -------------------------------- (a) New Hillhaven Liabilities. Except as otherwise set forth in ------------------------- an Ancillary Agreement, New Hillhaven shall indemnify, defend and hold harmless NME, each NME Subsidiary and each of their directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing (the "NME Indemnitees") from and against the New Hillhaven Liabilities and any and all Indemnifiable Losses of the NME Indemnitees arising out of or due to the failure or alleged failure of New Hillhaven to pay, perform or otherwise discharge in due course any of the New Hillhaven Liabilities. (b) Exchange Act Liabilities. New Hillhaven shall also ------------------------ indemnify, defend and hold harmless each of the NME Indemnitees from and against any and all Indemnifiable Losses of the NME Indemnitees arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any portion of the Information Statement specified in Schedule 4.02(b), or the omission or alleged omission to state in any such portion a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Section 4.03 Limitations on Indemnification Obligations. The amount ------------------------------------------ which any party (an "Indemnifying Party") is or may be required to pay to any other party (an "Indemnitee") pursuant to Section 4.01 or Section 4.02 shall be reduced (including, without limitation, retroactively) by any such amounts which such Indemnifying Party is or may be required to pay to such Indemnitee with respect to the same matter under rights of indemnification pursuant to any Ancillary Agreement, to the end that no duplicate payments will be required with respect to any indemnified amount. Section 4.04 Procedure for Indemnification. ----------------------------- (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a person (including, without limitation, any governmental entity) who is not a party to this Agreement or to any of the Ancillary Agreements of any claim or of the commencement by any such person of any Action (a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement, such Indemnitee 13 shall give such Indemnifying Party written notice thereof promptly after becoming aware of such Third Party Claim; provided, that the failure of any -------- Indemnitee to give notice as provided in this Section 4.04 shall not relieve the related Indemnifying Party of its obligations under this Article IV, except to the extent that such Indemnifying Party is prejudiced by such failure to give notice. Such notice shall describe the Third Party Claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the Indemnifiable Loss that has been or may be sustained by such Indemnitee. (b) An Indemnifying Party may elect to defend or to seek to settle or compromise, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within 30 days of the receipt of notice from an Indemnitee in accordance with Section 4.04(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the related Indemnitee if the Indemnifying Party elects not to defend or to seek to settle or compromise such Third Party Claim (which election may be made only in the event of a good faith assertion by the Indemnifying Party that a claim was inappropriately tendered under Section 4.01 or 4.02, as the case may be). Unless an Indemnifying Party elects not to assume the defense of or to seek to settle or compromise a Third Party Claim, such Indemnifying Party shall not be liable to such Indemnitee under this Article IV for any legal or other expenses subsequently incurred by such Indemnitee in connection with the defense thereof; provided, that, if the defendants in any -------- ---- such claim include both the Indemnifying Party and one or more Indemnitees and in any Indemnitee's reasonable judgment a conflict of interest between one or more of such Indemnitees and such Indemnifying Party exists in respect of such claim, such Indemnitees shall have the right to employ separate counsel to represent such Indemnitees and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such Indemnifying Party. If an Indemnifying Party elects not to defend, or elects not to seek to settle or compromise a Third Party Claim, such Indemnitee may defend or seek to compromise or settle such Third Party Claim. (c) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, the related Indemnitee shall make available to such Indemnifying Party any personnel or any books, records or other documents within its control or which it otherwise has the ability to make available that are necessary or appropriate for such defense, settlement or compromise, and 14 shall otherwise cooperate in the defense, settlement or compromise of such Third Party Claim. (d) Notwithstanding anything else in this Section 4.04 to the contrary, neither an Indemnifying Party nor an Indemnitee shall settle or compromise any Third Party Claim unless such settlement or compromise contemplates as an unconditional term thereof the giving by such claimant or plaintiff to the Indemnitee or the Indemnifying Party, respectively, of a written release from all liability with respect to such Third Party Claim. (e) Any claim on account of an Indemnifiable Loss which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30 day period, such Indemnifying Party shall be deemed to have accepted responsibility to make payment and shall have no further right to contest the validity of such claim. If such Indemnifying Party does respond within such 30 day period and rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party under applicable law. (f) In addition to any adjustments required pursuant to Section 4.03, if the amount of any Indemnifiable Loss shall, at any time subsequent to the payment required by this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the Indemnifying Party. (g) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. (h) All disputes arising out of or relating to this Agreement shall be resolved pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et seq. The parties hereby agree to submit -- --- to the jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior 15 Court") for such purpose. Either party may initiate the procedure set forth in this subsection by providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this subsection, the parties shall have any discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Section shall be construed to impair the right of either party to appeal from such judgment. (i) The parties hereto agree that the procedures set forth in subsections (a) through (g) of this Section 4.04 shall be applicable to all Ancillary Agreements and are deemed to be set forth therein as if such procedures were fully set forth therein. Section 4.05 Remedies Cumulative. The remedies provided in this ------------------- Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party; provided, however, that all remedies sought or -------- ------- asserted by an Indemnitee against an Indemnifying Party with respect to an Indemnifiable Loss shall be limited by and be subject to the provisions of this Article IV. Section 4.06 Survival of Indemnities. The obligations of each of ----------------------- (i) New Hillhaven, on the one hand, and (ii) NME, on the other hand, under this Article IV, shall survive the sale or other transfer to or by it of any assets or businesses or the assignment to or assumption by it of any Liabilities, with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities. 16 ARTICLE V CERTAIN ADDITIONAL MATTERS -------------------------- Section 5.01 Resignations. (a) New Hillhaven shall cause all New ------------ Hillhaven Employees, other than Messrs. Richard K. Eamer and Leonard Cohen, to resign, effective as of the Distribution Date, from all boards of directors or similar governing bodies of any NME Subsidiary on which they serve, and from all positions as officers of NME or any NME Subsidiary in which they serve. (b) NME shall cause all NME employees who are not also New Hillhaven Employees to resign, effective as of the Distribution Date, from all boards of directors or similar governing bodies of any New Hillhaven Subsidiary on which they serve and from all positions as officers of any New Hillhaven Subsidiary in which they serve. Section 5.02 Outside Auditors. For periods ending through May 31, ---------------- 1992, New Hillhaven shall appoint an accounting firm which is one of the "Big Six" accounting firms or a successor thereto to perform the audit of New Hillhaven's consolidated financial statements. During such periods, New Hillhaven shall, and shall cause such auditors to, consult, within a reasonable period of time prior to taking any action, with NME and its auditors in the event that (i) New Hillhaven proposes to use accounting principles with respect to New Hillhaven's consolidated financial statements different in any material respect from the accounting principles currently used by NME in connection with the preparation and audit of NME's consolidated financial statements or (ii) New Hillhaven proposes to change its corporate structure from that indicated on Annex III(b). Section 5.03 Relationships; Name Changes. --------------------------- (a) Relationships. As soon as practicable, and in any event not ------------- later than one year after the Distribution, NME shall, and shall cause the NME Subsidiaries to, cease using any existing printed material showing that New Hillhaven or any New Hillhaven Subsidiary is a Subsidiary of NME, and New Hillhaven shall, and shall cause the New Hillhaven Subsidiaries to, cease using any existing printed material showing that New Hillhaven or any New Hillhaven Subsidiary is a Subsidiary of NME. (b) Name Changes. As soon as practicable, and in any event not ------------ later than one year after the Distribution, NME shall take all necessary steps to change the corporate name of Old Hillhaven and any Old Hillhaven Subsidiary using the word "Hillhaven" or any variation 17 thereof in its corporate name to eliminate such word or variation. Section 5.04 Post-Distribution Adjustments. Promptly after the ----------------------------- Distribution, New Hillhaven shall arrange for the preparation of a consolidated balance sheet prepared in accordance with generally accepted accounting principles applied on a basis consistent with past practice (the "Distribution Date Balance Sheet") as of the Distribution Date and the delivery of such Distribution Date Balance Sheet to NME not later than March 31, 1990. NME shall have the right to oversee and participate fully in the preparation of the Distribution Date Balance Sheet, and such balance sheet shall also be reviewed, in accordance with the standards established by the American Institute of Certified Public Accountants, by KPMG Peat Marwick prior to May 31, 1990. Based upon the Distribution Date Balance Sheet as so reviewed, New Hillhaven and NME shall execute and deliver the addendum set forth in the New Hillhaven Subsidiary Note to be delivered by FHC, which will reflect the adjusted principal amount determined in accordance with the formula set forth in such Note. ARTICLE VI ACCESS TO INFORMATION AND SERVICES ---------------------------------- Section 6.01 Provision of Corporate Records. ------------------------------ (a) Upon New Hillhaven's request NME shall arrange as soon as practicable following the Distribution Date for the delivery to New Hillhaven of existing corporate records in the possession of NME relating to New Hillhaven and the New Hillhaven Subsidiaries and all active agreements and active litigation files relating to the businesses to be transferred to New Hillhaven or any New Hillhaven Subsidiary in connection with the Plan of Reorganization, except to the extent such items are already in the possession of New Hillhaven or any New Hillhaven Subsidiary. Such records shall be the property of New Hillhaven, but shall be available to NME for review and duplication until NME shall notify New Hillhaven in writing that such records are no longer of use to NME. (b) Upon NME's request New Hillhaven shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated in Article II and Article III, for the delivery to NME of existing corporate records in its possession relating to the real properties currently held by Old Hillhaven which will not be transferred to New Hillhaven and other records relating to matters other than the businesses to be transferred to New Hillhaven or any New 18 Hillhaven Subsidiary in connection with the Plan of Reorganization, except to the extent such items are already in the possession of NME. Such records shall be the property of NME, but shall be available to New Hillhaven for review and duplication until New Hillhaven shall notify NME in writing that such records are no longer of use to New Hillhaven. Section 6.02 Access to Information. --------------------- (a) From and after the Distribution Date, NME shall afford to New Hillhaven and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") within NME's possession relating to the businesses to be transferred to New Hillhaven or any New Hillhaven Subsidiary in connection with the Plan of Reorganization, insofar as such access is reasonably required by New Hillhaven. Similarly, New Hillhaven shall afford to NME and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing Information) and duplicating rights during normal business hours to Information within New Hillhaven's possession relating to the NME business as constituted after the Distribution, insofar as such access is reasonably required by NME. Information may be requested under this Article VI for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby. (b) For a period of five years following the Distribution Date, New Hillhaven shall provide to NME, promptly following such time at which such documents shall be filed with the Commission, copies of all documents which shall be filed by New Hillhaven or any of its Subsidiaries with the Commission pursuant to the periodic and interim reporting requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. Section 6.03 Provision of Services. In addition to any services --------------------- contemplated to be provided following the Distribution Date by the Services Agreement or any other Ancillary Agreement, each party, upon written request, shall make available to the other party, during normal business hours and in a manner that will not unreasonably interfere with such party's business, its financial, tax, accounting, legal, employee benefits and similar staff services 19 (collectively "Services") whenever and to the extent that they may be reasonably required in connection with the preparation of tax returns, audits, claims, litigation or administration of employee benefit plans, and otherwise to assist in effecting an orderly transition following the Distribution. Section 6.04 Production of Witnesses. At all times from and after ----------------------- the Distribution Date, each of New Hillhaven and NME shall use reasonable efforts to make available to the other upon written request its and its Subsidiaries' officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with legal, administrative or other proceedings in which the requesting party may from time to time be involved. Section 6.05 Reimbursement. Except to the extent otherwise ------------- contemplated by the Services Agreement or any other Ancillary Agreement, a party providing Information or Services to the other party under this Article VI shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Information or Services. Section 6.06 Retention of Records. Each of NME and New Hillhaven -------------------- shall retain, and shall cause its Subsidiaries to retain, pursuant to NME's Record Retention Program, a copy of which has been made available to New Hillhaven, all Information relating to the other and the other's Subsidiaries, except as otherwise required by law or set forth in an Ancillary Agreement or except to the extent that such Information is in the public domain or in the possession of the other party; provided, that, after the expiration of the -------- ---- applicable retention period set forth in such Program, such Information shall not be destroyed or otherwise disposed of at any time, unless, prior to such destruction or disposal, (a) the party proposing to destroy or otherwise dispose of such Information shall provide no less than 90 days' prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information. Section 6.07 Confidentiality. Subject to any contrary requirement --------------- of law and the right of each party to 20 enforce its rights hereunder in any legal action, each party shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any Information of or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligations under, any provisions of this Agreement; provided, -------- however, that such obligation to maintain confidentiality shall not apply to - ------- Information which (i) at the time of disclosure was in the public domain, (ii) after disclosure enters the public domain not as a result of acts by the receiving party, (iii) was already independently in the possession of the receiving party at the time of disclosure or (iv) is received by the receiving party from a third party who did not receive such Information from the disclosing party under an obligation of confidentiality. ARTICLE VII MISCELLANEOUS ------------- Section 7.01 Entire Agreement; Amendment. This Agreement and the --------------------------- other agreements referred to herein or therein or entered into in connection herewith or therewith set forth the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof, including the Original Agreement. No representation, promise, inducement or statement of intention has been made by either party hereto which is not embodied in this Agreement or such other agreements, the Annexes, Schedules or Exhibits hereto or thereto, or the written statements or other documents delivered pursuant hereto or thereto, and neither party hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. This Agreement may be amended or modified only by a written instrument executed by both parties hereto or by their successors and permitted assigns. Section 7.02 Survival of Agreements. Except as otherwise ---------------------- contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. Section 7.03 Expenses. Except as otherwise set forth in this -------- Agreement or any Ancillary Agreement, all costs and expenses in connection with the preparation, execution, delivery and implementation of this Agreement and with the consummation of the transactions contemplated by this Agreement shall be paid by NME to the extent that appropriate documentation concerning such costs and expenses shall be provided to NME, provided that NME shall have approved in advance any item of expense in excess of $5,000 to be incurred after the Distribution Date, which approval 21 shall not be unreasonably withheld. Such costs and expenses shall include, without limitation, printing costs and other expenses related to the preparation, printing and distribution of the Information Statement. Section 7.04 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California. Section 7.05 Notices. All notices, consent, requests, ------- instructions, approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy No.: (213) 315-6688 Attention: General Counsel If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy No.: (206) 756-4714 Attention: President with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy No.: (206) 756-4845 Attention: General Counsel 22 Section 7.06 Construction. In this Agreement, ------------ (i) unless the context otherwise requires, the terms "herein", "hereof", "hereto", and "hereunder" refer to this Agreement; and (ii) the headings of the sections and subsections hereof and the table of contents hereof are inserted for convenience only and do not constitute a part of this Agreement. Section 7.07 Successors and Assigns. This Agreement and all of the ---------------------- provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Section 7.08 Termination. This Agreement may be terminated and the ----------- Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of the NME Board without the approval of New Hillhaven or of NME's shareholders. In the event of such termination, no party shall have any liability of any kind to any other party. Section 7.09 Subsidiaries. Each of the parties hereto shall cause ------------ to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. Section 7.10 No Third Party Beneficiaries. Except for the ---------------------------- provisions of Article IV relating to Indemnitees, this Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third parties any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Section 7.11 Further Assurances. The parties acknowledge and agree ------------------ that the execution, delivery and performance of this Agreement and the Ancillary Agreements will give rise to substantial long term relationships and that the exercise of certain contractual rights by one party under such agreements may have an adverse effect on the other party. In light of such relationships referred, to above, and so long as such relationships continue in substantially the form contemplated by this Agreement and the Ancillary Agreements taken together, each of the parties agrees to use its best efforts to consult with each other in good faith as to such actions which may be taken under such 23 agreements or otherwise and which are reasonably believed to have a potentially adverse effect on the business and affairs of the other. Notwithstanding the foregoing, nothing in this Section shall be construed as limiting or otherwise impairing the contractual rights and remedies exercisable by either party under this Agreement or any of the Ancillary Agreements or otherwise in the conduct of the business and affairs of either party. Section 7.12 Annexes Exhibits and Schedules. The Annexes, Exhibits ------------------------------ and Schedules hereto shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Section 7.13 Legal Enforceability. Any provision of this Agreement -------------------- which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision or remedies otherwise available to any party hereto. Without prejudice to any rights or remedies otherwise available to any party hereto, each party here to acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date and year first above written. [signatures omitted] 24 ANNEX I to REORGANIZATION AND DISTRIBUTION AGREEMENT PLAN OF REORGANIZATION Promptly following execution of the Agreement, the parties thereto will commence implementation of the steps set forth below, in the sequence set forth below, in order to permit the Distribution to be made as of the Distribution Date. All such steps shall be implemented in accordance with the Rules of Procedure set forth at the end of this Plan of Reorganization. The key to abbreviations designating the nature of a transferor's interest in the long term care facilities referred to herein is set forth in paragraph (c) of the Rules of Procedure. Other defined terms used herein without definition shall have the meaning ascribed to them in the Agreement. Step 1. (i) FHC will sell and transfer its interest in all the ------ property, plant and equipment located at the 14 long term care facilities identified below in this Step 1, together with any deferred finance charges, prepaid interest and/or other assets related to the mortgage debt with respect to such facilities including, without limitation, any sinking funds, escrow accounts and replacement reserves (such deferred charges, prepaid interest and other assets relating to the mortgage debt being referred to herein collectively as the "Financing Assets"), to the NME Subsidiary listed below under the caption "Purchaser" opposite the name of such facility. Each such NME Subsidiary will purchase such assets on the terms contemplated hereby and, in connection therewith, will assume all of the long-term mortgage debt, including any accrued interest thereon, relating to the facilities so purchased. In each case, the purchase price for such assets will equal the Book Value thereof. Payment of the portion of such purchase price that exceeds the amount of debt so assumed (such debt being valued for this purpose at its Book Value) will be made via a credit in favor of FHC in the Purchaser's intercompany account with FHC. All assets (other than the aforesaid property, plant and equipment and Financing Assets) existing as of the respective effective dates of such transfers, and all Liabilities other than the aforesaid long-term mortgage debt and any accrued interest thereon existing as of such dates, related to such facilities will be retained by FHC.
Facility Facility Transferor's State Number Name and Address Interest Purchaser ----- -------- ---------------- ------------ --------- CONNECTICUT (1) 561 Adams House O HH Holding Healthcare Co., Inc. Torrington, Ct.
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Facility Facility Transferor's State Number Name and Address Interest Purchaser ----- -------- ---------------- ------------ --------- (2) 562 Andrew House Healthcare O HH Holding New Britain, Ct. Co., Inc. (3) 563 Camelot Nursing Home O HH Holding New London, Ct. Co., Inc. (4) 565 Hamilton Pavilion O HH Holding Healthcare Co., Inc. Norwich, Ct. (5) 566 Mountain View O HH Holding Healthcare Co., Inc. Windsor, Ct. (6) 567 Nutmeg Pavilion O HH Holding Healthcare Co., Inc. New London, Ct. (7) 568 Parkway Pavilion O HH Holding Healthcare Co., Inc. Enfield, Ct. NEW HAMPSHIRE (8) 591/8591 Dover House O Hillhaven, Healthcare/Dover Inc. Head Trauma Unit Dover, NH (9) 592 Greenbriar Terrace OB Old Hillhaven Healthcare Nusha, NH (10) 593 Hanover Terrace O Hillhaven, Healthcare Inc. Hanover, NH OHIO (11) 560 Franklin Woods O Old Hillhaven Health Center Columbus, OH
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Facility Facility Transferor's State Number Name and Address Interest Purchaser ----- -------- ---------------- ------------ --------- (12) 570 Pickerington Health O Old Hillhaven Convalescent Center Pickerington, OH (13) 572 Winchester Place I L Old Hillhaven Winchester Place II O Winchester, OH VERMONT (14) 559 Birchwood Terrace OB Hillhaven Healthcare Inc. Burlington, VT
(ii) The subsidiaries of NME identified as transferors in Exhibit 1(ii) hereto, each of which will either become a New Hillhaven Subsidiary or be merged into a New Hillhaven Subsidiary pursuant to this Plan of Reorganization, will sell and transfer the assets set forth in such Exhibit opposite the name of such subsidiary to the transferees identified in such Exhibit, in each case for a purchase price for such assets equal to the Book Value thereof. In connection with such purchase, each transferee will assume all of the Liabilities of its respective transferors existing as of the dates of such transfers relating to the assets so transferred. Payment of the portion of such purchase price that exceeds the amount of Liabilities so assumed-(such Liabilities being valued-for this purpose at their Book Value) will be made via a credit in favor of each transferor in the applicable transferee's intercompany account with such transferor. 4 (iii) Old Hillhaven will assume the Liabilities described in Exhibit l(iii) hereto of the subsidiaries identified as a transferor in such Exhibit (each of which transferors will either become a New Hillhaven Subsidiary or be merged into a New Hillhaven Subsidiary), such assumption to be reflected as a charge against their respective intercompany accounts with Old Hillhaven. Step 2. Medi-$ave Pharmacies, Inc. will declare a dividend in the ------ form of a New Hillhaven Subsidiary Note in the principal amount of $10 million, payable to Hillhaven Inc., its stockholder of record as of the date of such declaration, such dividend to be payable on January 31, 1990. Step 3. FHC will, as lessee, enter into Lease Agreements covering ------ each of the 120 long term care facilities identified in Parts I and II of Exhibit 3 hereto with the party listed in such Exhibit under the caption "Owner/Lessor" opposite the name of such facility and management agreements with respect to facility number 825 and facility number 829. The principal financial terms of each such Lease Agreement are outlined on a Schedule of Lease Terms initialed by the parties on January 8, 1990. All assets (other than property, plant and equipment and Financing Assets) existing as of the respective effective dates of such Lease Agreements and relating to the foregoing facilities identified in Exhibit 3 owned by each such NME 5 Subsidiary will be sold and transferred by such NME Subsidiary to FHC, which will purchase such assets on the terms contemplated hereby. In connection therewith, FHC will assume all of the Liabilities (other than long-term mortgage debt and any accrued interest thereon existing as of such date) of such NME Subsidiary existing as of such dates related to the facilities so leased or the assets so sold and transferred. The purchase price for such assets will equal the Book Value thereof. Payment of the portion of such purchase price that exceeds the amount of Liabilities so assumed (such Liabilities being valued for this purpose at their Book Value) will be made via a credit in favor of the transferor in FHC's intercompany account with such transferor. Step 4. The following wholly-owned subsidiaries of HH Holding Co., ------ Inc. will be merged upstream into HH Holding Co., Inc.: (1) Aurora's Golden Age Nursing Home, Inc. (2) NHE/Arizona, Inc. (3) NHE/Lindenwood Nursing Home, Inc. (4) NILE/South Carolina, Inc. (5) Nursing Home of Cherry Hills, Inc. By reason of such mergers, NH Holding Co., Inc. will succeed to all assets and Liabilities of such merged corporations, including the interests in real property and improvements thereon relating to the seven long term care facilities of the corporations named above in this Step 4, as identified in Exhibit 4 hereto. 6 Step 5. (i) Integrated Health Systems, Inc., a wholly-owned ------ Subsidiary of The Cadem Corporation, will be merged upstream into The Cadem Corporation. (ii) NME, owner of all of the outstanding capital stock of The Cadem Corporation, will transfer such stock as a capital contribution to Old Hillhaven. Step 6. (i) Hillhaven West, Inc., owner of all the outstanding ------ capital stock of Pasatiempo Development, will sell that stock to FHC for a purchase price equal to the Book Value of such stock. Payment of such purchase price will be made via a credit in favor of the transferor in FHC's intercompany account with such transferor. (ii) The corporations listed in Exhibits 6(ii)(A) and 6(ii)(b) hereto will sell and transfer to FHC, and FHC will purchase on the terms contemplated hereby, all (A) the assets of such transferor corporations related to each of the 25 long term care facilities identified in Exhibit 6(ii) (A) hereto under the respective names of such transferor corporations existing as of the respective effective dates of such transfers related to such facilities and (B) the notes receivable identified in Exhibit 6(ii) (B) hereto. In connection with such sale and purchase, FHC will assume all of the Liabilities of the transferors existing as of such dates related to the assets so purchased. In each case, the purchase price for such assets will equal the Book Value thereof. Payment of the portion of such purchase 7 price that exceeds the amount of Liabilities so assumed (such Liabilities being valued for this purpose at their Book Value) will be made via a credit in favor of the transferor in FHC's intercompany account with such transferor. Step 7. (i) (a) Old Hillhaven, owner of all of the outstanding ------ capital stock of the corporations listed below in this Step 7, will transfer all of such stock as a capital contribution to Hillhaven Inc., also a wholly-owned subsidiary of Old Hillhaven: (1) Brim of Massachusetts, Inc. (2) The Cadem Corporation (3) Chastain's of Ava, Inc. (4) Chastain's of Buffalo, Inc. (5) Chastain's of Clinton, Inc. (6) Chastain's of Des Peres, Inc. (7) Chastain's of Joplin, Inc. (8) Chastain's of Lamar, Inc. (9) Chastain's of Thayer, Inc. (10) Cornerstone Child Care Centers, Inc. (11) Hillhaven of Central Florida, Inc. (12) Hillhaven of Hawaii, Inc. (13) Hillhaven Properties, Ltd. (14) Postcare Rehabilitation, Inc. (15) Postcare Rehabilitation of Northern California, Inc. (16) Smith, Harst, Siebel and Associates Inc. (b) Old Hillhaven, owner of all of the outstanding preferred stock of Flagg Industries, Inc., will transfer all of such stock as a capital contribution to Hillhaven Inc. (ii) Old Hillhaven will transfer as a capital contribution to Hillhaven Inc. all the assets 8 of Old Hillhaven related to each of the 68 long term care facilities identified in Exhibit 7(ii) hereto, with the exception of that certain Option Agreement, dated May 24, 1985, between Cardinal Medical Corporation and Old Hillhaven, existing as of the respective effective dates of such transfers related to such facilities. In connection with such transfer, Hillhaven Inc. will assume all of the Liabilities of Old Hillhaven existing as of such dates related to the facilities so transferred. (iii) Old Hillhaven will transfer as a capital contribution to Hillhaven Inc. all of the interest of Old Hillhaven in the Partnership/stockholder interests and interests in real estate and improvements thereon identified in Exhibit 7(iii) (A) hereto and the notes receivable identified in Exhibits 7(iii) (B) and 7(iii) (C) hereto. Step 8. HH Holding Co., Inc. will transfer to Hillhaven Inc., on the ------ terms contemplated hereby, all of the following assets: (i) all of the outstanding common stock of Flagg Industries, Inc. and Mediplex Pharmacy, Inc. (ii) all of (A) the assets of HH Holding Co., Inc. related to each of the 47 long term care facilities identified in Exhibit 8(ii)(A) hereto existing as of the respective effective dates of such transfers related 9 to such facilities, and (B) the notes receivable identified in Exhibits 8(ii)(B) and 8(ii)(C) hereto. (iii) all of the assets related to the seven long term care facilities acquired by HH Holding Co., Inc. pursuant to the mergers specified in Step 4 hereof except the property, plant and equipment located at facility number 742 (Bells Lodge Nursing Home) and any Financing Assets relating to such facility. In connection with the transfers provided for in paragraphs (ii) and (iii) above of this Step 8, Hillhaven, Inc. will assume all of the Liabilities of HH Holding Co., Inc. existing as of the respective effective dates of such transfers related to the facilities referred to therein and other assets so transferred, except Liabilities in respect of the mortgage debt (including accrued interest thereon) relating to facility number 742. In exchange for the transfers of assets referred to in paragraphs (i), (ii) and (iii) of this Step 8, net of the Liabilities assumed, Hillhaven Inc. will issue to HH Holding Co., Inc. 500 shares of Hillhaven Inc. common stock (such number of shares (the "Estimate") constituting the best estimate of NME and New Hillhaven as of the date of such transfer of the actual number of such shares issuable pursuant to the formula set forth in the next sentence). As soon as practicable after the Distribution, the actual number of such shares issuable in exchange for the transfer of the aforesaid assets will be 10 determined for this purpose by calculating the Book Value per share of Hillhaven Inc. common stock before giving effect to the transfers Provided for in this Step 8 and then dividing the Book Value of such net assets transferred pursuant to this Step 8 by such Book Value per share. To the extent the actual number of shares issuable pursuant to such formula exceeds the Estimate, Hillhaven Inc. will forthwith issue to HH Holding Co., Inc. a number of such shares equal to such excess; to the extent such actual number of shares is less than the Estimate, HH Holding Co., Inc. will forthwith return to Hillhaven Inc. a number of such shares equal to such shortfall. Step 9. Flagg Industries, Inc. will be merged upstream into ------ Hillhaven Inc. Stem 10. (i) Hillhaven Inc., owner of all of the outstanding capital ------- stock of the corporations listed below in this paragraph (i) of this Step 10, will transfer all of such stock as a capital contribution to FHC: (1) The Cadem Corporation (2) Chastain's of Ava, Inc. (3) Chastain's of Buffalo, Inc. (4) Chastain's of Clinton, Inc. (5) Chastain's of Des Peres, Inc. (6) Chastain's of Joplin, Inc. (7) Chastain's of Lamar, Inc. (8) Chastain's of Thayer, Inc. (9) Cornerstone Child Care Centers Inc. (10) Hillhaven of Central Florida, Inc. (11) Hillhaven of Hawaii, Inc. (12) Hillhaven Properties, Ltd. (13) Northwest Health Care, Inc. (14) Postcare Rehabilitation, Inc. (15) Postcare Rehabilitation of Northern California, Inc. (16) Smith, Harst, Siebel and Associates, Inc. 11 (ii) Hillhaven Inc. will transfer to FHC without consideration, other than the assumption of the Liabilities referred to in the next sentence, all of the assets acquired by Hillhaven Inc. pursuant to Paragraphs (ii) and (iii) of Step 7, Paragraphs (ii) and (iii) of Step 8 (with the exception of the notes receivable identified in Exhibits 7(iii)(B) and 8(ii)(B)) and Step 9 (with the exception of (1) the partnership interest in Healthcare Property Partners (2) the property, plant and equipment located at facility number 203 (Hillhaven Willow Pass) and any Financing Assets relating to such facility, and (3) any prepaid Taxes (as defined in the Tax Sharing Agreement) and investment in life insurance net of policy borrowings related to insurance policies issued on November 1, 1984 and 1985 by Security Life of Denver originally obtained for SERP participants and related prepaid interest on such policy borrowings). In connection with such transfer, FHC will assume all of the Liabilities of Hillhaven Inc. existing as of the date of such transfer relating to the assets so transferred (with the exception, in the case of Liabilities to which Hillhaven Inc. has succeeded by virtue of the merger into Hillhaven Inc. of Flagg Industries, Inc., of (1) any Liability in respect of cash overdrafts in disbursement and payroll bank accounts, (2) any Liability in respect of Taxes for periods through and including the Distribution Date (including any Liability in respect of deferred Taxes), 12 and (3) any Liability in respect of expenses related to the Distribution as set forth in Section 7.03 of the Distribution Agreement. (iii) (a) Old Hillhaven will transfer to Hillhaven Inc. as a capital contribution a 98% limited partnership interest in facility number 7185. (b) Old Hillhaven will transfer to Hillhaven Inc. as a capital corporation the promissory note, in the principal amount of $1,750,000 dated as of February 3, 1988 from Stockton Nursing Home Partners. (c) Hillhaven Inc. will transfer to FHC without consideration other than the assumption of associated Liabilities, including intercompany accounts, (A) all the assets of Hillhaven Inc. related to the 49 long term care facilities identified in Exhibit 10(iii)(A) hereto existing as of the respective dates of such transfers related thereto, (B) the partnership interests and interests in non-facility real estate and improvements thereon identified in Exhibit 10(iii)(B) hereto and (C) the notes receivable identified in Exhibit 10(iii)(C) hereto. In connection with the transfer of the assets related to the 49 long term care facilities referred to in clause (A) of the preceding sentence, FHC will assume all of the Liabilities of Hillhaven Inc. existing as of the date of such transfer relating to the assets so transferred. 13 Stem 11. (i) The following wholly-owned subsidiaries of FHC will be ------- merged upstream into FHC: (1) The Cadem Corporation (2) Chastain's of Ava, Inc. (3) Chastain's of Buffalo, Inc. (4) Chastain's of Clinton, Inc. (5) Chastain's of Des Peres, Inc. (6) Chastain's of Joplin, Inc. (7) Chastain's of Lamar, Inc. (8) Chastain's of Thayer, Inc. (9) Hillhaven of Hawaii, Inc. (10) Postcare Rehabilitation, Inc. (11) Postcare Rehabilitation of Northern California, Inc. (12) Smith, Harst, Siebel and Associates, Inc. By reason of such mergers and the merger described in Step 5(i), FHC will succeed to all the assets and Liabilities of such merged corporations, including the assets relating to the 16 long term care facilities of certain of the corporations identified in 11(i) (A) hereto and the note receivable identified in Exhibit 11(i) (B) hereto. (ii) FHC will execute and deliver to Old Hillhaven a New Hillhaven Subsidiary Note evidencing existing intercompany indebtedness, including such indebtedness assumed in connection with the transfers described above, of FHC to Old Hillhaven (the initial aggregate principal amount of such Note to be $127.3 million, subject to adjustment as provided in such Note). In connection therewith and with the New Hillhaven Subsidiary Note referred to in Step 2, the Note Guarantee Agreement will be executed and delivered. 14 Step 12. (i) Hillhaven Inc., owner of all of the outstanding capital ------- stock of the corporations listed below in this Step 12, will transfer all of such stock to New Hillhaven: (1) Brim of Massachusetts, Inc. (2) FHC (3) Mediplex Pharmacy, Inc. (4) Medi-$ave Pharmacies Inc. (ii) Hillhaven Inc. will transfer to New Hillhaven (A) all the notes receivable identified in Exhibits 7(iii) (B) and 8(ii) (B) hereto and previously transferred to Hillhaven Inc. plus $30 million of cash and (B) all its interests in the notes receivable identified in Exhibit 12(ii) hereto. (iii) In exchange for the assets transferred pursuant to paragraphs (i) and (ii) of this Step 12, New Hillhaven will transfer to Hillhaven Inc. (1) such number of shares of New Hillhaven Common Stock so that immediately after such issuance and after giving effect thereto, NME and its Subsidiaries will own a number of such shares sufficient to enable NME to (a) distribute to its shareholders one share of New Hillhaven Common Stock for each share of NME Common Stock held on the record date for the Distribution and (b) retain for its own account or the account of one of its Subsidiaries, in the aggregate, a number of shares equal to 15% (rounded to the next highest full share) of the outstanding New Hillhaven Common Stock and (2) warrants to purchase 30 million shares of New Hillhaven Common Stock. 15 Step 13. New Hillhaven will transfer as a capital contribution all of ------- the outstanding capital stock of Mediplex Pharmacy, Inc. to Medi-$ave Pharmacies Inc. Step 14. Hillhaven Inc. will distribute as a dividend to its ------- shareholders, HH Holding Co., Inc. and Old Hillhaven, 85% of the shares of New Hillhaven Common Stock it received in Step 12. Step 15. HH Holding Co., Inc. will distribute as a dividend to its ------- shareholder, Old Hillhaven, all of the shares of New Hillhaven Common Stock it received in Step 14. Step 16. Old Hillhaven will distribute as a dividend to its ------- shareholder, NME, all of the shares of New Hillhaven Common Stock it received in Steps 14 and 15. Step 17. New Hillhaven will enter into an Assignment and Assumption ------- Agreement, substantially in the form attached hereto as Exhibit 17, with each of the NME Subsidiaries in order to accomplish the transfer from such NME Subsidiaries to New Hillhaven of all additional miscellaneous assets and Liabilities of such NME Subsidiaries that are not otherwise provided for in this Plan of Reorganization, subject to the specific exclusions contemplated by such Assignment and Assumption Agreement. Rules of Procedure. The parties to the Agreement have established the ------------------ following Rules of Procedure for purposes of this Plan of Reorganization: 16 (a) Effectiveness of Transactions. The parties agree that the ----------------------------- transactions contemplated in the various steps to this Plan of Reorganization shall be deemed to take place in the sequence set forth herein and on the dates set forth in the various instruments giving effect to such transactions, without regard to the date of recordation of any instrument of conveyance or other similar document or the date of the perfection of any security interest; provided, however, that the effective date of any merger provided for in this - -------- ------- Plan of Reorganization shall be determined in accordance with the applicable law of the jurisdiction in question. (b) Accounting. For purposes of this Plan of Reorganization, all ---------- references to "Book Value" shall be deemed to mean the amount at which the particular asset or liability in question would, but for the transfers contemplated hereby, have been reflected as of the Distribution Date on the balance sheet of the entity which owns such asset or owes such liability on the date of the Agreement. The parties agree that such balance sheets will be prepared as of the Distribution Date in accordance with generally accepted accounting principles applied on a basis consistent with the audited balance sheet of NME as of May 31, 1989. A consolidated balance sheet of New Hillhaven as of the Distribution Date is to be prepared by New 17 Hillhaven. Such balance sheet will be reviewed, in accordance with the standards established by the American Institute of Certified Public Accountants, by KPMG Peat Marwick. The books and records as of the Distribution Date that are to serve as a basis for any computations contemplated by this Plan of Reorganization shall have given effect to any changes therein required by such accounting firm as a result of their review. (c) Key to Transferor's Interest in Real Estate. The nature of the ------------------------------------------- transferor's interest in the various long term care facilities to be transferred pursuant to this Plan of Reorganization is designated in the lists referred to above in accordance with the following key:
Nature of Interest Designation ------------------ ----------- Transferor is owner O Transferor is sole lessee L Transferor is co-lessee CL Transferor is owner and O/L lessor Transferor is lessee and L/SL sublessor Transferor is manager, but M not the owner or lessee Transferor is owner of improvements, but lessee of the land OB Transferor is sublessee A Transferor has contract to purchase land L/C
(d) Definition of "Assets". For purposes of this Plan of ---------------------- Reorganization, references to "assets" unless otherwise indicated and except for the transfers contemplated in Step 17 include, but are not limited to, property, plant and equipment, including interests in real 18 property and improvements thereon, cash, inventory, accounts receivable, intangible and other assets (including deferred financing costs). (e) Settlement of Intercompany Accounts. The transfers of assets and ----------------------------------- assumptions of Liabilities effected pursuant to this Plan of Reorganization will result in the creation of net credits in favor of each transferor in FHC's intercompany accounts with such transferor. Upon completion of the steps provided above in this Plan of Reorganization, Old Hillhaven will cause all of such transferors (all of which are Subsidiaries of Old Hillhaven) to transfer to Old Hillhaven, by means of entries to the intercompany accounts, all of such credits so created. Old Hillhaven will then deliver to FHC $127.3 million of such credits in exchange for the issuance by FHC to Old Hillhaven of a New Hillhaven Subsidiary Note in like principal amount, as contemplated by paragraph (ii) of Step II of this Plan of Reorganization. Any additional credits thereafter remaining at Old Hillhaven will then be contributed by Old Hillhaven to the capital of New Hillhaven or to any New Hillhaven Subsidiary designated for this purpose by New Hillhaven. Notwithstanding the foregoing, such additional contribution may be effected in the accounts of the respective companies in connection with any other step of this Plan of Reorganization. 19 EXHIBIT 1(ii) to Plan of Reorganization ---------------------- TRANSFER OF ASSETS FROM FHC TO OLD HILLHAVEN AND HILLHAVEN INC. -----------------------------------
Transferor Transferee Description of Assets - ---------- ---------- --------------------- Brim of Massachusetts, Inc. Old (1) All prepaid Taxes FHC Hillhaven (as defined in the Tax Cornerstone Child Care Centers, Inc. Sharing Agreement); and Hillhaven of Central Florida, Inc. (2) investment in life Hillhaven Properties, Ltd. insurance net of policy Brim - Olive Grove, Inc. borrowings related to Fairview Living Centers, Inc. insurance policies Northwest Health Care, Inc. issued on November 1, Professional Medical Enterprises, Inc. 1984 and 1985 by Medi-Save Pharmacies, Inc. Security Life of Denver Mediplex Pharmacy, Inc. originally obtained for Pasatiempo Development SERP participants and The Cadem Corporation related prepaid interest Chastain's of Ava, Inc. on such policy Chastain's of Buffalo, Inc. borrowings. Chastain's of Clinton, Inc. Chastain's of Des Peres, Inc. Chastain's of Joplin, Inc. Chastain's of Lamar, Inc. Chastain's of Thayer, Inc. Hillhaven of Hawaii, Inc. Integrated Health Systems, Inc. Postcare Rehabilitation, Inc. Postcare Rehabilitation of Northern California, Inc. Smith, Harst, Siebel and Associates, Inc. Twenty-Nine Hundred Corporation FHC Hillhaven Partnership interest in Inc. Health Care Property Partners
Transferor Transferee Description of Assets - ---------- ---------- --------------------- FHC Hillhaven "Excess Land" consisting Inc. of one-half of property parcel related to facility number 591 in Dover, N.H. as shall subsequently be more particularly described.
EXHIBIT 1(ii), page 2 EXHIBIT 1(iii) to Plan of Reorganization ---------------------- ASSUMPTION OF LIABILITIES BY OLD HILLHAVEN ------------------------------------------
Transferor Description of Liability - ---------- ------------------------ Brim of Massachusetts, Inc. (1) Any Liability in FHC respect of cash Cornerstone Child Care Centers, Inc. overdrafts in Hillhaven of Central Florida, Inc. disbursement and Hillhaven Properties, Ltd. payroll bank accounts Brim - Olive Grove, Inc. maintained by Fairview Living Centers, Inc. transferor; (2) any Northwest Health Care, Inc. Liability in respect Professional Medical Enterprises, Inc. of Taxes for periods Medi-Save Pharmacies, Inc. through and including Mediplex Pharmacy, Inc. the Distribution Date Pasatiempo Development (including any The Cadem Corporation Liability in respect Chastain's of Ava, Inc. of deferred Taxes); Chastain's of Buffalo, Inc. and (3) any Liability Chastain's of Clinton, Inc. in respect of expenses Chastain's of Des Peres, Inc. related to the Chastain's of Joplin, Inc. Distribution as set Chastain's of Lamar, Inc. forth in Section 7.03 Chastain's of Thayer, Inc. of the Distribution Hillhaven of Hawaii, Inc. Agreement. Integrated Health Systems, Inc. Postcare Rehabilitation, Inc. Postcare Rehabilitation of Northern California, Inc. Smith, Harst, Siebel and Associates, Inc. Twenty-Nine Hundred Corporation
EXHIBIT 1(iii), page 1 EXHIBIT 3 to Plan of Reorganization ---------------------- FACILITIES LEASED TO FHC BY OLD HILLHAVEN OR ITS SUBSIDIARIES ------------------------------------ PART I Facilities Owned Or Leased by NME Subsidiaries
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ ALABAMA (1) 791 Whitesburg Manor Health HH Holding Co., Care Center Inc. 105 Teakwood Drive Huntsville, AL ARIZONA (2,3) 436, 437 Valley House Healthcare Hillhaven West, 5545 East Lee Street Inc. Tucson, AZ (4) 742 Bells Lodge Nursing Home NHE/Arizona, 4202 North 20th Avenue Inc. Phoenix, AZ (5) 851 Villa Campana Healthcare Old Hillhaven 6651 Carondelet Drive East Tucson, AZ ARKANSAS (6) 818 Hillhaven Little Rock Old Hillhaven 5720 West Markam Little Rock, AR CALIFORNIA
EXHIBIT 3, page 1
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ (7) 149 Fair Oaks Health Care Center Hillhaven Inc. 8845 Fair Oaks Boulevard Sacramento, CA (8) 150 Hillhaven San Francisco Hillhaven, Inc 1359 Pine Street San Francisco, CA (9) 203 Hillhaven Willow Pass Flagg 3318 Willow Pass Industries Inc. Concord, CA (10) 320 Hillhaven Convalescent Hillhaven, Inc Hospital 1609 Trousdale Drive Burlingame, CA (11) 410 Santa Paula Healthcare Hillhaven West, 220 West Main Street Inc. Santa Paula, CA (12) 411 Alta Vista Healthcare Hillhaven West. 9020 Garfield Inc. Arlington, CA (13) 420 Maywood Acres Healthcare Hillhaven West, South "C" Street Inc. Oxnard, CA (14) 427 Twin Pines Healthcare Hillhaven West, 250 March Street Inc. Santa Paula, CA (15) 727 Broodview Convalescent HH Holding Co.. Hospital Inc. 13228 San Pablo Avenue San Pablo, CA (16) 737 Hillhaven San Leandro HH Holding Co. 368 Juana Avenue Inc. San Leandro, CA (17) 738 Hillhaven Alameda HH Holding Co. 2116 Otis Drive Inc. Alameda, CA
EXHIBIT 3, page 2
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ COLORADO (18) 859 Castle Gardens Nursing Home Old Hillhaven 401 Malley Drive Northglenn, CO CONNECTICUT (19) 561 Adams House Health Care HH Holding Co., 80 Fern Drive Inc. Torrington, CT (20) 562 Andrew House Health Care HH Holding Co., 66 Clinic Drive Inc. New Britain, CT (21) 563 Camelot Nursing Home HH Holding Co., 89 Viets Street Inc. New London, CT (22) 565 Hamilton Pavilion Health Care HH Holding Co., 50 Palmer Street Inc. Norwich, CT (23) 566 Mountain View Health Care HH Holding Co., 581 Poquonock Avenue Inc. Windsor, CT (24) 567 Nutmeg Pavilion Health Care HH Holding Co., 78 Viets Street Extension Inc. New London, CT (25) 568 Parkway Pavilion Health Care HH Holding Co., 1157 Enfield Street Inc. Enfield, CT FLORIDA (26) 115 Convalescent Center of the Hillhaven, Inc. Palm Beaches 300 15th Street West Palm Beach, FL (27) 117 East Manor Medical Center Hillhaven, Inc. 1524 East Avenue South Sarasota, FL
EXHIBIT 3, page 3
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ (28) 124 Hillhaven Health Care Center Old Hillhaven 950 Mellonville Avenue Sanford, FL (29) 125 Titusville Nursing and Old Hillhaven Convalescent Center 1705 Jess Parrish Court Titusville, FL (30) 610 Boca Raton Convalescent Center Hillhaven, Inc. 755 Meadows Road Boca Raton, FL (31) 836 Medicenter - Tampa Old Hillhaven 4411 North Habana Tampa, FL GEORGIA (32) 155 Savannah Convalescent Center Hillhaven, Inc. 815 East 63rd Street Savannah, GA (33) 645 Hillhaven Rehabilitation and Hillhaven, Inc. Convalescent Center 26 Tower Road Merrietta, GA (34) 660 Hillhaven Convalescent Center Hillhaven, Inc. 11800 Abercorn Street Savannah, GA ILLINOIS (35) 448 Dirkson House Health Care Hillhaven West, 555 West Carpenter Street Inc. Box 7025 Springfield, IL INDIANA (36) 286 Columbia Nursing Plaza HH Holding Co., 621 West Columbia Inc. Evansville, IN
EXHIBIT 3, page 4
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ (37) 779 Westview Manor Healthcare HH Holding Co., Center Inc. 1510 Clinic Drive Bedford, IN (38) 780 Columbus Convalescent Center HH Holding Co., 2100 Midway Inc. Columbia, IN KANSAS (39) 838 Hillhaven - Topeka Old Hillhaven 711 Garfield Topeka, KS (40) 844 Hillhaven - Wichita Old Hillhaven 932 North Topeka Wichita, KS KENTUCKY (41) 783 Lexington Manor Healthcare HH Holding Co., Facility Inc. 353 Waller Avenue Lexington, KY MISSOURI (42) 445 Clayton House Health Care Hillhaven West, Center Inc. 13995 East Clayton Road Manchester, MO (43) 446 Columbia House Health Care Hillhaven West, 1801 Towne Drive Inc. Columbia, MO (44) 834 Medicenter - Springfield Old Hillhaven 1911 South National Springfield, MO MONTANA (45) 416 Park Place Hillhaven Hillhaven West, Convalescent Center Inc. P.O. Box 5001 Great Falls, MT
EXHIBIT 3, page 5
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ (46) 433 Parkview Acres Convalescent Hillhaven West, Center Inc. 200 Oregon Street Dillon, MT NEVADA (47) 145 Reno Healthcare Hillhaven, Inc. 1300 Mill Street Reno, NV (48) 640 Las Vegas Convalescent Center Hillhaven, Inc. 2832 Maryland Parkway Las Vegas, NV (49) 641 Torrey Pines Care Center Hillhaven, Inc. 1701 South Torrey Pines Drive P.O. Box 26209 Las Vegas, NV NEW HAMPSHIRE (50) 593 Hanover Terrace Hillhaven, Inc. Lyme Road Hanover, NH (51) 591/8591 Dover House Health Care/ Hillhaven, Inc. Dover Trauma Unit Plaza Drive Dover, NH NORTH CAROLINA (52) 116 Durham Hillhaven Hillhaven, Inc. Rehabilitation and Convalescent Center 1515 West Pettigrew Durham, NC (53) 136 Hillhaven La Salle Nursing Hillhaven, Inc. Center 411 South La Salle Street Durhum, NC (54) 137 Hillhaven - Sunnybrook Hillhaven, Inc. Convalescent Center 25 Sunnybrook Road Raleigh, NC
EXHIBIT 3, PAGE 6
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- ------------------------- ------ (55) 138 Hillhaven Rehabilitation and Hillhaven, Inc. Care Center 91 Victoria Road Asheville, NC (56) 143 Hillhaven Convalescent Center Hillhaven, Inc. 616 Wade Avenue Raleigh, NC (57) 146 Hillhaven - Rose Manor Hillhaven, Inc Convalescent Center 4230 North Roxboro Road Durham, NC (58) 176 Hillhaven - Orange Nursing Hillhaven, Inc. Center Route 1, Box 155 Durham, NC (59) 188 Hillhaven Convalescent Center Hillhaven, Inc. 2006 South 16th Street Wilmington, NC (60) 190 Winston-Salem Convalescent Hillhaven, Inc. Center 1900 West First Street Winston-Salem, NC (61) 191 Silas Creek Manor Hillhaven, Inc. 3350 Silas Creek Parkway Winston Salem, NC (62) 704 Guardian Care of Roanoke Guardian Medical Rapids Services, Inc. 305 14th Street Roanoke Rapids, NC (63) 706 Guardian Care of Henderson Guardian Medical 519 Roanoke Avenue Services, Inc. P.O. Box 1616 Henderson, NC (64) 707 Guardian Care Center of Monroe Guardian Medical 1212 Sunset Drive Services, Inc. P.O. Box 1189 Monroe, NC
EXHBIT 3, page 7
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- -------------------------- ------ (65) 710 Guardian Care of New Bern Guardian Medical 836 Hospital Drive Services, Inc. P.O. Box 2037 New Bern, NC (66) 711 Guardian Care of Kinston Guardian Medical Cunningham Road Services, Inc. P.O. Box 1438 Kinston, NC (67) 713 Guardian Care of Zebulon Guardian Medical 509 Gannon Avenue Services, Ltd. Zebulon, NC (68) 724 Hillhaven Health Care of Guardian Medical Gastonia Services, Ltd. 416 North Highland Street Gastonia, NC (69) 806 Hillhaven Convalescent of Hillhaven, Inc. Chapel Hill 1602 East Franklin Street Chapel Hill, NC OHIO (70) 560 Franklin Woods Nursing Home Old Hillhaven 2770 Clime Road Columbus, OH (71) 570 Pickerington Health Care Old Hillhaven Center 1300 Hill Road North Pickerington, OH (72) 572 Winchester Place II Old Hillhaven 36 Lehman Drive Canal Winchester, OH (73) 802 Hillhaven Convalescent Center Old Hillhaven 145 Olive Street Akron, OH
EXHIBIT 3, page 8
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- -------------------------- ------ OKLAHOMA (74, 75) 233, 234 Heritage Manor Nursing and Old Hillhaven Convalescent Center 215 Southeast Howard Street Bartlesville, OK TENNESSEE (76) 132 Hillhaven Convalescent Center Hillhaven, Inc. 431 Larkin Springs Road Madison, Tennessee TEXAS (77) 750 Golden Age Manor/Belfort HH Holding Co., 7633 Belfort Inc. Houston, TX (78) 752 Golden Age Manor/Long Point HH Holding Co., 8810 Long Point Road Inc. Houston, TX (79) 753 Golden Age Manor/North Loop HH Holding Co., 1737 North Loop West Inc. Houston, TX (80) 754 Golden Age Manor/Rookin HH Holding Co., 6500 Rookin Inc. Houston, TX UTAH (81) 655 Hillhaven Convalescent Center Hillhaven, Inc. 41 South 9th East Salt Lake City, UT (82) 690 Wasatch Villa Convalescent Hillhaven, Inc. Nursing Home 2200 East 33rd Street Salt Lake City, UT VIRGINIA (83) 825 Nasamond Convalescent Center Old Hillhaven 200 Constance Road Suffolk, VA
EXHIBIT 3, page 9
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- -------------------------- ------ (84) 826 Hillhaven Rehabilitation and Old Hillhaven Convalescent Center 1005 Hampton Road Norfolk, VA (85) 829 Holmes Convalescent Home Old Hillhaven 4142 Bonney Road Virginia Beach, VA (86) 842 Medicenter - Virginia Beach Old Hillhaven 1148 First Colonial Road Virginia Beach, VA WASHINGTON (87) 114 Arden Nursing Home Hillhaven, Inc. 16357 Aurora Avenue North Seattle, WA (88) 127 North West Continuum Care Northwest Center Continuum Care 128 Beacon Hill Center, Inc. and Longview, WA Hillhaven, Inc. (89) 158 Bellingham Care Center Hillhaven, Inc. 1200 Birchwood Avenue Bellingham, WA (90) 160 First Hill Care Center Hillhaven, Inc. 1334 Terry Avenue Seattle, WA (91) 180 Hillhaven Convalescent Center Hillhaven, Inc. 400 East 33rd Street Vancouver, WA (92) 185 Hillhaven Nursing Home Hillhaven, Inc. 3605 "Y" Street Vancouver, WA (93) 461 Edmonds Care Center Hillhaven West, 21008 76th Avenue West Inc. Edmonds, WA (94) 462 Queen Anne Care Center Hillhaven West, 2717 Dexter Avenue North Inc. Seattle, WA
EXHIBIT 3, page 10
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- -------------------------- ------ WISCONSIN (95) 765 Eastview Manor HH Holding Co., 729 Park Street Inc. Antigo, WI (96) 767 Colony Oaks Care Center HR Holding Co., 602 Briarcliff Drive Inc. Appleton, WI (97) 770 Vallhaven Care Center HH Holding Co., 125 Byrd Avenue Inc. Neenah, WI (98) 774 Mount Carmel Nursing Home HH Holding Co., 5700 West Layton Avenue Inc. Milwaukee, WI (99) 775 Sheridan Nursing Home HH Holding Co., 2400 Sheridan Road Inc. Kenosha, WI (100) 776 Woodstock/Kenosha Health HH Holding Co., Care Center Inc. 3415 Sheraton Road Kenosha, WI WYOMING (101) 441 Mountain Towers Health Hillhaven West Care Center Inc. 3129 Acacia Drive Cheyenne, WY (102) 481 Park Manor Nursing and Hillhaven West Convalescent Home Inc. 542-16th Street P.O. Box 1150 Rawlings, WY (103) 482 Fremont Manor Nursing and Hillhaven West Convalescent Home Inc. 1002 Forest Avenue Riverton, WY
EXHIBIT 3, page 11
Facility Owner/ State Number Facility Name and Address Lessor ----- -------- -------------------------- ------ (104) 483 Kimberly Manor Nursing and Hillhaven West, Convalescent Home Inc. 1325 Sage Street P.O. 1146 Rock Springs, WY
EXHIBIT 3, page 12 PART II (Facilities Subject to a Master Lease)
Facility Facility Name Description of Owner/ State Number and Address Master Lease Lessor ----- -------- ------------- -------------- ------ ALABAMA (105) 804 Hillhaven Lease dated Old Hillhaven Convalescent Center July 3, 1969, by and Nursing Home and between 27RE28 10th Avenue St. Vincent's Birmingham, AL Hospital, as lessor, and Medicenters of America, Inc., as lessee (ground lease). (106) 824 Hillhaven Lease dated Old Hillhaven Convalescent Center November 30, 1966, and Nursing Home by and between 1758 Springhill Earl B. Wert and Avenue Ellen R. Wert, as Mobile, AL lessors, and Medicenters of America, Inc., as lessee (ground lease). ARIZONA (107) 7104 Villa Campana Lease and Old Hillhaven & Retirement Center Acquisition Hillhaven, Inc. 6653 E. Carondelet Agreement dated Drive February 1, 1983 Tucson, AZ by and between the Industrial Development Authority of the County of Pima, as lessor, and The Hillhaven Corporation, as lessee.
EXHIBIT 3, page 13
Facility Facility Name Description of Owner/ State Number and Address Master Lease Lessor ----- -------- ------------- -------------- ------ CALIFORNIA (108) 525 Hillhaven Lease dated June Hillhaven, Inc. Convalescent 11, 1962, by and Hospital between Mary G. 920 W. LaVeta Newcom, Richard B. Orange, CA Newcom and Mary Beth Potter Querfurth, as lessor, and Orange Square Development Corporation, as lessee (ground lease). KANSAS (109) 809 Country Club Home Lease and Old Hillhaven 400 Sunset Dr. Agreement dated P.O. Box 319 January 1, 1973 by Council Grove, KS and between the City of Council Grove, as lessor, and Country Club Home, Inc., as lessee. (110) 833 Sedgewick Lease and Sedgewick Convalescent Agreement dated Convalescent Center September 20, 1974 Center, Inc. 712 Monroe by and between the Box 49 City of Sedgewick, Sedgewick, KS as lessor, and Sedgewick Convalescent Center, Inc., a Kansas corporation, as lessee.
EXHIBIT 3, page 14
Facility Facility Name Description of Owner/ State Number and Address Master Lease Lessor ----- -------- ------------- -------------- ------ (111, 857, Hammond Holiday Lease dated Hammond Holiday 112) 858 Home January 1, 1980 by House, Inc. 114 West 11th and between the Larned, KS City of Larned, Kansas, as lessor, and Hammond Holiday Home, Inc., a Kansas corporation, as lessee. (113) 861 Green Meadows Lease dated July Old Hillhaven Nursing Center 1, 1982 by and 215 N. Larmar St. between the City Haysville, KS of Haysville, Sedgewick County, Kansas, as lessor, and Green Meadows Nursing Center, Inc., as lessee. KENTUCKY (114) 781 Bashford East Lease dated HH Holding Co., Healthcare February 13, 1962 Inc. 3535 Bardstown Road by and between Louisville, KY Cesare Bertoli and Kathleen H. Bertoli, as lessor, and Heritage Home Nursing and Convalescent Care. NEW HAMPSHIRE (115) 592 Greenbriar Terrace Lease dated Old Hillhaven 55 Harris Road October 1, 1972 by Nashua, NH and between Samuel A. Tamposi, Gerald Q. Nash, as lessor, and Greenbriar Nursing Home Corp., as lessee (ground lease).
EXHIBIT 3, page 15
Facility Facility Name Description of Owner/ State Number and Address Master Lease Lessor ----- -------- ------------- -------------- ------ OHIO (116) 572 Winchester Place I Lease agreement Old Hillhaven 36 Lehman Drive dated October 29, Canal Winchester, 1976 by and Ohio between Harley B. and George J. Reynolds, as lessor, and AEON, Inc., as lessee. TENNESSEE (117) 822 Hillhaven Lease agreement Hillhaven, Inc. Convalescent Center dated December 1, 605 Primary Parkway 1979 by and Memphis, TN between The Health and Educational Facilities Board of the County of Shelby, Tennessee and Hillhaven, Inc. VERMONT (118) 559 Birchwood Lease dated June Hillhaven, Inc. Healthcare Center 17, 1964 by and 43 Starr Farm Road between Henry H. Burlington, VT Riordan and Charles W. Jones, Trustees of the Will of John H. Flynn, as lessor, and Birchwood Development Corporation, as lessee.
EXHIBIT 3, page 16
Facility Facility Name Description of Owner/ State Number and Address Master Lease Lessor ----- -------- ------------- -------------- ------ WISCONSIN (119) 769 North Ridge Care Lease agreement HH Holding Co., Center dated June 1, 1983 Inc. 1445 N. 7th Street by and between Manitowoc, WI City of Manitowoc, Wisconsin, as lessor, and HH Holding Co., Inc., a Delaware corporation, as lessee. (120) 773 Mount Carmel Lease agreement HH Holding Co., Healthcare Center dated June 1, Inc. 677 E. State St. 1983 by and Burlington, WI between City of Burlington, as lessor, and HH Holding Co., Inc., a Delaware corporation, as lessee.
EXHIBIT 3, page 17 EXHIBIT 4 to Plan of Reorganization ---------------------- ASSETS ACQUIRED BY HH HOLDING CO., INC. BY MERGER -------------------------------------------------
Facility Facility Transferor's State Number Name and Address Interest ----- --------- ---------------- ------------- PRIOR OWNER: AURORA'S GOLDEN AGE NURSING HOME, INC. ----------- COLORADO (1) 745 Aurora Care Center L Aurora, CO PRIOR OWNER: NHE/ARIZONA, INC. ----------- ARIZONA (2) 742 Bells Lodge 0 Phoenix, AZ (3) 743 Desert Life Healthcare Center 0 Tucson, AZ PRIOR OWNER: NHE/LINDENWOOD NURSING HOME, INC. ----------- NEBRASKA (4) 793 Lindenwood 0/L Omaha, NE PRIOR OWNER: NHE/SOUTH CAROLINA, INC. ----------- SOUTH CAROLINA (5) 792 Hillhaven Health Care 0 Greenville, SC (6) 984 Meridian Care Center M Columbia, SC PRIOR OWNER: NURSING HOME OF CHERRY HILLS, INC. ----------- COLORADO (7) 744 Cherry Hills Nursing Home L Englewood, CO
EXHIBIT 4, page 1 EXHIBIT 6(ii)(A) to Plan of Reorganization ---------------------- ASSETS PURCHASED BY FHC FROM OLD HILLHAVEN SUBSIDIARIES -------------------------------
Facility Facility Name Transferor's State Number and Address Interest ----- ------ ----------- -------- TRANSFEROR: THE HILLHAVEN CORPORATION OF TEXAS ---------- TEXAS (1) 840 University Manor Nursing L/SL Home, Lubbock, TX (2) 841 Quaker Villa Nursing Home L/SL Lubbock, TX TRANSFEROR: HILLHAVEN WEST, INC. ---------- IDAHO (3) 409 Shoshone Living Center 0 Kellogg, ID CALIFORNIA (4) 415 Hillhaven Highland House L Highland, CA (5) 428 Sunset Boulevard L Convalescent Hospital, Hayward, CA MONTANA (6) 418 Carbon County Healthcare L Center, Red Lodge, MT (7) 434 Livingston Convalescent L Center, Livingston, MT
EXHIBIT 6(ii)(A), page 1
Facility Facility Name Transferor's State Number and Address Interest ----- ------ ----------- -------- OREGON (8) 451 Oak Crest Care Center L Salem, OR (9) 453 Villa Royal Healthcare L Center, Medford, OR (10) 455 Hyland Hills Care Center L Beaverton, OR CALIFORNIA (11) 413 Hillhaven Care Center L/SL Santa Barbara, CA OREGON (12) 452 Sunnyside Care Center L/SL Salem, OR (13) 454 Sunnyglen L/SL Salem, OR TRANSFEROR: GUARDIAN MEDICAL SERVICES, INC. NORTH CAROLINA (14) 716 Guardian Care of Farmville 0 Farmville, NC (15) 708 Guardian Care of Goldsboro L Goldsboro, NC (16) 709 Guardian Care of Burgaw L Burgaw, NC (17) 717 Guardian Care of Scotland L Neck, Scotland Neck, NC (18) 718 Guardian Care of Ahoskie L Ahoskie, NC (19) 719 Guardian Care of Walnut L Cove, Walnut Cove, NC (20) 721 Guardin Care of Elkin L Elkin, NC
EXHIBIT 6(ii)(A), page 2
Facility Facility Name Transferor's State Number and Address Interest ----- ------ ----------- -------- (21) 722 Guardian Care of L Kenansville Kenansville, NC (22) 723 Guardian Care of Rocky L Mount, Rocky Mount, NC (23) 726 Guardian Care of Elizabeth L City, Elizabeth City, NC TRANSFEROR: LAKE HEALTHCARE FACILITIES, INC. ---------- WISCONSIN (24) 601 Columbus Care Center L Columbus, WI (25) 604 Omro Care Center L Omro, WI
EXHIBIT 6(ii)(A), page 3 EXHIBIT 6(ii)(B) to Plan of Reorganization ---------------------- NOTES RECEIVABLE TRANSFERRED TO FHC ----------------------------------- TRANSFEROR: Hillhaven West, Inc. ----------
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) ------ ----- ----- ---- --------------- 414 Mid-Valley Associates Hillhaven 08/85 - 10/05 $2,250,000.00 West, Inc. 450 Royal Oak Corp. Hillhaven 01/88 - 10/89 $ 1,359.07 West, Inc. TRANSFEROR: Lake Health Care Facilities, Inc. ---------- General Ledger Facility Original Balance (As of Number Payor Payee Term August 31. 1989) - ------- ----- ----- ---- --------------- 600 Equity Associates Elm Row 10/81 - 11/96 $1,065,992.92 Jefferson, Inc. 602 Peter C. Kern Lake Health 05/88 - 06/96 $2,953,871.43 Care Facilities, Inc. 605 Cal-Iowa Associates Lake Health 05/86 - 05/06 $1,909,728.14 Care Facilities, Inc.
EXHIBIT 6(ii)(B), page 1 TRANSFEROR: Hillhaven of Michigan, Inc. ----------
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31. 1989) ------ ----- ----- ---- --------------- 698 Peter C. Kern Hillhaven 05/88 - 06/96 $2,054,973.26 of Michigan, Inc. TRANSFEROR: The Hillhaven Corporation of Texas ---------- General Ledger Facility Original Balance (As of Number Payor Payee Term August 31. 1989) ------ ----- ----- ---- --------------- 840 Texas Health Enterprises, The 04/88 - 04/94 $ 49,115.36 Inc. Hillhaven Corporation of Texas 841 Texas Health Enterprises, The 04/88 - 04/94 $ 98,230.76 Inc. Hillhaven Corporation of Texas
EXHIBIT 6(ii)(B), page 2 EXHIBIT 7(ii) to Plan of Reorganization ---------------------- OLD HILLHAVEN FACILITY ASSETS TRANSFERRED ----------------------------------------- TO HILLHAVEN. INC. AS A CAPITAL CONTRIBUTION --------------------------------------------
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ FLORIDA (1) 122 Bradenton Convalescent 0 Center Bradenton, FL KANSAS (2) 895 Indian Creek Nursing Center 0 Overland Park, KS (3) 896 Indian Meadows Nursing 0 Center Overland Park, KS KENTUCKY (4) 864 Harrodsburg Health Care 0 Manor Harrodsburg, KY LOUISIANA (5) 816 Lake Charles Care Center 0 Lake Charles, IA MISSOURI (6) 260 Tradition House Healthcare 0 Joplin, MO (7) 823 Charlevoix Nursing Center 0 St. Charles, MO (8) 7180/ Villa Ventura 0 821 Kansas City, MO
EXHIBIT 7(ii), page 1
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ OHIO (9) 868 Lebanon Country Manor 0 Nursing Home Lebanon, OH TENNESSEE (10) 884 Masters Health Care Center 0 Algood, TN WISCONSIN (11) 771 Heritage Haven Care Center 0 Schofield, WI ARIZONA (12) 796 Sierra Vista Care Center L Sierra, AZ (13) 885 Hillhaven Health Care L Center Yuma, AZ (14) 886 Devon Gables Health Care L Center Tucson, AZ (15) 887 Devon Gables Apartments L Tucson, AZ COLORADO (16) 696 Bear Creek Nursing Center L Morrison, CO (17) 849 Iliff Care Center L Denver, CO (18) 872 Inglenook Retirement Center L Brighton, CO (19) 873 Brighton Care Center L Brighton, CO (20) 883 Golden West Nursing Home L Fort Collins, CO
EXHIBIT 7(ii), page 2
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ FLORIDA (21) 123 Orlando Memorial L Convalescent Center Orlando, FL (22) 837 Cape Coral Nursing Pavilion L Cape Coral, FL ILLINOIS (23) 258 Chastain's of Highland L Highland, IL KANSAS (24) 803 Bethesda Nursing Center L Chanute, KS (25) 845 Colonial Terrace - L Independence Independence, KS (26) 846 Colonial Lodge - L Independence Independence, KS KENTUCKY (27) 277 Rosewood Manor Health Care L Center Bowling Green, KY (28) 278 Oakview Manor Health Care L Center Calvert City, KY (29) 279 Cedars of Lebanon Rest Home L Lebanon, KY (30) 280 Winchester Manor Health L Care Center Winchester, KY (31) 281 Riverside Manor Health Care L Center Calhoun, KY
EXHIBIT 7(ii), page 3
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ (32) 282 Maple Manor Health Care L Center Greenville, KY MISSOURI (33) 263 Crane Health Care Center L Crane, MO (34) 264 Point Lookout Health Care L/SL Center Point Lookout, MO (35) 265 Table Rock Health Care L Center Kimberling City, MO (36) 266 Table Rock Health Care L Center Residential Project Kimberling City, MO (37) 267 Point Lookout Health Care L/SL Center Residential Project Point Lookout, MO (38) 819 Wornall Health Care Center L Kansas City, MO (39) 843 Blue Hills Living Center L Kansas City, MO (40) 860 Blue Hills Centre L Kansas City, MO MONTANA (41) 439 Big Sky Care Center L Helena, MT OHIO (42) 237 Newark Healthcare Center L Newark, OH (43) 295 Whitehouse Country Manor L Whitehouse, OH
EXHIBIT 7(ii), page 4
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ (44) 870 Community Nursing Center L Marion, OH OKLAHOMA (45) 889 Mayfair Nursing Home L Tulsa, OK TENNESSEE (46) 171 Hillhaven Convalescent CL Center - Bolivar Bolivar, TN (47) 174 Hillhaven Convalescent CL Center - Camden Camden, TN (48) 175 Hillhaven of Jefferson City CL Jefferson City, TN (49) 177 Loudon Healthcare Center CL Loudon, TN (50) 179 Hillhaven Convalescent L Center - Huntington, Huntington, TN (51) 182 Hillhaven Convalescent CL Center - Germantown, Germantown, TN (52) 184 Greystone Healthcare Center L Blountville, TN (53) 877 Smith County Health Care A Center Carthage, TN VIRGINIA (54) 871 Montvue Nursing Home L Luray, VA OHIO (55) 238 McMillen Senior Village L Newark, OH
EXHIBIT 7(ii), page 5
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ (56) 297 Marigarde - Sylvania 0/L Nursing Home Toledo, OH MISSISSIPPI (57) 882 Hillhaven Convalescent L/SL Center West Point West Point, MS TEXAS (58) 879 Sun Valley Healthcare L/SL Harlingen, TX (59) 290 Oaks Living Center L/SL Orange, TX (60) 291 Jones Healthcare Center L/SL Orange, TX (61) 880 Four States Nursing Home L/SL Texarkana, TX FLORIDA (62) 945/9945 Quality Care of Bay Point M Nursing Pavilion St. Petersburg, FL (63) 972/9972 Carrollwood Care Center M Tampa, FL (64) 9918 Hillhaven Conv. Center M Sarasota, FL LOUISIANA (65) 946/9972 Bayview Living Center M Gretna, LA (66) 7170 The Landing on Behrman M Place New Orleans, LA MASSACHUSETTS (67) 949/9949 Ledgewood Nursing Center M Beverly, MA
EXHIBIT 7(ii), page 6
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ MISSISSIPPI (68) 996/9996 Care Inn - Alcorn County M Corinth, MS
EXHIBIT 7(ii), page 7 EXHIBIT 7(iii)(A) to Plan of Reorganization ---------------------- OLD HILLHAVEN TRANSFERRED TO HILLHAVEN INC. AS A CAPITAL CONTRIBUTION (Partnership/stockholder interests and non-facility related ----------------------------------------------------------- real estate interests) --------------------- FACILITY PARTNERSHIP/STOCKHOLDERS INTERESTS -------------------------------------------
Facility Extent and Nature State Number of Interest ----- -------- ----------------- ARIZONA 7101 a 5% limited partnership interest (1) in Kachina Pointe Limited Partnership Sedona, AZ COLORADO (2) 7125 a 98% limited partnership interest in Castle Gardens Retirement Center Limited Partnership FLORIDA (3) 972 a 49% general partnership interest in Carrollwood Care Center Tampa, FL MASSACHUSETTS (4) 949 7500 shares (a 50% stockholder's interest) in Ledgewood Healthcare Corporation Beverly, MA MISSISSIPPI (5) 996 a 50% general partnership interest in NHS, Inc., HH Inc. Partnership Corinth, MS
EXHIBIT 7(iii)(A), page 1
Facility Extent and Nature State Number of Interest ----- -------- ----------------- NEW MEXICO (6) 874 a 99% limited partnership interest in Casa Arena Blanca Limited Partnership Alamagordo, NM
NON-FACILITY RELATED PARTNERSHIP INTERESTS ------------------------------------------ (1) an 85.5% general partnership interest in Denver Convalescent Company (2) a 51% general partnership interest in Southfield Convalescent Company
NON-FACILITY RELATED REAL ESTATE INTERESTS ------------------------------------------
Transferor's Interest --------------------- (1) Aurora Hillhaven L Regional Office Denver, CO (2) Hillhaven Regional L Office Sarasota, FL (3) Hillhaven Regional L Office Overland Park, KS (4) Hillhaven Regional L Office Lexington, MA (5) Haverhill Warehouse L Haverhill, MA
EXHIBIT 7(iii)(A), page 2
Transferor's Interest --------------------- (6) Hillhaven Regional L Office Charlotte, NC (7) Hillhaven Regional L Office Winston-Salem, NC (8) Hillhaven Regional L Office Columbus, OH (9) Hillhaven Regional L Office Memphis, TN (10) Hillhaven Regional L Office Virginia Beach, VA (11) Broadway Building L 1132-1136 Broadway Plaza Tacoma, WA 98402 (12) The Annex L 1140 Court C Tacoma, WA 98402 (13) The Warehouse L 3003-B South Pine Street Tacoma, WA 98409 (14) Hillhaven Regional L Office Menasha, WI (1) condominium located 0 at the following address: 5101 North Casa Blanca Drive Unit #22 Scottsdale, AZ 85253 (2) Hillhaven Corporate L Headquarters Office Tacoma, WA
EXHIBIT 7(iii)(A), page 3
Transferor's Interest --------------------- (3) Contract to buy land L/C and improvements thereon at the following address: The Print Shop, 1016 South 28th Street Tacoma, WA 98409
EXHIBIT 7(iii)(A), page 4 EXHIBIT 7(iii)(B) to Plan of Reorganization ---------------------- OLD HILLHAVEN NOTES RECEIVABLE TRANSFERRED TO --------------------------------------------- HILLHAVEN INC, AS A CAPITAL CONTRIBUTION ---------------------------------------- (Non-Working Capital Notes - Subsequent Transfer To New Hillhaven Pursuant To Step 12(ii))
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 9949 Ledgewood Healthcare Old 12/87 - $ 750,000.00 Corporation Hillhaven 9949 Ledgewood Healthcare Old 12/87 - $ 150,000.00 Corporation Hillhaven 050 D. Zulauf Old 01/87 - 01/91 $ 1,100.21 Hillhaven 141 Gal-Farm Associates Sentry 11/86 - 11/01 $ 850,000.00 Investment Company, Inc. 142 Gal-Farm Associates Argus 11/86 - 11/01 $ 850,000.00 Investment Company, Inc. 297 Health Enterprises of Old 05/88 - 06/94 $ 98,462.33 Michigan, Inc. Hillhaven 800/ Prowestern Developers Old 10/87 - 11/89 $ 697,500.00 1002 Financial, Inc. and Hillhaven Executive Capital Corporation 800 Royal Oak Old 08/85 - 08/89 $ 20,000.00 Hillhaven 800 Quality Care Management Old 06/85 - 05/90 $ 412,000.00 Co., Inc. Hillhaven
EXHIBIT 7(iii)(B), page 1
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 800 Angell Care Incorporated Old 06/87 - 06/90 $ 204,009.91 Hillhaven 800/ NHS Properties, Inc. Old 01/88 - 07/88 $ 262,500.00 7175 Hillhaven 800 NHS Properties, Inc. Old 01/88 - 07/88 $ 680,000.00 Hillhaven 800 Bob Latch, Gail Carnes Old 05/86 - _____ $ 400,000.00 and George Carnes Hillhaven 101 Joseph D. Livingston and Old 08/82 - 09/86 $ 202,498.52 Patricia Blaney Hillhaven Livingston 811 Mark V Ltd. #2 Old 07/75 - 12/90 $ 89,773.10 Hillhaven 811 Mark V Ltd. #3 Old 05/70 - 01/91 $ 156,434.47 Hillhaven 812 Peter C. Kern Old 05/88 - 06/08 $2,427,097.72 Hillhaven 813 Cal-Iowa Associates Old 05/86 - 05/06 $2,224,824.03 Hillhaven 820 Pavilion Louisville Old 05/84 - 07/94 $2,570,847.18 Partnership Hillhaven 830 Omaha Associates Old 10/89 - 10/04 $3,428,000.00 Hillhaven 839 Peter C. Kern Old 05/88 - 06/96 $3,396,952.19 Hillhaven 878 Tri-State Associates Old 08/86 - 08/06 $3,577,533.08 Hillhaven
EXHIBIT 7(iii)(B), page 2
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 9972 Carrollwood Care Center Old ______________ $ 153,629.00 Partnership Hillhaven 808 Peter C. Kern Old 04/88 - 04/96 $1,974,439.27 Hillhaven 879 Texas Health Enterprises, Old 04/88 - 04/94 $ 98,230.76 Inc. Hillhaven 9972 Carrollwood Care Center Old 03/87 - _____ $ 112,182.11 Partnership Hillhaven, Robert Whitcomb, Fred Beene and Dixie Taylor 9996 Johnson, Mooney-Bond, Old _____________ $ 119,500.00 Inc. Hillhaven 799 Cal-Bax Associates Old 08/87 - 08/90 $ 360,000.00 Hillhaven 946 Bayview Living Center, Old 1/89 - 2/94 $3,200,000.00 Ltd. Hillhaven
EXHIBIT 7(iii)(B), page 3 EXHIBIT 7(iii)(C) to Plan of Reorganization ---------------------- OLD HILLHAVEN NOTES RECEIVABLE TRANSFERRED TO --------------------------------------------- HILLHAVEN INC. AS A CAPITAL CONTRIBUTION ---------------------------------------- (Working Capital Notes - Subsequent Transfer To FHC Pursuant To Step 10 (ii))
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 800/ Casa Arena Blanca Limited Old 11/86 - 11/93 $ 1,270,988.51 1874 Partnership Hillhaven 800 Stockton Health Care Old 12/86 - sale of $ 904,805.46 Center, Limited Hillhaven facility Partnership 800 Casa Arena Blanca Limited Old $ 238,000.00 Partnership Hillhaven ______________ 9922 Windsor Woods Ltd. Old 08/87 - ______ $ 1,551,543.51 Hillhaven 9976 Windsor Woods Ltd. Old $ 531,949.18 Hillhaven _____________ 9919 Gene E. Lynn, Michael S. Old $ 870,000.00 Lynn, Ron Hayes and Nancy Hillhaven _____________ Hayes 9973 Gene E. Lynn, Michael S. Old 03/87 - 12/93 $ 810,000.00 Lynn, Ron Hayes and Nancy Hillhaven or sale of Hayes facility 9975 Gene E. Lynn, Michael S. 03/87 - 12/94 $ 1,042,500.00 Lynn, Ron Hayes and Nancy or sale of Hayes facility 9992 Paull Randle Associates Old $ 1,580,043.95 Hillhaven _____________
EXHIBIT 7(iii)(C), page 1 EXHIBIT 8(ii)(A) to Plan of Reorganization ---------------------- FACILITY ASSETS OF HH HOLDING CO., INC. TRANSFERRED TO HILLHAVEN INC. ---------------------------------------------------------------------
Facility Facility Name Transferor's State Number and Address Interest ----- ------ ----------- -------- ARIZONA (1) 853 Kachina Point Health Center 0 Sedona, AZ CALIFORNIA (2) 729 Hillhaven Convalescent Hospital 0 Castro Valley, CA KENTUCKY (3) 784 Northfield Manor Healthcare 0 Facility Louisville, KY (4) 785 Hillcrest Healthcare Center 0 Owensboro, KY (5) 787 Woodland Terrace 0 Healthcare Facility Elizabethtown, KY MINNESOTA (6) 764 Woodside Convalescent Center 0 Rochester, MN WISCONSIN (7) 772 Family Heritage Nursing 0 Home/Wisconsin Rapids Wisconsin Rapids, WI CALIFORNIA (8) 730 Del Rosa Convalescent Hospital L San Bernardino, CA (9) 736 Oakridge Convalescent Hospital L Oakland, CA
EXHIBIT 8(ii)(A), page 1
Facility Facility Name Transferor' s State Number and Address Interest ----- ------ ----------- -------- INDIANA (10) 285 Gertha's Nursing Center L Evansville, IN (11) 287 Crestview Convalescent Home L Vincennes, IN (12) 288 Indian Creek Convalescent Center L Corydon, IN (13) 293 Westfield Village L Westfield, IN (14) 294 Windsor Estates of Kokomo L Kokomo, IN (15) 694 Wedgewood Manor Convalescent L Center Clarksville, IN KENTUCKY (16) 271 Heritage Manor Healthcare Center L Mayfield, KY (17) 782 Fellowship Home & Friendship L House Danville, KY (18) 786 River Front Terrace Healthcare L Facility Paducah, KY NEBRASKA (19) 746 Homestead Nursing Home L Lincoln, NE TENNESSEE (20) 789 Northhaven Healthcare Center L Knoxville, TN
EXHIBIT 8(ii)(A), page 2
Facility Facility Name Transferor's State Number and Address Interest ----- ------ ----------- -------- WISCONSIN (21) 289 San Luis Manors L Green Bay, WI (22) 766 Colonial Manor L Wausau, WI CALIFORNIA (23) 731 High Street Convalescent 0/L Hospital Oakland, CA (24) 734 MacArthur Convalescent Hospital 0/L Oakland, CA (25) 735 Oak Manor Convalescent Hospital 0/L Oakland, CA MICHIGAN (26) 695 Grayling Health Care Center 0/L Grayling, MI (27) 777 Clara Barton Terrace 0/L Convalescent Home Flint, MI (28) 778 Mary Ave Care Center 0/L Lansing, MI (29) 302 Birchwood Care Center L/C Marne, MI TEXAS (30) 749 Garrett Park Manor O/L Dallas, TX CALIFORNIA (31) 298 Driftwood Convalescent Hospital L/SL Yuba City, CA (32) 299 Marysville Convalescent Hospital L/SL Marysville, CA
EXHIBIT 8(ii)(A), page 3
Facility Facility Name Transferor' s State Number and Address Interest ----- ------ ----------- -------- (33) 728 Cabrillo Convalescent Hospital L/SL Santa Cruz, CA (34) 741 Hillhaven Manor L/SL Yuba City, CA INDIANA (35) 292 Twin City Nursing Home L/SL Gas City, IN (36) 305 University Nursing Center L/SL Upland, IN MICHIGAN (37) 300 Autumnwood of McBain L/SL McBain, MI (38) 301 Autumnwood of Deckerville Rd. L/SL Deckerville, MI (39) 303 Greenbriar Nursing Home L/SL Sterling, MI (40) 304 Pineview of Hillman L/SL Hillman, MI TEXAS (41) 272 Hughes Spring Nursing Home L/SL Hughes Springs, TX (42) 273 Pinecrest Convalescent Home L/SL Dangerfield, TX (43) 274 Coastal Care Center L/SL Texas City, TX (44) 275 Great South West Convalescent L/SL Center Grant Prairie, TX (45) 283 Country Club Manor Nursing Home L/SL Amarillo, TX
EXHIBIT 8(ii)(A), page 4
Facility Facility Name Transferor' s State Number and Address Interest ----- --------- ---------------- ------------- (46) 755 Greencrest Manor L/SL Greenville, TX (47) 760 Ridgeview Nursing and L/SL Convalescent Center Wichita Falls, TX
EXHIBIT 8(ii)(A), page 5 EXHIBIT 8(ii)(B) to Plan of Reorganization ---------------------- HH HOLDING CO., INC. NOTES RECEIVABLE TRANSFERRED TO HILLHAVEN INC. ------------------------------------------------------------------- (Non.Working Capital Notes - Subsequent Transfer To New Hillhaven Pursuant To Step 12 (ii))
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 749 Southeastern Health Care, HH Holding 04/89 - 10/89 $ 20,491.78 Inc. and Prentiss Smith Co., Inc. 799 Jewell Brothers HH Holding 05/85 - 05/89 $ 50,000.00 Co., Inc. 075 R. Karman HH Holding 09/85 - 08/89 $ 99.00 Co., Inc. 075 S. Waeckerle HH Holding 11/85 - 10/89 $ 230.00 Co., Inc. 276 Texas Health Enterprises, HH Holding 10/86 - 02/97 $2,850,000.00 Inc. Co., Inc. 284 Odessa Associates HH Holding 11/86 - 11/01 $2,250,000.00 Co., Inc. 300 Health Enterprises of HH Holding 05/88 - 06/94 $ 49,231.15 Michigan, Inc. Co., Inc. 301 Health Enterprises of HH Holding 05/88 - 06/94 $ 49,231.15 Michigan, Inc. Co., Inc. 303 Health Enterprises of HH Holding 05/88 - 06/94 $ 49,231.15 Michigan, Inc. Co., Inc. 304 Health Enterprises of HH Holding 05/88 - 06/94 $ 49,231.15 Michigan, Inc. Co., Inc. 695 Health Enterprises of HH Holding 05/88 - 06/94 $ 49,231.15 Michigan, Inc. Co., Inc.
EXHIBIT 8(ii)(B), page 1
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 703 M-Z Invest HH Holding _____ - 03/93 $ 453,332.05 Co., Inc. 728 Peter C. Kern and Susan HH Holding 09/88 - 09/97 $ 240,528.40 B.Kern Co. , Inc. 732 M.V. Associates HH Holding 10/85 - 10/05 $1,300,000.00 Co., Inc. 740 Yuba Associates Limited HH Holding 09/87 - 10/94 $ 840,510.35 Partnership dba Yuba-Zev Co., Inc. Associates Limited Partnership 747 Odessa Associates HH Holding 11/86 - 11/01 $1,440,000.00 Co., Inc. 748 Tri-State Associates HH Holding 11/86 - 11/01 $1,900,000.00 Co., Inc. 751 MWT Associates HH Holding 11/85 - 11/05 $1,817,378.81 Co., Inc. 755 Texas Health Enterprises, HH Holding 04/88 - 04/94 $ 98,230.76 Inc. Co., Inc. 756 Odessa Associates HH Holding 11/86 - 11/01 $1,000,000.00 Co., Inc. 759 Sunbelt 3 HH Holding 12/82 - 11/07 $1,299,907.19 Co., Inc. 761 Tri-State Associates HH Holding 11/86 - 11/01 $ 835,000.00 Co., Inc. 768 Cal-Iowa Associates HH Holding 05/86 - 05/06 $2,856,957.70 Co., Inc.
EXHIBIT 8(ii)(B), page 2
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 788 Cove Manor HH Holding 08/84 - 11/10 $3,890,000.00 Co., Inc. 790 Court Manor HH Holding 08/84 - 12/10 $2,100,000.00 Co., Inc. 200/ Hill-Cal Properties NHE 10/84 - 12/04 $2,790,105.72 799 Northern California, Inc. (25.54%) and Flagg Industries, Inc. (74.46%) 799 Jack Easterday U.S. Care 08/86 - 10/90 $ 617,861.90 Corporation 799 Oak/Jones, Inc. HH Holding 08/87 - 09/93 $ 148,158.17 Co., Inc. 757 Peter C. Kern HH Holding 04/88 - 04/96 $1,620,808.36 Co., Inc. 758 Peter C. Kern HH Holding 04/88 - 04/96 $1,448,904.47 Co., Inc. 760 Texas Health Enterprises, HH Holding 04/88 - 04/94 $ 49,115.36 Inc. Co., Inc. 606 MI-CON Associates HH Holding 05/86 - 05/06 $2,110,002.87 Co., Inc.
EXHIBIT 8(ii)(B), page 3 EXHIBIT 8(ii)(C) to Plan of Reorganization ---------------------- HH HOLDING CO., INC. NOTES RECEIVABLE TRANSFERRED TO HILLHAVEN INC. ------------------------------------------------------------------- (Working Capital Notes - Subsequent Transfer To FHC Pursuant To Step 10 (ii))
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------- ----- ----- ---- --------------- 9928 Meridian Care Center NHE/South 6/88 - sale of $466,505.16 Partners Carolina, the facility Inc.
EXHIBIT 8(ii)(C) EXHIBIT 10(iii)(A) to Plan of Reorganization ---------------------- FACILITY ASSETS OF HILLHAVEN INC. TRANSFERRED TO FHC ---------------------------------
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ CALIFORNIA (1) 167 Canyonwood Care Center 0 Redding, CA NEVADA (2) 144 Carson Convalescent Center 0 Carson City, NV UTAH (3) 140 Wasatch Care Center 0 Ogden, UT CALIFORNIA (4) 151 Buena Vista Convalescent L Hospital Anaheim, CA (5) 170 Saylor Lane Convalescent L Hospital Sacramento, CA (6) 330 Hillhaven Convalescent L Hospital Claremont, CA (7) 335 Hillhaven Lawton L Convalescent Center San Francisco, CA (8) 340 Hillhaven Convalescent L Hospital Menlo Park, CA (9) 342 Hillhaven Convalescent L Center Mill Valley, CA
EXHIBIT 10(iii)(A), page 1
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ (10) 343 Hillhaven Convalescent L Center Modesto, CA (11) 345 Hillhaven Convalescent L Center Oakland, CA (12) 358 San Jose-Hillhaven L/SL Convalescent Center San Jose, CA (13) 360 San Rafael, Hillhaven L Convalescent Hospital San Rafael, CA (14) 368 Hillhaven Extended Care Santa Cruz, CA (15) 370 Hillhaven-Sherwood L Convalescent Hospital Sacramento, CA FLORIDA (16) 121 Town & Country Convalescent L Center Tampa, FL NORTH CAROLINA (17) 192 Country Villa L Rockingham, NC (18) 193 Hillhaven of Alamance L Graham, NC (19) 307 Lincoln Nursing Center, L Inc. Lincolnton, NC TENNESSEE (20) 171 Hillhaven Convalescent CL Center - Bolivar Bolivar, TN
EXHIBIT 10(iii)(A), page 2
Facility Facility Name Transferor's State Number and Address Interest ----- ------- ------------ ------------ (21) 174 Hillhaven Convalescent CL Center - Camden Camden, TN (22) 175 Hillhaven of Jefferson City CL Jefferson City, TN (23) 177 Loudon Healthcare Center CL Loudon, TN (24) 178 Hillhaven Convalescent L Center - Raleigh Memphis, TN (25) 179 Hillhaven Convalescent L Center - Huntington Huntington, TN (26) 182 Hillhaven Convalescent CL Center - Germantown Germantown, TN (27) 183 Hillhaven Convalescent L Center-Ripley Ripley, TN (28) 184 Greystone Healthcare Center L Blountville, TN (29) 187 Hillhaven Maryville L Convalescent Center Maryville, TN (30) 189 Fairpark HealthCare Center L Maryville, TN WASHINGTON (31) 161 Issaquah Care Center L Issaquah, WA (32) 162 Mercer Island Care Center L Mercer Island, WA (33) 163 Valley HealthCare Center L South Renton, WA
EXHIBIT 10(iii)(A), page 3
Facility Facility Name Transferor's State Number and Address Interest ----- -------- ------------- ------------ (34) 186 Park Manor Convalescent L Center Walla Walla, WA WISCONSIN (35) 195 Colonial Manor Nursing & L Convalescent Home Madison, WI (36) 197 Oshkosh Care Center L Oshkosh, WI NEVADA (37) 642 Las Vegas-Hillhaven 0/L Convalescent Hospital Las Vegas, NV WASHINGTON (38) *164 The Emeritus 0/L Seattle, WA CALIFORNIA (39) 9926 Hillhaven Convalescent M Hospital San Francisco, CA (40) 9940 Valley Gardens Health Care M Stockton, CA (41) 9981 Foothill Health Center M Glendora, CA (42) 9919 Carmel Mtn. Nursing Home M San Diego, CA (43) 9975 The Californian Care Center M Bakersfield, CA
___________________ * A Title Commitment has been ordered from Chicago Title in order to verify ownership of the facility. EXHIBIT 10(iii)(A), page 4
Facility Facility Name Transferor's State Number and Address Interest ----- --------- ---------------- ------------- FLORIDA (44) 918 Hillhaven Convalescent M Center Sarasota, FL (45) 922 Windsor Woods Convalescent M Center Hudson, FL OKLAHOMA (46) 9955 Heritage Villa Nursing M Center Bartlesville, OK UTAH (47) 9947 St. George Care Center M St. George, UT (48) 9992 Holladay Healthcare Center M Salt Lake City, UT (49) 9973 Crosslands Healthcare M Center Sandy, UT
EXHIBIT 10(iii)(A), Page 5 EXHIBIT 10(iii)(B) to Plan of Reorganization ---------------------- ASSETS OF HILLHAVEN INC. TRANSFERRED TO FHC ------------------------------------------- (Partnership interests and non-facility related real estate interests) PARTNERSHIP INTERESTS ---------------------
Facility Extent and State Number Nature of Interest ----- -------- ------------------ CALIFORNIA (1) 919 a 50% general partnership interest in Carmel Mountain Nursing Home Partnership San Diego, CA (2) 926 a 50% general Partnership interest in Hillhaven - MSC Partnership San Francisco, CA (3) 940 a 50% general partnership interest in Stockton Nursing Home Partners Stockton, CA (4) 975 a 50% general partnership interest in Bakersfield Nursing Home Partnership Bakersfield, CA (5) 981 a 50% general partnership interest in Foothill Nursing Company Partnership Glendora, CA (6) 982 a 50% general partnership interest in San Marcos Nursing Home Partnership San Marcos, CA
EXHIBIT 10(iii)(B), Page 1
Facility Extent and State Number Nature of Interest ----- -------- ------------------ (7) 1003 a 90% general partnership interest in Modesto Region II investments Modesto, CA FLORIDA (8) 918 a 50% general partnership interest in Hillhaven Community Health Partnership Sarasota, FL (9) 922 a 50% general partnership interest in Windsor Woods Nursing Home Partnership Hudson, FL KANSAS (10) 7165 a 90% general partnership interest in Topeka Retirement Center, Ltd. Topeka, KS OKLAHOMA (11) 955 a 50% general partnership interest in Bartlesville Nursing Home Partnership Bartlesville, OK SOUTH CAROLINA (12) 928/ a 50% general partnership 984 interest in Meridian Operating Partners Columbia, SC UTAH (13) 973 a 50% general partnership interest in Sandy Nursing Home Partnership Sandy, UT
EXHIBIT 10(iii)(B), Page 2
Facility Extent and State Number Nature of Interest ----- -------- ------------------ (14) 7185 a 98% limited partnership interest in Sandy Retirement Center Limited Partnership Sandy, UT WASHINGTON (15) 165 an 80% general partnership interest in Rainier Vista Partnership Puyallup, WA
EXHIBIT 10(iii)(B), page 3 NON-FACILITY RELATED REAL ESTATE INTERESTS ------------------------------------------
Facility Transferor's No. Assets Interest -------- ------ ------------ (1) 104 Center Street Building 0 1016 So. 28th Street Tacoma, WA (2) 100 Lakewood Medical Office 0 Building 11311 Bridgeport Way Tacoma, WA 98499 (3) 168 "Excess Land" consisting of 0 6.0 acres located on the Lakewood Hospital Campus Tacoma, WA 98499 (4) 022 Hillhaven Regional Office L Richmond, CA (5) 072 Hillhaven Regional Office L Louisville, KY (6) 041 Hillhaven Regional Office, L Raleigh, NC
EXHIBIT 10(iii)(B), page 4 EXHIBIT 10(iii)(C) to Plan of Reorganization ---------------------- HILLHAVEN INC. NOTES RECEIVABLE TRANSFERRED TO FHC -------------------------------------------------- (Working Capital Notes)
General Ledger Facility Original Balance (As of Number Payor Payor Terms August 31, 1989) - -------- ----- ----- ----- ---------------- 9984 Meridian Operating Hillhaven 2/89 - ____ $ 83,000.00 Partners Inc.
EXHIBIT 10(iii)(C) EXHIBIT 11(i)A to Plan of Reorganization ---------------------- ASSETS ACQUIRED BY FHC BY UPSTREAM MERGER -----------------------------------------
Facility Facility Transferor's State Number Name and Address Interest ----- -------- ---------------- ------------ PRIOR OWNER: CHASTAIN'S OF AVA, INC. ------------ ARKANSAS (1) 252 Pine Lane Healthcare L Mountain Home, AR MISSOURI (2) 251 Crestview Healthcare L Ava, MO PRIOR OWNER: CHASTAIN'S OF BUFFALO, INC. ----------- MISSOURI (3) 253 Hickory Lane Care Center L Buffalo, MO PRIOR OWNER: CHASTAIN'S OF CLINTON, INC. ----------- MISSOURI (4) 254 Sycamore View Healthcare L Clinton, MO PRIOR OWNER: CHASTAIN'S OF DES PERES, INC. ----------- MISSOURI (5) 255 Des Peres Health Care L Des Peres, MO (6) 256 Hillside Healthcare L Jefferson, MO (7) 257 Marceline Healthcare L Marceline, MO
EXHIBIT 11(i)(A), page 1
Facility Facility Transferor's State Number Name and Address Interest ----- -------- ---------------- -------- PRIOR OWNER: CHASTAIN'S OF JOPLIN, INC. ----------- MISSOURI (3) 259 Joplin House Healthcare L Joplin, MO PRIOR OWNER: CHASTAIN'S OF LAMAR, INC. ----------- MISSOURI (9) 261 Lakeview Health Care L Center, Lamar, MO PRIOR OWNER: CHASTAIN'S OF THAYER, INC. ----------- MISSOURI (10) 262 Shady Oaks Healthcare L Center Thayer, MO PRIOR OWNER: HILLHAVEN OF HAWAII, INC. ----------- HAWAII (11) 166 Keauhou Kona Hawaii Project O PRIOR OWNER: INTEGRATED HEALTh SYSTEMS, INC. ----------- WASHINGTON (12) 168 Lakewood Health Care Center O Tacoma, WA PRIOR OWNER: SMITH, HARST, SIEBEL AND ASSOCIATES, INC. ----------- NEW MEXICO (13) 854 Casa Real-Santa Fe L Santa Fe, NM (14) 817 Casa Del Sol Senior Care L Center Las Cruces, NM
EXHIBIT 11(i)(A), page 2
Facility Facility Transferor's State Number Name and Address Interest ----- ------ ---------------- -------- (15) 874 Casa Arena Blanca Nursing L Center Alamogordo, NM (16) 881 Southwest Senior Care O/L Center Las Vegas, NM
EXHIBIT 11(i)(A), page 3 EXHIBIT 11(i)(3) to Plan of Reorganization ---------------------- ASSETS ACQUIRED BY FHC BY UPSTREAM MERGER ----------------------------------------- (note receivable - working capital)
General Ledger Balance Facility Facility (as of Number Name and Address August 31, 1989) -------- ---------------- ---------------- 874 Casa Arena Blanca Nursing $ Center Alamogordo, NM
EXHIBIT 11(i)(B), page 1 EXHIBIT 12(ii) to Plan of Reorganization ---------------------- HILLHAVEN INC, NOTES RECEIVABLE TRANSFERRED TO NEW HILLHAVEN ------------------------------------------------------------ (Non-Working Capital Notes)
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------ ----- ----- ---- ---------------- 100 Mosca Hillhaven 08/86 - 08/90 $ 801.96 Inc. 100 Bowen Hillhaven 10/86 - 10/90 $ 2,391.44 Inc. 100 Dwyer Hillhaven 10/88 - 10/90 $ 778.50 Inc. 100 Esau Hillhaven 07/89 - 07/91 $ 1,750.00 Inc. 100 Fischer Hillhaven 03/87 - 03/91 $ 1,500.10 Inc. 100 Holloman Hillhaven 03/88 - 09/89 $ 175.87 Inc. 100 Ingram Hillhaven 04/89 - 04/90 $ 3,604.87 Inc. 100 Keiser Hillhaven 07/86 - 07/87 $ 84.21 Inc. 100 Kenney Hillhaven 07/89 - 07/91 $ 1,000.00 Inc. 100 Powell Hillhaven 12/87 - 06/89 $ 132.11 Inc. 100 Shipman Hillhaven 03/88 - 09/89 $ 316.95 Inc.
EXHIBIT 12(ii), page 1
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------ ----- ----- ---- ---------------- 100 Spencer Hillhaven 07/89 - 07/91 $ 2,139.29 Inc. 100 Tobie Hillhaven 07/86 - 01/89 $ 1,576.74 Inc. 100 Toclan Hillhaven 07/86 - 05/87 $ 600.00 Inc. 100 Whitted Hillhaven 10/88 - 10/89 $ 66.53 Inc. 100 Bisaro Hillhaven 02/89 - 02/91 $ 750.00 Inc. 100 Scharfenberg Hillhaven 02/89 - 02/91 $ 632.50 Inc. 100 D.R.B. Holding, Inc. Hillhaven 02/85 - 12/92 $ 455,000.00 Inc. 100 Taravainen Hillhaven 03/86 - 08/86 $ 332.475.01 Inc. 100 Lakewood Hospital Hillhaven 08/88 - 12/89 $2,000,000.00 Inc. 100 Robert Miller, Agnes Hillhaven 02/85 - 12/90 $ 410,000.00 Miller and Chateau Inc. Convalescent Hospital 105 Texville (former payor: Hillhaven 11/82 - 11/07 $1,133,052.35 Jewell Enterprises) Inc. 105 AMWAC Associates Hillhaven 09/92 - 09/97 $ 263,804.56 Inc. 173 Tri-State Associates Hillhaven 08/86 - 08/06 $2,039,598.01 Inc.
EXHIBIT 12(ii), page 2
General Ledger Facility Original Balance (As of Number Payor Payee Term August 31, 1989) - ------ ----- ----- ---- ---------------- 220 AMWAC Associates (former Hillhaven 09/82 - 09/91 $ 478,029.07 payor: Jewell Inc. Enterprises) 240 AMWAC Associates (former Hillhaven 09/82 - 12/93 $ 982,628.29 payor: Jewell Inc. Enterprises) 250 Tri-State Associates Hillhaven 11/86 - 01/03 $1,337,060.98 Inc. 347 Palo Alto Nursing Hillhaven 03/82 - 03/02 $ 553,607.44 Inc. 375 Tri-State Associates Hillhaven 09/86 - 08/06 $1,728,510.01 Inc. 377 Tri-State Associates Hillhaven 08/86 - 08/06 $2,087,931.25 Inc. 6000/ Foothill Hursing Company Hillhaven 08/86 - _____ $2,500,000.00 981 Partnership Inc. 270 Peter C. Kern Hillhaven 04/88 - 04/96 $2,946,924.33 Inc. 9940 Stockton Nursing Home Old 02/88 - _____ $1,500,943.27 Partners Hillhaven 9947 St. George Hillhaven _____________ $1,314,849.75 Inc. 200/ Hill-Cal Properties Flagg In- 10/84 - 12/04 $8,134,349.14 799 dustries, Inc. (74.46%) and NHE/ Northern California, Inc. (25.54%)
EXHIBIT 12(ii), page 3 EXHIBIT 17 to Plan of Reorganization ---------------------- ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of January 31, 1990 (this "Agreement"), between the subsidiaries of National Medical Enterprises, Inc. ("NME") signatories hereto (individually, an "NME Party" and collectively, the "NME Parties"), on the one hand, and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"), on the other hand. Defined terms used herein without definition shall have the meanings ascribed to them in the Reorganization and Distribution Agreement, dated as of January 8, 1990 and as amended and restated as of January 30, 1990 (as from time to time amended, the "Distribution Agreement"). _____________________________ WHEREAS, NME and New Hillhaven have entered into the Distribution Agreement providing for the reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of capital stock of New Hillhaven (the "Distribution") on or about January 31, 1990 (the date on which the Distribution shall actually occur being herein referred to as the "Distribution Date"); and EXHIBIT 17, Page 1 WHEREAS, in connection with, and immediately prior to, the Distribution NME and certain of its long term care subsidiaries are concurrently .entering into the transactions contemplated by the Plan of Reorganization pursuant to which NME and such subsidiaries will transfer, effective on or prior to the Distribution Date, to New Hillhaven and those companies which will become subsidiaries of New Hillhaven certain of the assets and liabilities relating to the business to be conducted after the Distribution by New Hillhaven, as contemplated by the Information Statement (the "New Hillhaven Business"); and WHEREAS, the NME Parties desire to transfer to New Hillhaven, concurrently with the aforementioned transfers, all of their remaining assets except for the Excluded Assets (defined below), and New Hillhaven desires to assume all of the NME Parties' remaining obligations and liabilities except for the Excluded Liabilities (defined below). NOW, THEREFORE, the parties hereto agree as follows: 1. Scope of Agreement. The parties hereto understand and agree that NME ------------------ and/or certain of its subsidiaries and New Hillhaven and/or certain of its subsidiaries have effected various transfers of assets and assumptions of liabilities in accordance with the Plan of Reorganization and have entered or will enter into the Ancillary Agreements providing, among other things, for EXHIBIT 17, Page 2 various additional transfers of assets and assumptions of liabilities and that this Agreement effects certain transfers of assets and assumptions of liabilities not covered by the Plan of Reorganization or the Ancillary Agreements. 2. Assignment of Assets. Each of the NME Parties hereby sells, assigns, -------------------- transfers and conveys to, and vests in, New Hillhaven, its successors and assigns forever, and New Hillhaven agrees to accept, each of such NME Party's right, title and interest, legal and equitable, in and to all of its assets other than the Excluded Assets, including, without limitation, the right to receive all of such Party's assets, properties, rights and business of every type and description, real, personal and mixed, tangible and intangible, constituting any portion of the New Hillhaven Business, wherever located and whether or not reflected on the books and records of such Party. The "Excluded Assets", with respect to each NME Party, shall mean the assets specified on Exhibit A hereto. Notwithstanding anything to the contrary contained in any other instrument of conveyance executed by any NME Party in connection with the Distribution Agreement, the assets conveyed by such instrument shall not include any assets specified on Exhibit A hereto with respect to such NME Party. 3. Assumption of Liabilities. New Hillhaven hereby assumes and agrees to ------------------------- pay, perform or discharge all EXHIBIT 17, Page 3 of the obligations and Liabilities of each of the NME Parties except for the Excluded Liabilities. The "Excluded Liabilities", with respect to each NME Party, shall mean the liabilities specified on Exhibit B hereto. Notwithstanding anything to the contrary contained in any other instrument of assumption executed by New Hillhaven in connection with the Distribution Agreement, the Liabilities assumed pursuant to such instrument shall not include any liabilities specified on Exhibit B hereto. 4. Further Actions. --------------- 4.1 Each of the NME Parties shall, at the request of New Hillhaven, execute and deliver to New Hillhaven such further instruments and take such further action as may reasonably be necessary or proper to effectuate the assignment contemplated hereby, including, in connection with any notes receivable being transferred to New Hillhaven hereunder, causing any such note to be duly endorsed and registered in the name of New Hillhaven by means of an instrument of assignment and, where appropriate, to be recorded. 4.2 New Hillhaven shall, whenever, and as often as required to do so by any NME Party or its successors and assigns, execute, acknowledge and deliver any and all further instruments, documents and agreements as may reasonably be necessary or proper to complete, assure and perfect the assumption of the obligations and liabilities assumed hereby. EXHIBIT 17, Page 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE HILLHAVEN CORPORATION, a Tennessee corporation By:________________________________ Name: _________________________ Title: _________________________ GUARDIAN MEDICAL SERVICES, INC. By:________________________________ Name: _________________________ Title: _________________________ HAMMOND HOLIDAY HOME, INC. By:________________________________ Name: _________________________ Title: _________________________ HH HOLDING CO., INC. By:________________________________ Name: _________________________ Title: _________________________ HILLHAVEN INC. By:________________________________ Name: _________________________ Title: _________________________ EXHIBIT 17, Page 5 HILLHAVEN OF MICHIGAN, INC. By:________________________________ Name: _________________________ Title: _________________________ HILLHAVEN WEST, INC. By:________________________________ Name: _________________________ Title: _________________________ MORGAN MANORS, INC. By:________________________________ Name: _________________________ Title: _________________________ LAKE HEALTH CARE FACILITIES, INC. By:________________________________ Name: _________________________ Title: _________________________ NORTHWEST CONTINUUM CARE CENTER, INC. By:________________________________ Name: _________________________ Title: _________________________ EXHIBIT 17, Page 6 SEDGEWICK CONVALESCENT CENTER, INC. By:________________________________ Name: _________________________ Title: _________________________ THE HILLHAVEN CORPORATION OF TEXAS By:________________________________ Name: _________________________ Title: _________________________ THE HILLHAVEN CORPORATION, a Nevada Corporation By:________________________________ Name: _________________________ Title: _________________________ EXHIBIT 17, Page 7 EXHIBIT A TO ASSIGNMENT AND ASSUMPTION AGREEMENT EXCLUDED ASSETS --------------- I. General Excluded Assets: 1. All of the capital stock of the NME Parties directly or indirectly owned by The Hillhaven Corporation, a Tennessee corporation ("Old Hillhaven"). 2. All prepaid Taxes (as defined in the Tax Sharing Agreement) of the NME Parties. 3. Any investment in life insurance net of policy borrowings related to insurance policies issued on November 1, 1984 and 1985 by Security Life of Denver originally obtained for SERP participants and related prepaid interest on such policy borrowings of the NME Parties. 4. All assets related to the following 8 "campus" facilities, including investment accounts and partnership interests related to two campus facilities currently owned by partnerships (Slidell and Jo Ellen Smith): Facility Number, Name and Address --------------------------------- 902 Alvarado Convalescent and Rehabilitation Hospital 6599 Alvarado Road San Diego, California 92120 904 Hillhaven Healthcare 610 North Garfield Avenue Monterey Park, California 91754 974 J. D. French Center - Alzheimer's 3951 Katella Avenue Los Alamitos, California 169 Menorah Hospital Campus Palm Beach, Florida EXHIBIT A, Page 1 815 Convalescent Center of Del Ray Beach 5430 Linton Boulevard Del Ray Beach, Florida 33445 954 Jo Ellen Smith Convalescent Center 4502 General Mayer Avenue New Orleans, Louisiana 70114 978 Northshore Living Center 106 Medical Center Drive Slidell, Louisiana 70459 993 Brookhaven Nursing Center 1855 Cheyenne Carrollton, Texas 75008 5. All intercompany accounts receivable. 6. Any and all partnership interests in Healthcare Property Partners. II. Specific Excluded Assets: In addition to those Excluded Assets set forth above, the assets of the NME Party set forth below opposite such Party are to be excluded and not transferred to New Hillhaven pursuant to the Agreement:
Assets NME Party ------ --------- 1. Any assets subject to lease The applicable NME pursuant to the Lease Agreements Party that is a described in Step 3 of the Plan of party to the Reorganization and any related relevant Lease deferred finance charges, prepaid Agreement interest or other assets related to the mortgage debt (including any accrued interest thereon) of the facilities subject to such Lease Agreements, such as escrow accounts, replacement reserves and sinking funds. 2. Any assets listed on Exhibit l(ii) Old Hillhaven and to the Plan of Reorganization. Hillhaven Inc.
EXHIBIT A, page 2 Assets NME Party ------ --------- 3. All property, plant and equipment Hillhaven Inc. (as located at facility number 203 and successor by merger any deferred financing charges, to Flagg Industries, prepaid interest and/or other Inc.) assets related to the mortgage debt, including any accrued interest thereon, with respect to such facility, including, without limitation, any sinking funds, escrow accounts and replacement reserves. 4. Any shares of stock of Health Old Hillhaven Facilities Insurance Corp. Ltd. or Futura West. 5. Promissory Note, dated August 23, Hillhaven Inc. 1988 in the original principal amount of $1.4 million due from Lakewood Hospital (balance of $1.33 million as of August 31, 1989). 6. Annuity held for the benefit of Old Hillhaven Marvin Wilensky. 7. "Excess land" consisting of (1) Hillhaven Inc. parcel #01416-05-014 in Durham, NC; (2) a portion of parcel #602-9944- 001 in Mt. Carmel, WI; (3) parcel #602-9945 in Mt. Carmel, WI; (4) parcel #6-3315 Washburn DLC T-2B-4 except T-28-4A; (5) parcel #06-4- 0123-07-378-017 in Kenosha, WI; and (6) parcel #6-3311-01 Washburn DLC T-28-6, 2B-1, in each case as shall subsequently be more particularly described. 8. "Excess Land" consisting of parcel Old Hillhaven #06-4-0123-07-378-016 in Kenosha, WI. EXHIBIT A, Page 3
Assets NME Party ------ --------- 9. "Excess Land" consisting of Adams Hammond Holiday Add. east 35 feet Lot 16, all lots Home, Inc. 18 and 20 except condominiums A & H Blk 3, Adams Add. Lot 22 and 24 Blk 3, Adams Add. south 50 feet lot 2, south 50 feet, lot 4 and south 50 feet lot 6, in each case as shall subsequently be more particularly described. 10. "Excess Land" consisting of parcel #2-618, 2-628, 2-622B, 2-624 and 2- 625 in Neenah, WI, as shall subsequently be more particularly described.HH Holding Co., Inc. 11. "Excess Land" consisting of parcel Hillhaven West, Inc. #352600 in West Falls, MI, as shall subsequently be more particularly described. 12. The New Hillhaven Subsidiary Note Hillhaven Inc. received from Medi-$ave pursuant to Step 2 of the Plan of Reorganization. 13. Any benefit of that certain Option Old Hillhaven Agreement, dated May 24, 1985, between Cardinal Medical Corporation and Old Hillhaven. 14. #814 Hillhaven Convalescent Old Hillhaven Center 815-8th Avenue Forth Worth, TX 76309 15. #443 Medical office building Hillhaven West, Inc. adjacent to Mountain Towers Healthcare 3129 Acacia Drive Cheyenne, WY 82001 16. The New Hillhaven Subsidiary Note Old Hillhaven received from FHC pursuant to Step 11(ii) of the Plan of Reorganization.
EXHIBIT A, page 4 Assets NME Party ------ --------- 17. Any benefit of that certain Option Old Hillhaven Agreement, dated January 31, 1990, between Old Hillhaven and FHC related to facilities #277, #278, #279, #280, #281, and #262, commonly referred to by the parties as the "Cardinal Facilities." EXHIBIT A, Page 5 EXHIBIT B TO ASSIGNMENT AND ASSUMPTION AGREEMENT EXCLUDED LIABILITIES -------------------- I. General Excluded Liabilities: 1. Any Liability in respect of cash overdrafts in disbursement and payroll bank accounts maintained by the NME Parties. 2. Any Liability of the NME Parties in respect of Taxes for periods through and including the Distribution Date (including any Liability in respect of deferred Taxes). 3. Any Liability of the NME Parties under the SERP program for any current or former employees of the NME Parties who will not become employees of New Hillhaven or a New Hillhaven Party. 4. Any Liability of the NME Parties to Daniel P. Baty or Marvin Wilensky, other than the obligation to provide medical, dental and $50,000 life insurance and related accidental death benefits for the individuals, and dependents if so provided, pursuant to consulting agreements with such individuals dated December 3, 1986 and March 2, 1988, respectively. 5. Any Liability of the NME Parties in respect of expenses related to the Distribution, as set forth in Section 7.03 of the Distribution Agreement. 6. Any Liability of any NME Party related to the eight "campus" facilities described in Exhibit A hereto. 7. Any intercompany payables. 8. Up to $1 million of state-required improvements on seven facilities in Connecticut identified on Exhibit 3 (page 3) for work required to relicense such facilities. II. Specific Excluded Liabilities: In addition to those Excluded Liabilities set forth above, the Liabilities of the NME Party set forth below opposite such Party are to be excluded and not assumed by New Hillhaven pursuant to the Agreement: EXHIBIT B, Page 1 Liabilities NME Party ----------- --------- 1. Any Liability in respect of First Healthcare mortgage debt on the facilities Corporation subject to lease pursuant to the Lease Agreements described in Step 3 of the Plan of Reorganization, together with all related interest or other accrued Liabilities or Liabilities for land leases related to such facilities. 2. Subordinated Debenture Bonds in the Hillhaven Inc. aggregate amount of approximately $400,000. 3. Any Liability listed on Exhibit Old Hillhaven 1(iii) to the Plan of Reorganization. 4. Any Liability in respect of that Old Hillhaven certain Option Agreement, dated May 24, 1985, between Cardinal Medical Corporation and Old Hillhaven. 5. Any Liability in respect of that Old Hillhaven certain Option Agreement, dated January 31, 1990 between Old Hillhaven and FHC related to facilities #277, #278, #279, #280, #281 and #282, commonly referred to by the parties as the "Cardinal Facilities." EXHIBIT B, Page 2 ANNEX II TO REORGANIZATION AND DISTRIBUTION AGREEMENT Long Term Care Subsidiaries of NME Prior to the Plan of Reorganization ----------------------------------- The Hillhaven Corporation Arkmo Lumber & Supply Co., Inc. Brim of Massachusetts, Inc. Cascade Insurance Company Ltd. Chastain's of Ava, Inc. Chastain's of Buffalo, Inc. Chastain's of Clinton, Inc. Chastain's of Des Peres, Inc. Chastain's of Joplin, Inc. Chastain's of Lamar, Inc. Chastain's of Thayer, Inc. Cornerstore Child Care Centers, Inc. Guardian Medical Services, Inc. Hammond Holiday Home, Inc. HH Holding Co., Inc. Aurora's Golden Age Nursing Home, Inc. Flagg Industries, Inc. Northwest Health Care, Inc. Mediplex Pharmacy, Inc. NHE/Arizona, Inc. NHE/Lindenwood Nursing Home, Inc. NHE/South Carolina, Inc. Nursing Home of Cherry Hills, Inc. Hillhaven of Central Florida, Inc. Hillhaven of Hawaii, Inc. Hillhaven Inc. First Healthcare Corporation Professional Medical Enterprises, Inc. Hillhaven of Michigan, Inc. Hillhaven West, Inc. Morgan Manors, Inc. Pasatiempo Development Lake Health Care Facilities, Inc. Medi-$ave Pharmacies, Inc. Northwest Continuum Care Center, Inc. Hillhaven Properties, Ltd. Brim-Olive Grove, Inc. Fairview Living Centers, Inc. Twenty-Nine Hundred Corporation Medical Ambulatory Care, Inc. Arizona/New Mexico Hemodialysis Community Services, Inc. Kidney Dialysis Care Units, Inc. New Mexico Dialysis Services, Inc. Valley Dialysis Associates, Inc. Postcare Rehabilitation, Inc. Postcare Rehabilitation of Northern California, Inc. Sedgewick Convalescent Center, Inc. Smith, Harst, Siebel and Associates, Inc. The Hillhaven Corporation The Hillhaven Corporation of Texas The Caden Corporation Integrated Health Systems, Inc. 2 ANNEX III(a) TO REORGANIZATION AND DISTRIBUTION AGREEMENT Subsidiaries of Old Hillhaven After the Plan of Reorganization Is Effected -------------------------------------------- Arkmo Lumber & Supply Co., Inc. Cascade Insurance Company, Ltd. Guardian Medical Services, Inc. Hammond Holiday Home, Inc. HH Holding Co., Inc. Hillhaven Inc. Hillhaven of Michigan, Inc. Hillhaven West, Inc. Morgan Manors, Inc. Lake Health Care Facilities, Inc. Northwest Continuum Care Center, Inc. Medical Ambulatory Care, Inc. Arizona/New Mexico Hemodialysis Community Services, Inc. Kidney Dialysis Care Units, Inc. New Mexico Dialysis Services, Inc. Valley Dialysis Associates, Inc. Sedgewick Convalescent Center, Inc. The Hillhaven Corporation of Texas ANNEX 111(b) TO REORGANIZATION AND DISTRIBUTION AGREEMENT Subsidiaries of New Hillhaven After the Plan of Reorganization Is Effected -------------------------------------------- Brim of Massachusetts, Inc. First Healthcare Corporation Cornerstone Child Care Centers, Inc. Hillhaven of Central Florida, Inc. Hillhaven Properties, Ltd. Brim-Olive Grove, Inc. Fairview Living Centers, Inc. Twenty-Nine Hundred Corporation Northwest Health Care, Inc. Pasatiempo Development Professional Medical Enterprises, Inc. Medi-$ave Pharmacies, Inc. Mediplex Pharmacy, Inc. EX-10.40 33 GUARANTEE REIMBURSEMENT AGREEMENT EXHIBIT 10.40 - -------------------------------------------------------------------------------- GUARANTEE REIMBURSEMENT AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES, INC. and THE HILLHAVEN CORPORATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page 1. Agreement to Reimburse NME for Payments of the Obligations....................................... 2 2. Guarantee Fee..................................... 4 3. Notice of Certain Payment Defaults, Prepayments or Terminations of Assumed Leases.................... 5 4. Affirmative Covenants............................. 5 5. Negative Covenants................................ 11 6. Events of Default................................. 15 7. No Amendments or Waivers, etc. Except in Writing; Remedies Cumulative............................... 18 8. Indemnification................................... 19 9. Miscellaneous..................................... 19 10. Reinstatement of Agreement; Termination; Subrogation....................................... 21 11. Dispute Resolution Procedures..................... 22 12. Definitions....................................... 22 Appendix A .............................................. A-1 Appendix B .............................................. B-1
i GUARANTEE REIMBURSEMENT AGREEMENT dated as of January 31, 1990 between NATIONAL MEDICAL ENTERPRISES INC., a Nevada corporation ("NME"), and THE HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven"). WHEREAS, NME and New Hillhaven have entered into a Reorganization and Distribution Agreement providing for a reorganization of certain of the businesses heretofore conducted by NME's long term care group and a pro rata distribution to the holders of NME's capital stock, as of the record date established by NME in connection therewith, of approximately 85% of the outstanding shares of common stock, par value $0.15 per share, of New Hillhaven (the "Distribution") on or about the date hereof; WHEREAS, New Hillhaven or subsidiaries of New Hillhaven are assuming certain debt or other payment obligations of NME and/or certain subsidiaries of NME, previously incurred in connection with, or relating to, the business being transferred to New Hillhaven and/or its subsidiaries, the aggregate amount of which obligations is set forth in Appendix A hereto (the "Debt Obligations"); WHEREAS, NME and/or certain of its subsidiaries nevertheless remain obligated to pay the Debt Obligations in the event that New Hillhaven or its subsidiaries default in the payment thereof; WHEREAS, NME has guaranteed certain other debt and payment obligations the aggregate amount of which is set forth in Appendix A (the "Other Obligations"), and which obligations include (without limitation) obligations of certain partnerships or other entities with respect to which guarantee fees have heretofore been paid to NME or The Hillhaven Corporation, a Tennessee corporation ("Old Hillhaven"); WHEREAS, NME is transferring the Other Obligations or a portion thereof to New Hillhaven as of the date hereof, but NME nevertheless remains obligated to pay the Other Obligations in the event of a default in the payment thereof; WHEREAS, certain New Hillhaven subsidiaries, on the one hand, and NME and/or certain of its subsidiaries, on the other hand, are entering into various Assignment and Assumption of Lease Agreements dated on or prior to the Distribution Date pursuant to which certain subsidiaries New Hillhaven are assuming all obligations under certain leases (the "Assumed Leases"), which obligations heretofore have been the obligations of NME and/or certain subsidiaries of NME and the aggregate amount of which is set forth in Appendix A hereto (the "Lease Obligations") (the Debt Obligations, the Other Obligations and the Lease Obligations sometimes hereinafter being referred to collectively and severally as the "Obligations") and WHEREAS, NME and/or certain of its subsidiaries nonetheless remain contingently liable under the Assumed Leases to pay the Lease Obligations in the event that New Hillhaven defaults in the payment thereof; NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement to Reimburse NME for Payments of the Obligations. ---------------------------------------------------------- (a) Reimbursement. New Hillhaven shall reimburse NME, promptly on demand, ------------- for all Obligations (except the Obligations set forth in Appendix B hereto) paid by NME or its subsidiaries after the Distribution Date not theretofore reimbursed by New Hillhaven. Payments and notices shall b made or given, as the case may be, in accordance with the provisions of Sections 1(c), 3 and 9(b). (b) Interest on Unpaid Reimbursements. New Hillhaven shall pay to NME --------------------------------- interest on all payments of the Obligations (except the Obligations set forth in Appendix B hereto) by NME to the extent that payment of such Obligations is not reimbursed by New Hillhaven on the same day NME or its subsidiaries me such payments, such interest to accrue from the date of each payment until reimbursement thereof has occurred in full, on demand, at the maximum interest rate permitted by law. Interest payable shall be computed on the basis of a 365 (or 366, as the case may be) day year for the actual days elapsed. (c) Payments. All payments due to NME her.under shall be made in lawful -------- currency of the United States in immediately available funds, by transfer, with sufficient information to identify the source and application of funds, 2 to Account No. 1235-3-13182 at Bank of America, Corporate Service Center, San Francisco, California; ABA #121000358 or such other account or in such other manner or at such other address as may be designated by NME in writing. In the event the date specified for any payment hereunder is not a Business Day, such payment shall be made on the next following Business Day and interest shall be paid at the rate provided for herein on any such payment to the Business Day on which such payment is made. (d) Duty to Pay Absolute. The duty of New Hillhaven to make any and all -------------------- payments in the manner specified hereunder shall be unconditional, irrevocable and absolute, and all such payments shall be made strictly in accordance with the terms hereof under all circumstances, including, without limitation, the following: (i) Any lack of validity or enforceability of the agreements pursuant to which the Obligations were incurred, this Agreement, or any other document, instrument or agreement relating thereto or hereto (including, without limitation, any Assumption Agreements or any guarantees with respect to the Obligations) (sometimes hereinafter being referred to collectively and severally as the "Related Documents"); (ii) Any change in the time, manner or place of payment of, or any other term of, any or all of the Obligations; (iii) Any release, amendment or waiver of, or any consent to or departure from, any or all provisions of the Related Documents; (iv) The existence of any claim, set-off, defense or other right which New Hillhaven may have at any time against NME or any other Person, whether in connection with a Related Document, a transaction contemplated by a Related Document or any other transaction; and (v) Any other circumstance which might otherwise constitute a defense available to, or a discharge of, New Hillhaven, any Subsidiary or NNE. New Hillhaven hereby waives, to the fullest extent permitted by law, any right to proceed or make a claim against NME arising out of NME's payment of any amount, whether or not any of the foregoing circumstances shall exist at any time. 3 (e) Identification of Obligations. Concurrent with the execution and ----------------------------- delivery of this Agreement NME shall deliver to New Hillhaven a schedule identifying in reasonable detail all of the Obligations. Each of NME and New Hillhaven shall initial two copies of such schedule and retain one such copy for its records. 2. Guarantee Fee. ------------- New Hillhaven shall pay to NME a guarantee fee equal to (a) for the period beginning on the Distribution Date to and including May 31, 1990, $2,000,000; (b) for the fiscal year ending May 31, 1991: (i) the principal amount of Obligations outstanding at the close of business on May 31, 1990 multiplied by (ii) a fraction the numerator of which is $7,200,000 and the denominator of which is the principal amount of all Obligations outstanding as of the Distribution Date; and (c) for each subsequent fiscal year: (i) the principal amount of Obligations outstanding at the close of business on May 31 of the preceding fiscal year multiplied by (ii) a fraction which is equal to the applicable fraction for the previous fiscal year multiplied by 1.2. For the period beginning on the Distribution Date to and including May 31, 1990, such fee is to be paid as follows: $500,000 on February 28, 1990 and $1,500,000 on May 21, 1990. For subsequent fiscal years, such fees are to be paid in equal quarterly installments at the end of each fiscal quarter of the subsequent year. In the event that the amount of outstanding Obligations is reduced to zero at any time, the guarantee fee for the year during which such reduction occurs will be pro-rated on the basis of a 365 (or, 366 as the case may be) day year for the number of actual days elapsed until such reduction. Notwithstanding the foregoing, the annual guarantee fee hereunder shall not exceed at any time 3/100 of the Obligations then outstanding. NME hereby assigns to New Hillhaven any and all guarantee fees payable to NME or Old Hillhaven with respect to NME's guarantee of any of the Obligations, and delegates the collection of such guarantee fees to New Hillhaven. 4 3. Notice of Certain Payment Defaults, Prepayments or Terminations of ------------------------------------------------------------------ Assumed Leases. - -------------- If New Hillhaven or any Subsidiary defaults in the payment of any Obligation or Prepays any Obligation, whether in whole or in part, or if any of the Assumed Leases terminates, New Hillhaven shall give NME notice of such payment default, prepayment or termination on the same day as the occurrence of such payment default, prepayment or termination by telephonic notice confirmed on the same day in writing or by telex or telecopy. Any confirmation in writing provided pursuant to this Section 3 shall be provided in accordance with Section 9(b). 4. Affirmative Covenants. --------------------- So long as NME or any subsidiary of NME remains obligated (either directly or as guarantor or otherwise) with respect to any outstanding Obligations, or any amount is owing to NME hereunder, New Hillhaven shall, unless otherwise consented to in writing by NME: (a) Financial Statements. Furnish to NME: -------------------- (i) as soon as available, but in any event not later than 120 days after the close of each fiscal year of New Hillhaven, a copy of the audited consolidated balance sheet of New Hillhaven and the Consolidated Subsidiaries as at the end of such fiscal year, and related audited consolidated statements of income, cash flows and changes in stockholders, equity of New Hillhaven and the Consolidated Subsidiaries for such fiscal year, setting forth for each fiscal year beginning with the fiscal year ending May 31, 1991 with respect to each such consolidated balance sheet and May 31, 1992 with respect to each of such other financial statements in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP applied on a basis is consistently maintained throughout the period involved and with the prior fiscal year, except as disclosed therein, such consolidated financial statements to be certified by Independent Certified Public Accountants (such certification not to be qualified or limited because of any restricted or limited examination made by such accountants); (ii) as soon as available, but in any event not later than 60 days after the end of each of the first 5 three quarterly period, of each fiscal year of New Hillhaven, unaudited consolidated financial statements of New Hillhaven and the Consolidated Subsidiaries, including a condensed consolidated balance sheet of New Hillhaven and the Consolidated Subsidiaries as at the end of such fiscal quarter, and related condensed consolidated statements of income, cash flows and changes in stockholders' equity of New Hillhaven and the Consolidated Subsidiaries for the period from the beginning of such fiscal year to the end of such fiscal quarter, the consolidated financial statements of New Hillhaven and the Consolidated Subsidiaries setting orth for each fiscal quarter beginning with the fiscal quarter ending August 31, 1991 corresponding figures for the like period of the preceding fiscal year; all (A) in reasonable detail, (B) prepared in accordance with the instructions of the Securities and Exchange Commission for filings on Form 10-Q and in accordance with GAAP applicable to interim financial statements on a basis consistently maintained throughout the period involved and with prior periods except as disclosed therein and (C) certified to be correct by the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the Chief Financial Officer, the President, an Executive Vice President or a Senior Vice President of New Hillhaven; (iii) concurrently with the delivery of the financial statements referred to in clause (i) above, a certificate of such Independent Certified Public Accountants, stating that in making the examination necessary for certifying such financial statements no knowledge was obtained of any Default or Event of Default hereunder, except as specifically indicated; (iv) concurrently with the delivery of the financial statements referred to in clauses (i) and (ii) above, a certificate of the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the Chief Financial Officer, the President, an Executive Vice President or a Senior Vice President of New Hillhaven (A) stating that, to the best of his or her knowledge, New Hillhaven and the Subsidiaries, during such period, have kept, observed, performed and fulfilled each and every covenant and condition in this Agreement, the Assumption Agreements, the Leases, the Revolving Credit Agreement, the Note Guarantee Agreement and the New Hillhaven subsidiary Notes and that he or she has obtained no 6 knowledge of any Default or Event of Default hereunder except as specifically indicated and (B) showing in detail the calculations supporting such statement in respect of Sections 5(c), 5(f), 5(g) and 5(h) of this Agreement (provided that the certificate showing in detail calculations in respect of Section 5(c) need only be furnished concurrently with the delivery of the financial statements referred to in clause (i) above) and the delivery of any such certificate shall be deemed to be a representation and warranty by New Hillhaven to NME as to the accuracy of the statements contained therein; (v) promptly after the same are sent, copies of all financial statements and reports which New Hillhaven sends to its stockholders, and promptly after the same are filed, copies of all financial statements and reports which New Hillhaven may make to, or file with, the Securities and Exchange Commission or any public body succeeding to any or all of the functions of the Securities and Exchange Commission; and (vi) promptly, such additional financial and other information as NME may from time to time reasonably request. (b) Payment of Obligations and Liabilities. Pay and discharge, and cause -------------------------------------- the Subsidiaries to pay and discharge, at or before maturity, all their respective obligations and liabilities, except (i) (other than with respect to tax liabilities. and obligations and liabilities under the Assumption Agreements, the Leases, the New Hillhaven Subsidiary Notes, the Revolving Credit Agreement, the Note Guarantee Agreement and this Agreement, each of which shall be paid and discharged on or before the due date thereof) where the failure to pay or discharge, or to cause to be paid or discharged, would not in the aggregate have a material adverse effect on the business, operations, properties or financial or other condition of New Hillhaven and the Subsidiaries, taken as a whole or (ii) (other than with respect to obligations and liabilities under the Assumption Agreements, the Leases, the New Hillhaven Subsidiary Notes, the Revolving Credit Agreement, the Note Guarantee Agreement and this Agreement, each of which shall be paid and discharged on or before the due date thereof) where the same may be contested in good faith, in which case New Hillhaven shall maintain, and cause the Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 7 (C) Maintenance of Properties; Insurance. Keep, and cause the Subsidiaries ------------------------------------ to keep, all properties useful and necessary in the business of New Hillhaven and the Subsidiaries in good working order and condition; maintain, and cause the Subsidiaries to maintain, with financially sound and reputable insurance companies (which insurance companies may be Affiliates of NME other than New Hillhaven or any Subsidiary or, subject to the proviso below, Part of New Hillhaven's self-insurance program) insurance on all their properties in at least such amounts and against at least such risks as are usually insured against in the same general area and by companies engaged in the same or a similar business and maintain professional liability and malpractice insurance against claims usually insured against by skilled nursing and other long term care facilities and the personnel connected with such facilities, provided that -------- for professional liability and malpractice insurance New Hillhaven shall not increase the deductible (or self-insured retention) to more than $100,000 per claim, unless it is financially advantageous for New Hillhaven to do so and such increase is approved in writing by NME, which approval shall not be unreasonably withheld; and furnish to NME, upon request, full information as to the insurance carried. (d) Notices. Promptly give notice to NME (i) of the occurrence of any ------- Default or Event of Default hereunder, (ii) of any default or event of default under any material instrument or other agreement of New Hillhaven or any Subsidiary (except that with respect to any default in the payment by New Hillhaven or any Subsidiary of any Obligation, the further provisions of Section 3 shall govern), (iii) of any litigation, proceeding, investigation or dispute which may exist at any time between New Hillhaven or any Subsidiary and any governmental authority which might have a material adverse effect upon the business, operations, assets or condition, financial or otherwise, of New Hillhaven and the Subsidiaries, taken as a whole, (iv) of all litigation and proceedings affecting New Hillhaven or any Subsidiary (A) in which the amount involved is equal to at least 5% of Consolidated Net Worth at the time of the commencement, or at any time during the continuance, of such litigation or proceeding and not fully covered by insurance (other than self-insurance, co- insurance or insurance deductibles) or (3) in which injunctive or similar relief is sought and which might have a material adverse effect on New Hillhaven and the Subsidiaries, taken as a whole, (v) as soon as possible and in any event within 30 days after New Hillhaven knows or has reason to know that (A) any 8 Reportable Event has occurred with respect to any Plan, (3) a transaction prohibited under Section 4975 of the Code or Section 406 of ERISA resulting in a material liability to New Hillhaven, a Subsidiary or any Person that New Hillhaven or a Subsidiary has an obligation to indemnify has occurred, (C) a Plan has incurred an accumulated funding deficiency as described in Section 412 of the Code or Section 302 of ERISA, whether or not waived, (D) there has been a failure to make contributions to a Plan which may give rise to a lien, (E) there has been an amendment to a Plan which requires the granting of a security interest, (F) there has been a termination of a Plan or there are proceedings which are likely to be or have been instituted to terminate a Plan with unfunded benefit liabilities as described in Section 4001(a) (18) of ERISA or unfunded retiree medical benefits, or (G) New Hillhaven or a Subsidiary (or any respective ERISA Affiliate other than NME or any entity that is a subsidiary of NME after the date hereof) has incurred liability under Section 515 or Title IV of ERISA (including withdrawal liability) with respect to a Plan, and deliver to NME a certificate of the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the Chief Financial Officer, the President, an Executive Vice President or a Senior Vice President of New Hillhaven setting forth details as to such event and the action that New Hillhaven proposes to take with respect thereto, together with a copy of any notices that may be required to be filed with the Internal Revenue Service, the PBGC or any other authority, or any notice delivered by such authority, and (vi) immediately after the occurrence of a material adverse change in the business, operations, assets or condition, financial or otherwise, of New Hillhaven and the Subsidiaries, taken as a whole, and deliver to NME a certificate of the Chairman and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the Chief Financial Officer, the President, an Executive Vice President or a Senior Vice President of New Hillhaven setting forth the details of such change and what action New Hillhaven proposes to take with respect thereto. For all purposes of Section 4(d)(v), New Hillhaven shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of any such Plan. (e) Conduct of Business; Maintenance of Existence and Compliance With Law. ---------------------------------------------------------------------- Continue, and cause the Significant Subsidiaries to continue, to engage primarily in business of the same general type as now contemplated to be conducted by New Hillhaven and the Significant Subsidiaries, and preserve, renew and keep in full force and effect their 9 corporate existence and take all reasonable action to maintain their rights, privileges and franchises necessary or desirable in the normal conduct of business, provided that the foregoing shall not be deemed to prohibit any -------- actions expressly Permitted under Section 5(e) hereof; comply, and cause each Significant Subsidiary to comply, with all material applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including without limitation ERISA and the rules and regulations thereunder and Public Law 92-603), and hold and maintain, and at all times cause each Significant Subsidiary to hold and maintain, in full force and effect all certifications, favorable governmental reviews, governmental approvals, licenses and permits necessary or desirable to enable New Hillhaven and the Subsidiaries to conduct their respective businesses as now contemplated to be conducted except where the failure to comply therewith or hold and maintain such certifications, favorable governmental reviews, governmental approvals, licenses or permits would not, individually or in the aggregate, have a material adverse effect on the business, operations, properties or financial or other condition of New Hillhaven and the Subsidiaries, taken as a whole, and except where compliance with any such laws, ordinances, rules, regulations or requirements would cause New Hillhaven or a Subsidiary to violate laws of the United States of America to which New Hillhaven or such Subsidiary is subject; notwithstanding the foregoing, (i) a Significant Subsidiary may reincorporate in another state or merge with or into New Hillhaven or another Subsidiary wholly-owned by New Hillhaven or other Subsidiaries and (ii) New Hillhaven may reincorporate in another state or merge with or into a Subsidiary wholly-owned by New Hillhaven or other Subsidiaries, provided that the successor corporation assumes in -------- writing all the obligations of New Hillhaven hereunder and said successor corporation delivers to NM' an opinion of Counsel for New Hillhaven, in form and substance reasonably satisfactory to NM', to the effect that the assumption by such successor corporation of such obligations is effective and is fully binding upon and enforceable against such successor corporation. (f) Books and Records: Inspection of Property. Keep, and cause each ----------------------------------------- Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles shall. be made of all dealings and transactions in relation to its business and activities; and permit, and cause the Subsidiaries to permit, representatives of NME to visit and inspect any of their respective properties and examine and 10 make abstracts (at NME's expense, unless an Event of Default shall have occurred and be continuing, in which case, at New Hillhaven's expense) from any of the books and records of New Hillhaven and any Subsidiary upon reasonable notice at any reasonable time and as often as may reasonably be desired. (g) Retention of Records. Retain, and cause each Subsidiary to retain, all -------------------- books and records of New Hillhaven and its Subsidiaries in accordance with NME's Record Retention Program, a copy of which has previously been furnished to New Hillhaven. Any statement in any certificate, document, financial statement or other statement whatsoever furnished by New Hillhaven to NME under or in connection with this Agreement shall be deemed to be a representation and warranty of New Hillhaven to NME of the accuracy of the statement or statements contained therein. 5. Negative Covenants. ------------------ So long as NME or any subsidiary of NME remains obligated (either directly or as guarantor or otherwise) with respect to any outstanding Obligations, or any amount is owing to NME hereunder, New Hillhaven shall not, unless otherwise consented to in writing by NME: (a) Limitation on Indebtedness. Create, incur, assume or suffer to -------------------------- exist, or permit any Subsidiary to create, (Pounds)incur, assume or suffer to exist, any Indebtedness, except (i) Indebtedness evidenced by, under or in respect of this Agreement, any New Hillhaven Subsidiary Note, the Note, Guarantee Agreement, any Lease, any Assumption Agreement or the Revolving Credit Agreement; (ii) other Indebtedness existing on the date hereof and reflected in the financial statements included in the Information Statement, (iii) other unsecured Indebtedness, provided that no Default or Event of Default has -------- occurred and is continuing or shall have occurred after giving effect thereto and in the case of any Subsidiary if the proceeds of such Indebtedness are applied to the exercise of purchase options under any of the Leases or to the reduction of the Indebtedness of New Hillhaven or any subsidiary to NME or any subsidiary of NME; (iv) any nonrecourse debt incurred in connection with any leveraged lease financing; (v) Indebtedness secured by Liens not prohibited by Section 5(b), provided that no Default or Event of Default has occurred and is -------- continuing or shall have occurred after giving effect thereto; and (vi) 11 Indebtedness of New Hillhaven or Subsidiaries incurred or be incurred pursuant to transactions involving MP Funding Corporation and the placement of first mortgages on certain of the nursing home facilities transferred or to be transferred to New Hillhaven or Subsidiaries. (b) Limitations on Liens. Create, incur, assume or suffer to exist, or -------------------- permit any Subsidiary to create, incur, assume or suffer to exist, any Lien upon any of its properties, assets, income or profits, whether now owned or hereafter acquired. except (i) the Liens referred to in the financial statements include in the Information Statement (and any refinancing, extensions or renewals of such Liens by reason of any refinancing, extension or renewal of the Indebtedness secured by such Liens), provided that such Liens are not spread to -------- cover other or additional Indebtedness of New Hillhaven or any Subsidiary and provided further that any refinancing permitted by this clause (i) shall be on - -------- ------- terms no less favorable to New Hillhaven or a Subsidiary than the Indebtedness of New Hillhaven or such Subsidiary being refinanced and that no additional Lien or Liens are created to cover such Indebtedness; (ii) Liens securing Indebtedness of a Subsidiary to New Hillhaven; (iii) preexisting Liens on property, or on property owned by corporations, acquired by New Hillhaven or any Subsidiary after the date hereof; (iv) Liens securing all or any part of the purchase price or the cost of construction of property or equipment acquired by New Hillhaven or a Subsidiary, provided that the amount of the Indebtedness -------- secured thereby does not exceed 100% of the purchase price or the cost of construction and the Indebtedness so secured and the related Liens are incurred within 90 days after acquisition, or completion of construction and full operation, whichever is later; (v) Liens on property owned by New Hillhaven or a Subsidiary required to secure Indebtedness incurred to construct additions or to make substantial repairs or alterations or substantial improvements to such properties, provided that the amount of the Indebtedness secured does not -------- exceed 100% of the expense incurred to construct such additions or to make such substantial repairs or alterations or substantial improvements and provided, -------- further that the Indebtedness so secured and the related Liens are incurred - ------- within one year after the completion of construction or the making of such repairs, alterations or improvements and full operation; (vi) Liens in favor of a government or a governmental entity which: (A) secure payments pursuant to a contract, subcontract, statute or regulation or (B) secure Indebtedness incurred to finance all or some of the purchase price or cost of 12 construction of goods, products or facilities produced under contract or subcontract for the government or a governmental entity; (vii) Liens on accounts receivable or notes receivable of New Hillhaven or any Subsidiary which secure borrowings made under financing facilities provided to New Hillhaven; (viii) Liens securing Indebtedness incurred solely for the purpose of exercising any purchase option under any Lease (provided that the proceeds of such Indebtedness -------- are applied to the exercise of such purchase option) or to reduce Indebtedness to NME or any subsidiary of NME; (ix) Liens securing the Indebtedness referred to in Section 5(a) (vi); and (x) other Liens securing Indebtedness, provided -------- that the aggregate amount of Indebtedness of New Hillhaven and the Subsidiaries secured by Liens pursuant to this Section 5(b) (x) shall not exceed $5,000,000 of Indebtedness at any one time incurred after tee date hereof. (c) Limitation on Consolidated Contingent Obligations. Permit at any time ------------------------------------------------- the ratio of Consolidated Contingent Obligations to Consolidated Net Worth to exceed 0.2 to 1.0. (d) Limitation on Investments. Make or commit to make, or permit any ------------------------- Subsidiary to make or commit to make, any investment (whether by.means of stock purchase, capital contribution, loan or advance or any other type of investment) in any Person at any time when a Default or an Event of Default has occurred and is continuing or would occur after giving effect to such investment. (e) Limitation on Fundamental Changes. Merge or consolidate with any --------------------------------- other Person (except as expressly permitted by Section 4(e) hereof) unless New Hillhaven is the surviving corporation and, after giving effect to such merger or consolidation, no Default or Event of Default has occurred and is continuing, or permit any Subsidiary to merge or consolidate with any other Person (except as expressly permitted by Section 4(e) hereof) unless (i) such Subsidiary is the surviving corporation or the consideration received by New Hillhaven in connection therewith is at least equal to the fair market value of such Subsidiary (as determined by the Board of Directors of New Hillhaven in good faith) and (ii) after giving effect to such merger or consolidation, no Default or Event of Default has occurred and is continuing, or liquidate or dissolve itself (or suffer any liquidation or dissolution), or dispose of or lease or sell, or permit any Subsidiary to dispose of or lease or sell, all or any substantial portion of its properties, assets and business to any other Person, except that New Hillhaven or any Subsidiary may lease, sell or 13 otherwise dispose of all or any part of its property, assets or business (including, without limitation, Stock) to any Person, including, without limitation, New Hillhaven or a Consolidated Subsidiary for consideration at least equal to the fair market value of such properties, assets or business (as determined by the Board of Directors of New Hillhaven in good faith), provided -------- that notwithstanding any of the foregoing to the contrary, in no event may New Hillhaven lease, sell or otherwise dispose of or permit any Subsidiary to lease, sell or otherwise dispose of all or any part of its property, assets or business (including, without limitation, Stock) encumbered by a Lien in favor of NME or an Affiliate of NME, or by a Lien securing Indebtedness guaranteed or in effect guaranteed by NME or an Affiliate of NME, to any Person, including, without limitation, New Hillhaven or a Consolidated Subsidiary, unless the cash portion of the proceeds from such sale are sufficient, and are applied directly, to repay such Indebtedness. (f) Maintenance of Consolidated Net Worth. Permit at any time ------------------------------------- Consolidated Net Worth to be less than $100,000,000. (g) Fixed Charge Coverage. Permit at any time beginning with the fiscal --------------------- quarter ending May 31, 1993 the ratio of Income from Continuing Operations Available for Fixed Charges to Fixed Charges to be less than 1.15 to 1.0. (h) Restrictions on Dividends. Declare or pay or set apart for payment, ------------------------- whether directly or indirectly, any dividends (other than dividends payable in capital stock of New Hillhaven) on, or declare or make, whether directly or indirectly, any other distribution on account of any shares of, any class of its capital stock now or hereafter outstanding, or set apart any sum for such purpose, or redeem, retire, purchase or otherwise acquire beneficially any shares of any class of its capital stock now or hereafter outstanding or set aside any sum for such purpose, provided that in any fiscal quarter beginning on -------- or after June 1, 1990 New Hillhaven may pay cash dividends aggregating not more than the Consolidated Net Earnings of New Hillhaven during the immediately preceding fiscal quarter if after giving effect thereto Consolidated Net Worth is not less than $170,000,000, no Default or Event of Default has occurred and is continuing or shall have occurred after giving effect thereto and beginning with the fiscal quarter ending February 28, 1991 the ratio of Income from Continuing Operations Available for Fixed Charges to Fixed Charges is not less than 1.5 to 1.0. 14 (i) Restriction on Transfer of Assets to Subsidiaries. Transfer any ------------------------------------------------- assets to a Subsidiary, or permit a Subsidiary to transfer any assets to another Subsidiary, for the purpose of improving the credit position of such Subsidiary in order to enable it to borrow money, provided that New Hillhaven or a -------- Subsidiary may transfer accounts receivable or notes receivable of New Hillhaven or such Subsidiary to a Subsidiary for the purpose of securing borrowings made under financing facilities provided to New Hillhaven. 6. Events of Default. ----------------- Upon the occurrence of any of the following Events of Default: (a) New Hillhaven shall (i) default in the payment of any amount payable under this Agreement, when due and payable in respect of a guarantee fee or (ii) default in the payment of any other amount payable under this Agreement, when due and payable, and such default shall not have been remedied within 15 days; or (b) Any representation or warranty made or deemed made by New Hillhaven which is contained in any certificate, document, financial statement or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) New Hillhaven shall default in the observance or performance of any agreement or covenant contained in Section 5 hereof; or (d) New Hillhaven shall default in the observance or performance of any other agreement or covenant contained in this Agreement, and such default shall not have been remedied within 30 days after notice of the same; or (e) New Hillhaven or any Subsidiary shall (i) default in any payment of principal of or interest on any Indebtedness or in the payment of any Contingent Obligation, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created; or (ii) default in the observance or performance of any other agreement, ten or condition contained in any such Indebtedness or Contingent Obligation or in any instrument or agreement evidencing, securing or relating thereto (or if any other event of default or 15 default under any such agreement shall occur and be continuing), the effect of which event of default or default is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of a holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness or Contingent Obligation to become due prior to its stated maturity, provided that (except as -------- set forth in Section 6(a)) nothing contained in this Section 6(e) shall constitute an Event of Default if (i) such default is in respect of any Indebtedness stated to be In an amount that is less than $1,000,000 or in respect of any Contingent Obligation that involves an ultimate liability of less than $1,000,000 and (ii) such default is being contested in good faith; or (f) New Hillhaven, any Subsidiary or any fiduciary of any Plan engages in a transaction in connection with which New Hillhaven, any Subsidiary or any entity that they have an obligation to indemnify could be subject to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed pursuant to Section 4975 of the Code; New Hillhaven or any Subsidiary (or any respective ERISA Affiliate other than NME or any entity that is a subsidiary of NME after the date hereof) incurs a lien or grants a security interest with respect to any Plan; a Reportable Event shall occur with respect to a Plan or a proceeding shall commence to terminate any Plan; a Plan shall incur an accumulated funding deficiency as described in Section 412 of the Code or Section 302 of ERISA for any plan year (whether or not waived); New Hillhaven or any Subsidiary (or any respective ERISA Affiliate other than NME or any entity that is a subsidiary of NME after the date hereof) terminates any Plan (including a medical Plan), takes any action or fails to take any action which could result in liability (including withdrawal liability) under Title IV of ERISA or Section 515 of ERISA and such event (alone or taken together with any other event described herein) in the reasonable opinion of NME will have a material adverse effect on the business, financial condition, results of operations or prospects of New Hillhaven and its Subsidiaries, taken as a whole; or (g) New Hillhaven or any Significant Subsidiary shall commence any case, proceeding or other action relating to it in bankruptcy or seeking reorganization, liquidation, dissolution, winding up, arrangement, composition or readjustment of its debts, or for any other relief, under any bankruptcy, insolvency, reorganization, liquidation, dissolution, 16 arrangement, composition, readjustment of debt or other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing; or New Hillhaven or any Significant Subsidiary shall apply for a receiver, custodian or trustee of it or for all or a substantial part of its properties; or New Hillhaven or any Significant Subsidiary shall make an assignment for the benefit of creditors; or New Hillhaven or any Significant Subsidiary shall admit in writing its inability to pay its debts generally as they become due; or a receiver, custodian or trustee of New Hillhaven or any Significant Subsidiary or for all or a substantial part of its or their respective properties shall be appointed, and New Hillhaven or such Significant Subsidiary by any act expressly indicates its approval thereof, consent thereto, or acquiescence therein; or an' order, judgment or decree is entered adjudicating New Hillhaven or any Significant Subsidiary bankrupt or insolvent, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (h) Any case, proceeding or other action against New Hillhaven or any Significant Subsidiary shall be commenced in bankruptcy or seeking reorganization, liquidation, dissolution, winding up, arrangement, composition or readjustment of its debts, or any other relief, under any bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing; or a warrant of attachment, execution or distraint, or similar process, shall be issued against any substantial part of the property of New Hillhaven or any Significant Subsidiary; and in each such case such condition shall continue for a period of 60 days undismissed, undischarged or unbonded; or (i) Any order, judgment or decree is entered in any proceedings against New Hillhaven decreeing the dissolution of New Hillhaven and such order, judgment or decree remains unstayed and in effect for more than 60 days; or any order, judgment or decree is entered in any proceedings against New Hillhaven or any Subsidiary decreeing a split-up of New Hillhaven or such Subsidiary which requires the divestiture of a substantial part, or the divestiture of the stock of any Subsidiary whose assets constitute a substantial part, of the consolidated assets of New Hillhaven and the Subsidiaries, or which requires the divestiture of assets, or the stock of any Subsidiary, which shall have contributed a substantial part of Consolidated Net earnings for any of 17 the three fiscal years then most recently ended or for the Period from the start of New Hillhaven's first fiscal year until the completion of the fiscal year most recently ended, if such period is shorter than the aforementioned three fiscal years, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (j) There shall occur and be continuing an event of default under any of the Leases, any New Hillhaven Subsidiary Note, the Note Guarantee Agreement or the Revolving Credit Agreement which in the reasonable opinion of NME Would have a material adverse effect on the condition, financial or otherwise, of New Hillhaven and the Subsidiaries, taken as a whole, then (i) if an Event of Default specified in paragraph (g), (h) or (i) above occurs, automatically all amounts accrued through the date of such Event of Default and payable by New Hillhaven under this Agreement shall immediately be due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding or (ii) if an Event of Default other than an Event of Default specified in paragraph (g), (h) or (i) above occurs, so long as such Event of Default is continuing, NME, by notice to New Hillhaven, may declare any or all amounts payable by New Hillhaven under this Agreement, to be due and payable forthwith, whereupon the sue shall become immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding, provided that no payment by New Hillhaven pursuant to this -------- Section 6 shall relieve New Hillhaven from making any and all future payments pursuant to this Agreement when due and payable under this Agreement. Notwithstanding the foregoing, none of the forgoing events shall be deemed an Event of Default hereunder to the extent (and during the time period) NME has provided a written waiver thereof pursuant hereto. 7. No Amendments or Waivers. etc. Except in Writing: Remedies Cumulative. --------------------------------------------------------------------- No amendment or waiver of any provision of this Agreement or of any provision of any debt instrument underlying any Obligation or consent to any departure by New Hillhaven from any such provision shall in any event be effective unless the sue shall be in writing and signed by NME, and any such waiver or consent shall be effective only in the 18 specific instance and for the specific purpose for which given. No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No course of dealing between New Hillhaven and NME shall operate as a waiver of any right of NME and no delay in exercising or failure to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to exercise any remedy reserved to NME in this Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any provision contained in this Agreement should be breached by any party and thereafter duly waived by the other party so empowered to act, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 8. Indemnification. --------------- In addition to the amounts payable under Sections l and 2, New Hillhaven hereby agrees to protect, indemnify, pay and save NME harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which NME incurs or becomes subject to as a consequence, direct or indirect, of (i) any breach by New Hillhaven of any covenant, term or condition in, or the occurrence of any Default or Event of Default under, this Agreement, together with all expenses resulting from the compromise or defense of any claims or liabilities arising as a result of any such breach, Default or Event of Default and (ii) defense against any legal action commenced to challenge this Agreement, all to the extent not caused or incurred as a result of the gross negligence or willful misconduct of NME. The obligations of New Hillhaven under this Section 8 shall survive the termination of this Agreement. 9. Miscellaneous. ------------- (a) Binding Effect; Assignment. This Agreement is a continuing obligation -------------------------- and shall be binding upon and inure to the benefit of and be enforceable by NME and New Hillhaven and 19 their respective successors, transferees and assigns, provided that New -------- Hillhaven may not transfer or assign all or any part of this Agreement without the prior written consent of NME. NME may assign, negotiate, pledge or otherwise hypothecate grant participations herein. (b) Notices. All notices, consents, requests, instructions, approvals and ------- other communications hereunder Shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or sent by facsimile transmission or mailed, by certified or registered mail, postage prepaid at the following address (or at such other address provided by one party to the other in writing): If to NME: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-6507 Attention: Treasurer with a copy to: National Medical Enterprises, Inc. 2700 Colorado Avenue P.O. Box 4070 Santa Monica, California 90404 Telecopy no.: (213) 315-6688 Attention: General Counsel If to New Hillhaven: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4714 Attention: President 20 with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98401-2264 Telecopy no.: (206) 756-4845 Attention: General Counsel (c) Counterparts. This Agreement may be executed in several counterparts, ------------ each of which shall be deemed an original, but such counterparts shall together constitute but one and the same instrument. (d) Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California. (e) Construction. In this Agreement: ------------ (i) unless the context otherwise requires, the terms "herein", "hereof," "hereto", and "hereunder" refer to this Agreement; (ii) the headings of the sections and subsections hereof and the table of-contents hereof are inserted for convenience only and do not constitute a part of this Agreement; and (iii) all references to the Assumption Agreements, the Leases, the New Hillhaven Subsidiary Notes, the Note Guarantee Agreement or the Revolving Credit Agreement shall mean such agreements as the same may be amended, supplemented or modified from time to time. 10. Reinstatement of Agreement: Termination: Subrogation. ---------------------------------------------------- This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment of any Obligation is rescinded or must otherwise be returned by NME upon the insolvency, bankruptcy or reorganization of New Hillhaven or otherwise, all as though such payment had not been made. Except as provided in Section 8, this Agreement shall terminate upon the payment in full of the Obligations and all other amounts hereunder. New Hillhaven shall be subrogated to and shall stand in the place of NME at the time New Hillhaven has paid in full all of the Obligations 21 and all other amounts hereunder, and NME shall cooperate with New Hillhaven in a reasonable manner in Prosecuting any subrogated right or claim. 11. Dispute Resolution Procedures. ----------------------------- All disputes arising out of or relating to this Agreement shall be resolved Pursuant to the reference procedure set forth in California Code of Civil Procedure Sections 638 et seq. The parties hereby agree to submit to the -- --- jurisdiction of the Superior Court of the County of Los Angeles, State of California (the "Superior Court") for such Purpose. Either Party may initiate the procedure set forth in this Section by providing the other party with notice setting forth the nature of the dispute (the "Reference Notice"). The parties shall designate to the Superior Court a referee who is an active attorney or retired judge living in the County of Los Angeles who shall resolve the dispute. If the parties are unable to designate a referee within 20 days after the receipt of the Reference Notice, the Parties shall request that the Superior Court appoint a referee. In connection with any proceeding pursuant to this Section, the parties shall have all discovery rights which would have been available had the matters which are the subject of the dispute been decided by the Superior Court. Discovery proceedings may be noticed and commenced immediately after delivery of the Reference Notice. The hearing before the referee shall begin no later than 60 days after the receipt of the Reference Notice. All discovery in connection with the reference proceeding shall be concluded no later than 15 days prior to the commencement of the hearing. Judgment upon the award rendered by the referee shall be entered in the Superior Court. Nothing in this Section shall be construed to impair the right of either party to appeal from such judgment. 12. Definitions. ----------- The terms defined in this Section (unless the context otherwise requires) for all purposes of this Agreement shall have the respective meanings specified in this Section. "Affiliate": as to any Person, any Person directly or indirectly --------- controlling, controlled by or under common control with such Person, whether through the ownership of voting securities, by contract or otherwise. 22 "Agreement": this Guarantee Reimbursement Agreement, as the same may be --------- amended, supplemented or modified from time to time. "Assumption Agreements": the various Assignment and Assumption of Lease --------------------- Agreements dated on or prior to the Distribution Date between NME and/or certain NME subsidiaries, on the one hand, and certain Subsidiaries, on the other hand, each together with the related Guaranty of Lease. "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in the City of Los Angeles, the State of California, or the City of Tacoma, the State of Washington, are authorized or required by law to close. "Code" means the United States Internal Revenue Code of 1986, as amended. ---- "Consolidated Contingent Obligations": at a particular date, all ----------------------------------- Contingent Obligations (excluding Contingent Obligations to NME or Contingent Obligations assumed from NME) of New Hillhaven and the Consolidated Subsidiaries, on a consolidated basis, at such date. "Consolidated Income (Loss) from Continuing Operations before Income ------------------------------------------------------------------- Taxes": for a particular period, the consolidated income (loss) from continuing - ----- operations, before income taxes, of New Hillhaven and the Consolidated Subsidiaries as determined in accordance with GAAP for such period. "Consolidated Net Earnings": for a particular period, the consolidated net ------------------------- income or loss of New Hillhaven and the Consolidated Subsidiaries as determined in accordance with GAAP for such period. "Consolidated Net Worth": at a particular date, all amounts which, in ---------------------- conformity with ow, would be included under shareholders' equity on a consolidated balance sheet of New Hillhaven and the Consolidated Subsidiaries at such date. "Consolidated Subsidiaries": all Subsidiaries, the accounts of which have ------------------------- been, or which in accordance with GAAP should be, consolidated with the accounts of New Hillhaven on a consolidated balance sheet of New Hillhaven. 24 "Contingent Obligation": any obligation of New Hillhaven or any of the --------------------- Consolidated Subsidiaries required by GAAP to be disclosed in the consolidated financial statements of New Hillhaven and the Consolidated Subsidiaries or the footnotes thereto guaranteeing or in effect guaranteeing any Indebtedness of any Person (other than New Hillhaven or any of the Consolidated Subsidiaries), including, without limitation, in the case of Indebtedness of others secured by any lien upon property owned by New Hillhaven or any of the Consolidated Subsidiaries, whether or not assumed, the lesser of the amount of such Indebtedness and the fair market value of such property securing such Indebtedness. "Counsel for New Hillhaven": at any particular date, such counsel, who may ------------------------- be the General Counsel or Assistant General Counsel of New Hillhaven at such date, as may be selected by New Hillhaven. "Default": any of the events specified in Section 6, whether or not any ------- requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Distribution Date": January 31, 1990. ----------------- "S": dollars in lawful currency of the United States of America. - "ERISA": the Employee Retirement Income Security Act of 1974, as the same ----- may be amended, supplemented or modified from time to time. "ERISA Affiliate": each trade or business (whether or not incorporated) --------------- which together with New Hillhaven or a Subsidiary would be deemed to be a "single employer" within the meaning of Section 4001 of ERISA or under subsection (b), (c), (m) or (o) of Section 414 of the Code. "Event of Default": any of the events specified in Section 6 hereof, ---------------- provided that any requirement for the giving of notice, lapse of time, or both, or any other condition, has been satisfied. "Fixed Charges": at a particular date, the sum of (i) the amount of ------------- interest (including without limitation any imputed interest) deducted in computing Consolidated Income (Loss) from Continuing Operations before income Taxes for the immediately preceding four fiscal quarters of New Hillhaven on all indebtedness of New Hillhaven and the 24 Consolidated Subsidiaries, plus (ii) an amount (excluding amounts ---- related to discontinued operations) equal to the aggregate amount of all rentals paid or accrued by New Hillhaven and the Consolidated Subsidiaries during the immediately preceding four fiscal quarters of New Hillhaven on lease obligations. "GAAP": generally accepted accounting principles as in effect from time to ---- time in the United States of America. "Income from Continuing Operations Available For Fixed Charges": (a) at a -------------------------------------------------------------- particular date, the sum of (i) Consolidated Income (plus) from Continuing ---- Operations before Income Taxes, plus (ii) Fixed Charges, plus (iii) depreciation ---- ---- and amortization expenses (excluding expenses related to discontinued operations), minus (plus) (iv) gains (losses) from sales of assets (other than ----- ----- assets included in discontinued operations), in each case for the four most recent fiscal quarters of New Hillhaven. "Indebtedness": for any Person: ------------ (i) all obligations for borrowed money and for the deferred purchase price of property or services, and obligations evidenced by bonds, debentures, notes or other similar instruments which in accordance with GAAP would be shown on the balance sheet of such Person as a liability; and (ii) all rental obligations of such Person under leases required to be capitalized under GAAP. "Independent Certified Public Accountants": a firm of independent ----------------------------------------- accountants which is known as one of the "Big Six" accounting firms, selected by New Hillhaven. "Information Statement": the Information Statement dated January 8, 1990, --------------------- constituting part of New Hillhaven's Registration Statement on Form 10 in the form declared effective by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. "Leases": the approximately 115 leases of nursing home facilities or ------ retirement housing centers dated on or prior to the Distribution Date between NME or a subsidiary of NME, as Lessor, and First Healthcare Corporation or another Subsidiary, as Lessee. 25 "Lien": any mortgage, pledge, hypothecation, assignment, security interest, ---- lien, charge or encumbrance, or preference, priority or other security agreement or arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having Substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any Jurisdiction), provided that the term -------- "Liens" shall not be deemed to include: (a) liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of New Hillhaven or the Subsidiaries, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like liens arising in the ordinary course of business and deposits made in the ordinary course of business to obtain the release of any such liens; (c) liens, pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) liens, pledges or deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, public or statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature; (e) leases entered into by New Hillhaven or any Subsidiary as lessor in the ordinary course of business; (f) landlord's liens imposed by law; (g) liens and encumbrances consisting of zoning restrictions, easements, restrictions on the use of real property of New Hillhaven or any Subsidiary and minor irregularities in title to such real property, none of which encumbrances materially impairs the use of any property by New Hillhaven or any Subsidiary or the operation of their respective businesses; (h) liens created by or resulting from legal proceedings which are being contested in good faith and by appropriate proceedings and the execution or enforcement of which is effectively stayed; and (i) liens, pledges or deposits securing (or in lieu of) surety, stay appeal or customs bonds, and securing payment of taxes, assessments, customs duties or other similar charges. "New Hillhaven Subsidiary Notes": the promissory notes of various ------------------------------- Subsidiaries, in the initial aggregate principal amount of $137.3 million, each dated the Distribution Date and delivered to certain subsidiaries of NME. "Note Guarantee Agreement": the Note Guarantee Agreement dated as of the ------------------------ Distribution Date among New Hillhaven, NME and certain NME subsidiaries. 26 "PBGC": the Pension Benefit Guaranty Corporation established pursuant to ---- Subtitle A of Title IV of ERISA. "Person": an individual, Partnership, corporation, business trust, joint ------ stock company, trust, unincorporated association, joint venture or other entity or a government or any agency or political subdivision thereof. "Plan": any employee benefit plan described in Section 3(2) of ERISA ---- established or maintained by New Hillhaven or a Subsidiary in respect of which New Hillhaven or a commonly controlled entity is an "employer" as defined in Section 3(5) of ERISA or with respect to which New Hillhaven, a Subsidiary or a commonly controlled entity has an obligation to contribute. "Reportable Event": any of the events set forth in Section 4043(b) of ----------------- ERISA or the regulations thereunder. "Revolving Credit Agreement": the Revolving Credit and Term Loan Agreement --------------------------- dated as of the Distribution Date between NME and New Hillhaven. "Significant Subsidiary": Brim of Massachusetts, Inc., Brim-Olive Grove, ----------------------- Inc., Fairview Living Centers, Inc., First Healthcare Corporation, Hillhaven of Central Florida, Inc., Hillhaven Properties, Ltd., Medi-$ave Pharmacies, Inc., Northwest Health Care, Inc. and Pasatiempo Development and each other Subsidiary having a net worth at the relevant time of at least. $150,000. "Stock": the meaning assigned to the term 'margin stock' in subsection ----- 221.2(h) of Regulation U of the Board of Governors of the Federal Reserve System, as the same may be amended, supplemented or modified from time to time. "Subsidiary": any corporation of which more than 50% of the outstanding ----------- shares of stock having ordinary voting power to elect a majority of the board of directors (other than stock having such power only by reason of the happening of a contingency) is at the time owned by New Hillhaven or by one or more of its subsidiaries or by New Hillhaven and one or more of its subsidiaries. 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. /s/ Marcus E. Poners ---------------------------------- By: Marcus E. Poners Title: Senior Vice President THE HILLHAVEN CORPORATION /s/ Christopher J. Marker --------------------------------- By: Christopher J. Marker Title: President 28 APPENDIX A
A. DEBT OBLIGATIONS ---------------- INDUSTRIAL REVENUE BONDS $ 62,970,000 LONG TERM BANK NOTES 5,574,996 LONG TERM BANK NOTES 7,894,292 LONG TERM CONTRACTS 800 FIRST MORTGAGE NOTES 17,815,766 M.P. FUNDING LOANS 95,000,000 --------------- $189,255,854 B. LEASE OBLIGATIONS 415,839,987 ----------------- C. OTHER OBLIGATIONS ----------------- DEBTS OF PARTNERSHIPS GUARANTEED 121,678,412 OTHER CONTINGENT LIABILITIES OF NEW HILLHAVEN 16,194,691 CARDINAL PUT OPTIONS 20,750,000 --------------- TOTAL OBLIGATIONS $763,718,944 ============
January 4, 1990 1 APPENDIX 3 1. $9,500,000 aggregate Principal amount of Pasco County Board of County Commissioners Variable Rate Demand Revenue Bonds (Woodhaven Partners, Ltd. Project) Series 1985; 2. $8,000,000 aggregate principal amount of Palm Beach County, Florida Adjustable/Fixed Rate Industrial Development Revenue Bonds (Meridian House Project) Series 1985; and 3. $6,200,000 aggregate principal amount of The Industrial Development Authority of the county of Yavapai Industrial Development Revenue Refunding Bonds (Kachina Pointe Project) Series 1988. 2 EX-10.41 34 FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT Exhibit 10.41 FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT (the "First Amendment") is being entered into as of October 30, 1990, between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. NME and Hillhaven have entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (the "Agreement"). B. Excluded from the reimbursement Obligations (as defined in the Agreement) of New Hillhaven under Section 1(a) of the Agreement are the Obligations set forth in Appendix B to the Agreement ("Appendix B"). C. The Obligation set forth as item 3 of Appendix B is the Obligation with respect to $6,200,000 aggregate principal amount of The Industrial Development Authority of the County of Yavapai Industrial Development Revenue Refunding Bonds (Kachina Pointe Project) Series 1988 (the "Bonds"). D. Hillhaven Properties, Ltd. ("Hillhaven Properties") desires to acquire the Kachina Pointe Project (the "Project"). In connection with its acquisition of the Project, Hillhaven Properties must assume the Obligations of the Kachina Pointe Limited Partnership (the "Partnership") under its Reimbursement Agreement, dated as of August 1, 1988, with Swiss Bank Corporation (the "Bank"). The reimbursement obligations of the Partnership to the Bank are guarantied by NME pursuant to a Guaranty Agreement, dated as of August 11, 1988 (the "Guaranty"). E. In order to induce the Bank to allow Hillhaven Properties to assume the obligations of the Partnership under the Reimbursement Agreement with the Bank, NME must affirm to the Bank that its Guaranty will remain effective with respect to Hillhaven Properties to the same extent that it is effective with respect to the Partnership, which affirmation is evidenced by that certain Affirmation of Guaranty, dated as of even date herewith, from NME to the Bank (the "Affirmation"). F. In order to induce NME to execute the Affirmation, New Hillhaven, which owns all of the issued and outstanding stock of Hillhaven Properties, has agreed to amend the Guarantee Reimbursement Agreement to delete item 3 from Appendix B. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: AGREEMENT 1. Amendment of Agreement. New Hillhaven and NME hereby agree to amend the Agreement by deleting item 3 from Appendix B to the Agreement. Appendix B to the Agreement is hereby amended by deleting in its entirety the following: "3. $6,200,000 aggregate principal amount of The Industrial Development Authority of the County of Yavapai Industrial Development Revenue Refunding Bonds (Kachina Pointe Project) Series 1988." 2. Obligations Includes Kachina Pointe Bonds. New Hillhaven and NME hereby agree that upon NME's execution and delivery of the above-referenced Affirmation, the Agreement shall be amended to include within the definition of Obligations for all purposes, including, without limitation, for purposes of Section 1, the Kachina Pointe Bond Obligations referred to in item 3 of Appendix B, which Obligations have been deleted from Appendix B pursuant to paragraph 1 of this First Amendment. 3. Full Force and Effect. Except as expressly amended hereby, the Agreement remains in full force and effect. 4. Counterparts. This First Amendment may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together shall constitute but one and the same instrument. 5. Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed and delivered as of the day and year first above stated. The Hillhaven Corporation, a Nevada corporation By: /s/ Robert F. Pacquer Name: Robert F. Pacquer Title: Senior Vice President National Medical Enterprises, Inc., a Nevada corporation By: /s/ Marcus E. Powers Name: Marcus E. Powers Title: Senior Vice President EX-10.42 35 FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.42 FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This First Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of May 30, 1991, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"). Unless otherwise defined herein, the terms defined in the Reimbursement Agreement are used herein as therein defined. The Reimbursement Agreement provides, among other things, for the reimbursement by New Hillhaven of all Obligations paid by NME after the Distribution Date. B. New Hillhaven and certain of its Subsidiaries have entered into that certain Master Loan Agreement, dated as of the date hereof (the "Master Loan Agreement"), with THC Facilities Corp. (the "Lender") pursuant to which New Hillhaven and such Subsidiaries (collectively, the "Borrowers") may borrow from time to time amounts up to a total principal sum of $200,000,000 (the "THC facilities Loans"). C. The THC Facilities Loans may be used by the Borrowers as follows: (l) approximately $117,000,000 for the refinance of certain obligations described in Appendix A to the Reimbursement Agreement, consisting of (a) the spinoff MP Funding Loans, and (b) the Cardinal Put Option MP Funding Loans (collectively referred to herein as the "MP Funding Loans" to the extent not refinanced with THC Facilities Loans and "Refinance Loans" to the extent refinanced with THC Facilities Loans), and (ii) approximately $83,000,000 to finance Parcels and Projects (each as defined in the Master Loan Agreement) (collectively, the "New THC Loans"). D. The Lender has entered into a Credit Agreement with Swiss Bank Corporation and certain other banks (the "Banks"). It is necessary for the Lender to enter into such Credit Agreement in order for the Lender to make the THC Facilities Loans to the Borrowers. As an inducement to Swiss Bank Corporation and the Banks to enter into the Credit Agreement with the Lender, NME has agreed to guaranty the Lender's obligations under the Credit Agreement up to the principal sum of $200,000,000, pursuant to that certain Guaranty, dated as of the date hereof, in favor of Swiss Bank Corporation and the Banks. E. New Hillhaven and NME desire to amend the Reimbursement Agreement (i) to add the THC Facilities Loans as Obligations under the Reimbursement Agreement, (ii) to provide for a special guarantee fee applicable to the New THC Loans, and (iii) to modify the guarantee fee charged for the Refinance Loans during the Interim Period (defined herein). NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. THC Facilities Loan Obligations. ------------------------------- The obligations of the Borrowers pursuant to the Master Loan Agreement, including, without limitation, the THC Facilities Loans (collectively, the "THC Facilities Loan Obligations") hereby are added as, and shall be deemed to be, "Obligations" under (and as defined in) in the Reimbursement Agreement, and all terms, covenants, and conditions of the Reimbursement Agreement, except as expressly provided herein, shall apply to the THC Facilities Loan Obligations. 2. Guarantee Fee. ------------- (a) New THC Loans. The guarantee fee provisions of Section 2 of the ------------- Reimbursement Agreement shall not apply to the New THC Loans. Instead, New Hillhaven shall pay to NME a guarantee fee equal to 1% per annum of the daily outstanding balance of said New THC Loans. Such guarantee fee shall be paid in quarterly installments on the last business day of each fiscal quarter, with the first installment due August 30, 1991. The principal amount of the New THC Loans shall not be included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for purposes of calculating the guarantee fee referred to in Section 2 of the Reimbursement Agreement. (b) Refinance Loans. For the period commencing on the date of the --------------- Master Loan Agreement and continuing through May 31, 1995 (the "Interim Period"), New Hillhaven shall pay NME a guarantee fee equal to 1% per annum on the daily outstanding balance of the Refinance Loans rather than the guarantee fee otherwise applicable to such Refinance Loans pursuant to the provisions of Section 2 of the Reimbursement Agreement. In the event that any or all of the Refinance Loans are refinanced with THC Facilities Loans after the date of the Master Loan Agreement, the foregoing 1% guarantee fee shall be effective for each Refinance Loan as of the date of such refinancing. Such guarantee fee shall be paid in quarterly installments on the last business day of each fiscal quarter, with the first installment due August 30, 1991. Commencing June l, 1995, the guarantee fee charged for the Refinance Loans shall revert back to the guarantee fee applicable to such Refinance Loans and all other Obligations (other than the New THC Loans) pursuant to the provisions of Section 2 of the Reimbursement Agreement. During the Interim Period, the principal amount of the Refinance Loans shall not be included as part of the outstanding Obligations under Section 2(c)(l) of the Reimbursement Agreement for purposes of calculating the guarantee fee referred to In Section 2 of the Reimbursement Agreement. From and after May 31, 1995, the principal amount of the Refinance Loans shall be Included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for purposes of calculating the guarantee fee referred to in Section 2 of the Reimbursement Agreement. (c) MP Funding Loans. To the extent not refinanced by Refinance ---------------- Loans, the Obligations consisting of MP Funding Loans shall continue to be Obligations and shall be included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for purposes of calculating the guarantee fee referred to in Section 2 of the Reimbursement Agreement. The guarantee fee payable with respect thereto shall be governed by the terms of the Reimbursement Agreement. 3. Effect on Reimbursement Agreement. --------------------------------- Except as expressly amended by this Amendment, all of the terms and conditions of the Reimbursement Agreement shall remain in full force and effect. 4. Captions. -------- The captions and headings used herein are for the convenience of reference and shall not be construed in any manner to limit or modify any of the terms hereof. 5. Governing Law. ------------- This Amendment shall be governed by and construed in accordance with the laws of the State of California. 6. Counterparts. ------------ This Amendment may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By:[SIGNATURE NOT LEGIBLE] -------------------------------- Title: Sr. V.P. ----------------------------- THE HILLHAVEN CORPORATION By:[SIGNATURE NOT LEGIBLE] -------------------------------- Title:[SIGNATURE NOT LEGIBLE] ----------------------------- EX-10.43 36 SECOND AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.43 SECOND AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Second Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of October 2 , 1991, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as amended by that certain first Amendment To Guarantee Reimbursement Agreement, dated as of May 30, 1991 (the "first Amendment"), and as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"), which provides, among other things, for the reimbursement by New Hillhaven of all Obligations paid by NME after the Distribution Date. Unless otherwise defined herein, the terms defined in the Reimbursement Agreement are used herein as therein defined. B. New Hillhaven and certain of its Subsidiaries entered into that certain Master Loan Agreement, dated as of May 29, 1991 (as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Master Loan Agreement") with THC facilities Corp. (the "Lender") pursuant to which New Hillhaven and such Subsidiaries (collectively, the "Borrowers") may borrow from time to time amounts up to a total principal sum of $200,000,000 (the "THC facilities Loans"). In connection therewith, NME guaranteed the obligations of Lender under that certain Credit Agreement, dated as of May 29, 1991, with Swiss Bank Corporation and certain other banks (the "Banks") to assist Borrowers in obtaining the THC facilities Loans. New Hillhaven and NME entered into the first Amendment to, among other things, specifically add the obligations of the Borrowers pursuant to the Master Loan Agreement as "Obligations" under (and as defined in) the Reimbursement Agreement. C. First Healthcare Corporation ("FHC"), a wholly-owned subsidiary of New Hillhaven, has exercised its option to purchase 20 facilities which it currently leases from certain subsidiaries of NME, pursuant to that certain letter dated August 9, 1991 (the "Letter of Intent"). D. To facilitate FHC's purchase of facilities from subsidiaries of NME, New Hillhaven has requested and Lender has agreed to permit Borrowers to reclassify $12,000,000 of the THC facilities Loans designated to refinance MP funding loans (which funds are part of the funds designated as "Refinance Loans" in the First Amendment) so that said $12,000,000 is available to finance Parcels and Projects (as that term is defined in the Master Loan Agreement) (which funds are part of the funds designated as "New THC funds" in the First Amendment). Accordingly, the Master Loan Agreement and the Credit Agreement are being amended by that certain first Amendment to Master Loan Agreement, dated October 2, 1991, and that certain First Amendment to Credit Agreement, dated October 2, 1991, respectively. E. In connection with its acquisition of the facilities described in Recital C, above, FHC will assume certain debt obligations, as more specifically defined in Schedule 1, attached hereto and incorporated herein by this reference. F. Consistent with the amendment of the THC Facilities Loans, New Hillhaven and NME desire to further amend the Reimbursement Agreement to (l).reallocate the amounts designated as "New THC Loans" and "Refinance Loans" in the First Amendment, and (ii) reaffirm that the guarantee fee applicable to the New THC Loans, as reallocated, shall be as stated in Paragraph 2(a) of the First Amendment. Additionally, New Hillhaven and NME desire to amend the Reimbursement Agreement to add the debt obligations being assumed by FHC as described in Schedule 1 hereto as Obligations under the Reimbursement Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Allocation of THC Facilities Loans. ---------------------------------- New Hillhaven and NME acknowledge that, consistent with the First Amendment to Credit Agreement, the funds available under the THC Facilities Loans that are designated as "Refinance Loans" in the First Amendment are hereby reduced from $117,000,000 to $105,000,000, and the funds available under the THC Facilities Loans that are designated as "New THC Loans" in the First Amendment shall be increased from $83,000,000 to $95,000,000. 2. Assumed Obligations. ------------------- The obligations identified in Schedule 1 hereto that are being assumed by FHC in conjunction with its acquisition of certain facilities (the "Assumed Obligations") are hereby added as, and shall be deemed to be, "Obligations" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, except as expressly provided herein, shall apply to the Assumed Obligations. 3. Guaranty Fee. ------------ (a) New THC Loans. The guaranty fee set forth in Section 2(a) of the ------------- First Amendment shall be applicable to the New THC Loans, as reallocated pursuant to Paragraph 1, above. (b) Assumed Obligations. The guaranty fee provisions of Section 2 of the ------------------- Reimbursement Agreement shall not apply to the Assumed Obligations. Instead, New Hillhaven shall pay to NME a guaranty fee equal to 1% per annum of the daily outstanding balance of the Assumed Obligations. Such guaranty fee shall be paid in quarterly installments on the last business day of each fiscal quarter, with the first Installment due November 30, 1991. The principal amount of the Assumed Obligations shall not be included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for the purposes of calculating the guaranty fee referred to in Section 2 of the Reimbursement Agreement. 4. Effect on Reimbursement Agreement. ---------------------------------- Except as expressly amended by this Amendment, all of the terms and conditions of the Reimbursement Agreement shall remain in full force and effect. 5. Captions. --------- The captions and headings used herein are for the convenience of reference and shall not be construed in any manner to limit or modify any of the terms hereof. 6. Governing Law. -------------- This Amendment shall be governed by and construed in accordance with the laws of the State of California. 7. Counterparts. ------------- This Amendment may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By: [SIGNATURE ILLEGIBLE] ------------------------------- Title: Senior Vice President ---------------------------- THE HILLHAVEN CORPORATION By: /s/ Robert F. Pacquer ------------------------------- Title: Senior Vice President ---------------------------- SCHEDULE 1 ASSUMED OBLIGATIONS Facility 461: Edmonds, WA Promissory Note, dated 7/1/84, executed by Hillhaven, Inc. in favor of Villa Care, Inc. in the original sum of $5,875,572.99. Assumed portion of Promissory Note allocable to facility 461 is approximately $22,794.54. Facility 825: Suffolk, VA Financing Agreement, dated 12/28/83, between Suffolk Development Authority and The Hillhaven Corporation with an outstanding balance of $4,000,000.00. Facility 829: Holmes, VA Financing Agreement, dated 12/29/83, between City of Virginia Beach Development Authority and The Hillhaven Corporation, with an outstanding balance of $3,925,000.00. [LETTERHEAD OF HILLHAVEN] August 9, 1991 Mr. Timothy L. Pullen NME Properties Corp. c/o NME Properties, Inc. 1148 Broadway Plaza, Suite 260 Tacoma, WA 98402 Re: Acquisition of NME Leased Facilities (File No. 2004) ---------------------------------------------------- Dear Tim: First Healthcare Corporation ("FHC") leases the 20 facilities listed on Schedule 1 (hereinafter, individually a "Facility" and collectively the "Facilities") from NME Properties Corp. and/or its wholly-owned subsidiaries, NME Properties, Inc., NME Properties West, Inc., NME Properties Holding Co., Inc. and Guardian Care Inc. (collectively, "NME Properties"). Pursuant to Section 30 of the respective Leases for the Facilities, FHC hereby exercises its option to purchase each of the Facilities. The aggregate purchase price for the Facilities is $90,300,000 (the "Purchase Price"). The individual Facility purchase prices are set forth on Schedule 1. Subject to receipt of all necessary regulatory and lender approvals and consents, the proposed closing date for the transaction is September 30, 1991, or as soon as possible thereafter. In compliance with the Leases, we will make arrangements this week to forward to you the deposit of $4,515,000 which is an amount equal to five percent of the purchase price. The deposit shall be credited against the cash down payment requirement referenced below at time of closing of each Facility sale. The deposit shall be paid into an interest-bearing escrow account and all interest shall accrue to FHC's benefit; provided, however, if the sale of any of the Facilities is not completed as a result of a breach by FHC, the amount of the deposit applicable to such Facility shall he paid to NME Properties as liquidated damages. Withdrawals may be made from the escrow account only with the signature of both NME Properties and FHC. Timothy L. Pullen August 9, 1991 Page two FHC shall pay the Purchase Price as follows: (a) $21,655,000 in cash and (b) $68,645,000 by (i) assuming approximately $8,800,000 of existing debt and (ii) subject to certain bank approvals, approximately $59,845,000 in borrowings from THC Facilities Corp. FHC agrees to obtain $18,060,000 (20% required cash down payment) of the cash consideration from sources other than borrowings guaranteed by National Medical Enterprises, Inc. ("NME"). Such sources may include, for example, net cash provided from operations or from the sale of assets, notes receivable or other investments. The amount of debt being assumed by FHC will have a l% guarantee fee as long as such debt is guaranteed by NME or an affiliate. The parties also acknowledge that for the transaction to close as contemplated, the amount designated for "New THC Loans" under the THC Facilities Corp. financing line needs to be increased by approximately $12,000,000. Our mutual intent is to have $12,000,000 of the existing approximately $95 Million remaining and currently designated for "Refinancing Loans be reclassified for use in this transaction. Once this $12,000,000 is redesignated for use for a New THC Loan and such amount is drawn upon for this transaction, the parties agree such amount will be subject to a guarantee fee as provided for in Section 2(a) of the First Amendment to Guarantee Reimbursement Agreement dated May 30,1991 between NME and The Hillhaven Corporation, FHC's parent Company ("Hillhaven"). Also, NME is willing to agree, subject to final approval by NME's CERC and Relationship Committees, to assist and cooperate with Hillhaven in expanding the current THC Facilities Corp. line of credit, or if this is not possible, obtaining new financing with terms and conditions similar to such line of credit in an amount equal to that actually borrowed from THC Facilities Corp. to acquire the facilities listed in Schedule l. If you have any questions concerning this transaction, please contact me or Jacinta Titialii at 572-4901. Very truly yours, /s/ Robert K. Schneider Robert K. Schneider Vice President Timothy L. Pullen August 9, 1991 Page three Accepted and acknowledged this 9 day of August, 1991. --- NME PROPERTIES CORP. By: /s/ Timothy L. Pullen ------------------------ Timothy L. Pullen Vice President cc: The Hillhaven Corporation ------------------------- Robert F. Pacquer Richard P. Adcock Jacinta Titialii Jean T. Fukuda Carl Anderson NME --- Ray Mathiasen Nita Heckendorn Karen Rothberg SCHEDULE I NME PROPERTIES SALE OF FACILITIES
------------------------------------------------------------- Fac Facility Option No. Name State Price ============================================================= 143 Hillhaven Conv Ctr NC $5,900 146 HH Rose Manor Conv Ctr NC 3,800 190 Winston-Salem Conv Ctr NC 5,600 752 Golden Age Manor/Long Pt TX 3,600 825 Nansemond Conv Ctr VA 7,600 (Note 1) 829 Holmes Conv Ctr VA 6,800 861 Green Meadows Nrng Ctr KS 4,200 138 HH Rehab & Conv Ctr NC 4,200 765 Eastview Manor WI 4,100 137 HH Sunnybrook Conv Ctr NC 3,500 448 Dirksen House Healthcare IL 3,400 461 Edmonds Care Center WA 2,900 610 Boca Raton Conv Ctr FL 5,500 660 Hillhaven Conv Ctr GA 2,600 704 Guaridan Care of Roanoke Rapid NC 4,200 780 Columbus Conv Ctr IN 7,000 809 Country Club Home KS 3,000 760 Golden Age Manor-Bellfort TX 3,900 753 Golden Age Manor-No. Loop TX 4,600 754 Golden Age Manor-Rookin TX 4,000 ------- TOTAL $90,300 =============================================================
Note 1: The Option Amount in the Lease is $5.6 Million plus the Cost of the Addition. An estimate of $2 Million for the Cost of the Addition has been included in the Option Price on this schedule, however, it will be adjusted to actual at closing. EX-10.44 37 THIRD AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.44 THIRD AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Third Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of April 1, 1992, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into the Guarantee Reimbursement Agreement, dated as of January 31, 1990, which provides, among other things, for the reimbursement by New Hillhaven of all Obligations paid by NME after the Distribution Date. The Guarantee Reimbursement Agreement, as amended by the First Amendment to Guarantee Reimbursement Agreement, dated May 30, 1991, and the Second Amendment to Guarantee Reimbursement Agreement, dated October 2, 1991, and as may be further amended, restated, modified, supplemented, renewed or replaced from time to time, is referred to herein as the "Reimbursement Agreement." Unless otherwise defined herein, the terms defined in the Reimbursement Agreement are used herein as therein defined. B. First Healthcare Corporation ("FHC"), a wholly-owned subsidiary of New Hillhaven, currently leases nursing facilities and retirement centers (collectively referred to herein as the "Properties," and individually as a "Property") from certain subsidiaries of NME pursuant to 86 individual leases, each dated January 26, 1990 (as such leases have been or hereafter may be amended or modified from time to time, collectively referred to herein as the "Leases," and Individually as a "Lease"). C. FHC has exercised its options to purchase nine of the 86 Properties, as provided in the respective Leases, and in accordance with the terms of the December 4, 1991 letter from FHC and New Hillhaven to NME Properties Corp. D. Concurrently herewith, FHC and each of the subsidiaries of NME that is a Landlord (as defined in the Leases) have entered into that certain Omnibus Amendment to Leases, made as of April 1, 1992 ("Omnibus Amendment") which amends each of the remaining 77 Leases to provide, among other things, options to sell and options to purchase the Properties. E. Certain of the Properties are currently subject to (1) third party financing (individually, an "Existing Debt") or (2) a master lease superior and prior to the Lease (individually, a "Master Lease"). In conjunction with FHC's acquisition of the Properties pursuant to the exercised options referenced in Recital C above, and its acquisition of the Properties for which the options to sell and options to purchase contained in the Omnibus Amendment hereafter may be exercised, FHC may elect to assume, subject to obtaining the consent of NME, the applicable Landlord and the third party lender or master landlord, as the case may be, certain Existing Debt and Master Leases covering such Properties. F. NME and the Landlords are unwilling to permit FHC to assume any such Existing Debt or Master Lease unless New Hillhaven agrees to guaranty the payment and performance of such Existing Debt and Master Lease being assumed by FHC, to the extent that NME or any subsidiary or affiliate of NME remains primarily or contingently liable for such Existing Debt or Master Lease. G. New Hillhaven and NME desire to amend the Reimbursement Agreement to add the Existing Debit and Master Leases which may be assumed by FHC, to the extent NME or any subsidiary or affiliate of NME shall remain primarily or contingently liable therefor, as Obligations under the Reimbursement Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Assumed Obligations. To the extent NME or any subsidiary or affiliate of -------------------- NME remains primarily or contingently liable therefor, all Existing Debt and Master Leases (respectively referred to herein as the "Assumed Existing Debt" and the "Assumed Master Leases") assumed by FHC in conjunction with its acquisition of the Properties for which (a) FHC has exercised its options to purchase as described in Recital C above, or (b) the options to sell and options to purchase contained in the Omnibus Amendment are hereafter exercised, are hereby added as, and shall be deemed to be, "Obligations" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, except as expressly provided in Paragraph 2 below, shall apply to such Assumed Existing Debts and Assumed Master Leases. 2. Guaranty Fee. The guaranty fee provisions of Section 2 of the ------------- Reimbursement Agreement shall not apply to either (a) the Assumed Existing Debts or (b) the Assumed Master Leases. Instead, New Hillhaven shall pay to NME a guaranty fee equal to 1% per annum, from the date FHC completes its purchase of each such Property subject to any Assumed Existing Debt or Assumed Master Lease, on (i) the daily outstanding balance of each such Assumed Existing Debt, and (ii) the daily outstanding balance of all rent payments which will become due under each such Assumed Master Lease, for the balance of the term of each such Assumed Existing Debt or Assumed Master Lease. Such guaranty fee shall be paid in quarterly installments on the last business day of each fiscal quarter, commencing on the last day of the first fiscal quarter immediately following the date on which such Assumed Existing Debt or Assumed Master Lease is assumed by FHC. The principal amount of the Assumed Existing Debts and Assumed Master Leases shall not be included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for the purposes of calculating the guaranty fee referred to in Section 2 of the Reimbursement Agreement. 3. Effect on Reimbursement Agreement. Except as expressly amended by this ---------------------------------- Amendment, all of the terms and conditions of the Reimbursement Agreement shall remain in full force and effect. 4. Captions. The captions and headings used herein are for the convenience of --------- reference and shall not be construed in any manner to limit or modify any of the terms hereof. 5. Governing Law. This Amendment shall be governed by and construed in -------------- accordance with the laws of the State of California. 6. Counterparts. This Amendment may be executed in counterparts, each of ------------- which shall be an original, but all of which together shall constitute but one and the same Instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By:[SIGNATURE NOT LEGIBLE] ---------------------------------- Title: SR. EXEC. V.P. ------------------------------- THE HILLHAVEN CORPORATION By: Robert F. Pacquer ---------------------------------- Title: /s/ ROBERT F. PACQUER ------------------------------- SR VICE PRESIDENT EXHIBIT C --------- (LEASES SUBJECT TO MASTER LEASES)
Fac. Facility Name No. and Address Description of Master Lease - ----- ------------- --------------------------- 804 Hillhaven Convalescent Lease dated July 3, 1969, by Center and Nursing and between St. Vincent's Home Hospital, as lessor, and 2728 10th Avenue Medicenters of America, Inc., Birmingham, AL as lessee (ground lease). 824 Hillhaven Convalescent Lease dated November 30, 1966, Center and Nursing by and between Earl B. Wert Home and Ellen R. Wert, as lessors, 1758 Springhill Avenue and Medicenters of America, Mobile, AL Inc., as lessee (ground lease) 525 Hillhaven Convalescent Lease dated June 11, 1962, by Hospital and between Mary G. Newcom, 920 W. LaVeta Richard B. Newcom and Mary Orange, CA Beth Potter Querfurth, as lessor, and Orange Square Development Corporation, as lessee (ground lease). 781 Bashford East Lease dated February 13, 1962 Healthcare by and between Cesare Bertoli 3535 Bardstown Road and Kathleen H. Bertoli, as Louisville, KY lessor, and Heritage Home Nursing and Convalescent Care, Inc. (formerly Wendav, Inc.), as lessee. 572 Winchester Place I Lease Agreement dated October 29, 36 Lehman Drive 1976 by and between Harley and Canal Winchester, OH George Reynolds, as Lessor and AEON, Inc., as lessee.
PART II (Subleases Subject to Master Lease)
Fac. Facility Name No. and Address Description of Lease - ----- ---------------------- -------------------- 804 Hillhaven Convalescent Lease dated July 3, 1969, by Center and Nursing and between St. Vincent's Home Hospital, as lessor, and 2728 10th Avenue Medicenters of America, Inc., Birmingham, AL as lessee [ground lease]. 824 Hillhaven Convalescent Lease dated November 30, 1966, Center and Nursing by and between Earl B. Wert Home and Ellen R. Wert, as lessors, 1758 Springhill Avenue and Medicenters of America, Mobile, AL Inc., as lessee [ground lease]. 7104 Villa Campana Lease and Aquisition Agreement Retirement Center dated February 1, 1983 by and 6653 E. Carondelet Dr. between the Industrial Tucson, AZ Development Authority of the County of Pima, as lessor, and The Hillhaven Corporation, as lessee. 525 Hillhaven Convalescent Lease dated June 11, 1962, by Hospital and between Mary G. Newcom, 920 W. LaVeta Richard B. Newcom and Mary Orange, CA Beth Potter Querfurth, as lessor, and Orange Square Development Corporation, as lessee [ground lease]. 809 Country Club Home Lease and Agreement dated 400 Sunset Dr. January 1, 1973 by and between P.O. Box 319 the City of Council Grove, as Council Grove, KS lessor, and Country Club Home, Inc., as lessee. 833 Sedgwick Convalescent Lease and Agreement dated Center September 20, 1974 by and 712 Monroe between the City of Sedgwick, Box 49 as lessor, and Sedgwick Sedgwick, KS Convalescent Center, Inc., a Kansas corporation, as lessee.
EXHIBIT B January 4, 1990 --------- (Page 11 of 13)
Fac. Facility Name No. and Address Description of Lease - ----- ---------------------- -------------------- 857, Hammond Holiday Home Lease dated January l, 1980 by 858 114 West 11th and between the City of Larned, KS Larned, Kansas, as lessor, and Hammond Holiday Home, Inc., a Kansas corporation, as lessee. 861 Green Meadows Nursing Lease dated July 1, 1982 by Center and between the City of 215 N. Larmar St. Haysville, Sedgwick County, Haysville, KS Kansas, as lessor, and Green Meadows Nursing Center, Inc., as lessee. 781 Bashford East Lease dated February 13, 1962 Healthcare by and between Cesare Bertoli 3535 Bardstown Road and Kathleen H. Bertoli, as Louisville, KY lessor, and Heritage Home Nursing and Convalescent Care, Inc. (formerly Wendav, Inc.), as lessee. 592 Greenbriar Terrace Lease dated October 1, 1972 by Healthcare and between Samuel A. Tamposi, 55 Harris Road Gerald Q. Nash, as lessor, and Nashua, NH Greenbriar Nursing Home Corp., as lessee [ground lease]. 572 Winchester Place I Lease Agreement dated October 36 Lehman Drive 29, 1976 by and between Harley Canal Winchester, OH and George Reynolds, as Lessor and AEON, Inc., as lessee. 822 Hillhaven Convalescent Lease Agreement dated Center December 1, 1979 by and 605 Primacy Parkway between the Health and Memphis, TN Educational Facilities Board of the County of Shelby, Tennessee, as lessor, and Hillhaven, Inc., a Delaware corporation, as lessee.
EXHIBIT B January 4, 1990 --------- (Page 12 of 13)
Fac. Facility Name No. and Address Description of Lease - ----- ---------------------- -------------------- 559 Birchwood Terrace Lease dated June 17, 1964 by Healthcare and between Henry H. Riordan 43 Starr Farm Road and Charles M. Jones, trustees Burlington, VT of the Will of John J. Flynn, as lessor, and Birchwood Development Corporation, as lessee. 769 North Ridge Care Lease Agreement dated June 1, Center 1983 by and between City of 1445 N. 7th Street Manitowoc, Wisconsin, as Manitowoc, WI lessor, and HH Holding Co., Inc., a Delaware corporation, as lessee. 773 Mount Carmel Lease Agreement dated June 1, Healthcare Center 1983 by and between City of 677 E. State St. Burlington, as lessor, and HH Burlington, WI Holding Co., Inc., a Delaware corporation, as lessee.
EXHIBIT B January 4, 1990 --------- (Page 13 of 13) THE HILLHAVEN CORPORATION LIST OF LEASED NME FACILITIES
FACILITIES UNDER CAPITALIZED NME LEASES --------------------------------------- 1 AL 804 BIRMINGHAM 2 AL 824 MOBILE 3 AV 818 LITTLE ROCK 4 AZ 436 VALLEY HOUSE AZ 437 VALLEY HOUSE - HSE 5 AZ 742 BELLS LODGE - PHOENIX 6 AZ 851 VILLA CAMPANA AZ 852 VILLA CAMPANA - HSE 7 CA 149 FAIR OAKS - SACRAMENTO 8 CA 150 SAN FRANCISCO 9 CA 203 CONCORD (HACIENDA) 10 CA 320 BURLINGAME 11 CA 410 SANTA PAULA 12 CA 411 ARLINGTON (ALTA VISTA) 13 CA 420 OXNARD (MAYWOOD ACRES) 14 CA 427 TWIN PINES-SANTA PAULA 15 CA 525 ORANGE 16 CA 727 SAN PABLO (BROOKVIEW) 17 CA 737 SAN LEANDRO 18 CA 738 ALAMEDA (SHORELINE) 19 CO 859 NORTHGLENN 20 CT 562 NEW BRITAIN (ANDREW HOUSE) 21 CT 563 CAMELOT-NEW LONDON 22 CT 565 NORWICH HAMILTON PAVILION 23 CT 566 WINDSOR (MOUNTAIN VIEW) 24 CT 567 NUTMEG PVLN NEW LONDON 25 CT 568 ENFIELD (PRKWY PAVILION) 26 FL 115 W PALM BEACH 27 FL 117 EAST MANOR-SARASOTA 28 FL 124 SANFORD 29 FL 125 TITUSVILLE 30 FL 836 MEDICENTER-TAMPA 31 GA 155 SAVANNAH 32 GA 645 MARIETTA GA 8645 MARIETTA - HEAD INJURY 33 IN 286 COLOMBIA - EVANSVILLE 34 IN 779 BEDFORD (WESTVIEW MANOR) 35 KS 838 TOPEKA 36 KY 781 BASHFORD EAST LOUISVILLE 37 KY 783 LEXINGTON 38 MT 416 GREAT FALLS (PARK PLACE) 39 MT 433 DILLON (PARKVIEW ACRES) 48 NC 116 DURHAM 41 NC 136 LASALLE - DURHAM 42 NC 188 WILMINGTON 43 NC 191 SILAS CREEK-WINSTON 44 NC 706 HENDERSON (GUARDIAN CARE) 45 NC 707 MONROE (GUARDIAN CARE) 46 NC 710 NEW BERN (GUARDIAN CARE) 47 NC 711 KINSTON (GUARDIAN CARE) 48 NC 713 ZEBULON (GUARDIAN CARE) 49 NC 724 GASTONIA (HH HEALTH CARE) 50 NC 806 CHAPEL HILL (HHCC) 51 NH 593 HANOVER TERRACE 52 NV 145 RENO 53 NV 641 TORREY PINES - LAS VEGAS 54 OH 560 FRANKLIN WOODS COLOMBUS 55 OH 570 PICKERINGTON 56 OH 572 WINCHESTER CANAL 57 OH 802 AKRON 58 OK 233 BARTLESVILLE OK 234 BARTLESVILLE - APTS. 59 TN 132 MADISON 60 UT 655 SALT LAKE CITY (CC) 61 UT 690 WASATCH VILLA-SLC 62 VA 026 NORFOLK 63 VA 842 MEDICENTER - VA BEACH 64 WA 114 ARDEN - SEATTLE 65 WA 127 LONGVIEW - NORTHWEST 66 WA 158 BELLINGHAM 67 WA 160 FIRST HILL - SEATTLE 68 WA 180 VANCOUVER (CC) 69 WA 105 HHNH-VANCOUVER 70 WA 462 QUEEN ANNE-SEATTLE 71 WI 767 APPLETON (COLONY OAKS) 72 WI 769 MANITOWOC (NORTH RIDGE) 73 WI 770 NEENAH (VALLHAVEN) 74 WY 481 RAWLINS (PARK MANOR) 75 WY 482 RIVERTON (FREMONT MANOR) 76 WY 483 ROCK SPRINGS KIMBERLY MNR
LEASED NME FACILITIES WITH EXECUTED PURCHASE OPTION --------------------------------------------------- 77 CT 561 TORRINGTON (ADAMS HOUSE), 78 KS 844 WICHITA 79 KS 857 LARNED (HAMMOND) KS 858 LARNED (HAMMOND) 80 MO 446 COLOMBIA 81 KS 833 SEDGWICK 82 MO 834 SPRINGFIELD (HHCC) 83 NC 176 ORANGE-DURHAM 84 NV 640 LAS VEGAS (CC) 85 WY 441 MOUNTAIN TOWERS-CHEYENNE
EX-10.45 38 FOURTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.45 FOURTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Fourth Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of November 12, 1992, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as amended by that certain First Amendment to Guarantee Reimbursement Agreement, dated as of May 30, 1991, that certain Second Amendment to Guarantee Reimbursement Agreement, dated as of October 2, 1991, and that certain Third Amendment to Guarantee Reimbursement Agreement, dated as of April 1, 1992 ("the Third Amendment"), and as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"), which provides, among other things, for the reimbursement by New Hillhaven of all Obligations (as defined in the Reimbursement Agreement) paid by NME. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning ascribed to such terms in the Reimbursement Agreement. B. Pursuant to that certain letter agreement, dated July 14, 1992, as modified by that certain letter dated August 4, 1992 from Timothy L. Pullen to Bruce Busby, and as further amended and modified by that certain letter agreement dated October 14, 1992 (collectively the "Letter Agreement"), NME and those subsidiaries of NME that are signatories to the Letter Agreement (the "NME Parties") agreed to sell to First Healthcare Corporation ("FHC"), a wholly owned subsidiary of New Hillhaven, and FHC and New Hillhaven agreed to purchase from the NME Parties, certain nursing facilities and retirement centers (collectively, referred to herein as the "Properties," and individually as a "Property") that FHC leases from certain of the NME Parties. C. Certain of the Properties are currently subject to (1) third party financing (individually, an "Existing Debt") or (2) a master lease superior and prior to the Lease (individually, a "Master Lease"). In conjunction with FHC's acquisition of the Properties pursuant to the Letter Agreement referenced in Recital B above, FHC shall assume certain Existing Debt and Master Leases covering such Properties (respectively referred to herein as the "Assumed Existing Debt" and the "Assumed Master Leases"). The Assumed Existing Debt and the Assumed Master Leases applicable to such Properties being acquired by FHC are described in Schedule A attached hereto. D. NME is unwilling to permit FHC to assume any such Existing Debt or Master Lease unless New Hillhaven agrees to guaranty the payment and performance of such Assumed Existing Debt and Assumed Master Lease, to the extent that NME or any subsidiary or affiliate of NME remains primarily or contingently liable for such Assumed Existing Debt or Assumed Master Lease. In accordance with the Letter Agreement, New Hillhaven agreed to guarantee such Assumed Existing Debt and Assumed Master Leases as "Obligations" under and as defined in the Reimbursement Agreement. E. New Hillhaven and NME desire to amend the Reimbursement Agreement to add the Assumed Existing Debt and the Assumed Master Leases, to the extent NME or any subsidiary or affiliate of NME shall remain primarily or contingently liable therefor, as Obligations under the Reimbursement Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Assumed Obligations. To the extent NME or any subsidiary or affiliate of -------------------- NME remains primarily or contingently liable therefor, the Assumed Existing Debt and the Assumed Master Leases as described in Schedule A attached hereto are hereby added as, and shall be deemed to be, "Obligations" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, except as expressly provided in Paragraph 2 below, shall apply to such Assumed Existing Debt and Assumed Master Leases. 2. No Guaranty Fee. The guaranty fee provisions of Section 2 of the ---------------- Reimbursement Agreement and the guaranty fee provisions contained in Paragraph 2 of the Third Amendment shall not apply to either (a) the Assumed Existing Debt described in Schedule A attached hereto or (b) the Assumed Master Leases described in Schedule A attached hereto. The principal amount of the Assumed Existing Debt and Assumed Master Leases described in Schedule A attached hereto shall not be included as part of the outstanding Obligations under Section 2(c)(i) of the Reimbursement Agreement for the purposes of calculating the guaranty fee referred to in Section 2 of the Reimbursement Agreement. 3. Effect on Reimbursement Agreement. Except as expressly amended by this ---------------------------------- Amendment, all of the terms and conditions of the Reimbursement Agreement shall remain in full force and effect. Without limiting the generality of the foregoing, the parties specifically agree that, except with respect to the Assumed Existing Debt and the Assumed Master Leases described in Schedule A hereto, the terms and provisions of Paragraph 2 of the Third Amendment shall remain fully applicable to all Assumed Existing Debt and Assumed Master Leases as provided in the Third Amendment. 4. Captions. The captions and headings used herein are for the convenience of --------- reference and shall not be construed in any manner to limit or modify any of the terms hereof. 5. Governing Law. This Amendment shall be governed by and construed in -------------- accordance with the laws of the State of California. 6. Counterparts. This Amendment may be executed in counterparts, each of ------------- which shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By: [SIGNATURE NOT LEGIBLE] ----------------------------- Title: [SIGNATURE NOT LEGIBLE] --------------------------- THE HILLHAVEN CORPORATION By: [SIGNATURE NOT LEGIBLE] ----------------------------- Title: [SIGNATURE NOT LEGIBLE] --------------------------- SCHEDULE A ASSUMED OBLIGATIONS ASSUMED LEASES - -------------- Facility 525: Orange, CA: Lease dated June 11, 1962, by and between Mary G. Newcom, Richard B. Newcom and Mary Beth Potter Querfurth, as lessor, and Orange Square Development Corporation, as original lessee, recorded June 29, 1962 in Book 6162, Page 162, Official Records, Orange County, California. The interest of lessee has since been assigned to Hillhaven, Inc., a Delaware corporation, by merger of H.H. of Orange, Inc., a California corporation, recorded May 12, 1964 in Book 7040, Page 501 of Official Records of Orange County, California. Facility 781: Bashford, KY: Lease dated February 13, 1962 by and between Cesare Bertoli and Kathleen H. Bertoli, as lessor, and Extendicare of Kentucky, Inc., a Kentucky corporation, as tenant, successor-in-interest to Heritage House Nursing and Convalescent Care, Inc. (formerly known as Wendav, Inc., a Kentucky corporation). Tenant's interest assigned to H.H. Holding Co., Inc., (now known as NME Property Holding Co., Inc.) a Delaware corporation, as successor by merger to NHE/Kentucky, Inc., a Kentucky corporation, by an Assignment of Lease dated August 28, 1972. Facility 804: Birmingham, AL: Lease dated July 3, 1969, by and between St. Vincent's Hospital, as lessor, and Medicenters of America, Inc., as original lessee. NME Properties Corp.; formerly known as The Hillhaven Corporation, a Tennessee corporation, is the successor in interest to Medicenters of America, Inc. Facility 824: Mobile, AL: Lease dated November 30, 1966, by and between Earl B. Wert and Ellen R. Wert, as lessors, and Medicenters of America, Inc., as lessee, recorded in Real Property Book 779, Page 946 and Addendum to Lease, dated October 13, 1967, recorded in Real Property Book 788, Page 193. NME Properties Corp., formerly known as The Hillhaven Corporation, a Tennessee corporation, is the successor in interest to Medicenters of America, Inc. Page 1 of 2 SCHEDULE A ASSUMED OBLIGATIONS ASSUMED EXISTING DEBT - --------------------- Facility 160: First Hill, WA: Promissory Note, dated July 1, 1984, executed by Hillhaven, Inc. in favor of Villa Care, Inc. in the original sum of $5,875,572.99, only a portion of which is being assumed by FHC. The assumed portion of the Promissory Note allocable to Facility 160 (i.e., the Assumed Existing Debt) is approximately $26,677.21. The Promissory Note represents an obligation relating to several properties and is secured by a Deed of Trust on the subject Property. Facility 560: Franklin Woods, OH: Loan Agreement dated as of October 1, 1984 between NME Properties Corp. (formerly known as The Hillhaven Corporation), a Tennessee corporation (as the assignee of First Healthcare Corporation pursuant to an Assignment and Assumption of Loan Agreement dated as of January 25, 1990, as successor in interest to franklin Woods Associates and the County of Franklin, Ohio (the "Issuer")); Promissory Note dated as of October 1, 1984, in favor of the Issuer in the sum of $2,700,000 (with an outstanding balance of $2,330,000), secured by an Open-End Mortgage and Security Agreement. Facility 570: Pickerington, OH: Loan Agreement between NME Properties Corp. (formerly known as The Hillhaven Corporation), a Tennessee corporation (as the assignee of First Healthcare Corporation pursuant to the Assignment and Assumption of Loan Agreement dated as of January 25, 1990, as successor in interest to Pickerington Health Care Center, Inc. and the County of Fairfield, Ohio (the "Issuer")) dated as of November 1, 1983; Promissory Note dated as of October 1, 1984, in favor of the Issuer in the sum of $2,700,000 (with an outstanding balance of $2,225,000), secured by an Open-End Mortgage and Security Agreement. Page 2 of 2 EX-10.46 39 FIFTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.46 FIFTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Fifth Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of February 19, 1993, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as amended by that certain First Amendment to Guarantee Reimbursement Agreement, dated as of May 30, 1991, that certain Second Amendment to Guarantee Reimbursement Agreement, dated as of October 2, 1991, that certain Third Amendment to Guarantee Reimbursement Agreement, dated as of April 1, 1992 (the "Third Amendment"), and that certain fourth Amendment to Guarantee Reimbursement Agreement, dated as of November 12, 1992, and as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"), which provides, among other things, for the reimbursement by New Hillhaven of all Obligations (as defined in the Reimbursement Agreement) paid by NME. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning ascribed to such terms in the Reimbursement Agreement. B. Pursuant to that certain letter dated January 26, 1993, from Timothy L. Pullen to Robert F. Pacquer (the "Option Notice"), certain subsidiaries of NME (the "NME Parties') exercised their respective options to sell to First Healthcare Corporation ("FHC"), a wholly owned subsidiary of New Hillhaven, seventeen nursing facilities (collectively, referred to herein as the "Properties," and individually as a "Property") that FHC leases from certain of the NME Parties. C. One of the Properties, commonly known as Queen Anne Care Center, described in Schedule A attached hereto, is currently subject to third party financing (herein, an "Existing Debt"). In conjunction with FHC's acquisition of the Properties pursuant to the Option Notice, FHC shall assume the Existing Debt covering such Property (herein, an "Assumed Existing Debt"). The Assumed Existing Debt applicable to such Property is described in Schedule A attached hereto. D. In accordance with the Third Amendment, New Hillhaven agreed to guarantee the Assumed Existing Debt of Properties acquired by FHC pursuant to exercised options to sell and options to purchase as provided in the Omnibus Amendment. E. New Hillhaven and NME desire to amend the Reimbursement Agreement to add such Assumed Existing Debt as an "Obligation" under (and as defined in) the Reimbursement Agreement. NOW THEREfORE, In consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Assumed Obligations. To the extent NME or any subsidiary or affiliate of ------------------- NME remains primarily or contingently liable therefor, the Assumed Existing Debt described in Schedule A attached hereto is hereby added as, and shall be deemed to be, an "Obligation" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, including but not limited to the guaranty fee of 1% per annum payable in accordance with Paragraph 2 of the Third Amendment, shall apply to such Assumed Existing Debt. 2. Reaffirmation of Reimbursement Agreement. New Hillhaven reaffirms that the ---------------------------------------- Reimbursement Agreement, as amended hereby, shall remain in full force and effect, and shall continue to be binding upon New Hillhaven. 3. Captions. The captions and headings used herein are for the convenience of -------- reference and shall not be construed in any manner to limit or modify any of the terms hereof. 4. Governing Law. This Amendment shall be governed by and construed in ------------- accordance with the laws of the State of California. 5. Counterparts. This Amendment may be executed in counterparts, each of ------------ which shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By: [SIGNATURE ILLEGIBLE] ------------------------------ Title: VICE PRESIDENT --------------------------- THE HILLHAVEN CORPORATION By: /s/ Robert F. Pacquer ------------------------------ ROBERT F. PACQUER Title: SR. VICE PRESIDENT --------------------------- SCHEDULE A ASSUMED OBLIGATIONS ASSUMED EXISTING DEBT - --------------------- Facility 462: Quenn Anne, WA: Promissory Note, dated July 1, 1984, executed by Hillhaven, Inc. in favor of Villa Care, Inc. in the original sum of $5,875,572.99, only a portion of which is being assumed by FHC. The assumed portion of the Promissory Note allocable to Facility 462 (i.e., the Assumed Existing Debt) is approximately $22,952.29. The Promissory Note represents an obligation relating to several properties and is secured by a Deed of Trust on the subject Property. EX-10.47 40 SIXTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT EXHIBIT 10.47 SIXTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Sixth Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of May 28, 1993, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME"') and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME entered into that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as amended by that certain First Amendment to Guarantee Reimbursement Agreement, dated as of May 30, 1991, that certain Second Amendment to Guarantee Reimbursement Agreement, dated as of October 2, 1991, that certain Third Amendment to Guarantee Reimbursement Agreement, dated as of April 1, 1992 (the "Third Amendment"), that certain Fourth Amendment to Guarantee Reimbursement Agreement, dated as of November 12, 1992, and that certain fifth Amendment to Guarantee Reimbursement Agreement, dated as of February 19, 1993, and as the same may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"), which provides, among other things, for the reimbursement by New Hillhaven of all Obligations (as defined in the Reimbursement Agreement) paid by NME. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning ascribed to such terms In the Reimbursement Agreement. B. Pursuant to that certain letter dated May 10, 1993, from Timothy L. Pullen to Robert F. Pacquer (the "Option Notice"), certain subsidiaries of NME (the "NME Parties") exercised their respective options to sell to First Healthcare Corporation ("FHC"), a wholly owned subsidiary of New Hillhaven, eleven nursing facilities (collectively, referred to herein as the "Properties," and individually as a "Property") that FHC leases from certain of the NME Parties. C. One of the Properties, commonly known as Bellingham Care Center, described in Schedule A attached hereto, is currently subject to third party financing (herein, an "Existing Debt"). In conjunction with FHC's acquisition of the Properties pursuant to the Option Notice, FHC shall assume the Existing Debt covering such Property (herein, an "Assumed Existing Debt"). The Assumed Existing Debt applicable to such Property is described in Schedule A attached hereto. D. In accordance with the Third Amendment, New Hillhaven agreed to guarantee the Assumed Existing Debt of Properties acquired by FHC pursuant to exercised options to sell and options to purchase as provided in the Omnibus Amendment. E. New Hillhaven and NME desire to amend the Reimbursement Agreement to add such Assumed Existing Debt as an "Obligation" under (and as defined in) the Reimbursement Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Assumed Obligations. To the extent NME or any subsidiary or affiliate of NME ------------------- remains primarily or contingently liable therefor, the Assumed Existing Debt described In Schedule A attached hereto is hereby added as, and shall be deemed to be, an "Obligation" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, including but not limited to the guaranty fee of 1% per annum payable In accordance with Paragraph 2 of the Third Amendment, shall apply to such Assumed Existing Debt. 2. Reaffirmation of Reimbursement Agreement. New Hillhaven reaffirms that the ----------------------------------------- Reimbursement Agreement, as amended hereby, shall remain in full force and effect, and shall continue to be binding upon New Hillhaven. 3. Captions. The captions and headings used herein are for the convenience of --------- reference and shall not be construed in any manner to limit or modify any of the terms hereof. 4. Governing Law. This Amendment shall be governed by and construed in -------------- accordance with the laws of the State of California. 5. Counterparts. This Amendment may be executed in counterparts, each of which ------------- shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By: [SIGNATURE NOT LEGIBLE] -------------------------------- Title: [SIGNATURE NOT LEGIBLE] ------------------------------ THE HILLHAVEN CORPORATION By: [SIGNATURE NOT LEGIBLE] -------------------------------- Title: [SIGNATURE NOT LEGIBLE] ------------------------------ SCHEDULE A ASSUMED OBLIGATIONS ASSUMED EXISTING DEBT - --------------------- Facility 158: Bellingham, WA: Promissory Note, dated July 1, 1984, executed by Hillhaven, Inc. in favor of Villa Care, Inc. in the original sum of $5,875,572.99, only a portion of which is being assumed by FHC. The assumed portion of the Promissory Note allocable to Facility 158 (i.e., the Assumed Existing Debt) is approximately $243,527.40. The Promissory Note represents an obligation relating to several properties. EX-10.48 41 SEVENTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT Exhibit 10.48 SEVENTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT THIS SEVENTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT (the "Amendment") is made and dated as of May 28, 1993, between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("Hillhaven"). RECITALS A. NME and Hillhaven are parties to that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as the same has been or may from time to time be amended, restated, renewed, replaced, modified or supplemented from time to time, the "Reimbursement Agreement"). B. Hillhaven has requested that NME enter into that certain Pledge and Security Agreement and Master Assignment of Mortgages, dated as of May 28, 1993 (the "Pledge Agreement"), pursuant to which NME is assigning certain promissory notes from Hillhaven to NME, and the mortgages securing such promissory notes, to Swiss Bank Corporation, as Collateral Agent, to secure NME's obligations under a guaranty of certain of Hillhaven's "Obligations" (as defined in the Reimbursement Agreement). C. In order to induce NME to enter into the Pledge Agreement, Hillhaven has agreed to amend the Reimbursement Agreement as set forth in this Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: AGREEMENT 1. Section 1(a) of the Reimbursement Agreement hereby is amended and restated to read in its entirety as follows: (a) Reimbursement. New Hillhaven shall reimburse NME, promptly on demand, for all Obligations (including those Obligations set forth in Appendix B to the Reimbursement Agreement) paid by NME or its subsidiaries after the Distribution Date not theretofore reimbursed by New Hillhaven. Without limiting the generality of the foregoing, in the event that NME pledges or assigns collateral directly or indirectly to secure any Obligations or NME's obligations with respect thereto, under a guaranty or otherwise, the amount to be reimbursed by New Hillhaven to NME hereunder with respect to such Obligations shall be the greater of (x) the face value of any collateral applied to the satisfaction of the Obligations, and any other sums then outstanding with respect to such collateral, including accrued and unpaid interest thereon, and (y) the fair market value of any collateral, and any proceeds thereon, applied to the satisfacton of the Obligations (provided, however, that if the collateral is a note secured by a mortgage or deed of trust, the fair market value of such note shall not include the fair market value of the real property securing such note). Payments and notices shall be made or given, as the case may be, in accordance with the provisions of Sections 1(c), 3 and 9(b). 2. Reimbursement Agreement Remains in Effect. Except as expressly amended hereby, the Reimbursement Agreement shall remain in full force and effect. 3. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 4. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation By: /s/ Maris Andersons Title: Executive Vice President THE HILLHAVEN CORPORATION, a Nevada corporation By: /s/ Robert K. Schneider Title: Vice President & Treasurer EX-10.49 42 EIGHTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGMT Exhibit 10.49 EIGHTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT This Eighth Amendment to Guarantee Reimbursement Agreement ("Amendment") dated as of September 2, 1993, is entered into by and between National Medical Enterprises, Inc., a Nevada corporation ("NME") and The Hillhaven Corporation, a Nevada corporation ("New Hillhaven"). RECITALS A. New Hillhaven and NME are parties to that certain Guarantee Reimbursement Agreement, dated as of January 31, 1990 (as the same has been or may be amended, restated, modified, supplemented, renewed or replaced from time to time, the "Reimbursement Agreement"), which provides, among other things, for the reimbursement by New Hillhaven of all Obligations (as defined in the Reimbursement Agreement) paid by NME. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning ascribed to such terms in the Reimbursement Agreement. B. New Hillhaven, NME, and certain subsidiaries of New Hillhaven and NME, have entered into that certain letter agreement dated June 22, 1993 (the "June 22 Letter"), which among other things, restructures certain relationships of the companies. Among the provisions contained in the June 22 letter that are pertinent to this Reimbursement Agreement, are the following: (1) New Hillhaven will obtain financing consisting of (a) third party bank financing in the approximate amount of $400 million, and (b) public or private debt financing in the approximate amount of $175 million (collectively, the "Financing"), a portion of the proceeds of which Financing will be used to (i) repay certain Obligations currently guaranteed by NME, and (ii) cause NME and/or certain of its subsidiaries to be released from certain other Obligations currently guaranteed by NME and/or certain of its subsidiaries; (2) The annual guarantee fee payable by New Hillhaven under this Reimbursement Agreement in connection with the Obligations shall be limited to a maximum of 2% of the Obligations outstanding and the manner of calculating the fee charged on the Obligations outstanding shall be revised; and (3) NME and/or certain subsidiaries of NME shall assign to New Hillhaven's subsidiary, First Healthcare Corporation ("FHC"), and FHC shall assume the renewal and/or purchase options contained in the Assumed Leases (as that term is defined in the Reimbursement Agreement) that were not assigned to FHC on or before the Distribution Date for those facilities described in Exhibit 1 attached hereto and incorporated herein by this reference (the "Assumed Lease Options"), and those Assumed Lease Options shall be added to the Obligations covered by this Reimbursement Agreement, as more specifically provided herein. C. New Hillhaven and NME desire to amend the Reimbursement Agreement as set forth in this Agreement. NOW THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to amend, modify and supplement the Reimbursement Agreement as follows: AGREEMENT 1. Calculation of the Guarantee Fee After Completion of Financing. The provisions of Section 2(c) of the Reimbursement Agreement are hereby amended to provide that, commencing with the quarterly payment due for the fiscal quarter ending February 28, 1993, the guarantee fee for each quarter shall be the product of (i) the amount of the Obligations outstanding at the close of business on the last day of the preceding fiscal quarter multiplied by (ii) a fraction which is equal to the applicable fraction for the previous fiscal year multiplied by 1.2; provided, however, that at no time shall the fraction to be used in calculating the guarantee fee exceed 2%. Furthermore, notwithstanding the foregoing guaranty fee provisions, the principal amounts of the Obligations described in Exhibit 2 and Exhibit 3 attached hereto shall not be included as part of the Obligations for the purposes of calculating the guarantee fee in the foregoing sentence. Instead, in accordance with prior agreements, (x) New Hillhaven shall pay to NME a guarantee fee of 1% per annum on those Obligations described in Exhibit 2, and (y) no guarantee fee shall be charged on those Obligations described in Exhibit 3. 2. Proration of Guarantee Fee on Obligations Paid With Proceeds of Financing. Notwithstanding any provisions to the contrary, the guarantee fee paid with respect to those Obligations that are paid in full, or as to which NME's guaranty has been released, with proceeds of the Financing during the fiscal year ending May 31, 1994 shall be prorated to the date of payoff, based on the actual number of days elapsed until such Obligation is paid in full or such guaranty has been released. 3. Inclusion of the Assumed Lease Options as Obligations. The Assumed Lease Options are hereby added as, and shall be deemed to be, "Obligations" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement shall apply; provided, however, that the guarantee fee set forth in Paragraph 1 above shall be charged on the aggregate amount of the rents that will become due for the renewal period for any such Assumed Lease, commencing on the earlier of the date that FHC exercises or is required to exercise such Assumed Lease Option, as provided by the terms of the assignment of such Assumed Lease Option. 4. Inclusion of Certain Assumed Obligations. To the extent NME or any subsidiary or affiliate of NME remains primarily or contingently liable therefor, each of the Assumed Existing Debt and the Assumed Lease described in Exhibit 4 attached hereto is hereby added as, and shall be deemed to be, an "Obligation" under (and as defined in) the Reimbursement Agreement, and all terms, covenants and conditions of the Reimbursement Agreement, including payment of a guarantee fee as provided in Paragraph 1 above, shall apply to such Assumed Existing Debt and Assumed Lease. 5. Reaffirmation of Reimbursement Agreement. New Hillhaven reaffirms that the Reimbursement Agreement, as amended hereby, shall remain in full force and effect, and shall continue to be binding upon New Hillhaven. 6. Captions. The captions and headings used herein are for the convenience of reference and shall not be construed in any manner to limit or modify any of the terms hereof. 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California. 8. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC. By: _________________________ Title: ______________________ THE HILLHAVEN CORPORATION By: _________________________ Title: ______________________ EXHIBIT 1 No. Facility Name 272 Hughes Springs Nursing Home Hughes Springs, Texas 273 Pinecrest Convalescent Home Daingerfield, Texas 274 Coastal Care Center Texas City, Texas 275 Great Southwest Convalescent Center Grand Prairie, Texas 292 Twin City Nursing Home Gas City, Indiana 298 Driftwood Convalescent Hospital Yuba City, California 299 Marysville Convalescent Hospital Marysville, California 305 University Nursing Center Upland, Indiana 880 Four States Nursing Home Texarkana, Texas 881 Southwest Senior Care Center Las Vegas, New Mexico 760 Ridgeview Nursing and Convalescent Center Wichita Falls, Texas 76392 860 Blue Hills Centre Kansas City, Missouri 849 Iliff Care Center Denver, Colorado 295 Whitehouse Country Manor Whitehouse, Ohio 184 Greystone Healthcare Center Blountville, Tennessee 183 Hillhaven Convalescent Center - Ripley Ripley, Tennessee 189 Fairpark Healthcare Center Maryville, Tennessee 179 Hillhaven Convalescent Center of Huntington Huntington, Tennessee 175 Hillhaven of Jefferson City Jefferson City, Tennessee 171 Hillhaven Convalescent Center Bolivar, Tennessee EXHIBIT 2 A ONE PERCENT GUARANTEE FEE IS PAYABLE ON OBLIGATIONS COVERING THE FOLLOWING FACILITIES: Facility 462: Queen Anne Care Center, WA Facility 158: Bellingham Care Center, Bellingham, WA Facility 461: Edmonds Care Center, Edmonds, WA Facility 825: Nansemond Convalescent Center, Suffolk, VA Facility 829: Holmes Convalescent Center, Virginia Beach, VA EXHIBIT 3 NO GUARANTEE FEE IS PAYABLE ON OBLIGATIONS COVERING THE FOLLOWING FACILITIES: Facility 525: Hillhaven Convalescent Hospital, Orange, CA Facility 781: Bashford East Health Care Center, Bashford, KY Facility 804: Hillhaven Convalescent Center and Nursing Home, Birmingham, AL Facility 824: Hillhaven Convalescent Center & Nursing Home, Mobile, AL Facility 160: First Hill Care Center, WA Facility 560: Franklin Woods Healthcare Center, OH Facility 570: Pickerington Health Care Center, OH Facility 822: Hillhaven Convalescent Center, Memphis, TN Facility 416: Park Place Hillhaven Convalescent Center, Great Falls, MT Facility 572: Canal Winchester, OH -- No guarantee fee shall be payable on the Assumed Lease. A guarantee shall be payable on the Assumed Existing Debt as provided in Paragraph 1 of the Amendment. EXHIBIT 4 ASSUMED OBLIGATIONS ASSUMED EXISTING DEBT Facility 572: Canal Winchester Loan Agreement, dated April 1, 1983, between County of Franklin and Aeon, Inc., with an outstanding principal balance as of September 2, 1993 of $1,955,000, secured by an Open-End Mortgage and Security Agreement dated April 1, 1983. Facility 416: Park Place All-Inclusive Promissory Note Secured by Mortgage, dated September 1, 1983, in favor of B.G.M. Enterprises, with an outstanding principal balance as of September 2, 1993 of $257,998.44. All-Inclusive Promissory Note Secured by Mortgage, dated September 1, 1983, in favor of B.G.M. Enterprises, with an outstanding principal balance as of September 2, 1993 of $1,357,016.39. ASSUMED LEASE Facility 572: Canal Winchester Lease and Sublease Agreement, dated October 10, 1985, between Aeon, Inc. and First Healthcare Corporation, and any amendments thereto. EX-10.50 43 FACILITY AGREEMENT EXHIBIT 10.50 FACILITY AGREEMENT Dated as of April 23, 1992 Among FIRST HEALTHCARE CORPORATION and Certain Limited Partnerships TABLE OF CONTENTS
Page ---- RECITALS.................................................................. 1 ARTICLE I - DEFINITIONS................................................... 1 1.01 Certain Defined Terms.............................................. 1 1.02 Accounting Terms................................................... 7 1.03 Sections, Etc...................................................... 7 1.04 Construction of Certain Provisions................................. 7 ARTICLE II - TERMS OF PURCHASE AND SALE; SUBLEASE......................... 8 2.01 Purchase and Sale.................................................. 8 2.02 Excluded Assets.................................................... 9 2.03 Assumption of Liabilities.......................................... 9 2.04 Assignment of Contracts and Rights; No Adjustment of Purchase Price or Rent or Termination of Agreement......................... 9 2.05 Deposit............................................................ 10 2.06 Purchase Price..................................................... 10 2.07 Allocation of Purchase Price....................................... 10 2.08 Payment of Purchase Price.......................................... 10 2.09 Security for Buyers' Obligations................................... 11 2.10 Subleases; Rent.................................................... 11 2.11 Subsidy............................................................ 11 2.12 Subsidy Reduction.................................................. 11 2.13 Guaranty of Buyers' Obligations.................................... 12 2.14 No Recourse........................................................ 12 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER.................... 13 3.01 Corporate Existence and Power...................................... 13 3.02 Corporate Authorization............................................ 13 3.03 Non-Contravention.................................................. 13 3.04 Litigation......................................................... 13 3.05 Bankruptcy......................................................... 13 3.06 Compliance with Laws............................................... 13 3.07 Reporting Requirements............................................. 13 3.08 License............................................................ 14 3.09 Personal Funds of Residents........................................ 14 3.10 Life Care Contracts................................................ 14 3.11 Admission Agreements and Patient Rolls............................. 14 3.12 Facility Financial Statements...................................... 14 3.13 Absence of Certain Changes......................................... 14 3.14 Collective Bargaining Agreements................................... 14 3.15 Taxes.............................................................. 14 3.16 Environmental Compliance........................................... 15 3.17 Finders' Fees...................................................... 15 3.18 Third Party Consents............................................... 15
-i- 3.19 No Default......................................................... 15 3.20 Schedules.......................................................... 15 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYERS..................... 15 4.01 Partnership Existence and Power.................................... 15 4.02 Partnership Authorization, Etc..................................... 15 4.03 Non-Contravention.................................................. 16 4.04 Litigation......................................................... 16 4.05 Bankruptcy......................................................... 16 4.06 Finders' Fees...................................................... 16 4.07 Schedules.......................................................... 16 4.08 General Partner.................................................... 16 ARTICLE V - CERTAIN COVENANTS OF SELLER.................................... 16 5.01 Operation of the Facilities........................................ 16 5.02 Access to Information.............................................. 17 5.03 Notices of Certain Events.......................................... 17 5.04 Taxes.............................................................. 17 5.05 Reporting Requirements............................................. 17 5.06 Government Surveys, Reports and Other Information.................. 18 5.07 Confidentiality.................................................... 18 5.08 Non-Competition Agreement.......................................... 19 5.09 Further Encumbrances............................................... 19 5.10 Payment of Certain Senior Debt..................................... 19 5.11 Prepayments of Promissory Notes; Release Premium................... 19 5.12 Release of Mortgages............................................... 20 ARTICLE VI - CERTAIN COVENANTS OF BUYERS.................................. 20 6.01 Conduct............................................................ 20 6.02 Notices of Certain Events.......................................... 20 6.03 Confidentiality.................................................... 20 6.04 Access............................................................. 21 6.05 Removal of Signs, Etc.............................................. 21 6.06 Licenses, Etc...................................................... 21 6.07 Application of Certain Proceeds.................................... 21 6.08 Books, Records, Etc................................................ 21 ARTICLE VII - CERTAIN COVENANTS OF SELLER AND BUYERS...................... 22 7.01 Diligent Efforts; Further Assurances............................... 22 7.02 Certain Filings.................................................... 22 7.03 Public Announcements............................................... 22 7.04 Cooperation as to Taxes............................................ 22 7.05 Allocation of Taxes................................................ 22 7.06 Allocation of Other Charges........................................ 23 7.07 Employees.......................................................... 23 7.08 Receivables........................................................ 24 7.09 Patient Trust Funds................................................ 25 7.10 Preliminary Commitment for Title Insurance......................... 25
-ii- 7.11 Condition of Purchased Assets and Leased Facilities; Disclaimer of Warranties..................................................... 25 7.12 Inspection......................................................... 26 7.13 Destruction of or Damage to Facilities............................. 27 7.14 Consents........................................................... 28 7.15 Inventory.......................................................... 28 7.16 Schedules and Exhibits............................................. 28 7.17 Financing.......................................................... 28 7.18 Delivery of Certain Documents...................................... 29 ARTICLE VIII - CLOSING.................................................... 29 8.01 Closing............................................................ 29 8.02 Conveyance; Sublease............................................... 29 8.03 Possession and Risk of Loss........................................ 29 8.04 Seller's Delivery of Documents at Closing.......................... 29 8.05 Buyers' Delivery of Documents and Purchase Price at Closing........ 30 8.06 Certain Payments and Prorations.................................... 31 ARTICLE IX - CONDITIONS TO CLOSING........................................ 32 9.01 Conditions to the Obligations of Seller and Buyers................. 32 9.02 Additional Conditions to the Obligation of Buyers.................. 33 9.03 Additional Conditions to the Obligation of Seller.................. 33 ARTICLE X - SURVIVAL; INDEMNIFICATION..................................... 34 10.01 Survival........................................................... 34 10.02 Idemnification by Seller........................................... 34 10.03 Idemnification by Buyers........................................... 34 10.04 Procedures......................................................... 35 10.05 Exclusivity........................................................ 35 ARTICLE XI - TERMINATION.................................................. 35 11.01 Grounds for Termination............................................ 35 11.02 Effect of Termination.............................................. 36 ARTICLE XII - MISCELLANEOUS............................................... 36 12.01 Notices............................................................ 36 12.02 Amendments, Etc.................................................... 37 12.03 No Waivers; Remedies Cumulative.................................... 38 12.04 Expenses........................................................... 38 12.05 Successors and Assigns............................................. 38 12.06 Joint and Several Liability........................................ 38 12.07 Counterparts; Effectiveness........................................ 38 12.08 Entire Agreement................................................... 38 12.09 Severability....................................................... 38 12.10 Captions........................................................... 38 12.11 Arbitration........................................................ 39 12.12 Bulk Sales Laws.................................................... 39
-iii- 12.13 Governing Law...................................................... 39
Schedule 1.01A Assumed Contracts and Certain Consents Schedule 1.01B Owned Facilities and Certain Bonds Schedule 1.01C Leased Facilities Schedule 1.01D Leased Facilities As to Which Buyers Shall Have Been Assigned Option to Purchase Schedule 1.01E Real Property Description and Certain Permitted Liens Schedule 2.03(a) Certain Assumed Liabilities Schedule 2.07 Allocation Schedule Schedule 2.08(c) Promissory Note Principal Amounts Schedule 2.11 Subsidy Reduction Upon Certain Sublease Terminations Schedule 2.12 Subsidy Reduction Schedule 3.04 Seller Litigation Schedule 3.08 Licensure Schedule 3.10 Life Care Contracts Schedule 3.16 Environmental Disclosure Schedule 4.04 Buyer Litigation Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Promissory Note Exhibit C-1 Form of Deed of Trust, Assignment, Security Agreement and Financing Statement (Fixture Filing) Exhibit C-2 Form of Mortgage, Assignment, Security Agreement and Financing Statement (Fixture Filing) Exhibit D Form of Guaranty Exhibit E Form of Receipt and Assumption Agreement Exhibit F Form of Deeds Exhibit G Form of Bill of Sale and General Assignment Exhibit H Form of Opinion of General Counsel to the Seller Exhibit I Form of Pharmacy Partnership Agreement Exhibit J Form of Pharmacy Management Agreement Exhibit K Form of Rehab Partnership Agreement Exhibit L Form of Rehab Management Agreement Exhibit M Form of Accounting Services Agreement Exhibit N Form of Opinion of House & Blanco, P.A. -iv- FACILITY AGREEMENT This FACILITY AGREEMENT, dated as of April 23, 1992, is made among FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Seller"), and the limited partnerships listed on the signature pages hereto (individually, a "Buyer" and collectively, the "Buyers"). RECITALS A. The Seller owns or, subject to certain purchase options, will own the Owned Facilities (as defined below) and leases or subleases the Leased Facilities (as defined below). B. The Seller desires to sell to the Buyers, and the Buyers desire to purchase from the Seller, the Seller's right, title and interest in and to the Owned Facilities and the other Purchased Assets (as defined below), upon the terms and subject to the conditions set forth in this Agreement. C. The Seller desires to sublease to the Buyers, and the Buyers desire to sublease from the Seller, the Leased Facilities, upon the terms and subject to the conditions set forth in this Agreement and the Subleases (as defined below). NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings: "Accounting Services Agreements" has the meaning assigned to that term in Section 8.04(p). "Agreement" means this Facility Agreement, as it may be amended or otherwise modified in accordance with Section 12.02. "Allocation Schedule" has the meaning assigned to that term in Section 2.07. "Assignment and Assumption Agreements" has the meaning assigned to that term in Section 2.03. "Assumed Contracts" means, subject to Section 2.04, the leases, licenses, contracts and agreements listed or otherwise described in Schedule 1.01A. "Assumed Liabilities" has the meaning assigned to that term in Section 2.03. "Bethesda Sublease" has the meaning assigned to that term in Section 2.01. "Bills of Sale" has the meaning assigned to that term in Section 8.02. "Bond-financed Owned Facilities" means the facilities listed in Part B of Schedule 1.01B. -1- "Bonds" means the bonds listed in Part B of Schedule 1.01B. "Buyers" has the meaning assigned to that term in the preamble to this Agreement. "Buyer Loss" means any loss, damage, injury, liability, Tax, fine, penalty, cost and expense (including reasonable attorneys' fees and disbursements) incurred or suffered by the Buyers. When calculating the dollar amount of any Buyer Loss, an allowance shall be made for any insurance proceeds or other recovery from third parties received by the Buyers in connection with such Buyer Loss. In addition, the dollar amount of any Buyer Loss shall be calculated net of any United States federal income tax benefit from such Buyer Loss utilized by the Buyers in the taxable year in which such Buyer Loss arises. The amount of any such United States federal income tax benefit shall be equal to the difference between (i) the overall United States federal income tax liability of the Buyers including such Buyer Loss for such taxable year and (ii) the overall United States federal income tax liability of the Buyers excluding such Buyer Loss for such taxable year. "Charlevoix Lease" has the meaning assigned to that term in Section 2.01. "Closing" has the meaning assigned to that term in Section 8.01. "Closing Date" means the date on which the Closing occurs. "Deeds" has the meaning assigned to that term in Section 8.02. "Deposit" has the meaning assigned to that term in Section 2.05. "Employee" means any Person who is employed by the Seller as an employee of any Facility and who, as of 11:00 p.m. on the day immediately preceding the Closing Date, is actively employed by the Seller or is on short- term disability leave, authorized leave of absence, military service or lay-off with recall rights as of the Closing Date, but excludes any Person who is on long-term disability leave or unauthorized leave of absence on the Closing Date or who has died, retired or otherwise terminated his or her employment on or before the Closing Date. "Employee Benefit Program" has the meaning assigned to that term in Section 7.07. "Employment Law" means any of the Worker Adjustment and Retraining Notification Act, the rules and regulations promulgated under that act, and any similar federal, state or local law (including any law pertaining to severance pay), as supplemented or amended. "Environmental Law" means any federal, state or local statute, rule, regulation, ordinance, order, judgment, decree, injunction or common law pertaining to the protection of human health or the environment, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. (S)(S)9601-9675), the Toxic Substance Control Act (15 U.S.C. (S)(S)2601- 2671), the Hazardous Materials Transportation Act (49 U.S.C. (S)(S)1801-1813), the Federal Water Pollution Control Act (33 U.S.C. (S)(S)1251-1387), the Clean Air Act (42 U.S.C. (S)(S)7401-7671q), the Safe Drinking Water Act (42 U.S.C. (S)(S)300f-300j-26), the Solid Waste Disposal Act (42 U.S.C. (S)(S)6901-6992k), the Coastal Zone Management Act (16 U.S.C. (S)(S)1451-1464), and the Occupational Safety and Health Act (29 U.S.C. (S)651 et seq.), and any similar -- --- federal, state or local law, as supplemented or amended. "Escrow Account" has the meaning assigned to that term in section 2.05. -2- "Escrow" Agent" means Chicago Title Insurance Company, a Missouri corporation, or an affiliate or agent of Chicago Title Insurance Company or such other Person agreed to by the parties, and any successor. "Event of Default" has the meaning assigned to that term in the Promissory Notes. "Excluded Assets" means the following assets whether or not relating to or affecting any Facility: (a) all cash, bank accounts, profit- sharing funds, pension funds and similar funds; (b) all accounts, notes and other receivables (including all patient accounts and patient balances and other accounts, notes and other receivables in respect of the ownership, lease, use and operation of any Facility and the other Purchased Assets prior to the Closing); (c) except as provided in Section 2.12, all rights to moneys and other sums due and to become due from any governmental or regulatory authority in respect of any cost report filed with respect to any Facility for any cost reporting period ended on or prior to the Closing Date, whether by reason of an adjustment in rates by such governmental or regulatory authority or otherwise; (d) all personnel, employment and payroll records that relate to employees of any Facility, except such records that are required by law to be kept at any Facility; (e) all books, records, files and papers (whether in hard copy or computer format) that are not used exclusively in, or that do not relate exclusively to or exclusively affect, any Facility, including engineering information, sales and promotional literature, manuals and data, sales and purchase correspondence lists of suppliers, lists of patients and residents, personnel and employment records, payroll records and information relating to any Tax; (f) all Intellectual Property Rights; (g) all computers; (h) Purchased Assets that are sold or otherwise disposed of in the ordinary course of the operation of any Facility and not in vioLation of any provisions of this Agreement from the date of this Agreement until the Closing Date; (i) any license, permit or other governmental or regulatory authorization that relates to or affects any Facility but is not assignable or transferable; (i) any Seller Trade Name; and (k) any lease or license of, and any other contract or agreement relating to or affecting, any Facility (1) if any consent by any Person is required for the sale, assignment, transfer, conveyance or delivery of such lease, license, contract or agreement and such consent is not obtained or (2) if the sale, assignment transfer, conveyance or delivery of such lease, license, contract or agreement is prohibited by law, contract or otherwise. "Executive Committee" means the executive committee of the board of directors of Hillhaven. "Extended Review Period" has the meaning assigned to that term in Section 7.10. "Facilities" means the Owned Facilities and the Leased Facilities. "Facility Financial Statements" means (i) the unaudited Summary of Financial Results of each Facility for the fiscal years ended May 31, 1990, and May 31, 1991, respectively, (ii) the unaudited 1991 Operations Analysis for each Facility for the fiscal year ended May 31, 1991, (iii) the unaudited 1990 Operations Analysis for each Facility for the fiscal year ended May 31, 1990, and (iv) the unaudited monthly Operations Analyses for each Facility that are provided to the Buyers pursuant to Section 5.02. "First Lien Mortgage" has the meaning assigned to that term in the applicable Mortgage. -3- "General Partner" means Meadowbrook Manor of Kansas & Missouri, Inc., a North Carolina corporation. "Guarantors" means Don G. Angell and Daniel D. Mosca. "Guaranty" has the meaning assigned to that term in Section 2.13. "Hazardous Substance" means any hazardous, toxic, radioactive or infectious substance, material, waste, pollutant or contaminant as defined, listed or regulated under any Environmental Law, including asbestos and petroleum oil and its fractions. "Hillhaven" means The Hillhaven Corporation, a Nevada corporation. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated under that act. "Improvements" means all buildings, structures, facilities and other improvements erected on, attached to or located in or upon any Real Property, all building materials attached to or contained in such buildings, structures, facilities or improvements, and all building equipment and fixtures (including goods that are so related to such Real Property that an interest therein arises under real estate law) located in or upon any Real Property or attached to, contained in, or used exclusively in connection with, any such buildings, structures, facilities or improvements. "Indemnified Party" has the meaning assigned to that term in Section 10.04. "Indemnifying Party" has the meaning assigned to that term in Section 10.04. "Intellectual Property Rights" means all trademarks, service marks, service names, registrations thereof or applications for registration thereof, trade names, inventions, patents, patent applications, trade secrets, technology, processes, know-how, proprietary data, formulae, research and development data, computer software programs, copyrights, copyright registrations, applications for copyright registration, and all similar types of proprietary intellectual property rights. "Inventory" means all central supplies, linen, housekeeping and other supplies and all food used exclusively in the operation of any Facility and located in or upon such Facility on the Closing Date. "Leased Facilities" means the facilities listed in Schedule 1.01C. "Leases" means the leases with respect to the Leased Facilities that are referred to in, and attached as exhibits to, the Subleases. "Lien" means, with respect to any asset, any mortgage, deed of trust, financing statement, lien, pledge, charge, security interest (whether or not perfected) or encumbrance of any kind in respect of such asset. "Material Adverse Effect" means, with respect to any Facility, a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of such Facility. "Mortgages" has the meaning assigned to that term in Section 2.09. -4- "Mortgagee's Title Policy" means, with respect to each Owned Facility, an American Land Title Association mortgagee's or lender's standard coverage policy of title insurance issued by the Title Company in an amount equal to the amount of the Purchase Price Balance allocated to such Owned Facility, effective as of the Closing Date at ordinary premium rates without any requirement for additional premiums or charges for endorsements (including comprehensive or extended coverage endorsements), surveys or otherwise, insuring that the lien and the security interest created by the Mortgage are a valid and enforceable lien on and security interest in the Real Property and the Improvements constituting such Owned Facility, subject to no Liens other than the Permitted Liens. "Operator" means any Person who obtains from the Buyers the right to operate any of the Facilities after the Closing. "Owned Facilities" means the facilities listed in Schedule 1.01B. "Owner's Title Policy" means, with respect to each Owned Facility, an American Land Title Association owner's standard coverage policy of title insurance issued by the Title Company in an amount equal to the portion of the Purchase Price allocated to the Real Property and the Improvements constituting such Owned Facility, effective as of the Closing Date at ordinary premium rates without any requirement for additional premiums or charges for endorsements (including comprehensive or extended coverage endorsements), surveys or otherwise, insuring that good and marketable title to the Real Property and the Improvements constituting such Owned Facility is vested in the Buyers, subject to no Liens other than the Permitted Liens. "Permits" means all assignable or transferable licenses, permits and other governmental or regulatory authorizations relating to or affecting any Facility. "Permitted Liens" means, with respect to any asset, (a) rights reserved in federal patents or state or commonwealth deeds, (b) building or use restrictions general to the city, district or other political subdivision in which such asset is located, (c) applicable building, use and zoning rules and regulations, (d) existing easements not inconsistent with the Buyers' intended use of such asset, (e) general real estate taxes for the year of the Closing and for subsequent years which, on the Closing Date, shall not yet be due and payable, (f) printed exceptions set forth in an American Land Title Association Owner's standard coverage policy of title insurance, (g) any Lien listed or otherwise described in Part B of Schedule 1.01E, (h) any Lien created by any First Lien Mortgage, (i) all other Liens, reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title defects and exceptions that pertain to such asset and have been approved by the Buyers in writing, and (i) any extensions, renewals or replacements of any of the foregoing Liens for the same or lesser amount whether by reason of refinancing or otherwise. "Person" means an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Personal Property" means all furniture, furnishings, fixtures, machinery and equipment owned by the Seller that is located in or upon or used exclusively in connection with any Facility. "Pharmacy Management Agreement" has the meaning assigned to that term in Section 8.04(m). "Pharmacy Partnership Agreement" has the meaning assigned to that term in Section 8.04(l). -5- "Post-Closing Tax Period" means any Tax period (or portion thereof) ending after 5.00 p.m. on the Closing Date. "Pre-Closing Tax Period" means any Tax period (or portion thereof) ending at or before 5:00 p.m. on the Closing Date. "Promissory Notes" has the meaning assigned to that term in Section 2.08(c). "Purchase Price" has the meaning assigned to that term in Section 2.06. "Purchase Price Balance" has the meaning assigned to that term in Section 2.08(c). "Purchased Assets" means the Seller's right, title and interest in, to and under the Real Property, the Improvements, the Assumed Contracts, the Inventory, the Permits, the Personal Property and the Records, but does not mean the Seller's right, title or interest in, to or under the Excluded Assets. "Real Property" means the tracts, lots, pieces or parcels of land in respect of the Owned Facilities and more particularly described in Part A of Schedule 1.01E. "Receipt and Assumption Agreements" has the meaning assigned to that term in Section 7.09. "Records" means all documents, records and files exclusively relating to or affecting any Facility, including all patient medical records. "Rehab Management Agreement" has the meaning assigned to that term in Section 8.04(o). "Rehab Partnership Agreement" has the meaning assigned to that term in Section 8.04(n). "Release Premium" has the meaning assigned to that term in Section 5.11. "Rent" has the meaning assigned to that term in Section 2.10. "Review Period" has the meaning assigned to that term in Section 7.10. "Sedgwick Sublease" has the meaning assigned to that term in Section 2.01. "Seller" has the meaning assigned to that term in the preamble to this Agreement. "Seller Loss" means all loss, damage, injury, liability, Tax, fine, penalty, cost and expense (including reasonable attorneys' fees and disbursements) incurred or suffered by the Seller. When calculating the dollar amount of any Seller Loss, an allowance shall be made for any insurance proceeds or other recovery from third parties received by the Seller in connection with such Seller Loss. In addition, the dollar amount of any Seller Loss shall be calculated net of any United States federal income tax benefit from such Seller Loss utilized by the Seller in the taxable year in which such Seller Loss arises. The amount of any such United States federal income tax benefit shall be equal to -6- the difference between (i) the overall United States federal income tax liability of the Seller including such Seller Loss for such taxable year and (ii) the overall United States federal income tax liability of the Seller excluding such Seller Loss for such taxable year. "Seller Trade Name" means any of the names "First, Healthcare," "Guardian Care," "Hillhaven," "Medicenter," "Medisave," "Northwest Health Care," and any similar name or combination of such names. "Social Security Act" means the Social Security Act, as amended. "Subleases" has the meaning assigned to that term in Section 2.10. "Tax" means any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, franchise, capital, paid- up capital, profits, green mail, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority. "Title Company" means Chicago Title Insurance Company, a Missouri corporation, or an affiliate or agent of Chicago Title Insurance Company or such other Person agreed to by the parties, and any successor. "Title Report" has the meaning assigned to that term in Section 7.10. "Transaction Document" means any of this Agreement, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease, the Assignment and Assumption Agreements, the Promissory Notes, the Mortgages, the Subleases, the Guaranty, the Receipt and Assumption Agreements, the Deeds and the Bills of Sale. "Transferred Employee" means any Employee who commences employment with the Buyers. 1.02 Accounting Terms. All accounting terms that are not specifically ---------------- defined in this Agreement shall be construed in accordance with accounting principles and practices consistent with those applied in the preparation of the Facility Financial Statements. 1.03 Sections, Etc. Unless stated otherwise in this Agreement, ------------- references in this Agreement to Sections, Schedules and Exhibits are references to Sections of and Schedules and Exhibits attached to this Agreement. Each Schedule to this Agreement is by this reference incorporated in this Agreement. 1.04 Construction of Certain Provisions. ---------------------------------- (a) All recitals set forth in this Agreement are by this reference incorporated in this Agreement. (b) The term "consent" shall be construed as if followed by the words "authorization or approval." (c) The term "Purchased Assets" shall be construed as if followed by the words "or any part thereof." -7- (d) The terms "include", "including" and similar terms shall be construed as if followed by the words "but not limited to." (e) The words "reasonable attorneys' fees and disbursements" shall be construed as if followed by the words "including reasonable charges allocated for internal corporate counsel." (f) The term "provisions," when used with respect to this Agreement or any other Transaction Document, shall be construed as if preceded by the words "terms, covenants, agreements, requirements, conditions and/or." (g) Words of masculine, feminine or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa. ---- ----- (h) No inference in favor of, or against, any party shall be drawn from the fact that such party has drafted any portion of this Agreement. ARTICLE II TERMS OF PURCHASE AND SALE; SUBLEASE 2.01 Purchase and Sale. Upon the terms and subject to the conditions ----------------- set forth in this Agreement, the Seller agrees to sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to the Buyers at the Closing, and the Buyers agree to purchase, assume and accept from the Seller at the Closing, the Purchased Assets, free and clear of all Liens other than the Permitted Liens. Notwithstanding anything to the contrary set forth in this Section 2.01 or elsewhere in this Agreement, the Seller and the Buyers acknowledge and agree that the sale, assignment, transfer, conveyance and delivery of the Bond-financed Owned Facilities are subject to the payment or prepayment and redemption of the related Bonds. The Seller agrees to take all actions, and with respect to the Bonds pertaining to the Sedgwick Convalescent Center, to cause Sedgwick Convalescent Center, Inc. to take all actions, required to be taken by such parties under the documents pertaining to the Bonds, in order to prepay and redeem the Bonds on their respective earliest possible optional redemption dates, except the Bonds pertaining to Charlevoix Nursing Center, which are not subject to optional redemption. Until such payment or prepayment and redemption, (i) pursuant to a Lease, dated as of April 23, 1992, with respect to the Charlevoix Nursing Center (the "Charlevoix Lease"), the Seller agrees to lease to the Buyer that is a party thereto, and such Buyer agrees to lease from the Seller, certain Purchased Assets with respect to such Facility, (ii) pursuant to a Sublease, dated as of April 23, 1992, with respect to the Bethesda Nursing Center (the "Bethesda Sublease"), the Seller agrees to sublease to the Buyer that is a party thereto, and such Buyer agrees to sublease from the Seller, certain Purchased Assets with respect to such Facility; and (iii) pursuant to a Sublease, dated as of April 23, 1992, with respect to the Sedgwick Convalescent Center (the "Sedgwick Sublease), the Seller agrees to sublease to the Buyer that is a party thereto, and such Buyer agrees to sublease from the Seller, certain Purchased Assets with respect to such Facility. Such Buyers shall pay to the Seller under the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease rent in the amounts, at the times and on such other terms as provided in Section 2.08 for the payment of the Purchase Price allocated to the Purchased Assets with resect to such Bond-financed Owned Facilities. Accordingly, such Buyers shall pay to the Seller at the Closing rent in an amount equal to the portion of such Purchase Price to be paid as provided in Section 2.08(b), and thereafter such Buyers shall pay to the Seller rent in such amounts and at such times as if such Buyers had executed and delivered Promissory Notes in the principal amounts set -8- forth in Schedule 2.08(c) with respect to such Bond-financed Owned Facilities and bearing interest as provided in such Promissory Notes and Section 2.08(c). Such Buyers shall receive a credit for payments of such rent against such Buyers' obligations in respect of such Purchase Price and in respect of such interest. As soon as reasonably practicable after the date of payment or prepayment and redemption of the Bonds with respect to each Bond-financed Owned Facility, upon the delivery of the applicable Deed, Bill of Sale, Owner's Title Policy, affidavit of nonforeign status, Promissory Note, Mortgage, Uniform Commercial Code financing statements, evidence of required insurance, Mortgagee's Title Policy, opinions of counsel and such other documents required under this Agreement for the transfer of the Purchased Assets, the Seller shall sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to the applicable Buyer, and such Buyer shall purchase, assume and accept from the Seller, the Purchased Assets with respect to such Bond-financed Owned Facility, free and clear of all Liens other than Permitted Liens. 2.02 Excluded Assets. Notwithstanding anything to the contrary set --------------- forth in Section 2.01 or elsewhere in this Agreement or any other Transaction Document, the Buyers acknowledge and agree that the Seller shall not have any obligation to sell, assign, transfer, convey, deliver, lease or sublease, or cause to be sold, assigned, transferred, conveyed, delivered, leased or subleased, to the Buyers (a) the Excluded Assets or (b) any telephone facsimile equipment located in or upon any Facility that is owned by Medisave Pharmacies, Inc. 2.03 Assumption of Liabilities. Upon the terms and subject to the ------------------------- conditions set forth in this Agreement, the Buyers agree, effective at the time of the Closing, to assume the following obligations and liabilities (collectively, the "Assumed Liabilities"): (a) all obligations and liabilities listed or otherwise described in Schedule 2.03(a); and (b) all duties, obligations and liabilities of the Seller under the Assumed Contracts (other than obligations or liabilities attributable to any failure by the Seller to comply with the terms of the Assured Contracts prior to the Closing). At the Closing, the Seller and the Buyers shall enter into assignment and assumption agreements, each substantially in the form of Exhibit A (the "Assignment and Assumption Agreements"). 2.04 Assignment of Contracts and Rights; No Adjustment of Purchase ------------------------------------------------------------- Price or Rent or Termination of Agreement. Notwithstanding anything in this - ----------------------------------------- Agreement to the contrary, this Agreement shall not constitute an agreement to assign any license, permit, governmental or regulatory authorization, lease, contract, or other agreement, or any claim, right or benefit arising under or resulting from any such license, permit, authorization, lease, contract or other agreement, if an attempted assignment thereof, without the consent by any other Person, would constitute a breach or other contravention of any such license, permit, authorization, lease, contract or other agreement or would result in the cancellation, termination, invalidity or unenforceability thereof or would in any other way adversely affect the rights and benefits of the Seller or the Buyers thereunder. Without limiting the generality of the foregoing, the Buyers acknowledge and agree that (a) consents by other Persons may be required for the sale, assignment, transfer, conveyance and delivery to the Buyers of certain of the Assumed Contracts and claims, rights or benefits arising thereunder or resulting therefrom and (b) no reduction in or other adjustment or modification of the Purchase Price or the Rent or any terms of payment of the Purchase Price or the Rent, and, subject to Section 9.01(c), no right to terminate this Agreement or any of the other Transaction Documents, shall be made by reason of (i) any failure or inability to obtain any such consents or (ii) the cancellation, termination, invalidity or unenforceability of, or any other adverse effect on the rights or benefits of the Seller or the Buyers under, any of such Assumed Contracts. -9- 2.05 Deposit. Immediately upon the execution and delivery of this ------- Agreement, the Buyers shall pay to the Escrow Agent in cash or immediately available funds, an amount (the "Deposit") equal to $150,000, which shall be deposited in an interest-bearing escrow account (the "Escrow Account"). All interest earned on the Deposit shall be for the benefit of the Buyers and shall be held in the Escrow Account. At the Closing, the Deposit plus all accrued interest on the Deposit shall be paid to the Seller as provided in Section 2.08(a), and an amount equal to the Deposit plus such interest shall be credited and applied against the Purchase Price. If this Agreement is terminated, or if the transactions contemplated by this Agreement are not consummated, by reason of any willful failure of the Buyers to fulfill a condition to the performance of the obligations of the Seller or to perform a covenant of this Agreement to be performed by the Buyers, then the Deposit plus all accrued interest on the Deposit shall be paid by the Escrow Agent to the Seller as a partial payment of the liquidated damages specified in Section 11.02. If this Agreement is otherwise terminated, or if the transactions contemplated by this Agreement are otherwise not consummated, then the Deposit plus all accrued interest on the Deposit shall be paid by the Escrow Agent to the Buyers. 2.06 Purchase Price. The purchase price (the "Purchase Price") for -------------- the Purchased Assets is $38,500,000. The Buyers shall pay the Purchase Price to the Seller as provided in Section 2.08. 2.07 Allocation of Purchase Price. The Purchase Price has been ---------------------------- allocated to and among the Purchased Assets as set forth in Schedule 2.07 (the "Allocation Schedule"). Such allocation has been made in good faith negotiations between the Seller and the Buyers, with knowledge of tax and other consequences and with the Seller and the Buyers being represented by counsel and other professional advisors. The Seller and the Buyers agree to report an allocation of the Purchase Price among the Purchased Assets consistent with the Allocation Schedule, and the Seller and the Buyers agree to act in accordance with the Allocation Schedule in the preparation of financial statements and the filing of all tax returns (including the filing of Form 8594 with their respective federal income tax returns for the taxable year that includes the Closing Date) and in the course of any tax audit, tax review or tax litigation relating thereto. Not later than ten days prior to the filing of their respective Forms 8594 relating to the transaction contemplated by this Agreement, the Seller and the Buyers shall deliver a copy of such form to the other party. 2.08 Payment of Purchase Price. The Buyers shall pay the Purchase ------------------------- Price to the Seller as follows: (a) The Buyers shall instruct the Escrow Agent to pay the Deposit plus all accrued interest on the Deposit, in cash or immediately available funds, to the Seller at the Closing and, upon receipt by the Seller of the Deposit plus such interest, an amount equal to the Deposit plus such interest shall be credited and applied against the Purchase Price. (b) The Buyers shall pay to the Seller at the Closing a portion of the Purchase Price, in cash or immediately available funds, in an amount equal to $3,850,000 less the amount credited and applied against the Purchase Price pursuant to Section 2.08(a). (c) The Buyers shall pay to the Seller the balance of the Purchase Price (the "Purchase Price Balance"), plus interest thereon in installments in accordance with the provisions of promissory notes each substantially in the form of Exhibit B (the "Promissory Notes") in respect of the Owned Facilities. The aggregate principal amount of the Promissory Notes shall be equal to the Purchase Price Balance. The respective principal amounts of the Promissory Notes shall be as set forth in Schedule 2.08(c). The Buyers shall execute and deliver the Promissory Notes to the Seller at the Closing. -10- 2.09 Security for Buyers' Obligations. The payment and performance of -------------------------------- the Buyers' obligations under this Agreement and the Promissory Notes shall be secured by deeds of trust, assignments, security agreements and financing statements (fixture filings) or mortgages, assignments, security agreements and financing statements (fixture filings) each substantially in the form of Exhibit C-1 and C-2, respectively (the "Mortgages"), in respect of the Owned Facilities, executed by the Buyers for the benefit of the Seller. 2.10 Subleases: Rent. Upon the terms and subject to the condition set --------------- forth in this Agreement and the Subleases, dated as of April 23, 1992, with respect to the Leased Facilities (the "Subleases"), the Seller agrees to sublease to the respective Buyers that are a party thereto, and such Buyers agree to sublease from the Seller, the land, improvements and any leased personal property (other than the Excluded Assets) constituting the Leased Facilities. The Buyers shall pay to the Seller under each SubLease rent (collectively for all Subleases, the "Rent") for the related Leased Facility as set forth in such Sublease. 2.11 Subsidy. In consideration for the sublease of the Leased ------- Facilities by the Buyers from the Seller, the Seller shall pay to the Buyers as a subsidy: (i) $4,300,000 during the initial twelve month period of the term under the Subleases; (ii) $2,900,000 during the second twelve month period of the term under the Subleases; and (iii) $1,600,000 during the third twelve month period of the term under the Subleases. Such payments for each such period shall be in substantially equal monthly installments, payable on the first day of each month during such period, commencing for the initial period on the first day of the month immediately following the month in which the Closing occurs. Such payments shall be made to the Buyers at c/o Meadowbrook Manor of Kansas & Missouri, Inc., Salem Center, Yadkin Valley Road, Advance, North Carolina 27006, or at such other place as the Buyers may specify in writing. If any Buyer is in default in the payment of the Rent, then the Seller may reduce its monthly subsidy payment by the aggregate amount of such Rent in default. In addition, if any Sublease is terminated other than as a result of (i) a default caused solely by the Seller or any affiliate of the Seller under the Lease referred to in such Sublease, or (ii) the Buyers having entered into a replacement lease with the lessor under such Lease, provided that on the commencement date of such replacement lease such lessor unconditionally releases the Seller and all affiliates of the Seller from all duties, obligations and liabilities arising under or by reason of such Lease, or (iii) the Buyers or any other Person having purchased the Leased Facility with respect to such Sublease, provided that upon the consummation of such purchase the lessor of such Leased Facility unconditionally releases the Seller and all affiliates of the Seller from all duties, obligations and liabilities arising under or by reason of the Lease with respect to such Leased Facility, then the Seller's monthly subsidy payment shall be reduced by the percentage set forth in Schedule 2.11 with respect to the Leased Facility to which such Sublease pertains. 2.12 Subsidy Reduction. The Seller and the Buyers agree that a ----------------- portion of certain future increases in Medicaid per diem rates in the State of Missouri shall accrue to the benefit of the Seller and reduce the monthly subsidy to be paid by the Seller pursuant to Section 2.11. The amount of the reduction shall be calculated as follows. For any increase in any Missouri Medicaid per diem rate during the period February 12, 1992 through June 30, 1993, the Seller's monthly subsidy payments until the next rate increase shall be reduced, but not below zero, by an amount equal to the product obtained by multiplying (a) the amount by which such increased rate exceeds 104 percent of the "base rate" for such period, times (b) the number of ----- residents set forth in Part A of Schedule 2.12 to which such rate increase applies, times (c) the number of days in the month during which such rate ----- increase is effective. The base rate for such period for each Facility located in Missouri shall be the Medicaid per diem rate for such Facility as of February 12, 1992, as set forth in Part B of Schedule 2.12 (the"Period I Base Rate"). The number of residents set forth in -11- Part A of Schedule 2.12 shall be based on the census for the Facilities located in Missouri as of February 12, 1992. For any increase in any Missouri Medicaid per diem rate during the period July 1, 1993 through June 30, 1994, the Seller's monthly subsidy payments until the next rate increase shall be reduced, but not below zero, by an amount equal to the product obtained by multiplying (a) the amount by which such increased rate exceeds the "base rate" for such period, times (b) the number of ----- residents set forth in Part A of Schedule 2.12 to which such rate increase applies, times (c) the number of days in such month during which such rate ----- increase is effective. The base rate for such period shall be the product obtained by multiplying (a) 1.04 times the Period 1 Base Rate, times (b) the ----- ----- quotient of the Consumer Price Index - All items for All Urban Consumers for St. Louis, Mo. (the "applicable CPI") for March 1993 divided by the applicable CPI ------- for March 1992 (the "Period II Base Rate"). For any increase in any Missouri Medicaid per diem rate during the period July 1, 1994 through June 30, 1995, the Seller's monthly subsidy payments until the next rate increase shall be reduced, but not below zero, by an amount equal to the product obtained by multiplying (a) the amount by which such increased rate exceeds the "base rate" for such period, times (b) the number of ----- residents set forth in Part A of Schedule 2.12 to which such rate increase applies, times (c) the number of days in such month during which such rate ----- increase is effective. The base rate for such period shall be the product obtained by multiplying (a) the Period 11 Base Rate times (b) the quotient of ----- the applicable CPI for June 1994 divided by the applicable CPI for June 1993. If during the period February 12, 1992 through June 30, 1993, or during the period July 1, 1993 through June 30, 1994, two or more increases in any Missouri Medicaid per diem rate occur, then on the next July 1, the subsidy reduction shall be recalculated as if the most recent rate increase had become effective on such July 1. Notwithstanding anything to the contrary set forth in this Section 2.12, any portion of any Missouri Medicaid per diem rate increase due to governmental mandates, regulations, rules, laws or decisions (other than any such rate increase resulting from any minimum wage increase that is not expressly stated by the State of Missouri to have resulted in such rate increase) that become effective after February 11, 1992 shall be excluded from the calculation. In addition, if the State of Missouri imposes a provider- specific tax (including license fees, donations or other similar arrangements) on the Facilities prior to July 1, 1995 that results in a Medicaid per diem rate increase, then the amount of such tax shall be deducted from the amount of any subsidy reduction otherwise accruing to the benefit of the Seller. Further, if in any month the amount of a subsidy reduction would exceed the Seller's subsidy payment for such month but for the requirement in this Section 2.12 that subsidy payments shall not be reduced below zero, such excess shall be carried forward to subsequent months until used in full. Examples of the subsidy reduction calculation are set forth in Part C of Schedule 2.12 for illustrative purposes only. 2.13 Guaranty of Buyers' Obligations. The payment of 20% of the ------------------------------- Buyers' aggregate obligations at any time outstanding under the Promissory Notes, in respect of the rent under the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease and in respect of the Rent shall be irrevocably, absolutely and unconditionally guaranteed by a guaranty substantially in the form of Exhibit D (the "Guaranty"), executed jointly and severally by the Guarantors for the benefit of the Seller. 2.14 No Recourse. Except as provided in Section 7.06 and 10.02 ----------- notwithstanding anything in this Agreement to the contrary, the Buyers shall have no recourse against the Seller for any default (other than any failure by the Seller to comply with the terms of the Assumed Contracts to be -12- complied with by the Seller prior to the Closing) in respect of the Assumed Contracts. Nothing in the preceding sentence shall affect the Buyers' rights in respect of the Seller's representations, warranties and covenants contained in this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER The Seller hereby represents and warrants to the Buyers that: 3.01 Corporate Existence and Power. The Seller is a corporation duly ----------------------------- incorporated and validly existing under the laws of the State of Delaware. The Seller has the corporate power and authority to carry on its business as such business currently is being conducted. The Seller is duly qualified to do business as a foreign corporation in the States of Kansas and Missouri. 3.02 Corporate Authorization. The execution, delivery and performance ----------------------- by the Seller of this Agreement and the other Transaction Documents to which the Seller is or is to be a party, and the consummation by the Seller of the transactions contemplated by this Agreement and such other Transaction Documents are within the Seller's corporate powers and have been, or on or before the Closing Date will be, duly authorized by all necessary corporate action on the part of the Seller. This Agreement constitutes, and each other Transaction Document to which the Seller is to be a party when executed and delivered by the Seller will constitute a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. 3.03 Non-Contravention. The execution, delivery and performance by ----------------- the Seller of this Agreement and the other Transaction Documents to which the Seller is or is to be a party do not and will not: (a) require any consent by the Seller's shareholders (other than the consent of the Executive Committee, which consent has been obtained); (b) contravene or conflict with the certificate of incorporation or the bylaws of the Seller; or (c) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or award that currently is in effect and applicable to the Seller or any Facility. 3.04 Litigation. Except as set forth in Schedule 3.04 or otherwise ---------- disclosed to the Buyers in writing prior to the Closing, there is no action, suit, legal or arbitration proceeding or, to the knowledge of the Seller, administrative proceeding or investigation pending or, to the knowledge of the Seller, threatened against or affecting any Facility or any of the other Purchased Assets which reasonably would be expected to have a Material Adverse Effect or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. 3.05 Bankruptcy. No bankruptcy, insolvency or similar proceeding is ---------- pending or contemplated by or, to the knowledge of the Seller, against the Seller. 3.06 Compliance with Laws. The Seller is not in violation of any law, -------------------- rule, regulation or ordinance applicable to the operation of any Facility, except for violations that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.07 Reporting Requirements. The Seller has filed, or caused to be ---------------------- filed, all reports (including all cost reports required to be filed pursuant to Titles XVIII and XIX of the Social Security Act) required to be filed with any governmental or regulatory authority prior to the date of this Agreement with respect to any Facility, the failure to file which would reasonably be expected to have a Material Adverse Effect. -13- 3.08 License. The Facilities are licensed and contain the number of ------- beds in service as described in Schedule 3.08. 3.09 Personal Funds of Residents. All personal funds of residents of --------------------------- each Facility that have been deposited with such Facility have been deposited, managed and accounted for by the Seller in accordance with applicable laws, rules and regulations. 3.10 Life Care Contracts. Except as set forth in Schedule 3.10, the ------------------- Seller is not a party to any life care contract with respect to any resident of any Facility. 3.11 Admission Agreements and Patient Rolls. To the knowledge of the -------------------------------------- Seller, the information set forth in the admission agreements and patient rolls pertaining to residents of each Facility is true and correct in all material respects as of the respective dates of such admission agreements and patient rolls. 3.12 Facility Financial Statements. The Facility Financial Statements ----------------------------- with respect to each Facility have been prepared in accordance with applicable requirements of law and fairly present unaudited summaries of the results of operations of such Facility for the periods ended on the respective dates of such Facility Financial Statements (subject to normal year-end adjustments). Although the Facility Financial Statements have not been prepared in accordance with generally accepted accounting principles (as a result of the omission of, among other things, footnotes, certain corporate expense allocations, federal income tax and certain other reserves, and intercompany account eliminations, none of which represents an omission of material items of revenue or expense other than federal income tax expense, interest expense, management fees, depreciation and amortization), the Facility Financial Statements with respect to each Facility (a) have been prepared in accordance with the accounting principles and practices used by the Seller at such Facility for all internal financial accounting purposes consistently applied for all relevant periods and (b) reflect accurately in all material respects information in the books and records of the Seller for such Facility. The books and records of each Facility include certain corporate expense allocations of cost items, including health insurance and workers' compensation expenses and management fees, which may not be representative of what an independent Person may be required to expend for such items. As set forth in Section 7.11, the Seller expressly disclaims any representations or warranties of any kind or character whatsoever, whether express or implied, with respect to the effect on the business, assets, condition (financial or otherwise) or results of operations of any Facility of any enacted, published or reported laws, rules, regulations or judicial or administrative decisions (whether having retroactive or prospective effect) pertaining to matters of licensure, survey, reimbursement or private pay census. 3.13 Absence of Certain Changes. Since the date of the most recent -------------------------- Facility Financial Statement with respect to each Facility, the Seller has operated such Facility in the ordinary course consistent with past practices, and there has not been a change in the operation of such Facility that would reasonably be expected to have a Material Adverse Effect. 3.14 Collective Bargaining Agreements. The Seller is not a party to -------------------------------- any collective bargaining agreement relating to any Facility or the employees of any Facility or to any employment agreement with any such employees, except as included in the Assumed Contracts. 3.15 Taxes. The Seller has, or on or prior to the Closing Date will ----- have, paid all Taxes payable by the Seller, and all interest and penalties due thereon, for the Pre-Closing Tax Period which will have been required to be paid on or prior to the Closing Date, the nonpayment of which would result in a Lien on any of the Purchased Assets or the Leased Facilities or would result in the Buyers becoming liable therefor. The Seller has established, in accordance with generally accepted accounting principles applied on a basis consistent with that of preceding periods, adequate reserves -14- for the payment of all Tax liabilities, assessments, interest and penalties that arise with respect to the Purchased Assets or the Leased Facilities or the operation of any Facility that are payable by the Seller and that are incurred in or attributable to the Pre-Closing Tax Period, the nonpayment of which would result in a Lien on any of the Purchased Assets or the Leased Facilities or would result in the Buyers becoming liable therefor. 3.16 Environmental Compliance. Except as set forth in Schedule 3.16 ------------------------ or otherwise disclosed to the Buyers in writing prior to the Closing, no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and, to the knowledge of the Seller, no investigation or review is pending or threatened by any Person with respect to (a) any alleged violation by the Seller of any Environmental Law in connections with the operation of any Facility, (b) any alleged failure by the Seller to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the operation of any Facility or (c) any use, generation, manufacture, treatment, storage, recycling, transportation, disposal or release of any Hazardous Substance at or from any Facility. 3.17 Finders' Fees. No investment banker, broker, finder or other ------------- intermediary has been retained by or is authorized to act on behalf of the Seller who might be entitled to any fee or commission from the Buyers upon consummation of the transactions contemplated by this Agreement. 3.18 Third Party Consents. Except as set forth in Schedule 1.01A, -------------------- there are no consents required from any party to the Assumed Contracts as a result of the consummation of the transactions contemplated by this Agreement that if not received by the Closing Date reasonably would be expected to have a Material Adverse Effect. 3.19 No Default. The Seller is not in default under any Assumed ---------- Contract except for defaults that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.20 Schedules. The information contained in the Schedules pertaining --------- to the Seller is true and correct in all material respects. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYERS Each of the Buyers represents and warrants to the Seller that: 4.01 Partnership Existence and Power. Such Buyer is a limited ------------------------------- partnership duly formed and validly existing under the laws of the State of North Carolina. Such Buyer has the partnership power and authority to carry on its business as such business currently is being conducted. Such Buyer, on or before the Closing Date, will be duly qualified to do business as a foreign limited partnership in the States of Kansas and Missouri. 4.02 Partnership Authorization, Etc. The execution, delivery and ------------------------------ performance by such Buyer of this Agreement and the other Transaction Documents to which such Buyer is or is to be a party, and the consummation by such Buyer of the transactions contemplated by this Agreement and the other Transaction Documents to which such Buyer is or is to be a party, are within such Buyer's partnership powers and have been, or on or before the Closing Date will be, duly authorized by all necessary partnership action on the part of such Buyer. The execution and delivery by the General Partner of this Agreement and the other Transaction Documents to which such Buyer is or is to be a party are within the General Partner's corporate powers and have been, or on or before the -15- Closing Date will be, duly authorized by all necessary corporate action on the part of the General Partner. This Agreement constitutes, and each other Transaction Document to which such Buyer is to be a party when executed and delivered by such Buyer will be, a valid and binding obligation of such Buyer, enforceable against such Buyer in accordance with its terms. 4.03 Non-Contravention. The execution, delivery and performance by ----------------- such Buyer of this Agreement and the other Transaction Documents to which such Buyer is or is to be a party do not and will not: (a) require any consent by any limited partners in such Buyer (other than such consents which will be obtained on or before the Closing Date); (b) contravene or conflict with the partnership agreement or any other organizational documents of such Buyer; or (c) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, order, writ judgment, injunction, decree or award that currently is in effect and applicable to such Buyer or the General Partner. 4.04 Litigation. Except as set forth in Schedule 4.04 or otherwise ---------- disclosed to the Seller in writing prior to the Closing, there is no action, suit, legal or arbitration proceeding or, to the knowledge of such Buyer, administrative proceeding or investigation pending or, to the knowledge of such Buyer, threatened against or affecting such Buyer, the General Partner or any limited partner in such Buyer which in any manner challenges or seeks to prevent enjoin, alter or materially delay the transactions contemplated by this Agreement. 4.05 Bankruptcy. No bankruptcy, insolvency or similar proceeding is ---------- pending or contemplated by or, to the knowledge of such Buyer, against such Buyer or the General Partner. 4.06 Finders' Fees. No investment banker, broker, finder or other ------------- intermediary has been retained by or is authorized to act on behalf of such Buyer who might be entitled to any fee or commission from the Seller upon consummation of the transactions contemplated by this Agreement. 4.07 Schedules. The information contained in the Schedules pertaining --------- to such Buyer is true and correct in all material respects. 4.08 General Partner. The General Partner is the only general --------------- partner in such Buyer. ARTICLE V CERTAIN COVENANTS OF SELLER 5.01 Operation of the Facilities. From the date of this Agreement --------------------------- until the Closing Date, the Seller shall operate each Facility in the ordinary course consistent with past practice, use reasonable, diligent efforts to preserve intact the business organizations and relationships of each facility with third parties add, subject to the effect of compliance with any Employment Law in connection with the termination of employment of the Employees contemplated by Section 7.07. keep available the services of the present employees of each Facility. Without limiting the generality of the preceding sentence, until the Closing Date, the Seller: (a) Will not sell, lease, license or otherwise dispose of any of the Purchased Assets or the Leased Facilities, except (i) pursuant to existing contracts or commitments, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease or the Subleases, or (ii) in the ordinary course consistent with past practice; (b) Will maintain the Inventory at customary levels necessary to operate each facility in the ordinary course consistent with past practice; -16- (c) Will not take, or agree or commit to take, any action that would make any representation or warranty of the Seller under this Agreement inaccurate in any respect on, or as of any time prior to, the Closing Date; and (d) Will not omit to take, or agree or commit to omit to take, any action necessary to prevent any representation or warranty of the Seller under this Agreement from being inaccurate in any respect on, or as of any time prior to, the Closing Date. 5.02 Access to Information. Until the Closing Date, upon reasonable --------------------- notice from the Buyers to the Vice President of Acquisitions and Development of the Seller, the Seller (a) shall give the Buyers and their counsel, financial advisers, auditors and other authorized representatives reasonable access during normal business hours to the offices, properties, books and records of each Facility and (b) shall furnish to the Buyers and their counsel, financial advisers, auditors and other authorized representatives, such financial and operating data, including any unaudited monthly Operations Analyses that have been prepared by the Seller after the date of this Agreement in the ordinary course consistent with past practice for internal financial accounting purposes, and other information relating to each Facility as such Persons may reasonably request; provided that any investigation pursuant to this Section 5.02 shall be -------- conducted in such manner as not to interfere unreasonably with the operation of any Facility. 5.03 Notices of Certain Events. The Seller promptly shall notify the ------------------------- Buyers of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection, with the transactions contemplated by this Agreement; (b) any notice or other communication from any governmental or regulatory authority in connection with the transactions contemplated by this Agreement; (c) any action, suit legal or arbitration proceeding or, to the knowledge of the Seller, administrative proceeding or investigation commenced or, to the knowledge of the Seller, threatened against, relating to or invoking or otherwise affecting the Seller or any Facility that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.04 or that relates to the consummation of the transactions contemplated by this Agreement; (d) the occurrence of any event that results in a breach of any of the representations and warranties of the Seller in this Agreement or any knowledge of the Seller that any such representations or warranties were inaccurate when made; and (e) the sale, lease, license or other disposition of any of the Purchased Assets or the Leased Facilities having an aggregate book valve that exceeds $10.000. 5.04 Taxes. The Seller timely shall pay all Taxes payable by the ----- Seller that arise from or with respect to the Purchased Assets or the operation of any Facility and that are incurred in or attributable to any Pre-Closing Tax Period, the nonpayment of which would result in a Lien on any of the Purchased Assets or the Leased Facilities or would result in the Buyers becoming liable therefor. 5.05 Reporting Requirements. The Seller shall file, or caused to be ---------------------- filed, all reports (including all cost reports required to be filed pursuant to Titles XVIII and XIX of the Social Security Act) required to be filed with any governmental or regulatory authority with respect to the operation of any -17- Facility on and prior to the Closing Date, the failure to file which would reasonably be expected to have a Material Adverse Effect. 5.06 Government Surveys, Reports and Other Information. Except as ------------------------------------------------- otherwise provided in this Section 5.06, the Seller promptly shall furnish to the Buyers: (a) copies of the most recent survey reports prepared by governmental and regulatory authorities and furnished to the Seller with respect to each Facility, and copes of any updates with respect thereto; (b) copies of the cost reports most recently filed by the Seller with respect to each Facility pursuant to Titles XVIII and XIX of the Social Security Act, and copies of any updates with respect thereto; (c) the most recent patient census prepared by or on behalf of the Seller with respect to each Facility and an update with respect thereto dated not less than thirty days prior to the Closing Date; (d) not less than 10 days prior to the Closing, a schedule of all personal funds and properties that have been deposited with each Facility by residents of such Facility; (e) not less than 10 days prior to the Closing, a schedule listing the names of all employees of each Facility and showing the title and annual salary of each employee who is a salaried employee of such Facility and the wage rate for each employee who is a non-salaried employee of such Facility; (f) not less than 30 days prior to the Closing, a schedule of accrued vacation benefits for the employees of each Facility; (g) not less than 30 days prior to the Closing, a schedule of accrued sick leave benefits for the employees of each Facility; and (h) copies of the most recent ad valorem tax bills with ---------- respect to each Facility and any such bills received by the Seller prior to the Closing. 5.07 Confidentiality. The Seller shall hold, and shall use --------------- reasonable, diligent efforts to cause its directors, officers, employees, accountants, counsel, consultants, advisers and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the Buyers or the Buyers' business furnished to the Seller pursuant to Section 6.04, except to the extent that such information can be shown to have been (a) previously known on a nonconfidential basis by the Seller, (b) developed independently by the Seller, (c) in the public domain through no fault of the Seller or (d) later lawfully acquired by the Seller from sources other than the Buyers; provided that the Seller may disclose such information to its directors, -------- officers, employees, accountants, counsel, consultants, advisers and agents in connection with the transactions contemplated by this Agreement or in connection with a determination of any matter relating to any Facility or its operations during any period ending on or before the Closing Date or relating to the Seller's rights and obligations under this Agreement and the other Transaction Documents, so long as such Persons are informed by the Seller of the confidential nature of such Information and are directed by the Seller to treat such information confidentially. Notwithstanding anything in Section 6.04 or elsewhere in this Agreement or any other Transaction Document to the contrary, except following notice to and receipt of consent from the -18- Buyers, the Seller shall not contact or communicate with any employee of the Buyers regarding any matter relating to any Facility or its operations. 5.08 Non-Competition Agreement. Effective at the time of the Closing ------------------------- and provided each of the Buyers is not in default under any of the Transaction Documents to which such Buyer is a Party, the Seller, Hillhaven and their respective subsidiaries shall refrain from owning, leasing or operating any skilled-nursing Facility within a fifteen mile radius of any Facility for a period of five years from the Closing Date, provided that the Seller may -------- continue to own, lease or operate its existing facilities commonly known as the Hearthstone Facility and the Villa Ventura facility located in Topeka, Kansas and Kansas City, Missouri, respectively, or any existing facility that the Seller currently subleases to another Person. The Seller acknowledges that the Buyers would be irreparably harmed by the breach of this Section 5.08 and that there would be no adequate remedy at law to compensate the Buyers for such breach. If the terms of this Section 5.08 are breached, the damages to the Buyers shall be its actual damages, but in addition to any other remedy available to the Buyers, they shall be entitled to an injunction restraining such breach. 5.09 Further Encumbrances. The Seller shall not enter into any first -------------------- Lien Mortgage without prior notice thereof to the Buyers. The debt of the Seller secured by any First Lien Mortgage as of the Closing Date shall not exceed 90 percent of the amount of the Purchase Price allocated (as set forth in Schedule 2.07) to the Purchased Assets encumbered by such First Lien Mortgage and, except for the debt secured by the First Lien Mortgages with respect to Indian Creek Nursing Center and Indian Meadows Nursing Centers, respectively, shall be prepayable, without, at any time by the Seller. 5.10 Payment of Certain Senior Debt. The Seller shall pay when due ------------------------------ all debt of the Seller that is secured by any First Lien Mortgage. The Seller shall promptly notify the Buyers if the Seller is in default with respect to the payment of such debt, If and for so long as the Seller is in default with respect to the payment of such debt, the Buyers may make payments under the Promissory Note secured by the Mortgage that is junior to the First Lien Mortgage securing such debt directly to the mortgagee of such First Lien Mortgage, provided that such mortgagee shall have consented to such direct -------- payment by the Buyers. The Buyers shall receive a credit for such direct payments against their payment obligations under such Promissory Note. 5.11 Prepayments of Promissory Notes; Release Premium. As provided ------------------------------------------------ in the Promissory Notes and the Mortgages, so long as no Event of Default shall have occurred and be continuing under any of the Promissory Notes, the Buyers may prepay the unpaid principal amount of any Promissory Note, in whole or in part plus accrued interest to the date of such prepayment on the principal amount prepaid, plus any late charges then payable under such Promissory Note, plus any costs and expenses then payable by the Buyers under such Promissory Note; provided, that each partial prepayment shall be in a principal amount of -------- not less than $5,000; provided, further, that upon prepayment in whole of the -------- ------- unpaid principal amount of such Promissory Note plus such accrued interest, late charges and costs and expenses, the Buyers shall pay to the Seller a release premium (the "Release Premium") in respect of such Promissory Note in an amount, determined at the date of such prepayment, equal to five percent of the principal amount of such Promissory Note that would then have been outstanding if such Promissory Note had been timely paid in accordance with the regularly scheduled required installment payments paid for in such Promissory Note without regard to any prepayments made in respect of such Promissory Note. The Release Premium in respect of any Promissory Note shall be applied first to any costs and expenses then payable by the Buyers under any other Promissory Notes, second to any late charges then payable under such other Promissory Notes, and then to the principal of such other Promissory Notes plus accrued interest thereon as agreed to by the Seller and the Buyers, or, if the Seller and the Buyers cannot agree, then to such principal and accrued interest determined by the Seller in its sole discretion as to one-half of -19- the Release Premium and to such principal and accrued interest determined by the Buyers their sole discretion as to one-half of the Release Premium. Each partial prepayment of any Promissory Note shall be applied first to any costs and expenses then payable by the Buyers under such Promissory Note, second to any late charges then payable under such Promissory Note, third to interest then accrued on such Promissory Note, and then to the principal installments under such Promissory Note in the inverse order of their maturities without deferral or limitation of the intervening installments of principal or interest. 5.12 Release of Mortgages. If the entire unpaid principal amount of -------------------- any Promissory Note shall be prepaid and all of the other amounts and the Release Premium with respect to such Promissory Note shall be paid in accordance with the Mortgage securing such Promissory Note, then the Seller agrees that all rights under such Mortgage shall terminate and the property subject to such Mortgage shall become wholly released and cleared of the lien, security interest, conveyance and assignment evidenced by such Mortgage; provided that -------- the Mortgage with respect to Clayton House Healthcare shall not be terminated and the property subject to such Mortgage shall not be released and so cleared unless all Promissory Notes and such other amounts as provided in the Mortgages shall have been paid in full. ARTICLE VI CERTAIN COVENANTS OF BUYERS 6.01 Conduct. Until the Closing Date, the Buyers shall not (a) take, ------- or agree or commit to take, any action that would make any representation or warranty of the Buyers under this Agreement inaccurate in any respect on, or as of any time prior to, the Closing Date or (b) on"' to take, or agree or commit to omit to take, any action necessary to prevent any representation or warranty of the Buyers under this Agreement from being inaccurate in any respect on, or as of any time prior to, the Closing Date. 6.02 Notices of Certain Events. Each of the Buyers promptly shall ------------------------- notify the Seller of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any governmental or regulatory authority in connection with, or otherwise affecting, the transactions contemplated by this Agreement; (c) any action, suit, legal or arbitration proceeding or, to the knowledge of such Buyer, administrative proceeding or investigation commenced or, to the knowledge of such Buyer, threatened against, relating to or involving or otherwise affecting such Buyer, the General Partner or any limited partner in such Buyer that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.04 or that relates to the consummation of the transactions contemplated by this Agreement; and (d) the occurrence of any event that results in a breach of any of the representations and warranties of the Buyers in this Agreement or any knowledge of the Buyers that any such representations or warranties were inaccurate when made. 6.03 Confidentiality. Prior to the Closing Date and after any --------------- termination of this Agreement, the Buyers shall, hold, and shall, use reasonable, diligent efforts to cause the General -20- Partner and the respective directors, or officers, employees, accountants, counsel, consultants, advisers and agents of the Buyers and the General Partner to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning any Facility or the Seller furnished to the Buyers, the General Partner or the Buyers' other affiliates in connection with the transactions contemplated by this Agreement, except to extent that such information can be shown to have been (a) previously known on a nonconfidential basis by the Buyers, (b) developed independently by the Buyers, (c) in the public domain through no fault of the Buyers or the General Partner or (d) later lawfully acquired by the Buyers from sources other than the Seller; provided -------- that the Buyers may disclose such information to the General Partner and the respective directors, officers employees, accountants, counsel, consultants, advisers and agents of the Buyers and the General Partner in connection with the transactions contemplated by this Agreement, and to the Buyers' lenders in connection with obtaining financing for the transactions contemplated by this Agreement, so long as such Persons are informed by the Buyers of the confidential nature of such information and are directed by the Buyers to treat such information confidentially. If this Agreement is terminated, then the Buyers shall, and shall use reasonable, diligent efforts to cause the General Partner and the respective directors, officers, employees, accountants, counsel, consultants, advisers and agents of the Buyers and the General Partner to, destroy or deliver to the Seller, upon request, all documents and other materials, and all copies thereof, that are obtained by the Buyers or on their behalf from the Seller in connection with this Agreement and that are subject to such confidence. Notwithstanding anything in Section 5.02 or elsewhere in this Agreement or any other Transaction Document to the contrary, except following notice to and receipt of consent from the Vice President of Acquisitions and Development of the Seller, the Buyers shall not contact or communicate with the administrator of any Facility, the director of nursing for any Facility, any Employee, any other employee of the Seller or any resident of any Facility regarding the transactions contemplated by this Agreement. 6.04 Access. On and after the Closing Date, upon reasonable notice ------ from the Seller to the Buyers, the Buyers shall give the Seller and the Seller's agents and other authorized representatives reasonable access during normal business hours to the Buyers' properties, books, records, employees, accountants and auditors to the extent necessary to permit the Seller to determine any matter relating to any Facility or its operations during any period ending on or before the Closing Date (including the verification of any amounts owing by the Buyers to the Seller under Section 7.08) or relating to the Sellers rights and obligations under this Agreement and the other Transaction Documents; provided -------- that such access by the Seller shall not unreasonably interfere with the conduct of the business of the Buyers. 6.05 Removal of Signs, Etc. As soon as possible within a period not --------------------- to exceed sixty days after the Closing Date, the Buyers (at the Buyers' sole cost and expense) shall remove from each Facility all signs that contain any Seller Trade Name and shall remove or obliterate any Seller Trade Name that otherwise appears on any of the other Purchased Assets. 6.06 Licenses Etc. The Buyers shall use reasonable, diligent efforts ------------ to obtain all licenses and permits that are required to consummate the transactions contemplated by this Agreement. 6.07 Application of Certain Proceeds. The Buyers shall apply all ------------------------------- proceeds from the sale or the refinancing of any Owned Facility either to prepay the Promissory Notes or for the operations (including the payment of income taxes) of the Facilities. 6.08 Books, Records, Etc. As soon as reasonably practicable within a ------------------- period not to exceed sixty days after the Closing Date, the Buyers, at its sole cost and expense, shall deliver to the Seller all books, records, files and papers that constitute Excluded Assets and that are located in or upon any Facility on the Closing Date. -21- ARTICLE VII CERTAIN COVENANT OF SELLER AND BUYERS 7.01 Diligent Efforts; Further Assurances. Subject to the terms and ------------------------------------ conditions of this Agreement, each of the Seller and the Buyers shall use realm, diligent efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things (including all filings required under the HSR Act) necessary or desirable under applicable laws, rules and regulations to consummate the transactions contemplated by this Agreement. Each of the Seller and the Buyers shall execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement. 7.02 Certain Fillings. The Seller and the Buyers Shall cooperate ---------------- with each other (a) in determining whether any action by or in respect of, or filing (including any filing required under the HSR Act) with, any governmental or regulatory authority is required, or any actions, waivers or consents are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (b) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, waivers or consents. Each of the Seller and the Buyers shall pay one-half of all filing fees required in connection with any filings under the HSR Act. 7.03 Public Announcements. The Seller and the Buyers agree to -------------------- consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated by this Agreement and, except as may be required by applicable law or any listing agreement with any national securities exchange, neither the Seller nor the Buyers shall issue any such press release or make any such public statement prior to such consultation and without the prior written consent of the other party as to the form and content of such press release or public statement. 7.04 Cooperation as to Taxes. The Seller and the Buyers agree to ----------------------- furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Purchased Assets and the Leased Facilities as is reasonably necessary for the filing of all Tax returns, and the making of any election related to Taxes, and the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding relating to any Tax return. The Seller and the Buyers shall cooperate with each other in the conduct of any audit or other proceeding related to Taxes involving any Facility. 7.05 Allocation of Taxes. ------------------- (a) All real property taxes, personal property taxes and similar ad valorem obligations levied with respect to the Purchased Assets and -- ------- the Leased Facilities for a taxable period which includes (but does not end on) the Closing Date shall be apportioned between the Seller and the Buyers as of the Closing Date based on the number of days of such taxable period included in the Pre-Closing Tax Period and the number of days of such taxable period included in the Post-Closing Tax Period. The Seller shall be liable for, and shall pay or reimburse the Buyers for the payment of, the proportionate amount of such taxes that is attributable to the Pre-Closing Tax Period, and the Buyers shall be liable for, and shall pay or reimburse the Seller for the payment of, the proportionate amount of such taxes that is attributable to the Post-Closing Tax Period. Any amount to be paid or reimbursed by the Seller or the Buyers pursuant to this Section 7.05(a) may be reflected as an appropriate credit in any closing statement at the Closing. In the event that either the Seller or the -22- Buyers shall make any payment for which the Seller or the Buyers, as the case may be, are entitled to reimbursement under this Section 7.05(a), the other party shall make such reimbursement promptly but in no event later than thirty day, after the presentation of a statement setting forth the amount of reimbursement to which the presenting party is entitled together with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement. (b) To the extent permitted by applicable law, each of the Seller and the Buyers timely shall pay one-half of the aggregate of (i) all transfer, documentary, sales, use, excise and other similar Taxes assessed upon or with respect to the sale, assignment, transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers, and (ii) all recording and filing fees with respect to any Transaction Document and any related financing statements and otherwise with respect to the sale, assignment, transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers. 7.06 Allocation of Other Charges. Except as otherwise expressly --------------------------- provided in this Agreement or in any other Transaction Document, all operating income and expenses relating to the operation of the Facilities for any period prior to the Closing Date shall be the income and expenses of the Seller, and all operating income and expenses relating to the operation of the Facilities for any period from and after the Closing Date shall be the income and expenses of the Buyers. All charges, deposits and prepaid amounts for gas, oil, heat, electricity, other fuel, light, power, water, sewer service, telephone service and all other utilities and services used in, upon or about any Facility or charged against any Facility for a period which includes (but does not end on) the Closing Date shall be apportioned between the Seller and the Buyers as of the Closing Date based on the number of days of such period which occur prior to the Closing Date and the number of days of such period which occur on and after the Closing Date. The apportionment of such charges, deposits and prepaid amounts between the Seller and the Buyers shall be based upon the most recently available statement of such charges, debts and prepaid amounts, subject to adjustment, if necessary, within thirty days following receipt of the current statement of such charges, deposits and prepaid amounts. The Seller shall be liable for, and shall pay or shall reimburse the Buyers for the payment of, the proportionate amount of such charges that is attributable to the period which occurs prior to the Closing Date, and the Buyers shall be liable for, and shall pay or shall reimburse the Seller for the payment of, the proportionate amount of such charges, deposits and prepaid amounts that is attributable to the period which occurs on and after the Closing Date. Any amount to be paid or reimbursed by the Seller or the Buyers pursuant to this Section 7.06 may be reflected as an appropriate credit in any closing statement at the Closing. In the event that either the Seller or the Buyers shall make any payment for which the Seller or the Buyers, as the case may be, are entitled to reimbursement under this Section 7.06, the other party shall make such reimbursement promptly but in no event later than thirty days after the presentation of a statement setting Forth the amount of reimbursement to which the presenting party is entitled together with such supporting evidence as is reasonable necessary to calculate the amount of reimbursement. 7.07 Employees. --------- (a) Effective as of 11:00 p.m. on the day immediately preceding the Closing Date, the Seller shall terminate the employment of all of the Employees and, with respect to salaries and wages, no later than the normal pay period and with respect to other employment benefits, within a reasonable time after the Closing Date, shall pay to the Employees all salaries, wages and other employment benefits due for period prior to 11:01 p.m. on the day immediately preceding the Closing Date. The Seller timely shall pay to all applicable governmental and regulatory authorities all employment-related Taxes due with respect to the Employees for periods prior to 11:01 p.m. on the day immediately preceding the Closing Date. The Buyers shall not take or omit to take, and shall not -23- permit any Operator to take or to omit to take, any action that would subject the Seller to any Seller Loss arising from or by reason of any violation or alleged violation of any Employment Law. (b) After the Closing, the Seller shall retain for each Transferred Employee (i) all liabilities and obligations arising under any group life, accident, medical, dental or disability plan or similar arrangement (whether or not insured) to the extent that such liability or obligation relates to claims incurred (whether or not reported) at or prior to 11:00 p.m. on the day immediately proceeding the Closing Date and (ii) all liabilities and obligations arising under any workers' compensation arrangement to the extent such liability or obligation relates to occurrences that take place at or prior to 11:00 p.m. on the day immediately preceding the Closing Date. (c) From and after 11:01 p.m. on the day immediately preceding the Closing Date, the Buyers shall, or shall cause each Operator to, continuously offer for each eligible (as determined by the insurance carrier) Transferred Employee insurance polices or other similar arrangements (individually, an "Employee Benefit Program" and collectively, the "Employee Benefit Programs") offering individual or group life, accident, medical, dental and disability insurance; provided that medical insurance may be offered through -------- individual policies not part of any group Employee Benefit Program. The Buyers' Employee Benefit Program or, where appropriate, any Operator's Employee Benefit Program shall be responsible with respect to each eligible (as determined by the insurance carrier Transferred Employee who accepts such offer for all liabilities and obligations arising under each such Employee Benefit Program to the extent that such liability or obligation relates to claims incurred at any time after 11:00 p.m. on the day immediately preceding the Closing Date. In addition, the Buyers shall be, and shall cause each Operator to be, responsible with respect to each Transferred Employee for all liabilities and obligations arising under any workers' compensation arrangement to the extent such liability or obligation relates to occurrences that take place at any time after 11:00 p.m. on the day immediately preceding the Closing Date. (d) Effective at 11:01 p.m. on the day Immediately preceding the Closing Date, the Buyers shall, or shall cause each Operator to, (i)offer to each eligible (as determined by the insurance carrier) Transferred Employee the insurance coverage offered in the Employee Benefit Programs and (ii) offer to make such coverage immediately available to each eligible (as determined by the insurance carrier) Transferred Employee under the Employee Benefit Programs. The Buyers shall, and shall cause each Operator to, recognize all service of each Transferred Employee with the Seller for purposes of eligibility to participate in the Employee Benefit Programs in which such eligible Transferred Employee is enrolled by the Buyers or such Operator, effective at 11:01 p.m. on the day immediately preceding the Closing Date. 7.08 Receivables. The Buyers shall assume responsibility for all ----------- billings and the collection of all accounts in respect of the ownership, use and operation of each Facility and the other Purchased Assets by the Buyer after the Closing. The Seller shall retain all of its right, title and interest in and to all accounts, notes and other receivables in respect of the ownership, use and operation of each Facility and the other Purchased Assets prior to the Closing, and the Seller shall retain responsibility for the collection of all such receivables. Within 15 days after the Closing Date, the Seller shall furnish to the Buyers a list of all accounts, notes and other receivables in respect of the ownership, use and operation of each Facility and the other Purchased Assets prior to the Closing. All payments that may be received by the Buyers with respect to any of the Excluded Assets shall be received in trust for the benefit of the Seller, shall be segregated from other funds and property of the Buyers and shall immediately be delivered to the Seller in the same form as so received, with any necessary endorsements. Any payment received by the Buyer within the period of sixty days immediately following the Closing Date in respect of the ownership, use or operation of any Facility shall be deemed to be a payment with respect to an Excluded Asset, unless such payment is expressly designated by the payor or obligor as a payment in respect of the ownership, use and operation of -24- such Facility after the Closing or unless no receivable to which such Payment may relate is set forth in the list of receivables furnished by the Seller to the Buyers pursuant to this Section 7.06. The Buyers shall maintain at each Facility, or at such other location in Advance, North Carolina, as shall be specified in writing to the Seller, all of the books, records and other documents and materials pertaining to each Facility and the other Purchased Assets. 7.09 Patient Trust Funds. As soon as practicable after the Closing, ------------------- the Seller shall furnish to the Buyers an accounting of all personal funds of residents of the Facilities which are held by the Seller in a custodial capacity. Such accounting shall set forth the name of each resident for whom such funds are held and the amount held by the Seller on behalf of such resident and shall be certified by an officer of the Seller. As soon as practicable after the Closing, the Seller, in accordance with all applicable laws, rules and regulations, shall transfer all such funds to a bank account designated by the Buyers, and the Buyers shall execute and deliver to the Seller receipt and assumption agreements each substantially in the form of Exhibit E (the "Receipt and Assumption Agreements"), pursuant to which the Buyers shall Acknowledge receipt of, and shall assume the Seller's fiduciary, custodial and other obligations and liabilities with respect to, such funds. The Seller and the Buyers acknowledge and agree that, upon the transfer of such funds by the Seller to the bank account designated by the Buyers, the Seller shall be relieved of all fiduciary, custodial and other obligations and liabilities with respect to such funds. 7.10 Preliminary Commitment for Title Insurance. Not less than ------------------------------------------ twenty days prior to the Closing, the Seller shall furnish to the Buyers a preliminary commitment for title insurance (the "Title Report") issued by the Title Company with respect to the Real Property and the Improvements. The Title Report shall be accompanied by copies of all documents referred to in the Title Report. The Buyers shall have ten days (the "Review Period") following receipt of the Title Report within which to give notice to the Seller that the Buyers have disapproved any exception to title (other than any Permitted Lien) shown by the Title Report If any supplement or amendment to the Title Report is issued and show's any additional exception to title (other than any Permitted Lien), and if the Review Period has expired, the Buyers shall have ten days from the date of receipt of such supplement or amendment to the Title Report (the "Extended Review Period") within which to give to the Seller notice of disapproval of such additional exception to title. If the Buyers fail to give notice of disapproval to the Seller within the Review Period or the Extended Review Period, as the case may be, then the Buyers shall conclusively be deemed to have approved the status of title shown by the Title Report and any supplement or amendment to the Title Report. If the Buyers give to the Seller notice of disapproval within the Review Period or the Extended Review Period, as the case may be, then, at the Buyers' sole option, the Buyers either (a) may terminate this Agreement by giving written notice of termination to the Seller and the Escrow Agent within the Review Period or the Extended Review Period, as the case may be, whereupon all funds, documents and instruments deposited in escrow by the Buyers shall be returned to the Buyers and all funds, documents and instruments deposited in escrow by the Seller shall be returned to the Seller or (b) may provisionally accept title to the Real Property and the improvements subject to removal of any disapproved exception to title, in which case the Seller shall use reasonable, diligent efforts to cause the removal of the disapproved exception prior to the Closing. In the event the Seller does not cause the removal of such disapproved exception prior to the Closing, the Buyers either (i) may terminate this Agreement by giving written notice of termination to the Seller or (ii) may waive its previous disapproval of the status of title, whereupon (subject to satisfaction or waiver of the conditions set forth in Article IX) the transaction contemplated by this Agreement shall be consummated as scheduled and the Buyers shall take title to the Real Property and the Improvements subject to the previously disapproved exception to title. 7.11 Condition of Purchased Assets and Leased Facilities; Disclaimer --------------------------------------------------------------- of Warranties. The Buyers acknowledge and agree that they are sophisticated - ------------- purchasers possessing such knowledge and experience in financial matters and the operation of nursing centers or health care facilities -25- (including the retroactive and prospective effect of enacted, published or reported laws, rules, regulations and judicial and administrative decisions pertaining to matters of licensure, survey, reimbursement and private pay census) that they are capable of evaluating the merits and risks of the transactions contemplated by this Agreement and the other Transaction Documents. The Buyers acknowledge and agree that this Agreement provides to the Buyers sufficient opportunity to conduct their own inspection and investigation of each Facility, the Inventory and the Personal Property, and of public records pertaining to the Seller, each Facility and any of the other Purchased Assets. By accepting the Deeds and the Bill of Sale, by entering into the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease, and by entering into the Subleases, the Buyers shall have approved the physical condition of each Facility, the Inventory and the Personal Property and shall have accepted and purchased the Owned Facilities, the Inventory and the Personal Property and shall have accepted and leased or subleased the Bond-financed Owned Facilities and the Leased Facilities, "AS IS, WHERE IS and WITH ALL FAULTS." The Buyers ----- ----- -- --------------- acknowledge and agree that the Seller shall have no liability for, and that the Buyers shall have no recourse against the Seller for, any defect or deficiency of any kind whatsoever (whether patent or latent and whether discovered or discoverable by the Seller or the Buyers) in any Facility, the Inventory or the Personal Property. The Buyers further acknowledge and agree that, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III, IN THE DEEDS, IN THE BILL OF SALE AND IN THE SUBLEASES, THE SELLER HAS NOT MADE AND DOES NOT MAKE, AND THE SELLER HEREBY EXPRESSLY DISCLAIMS, ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND AND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PURCHASED ASSETS OR THE LEASED FACILITIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (A) THE EXISTENCE OR ABSENCE OF ANY HAZARDOUS SUBSTANCE IN, ON, UNDER OR AFFECTING ANY OF THE PURCHASED ASSETS OR THE LEASED FACILITIES, (B) THE COMPLIANCE OF ANY OF THE PURCHASED ASSETS OR THE LEASED FACILITIES, INCLUDING THEIR USE OR OPERATION, WITH ANY ENVIRONMENTAL LAW, (C) THE ASSIGNABILITY OR TRANSFERABILITY OF ANY OF THE ASSUMED CONTRACTS OR THE PERMITS, AND (D)THE EFFECT ON THE BUSINESS, ASSETS, CONDITION (FINANCIAL OR OTHERWISE) OR RESULTS OF OPERATIONS OF ANY FACILITY OF ANY ENACTED, PUBLISHED OR REPORTED LAWS, RULES, REGULATIONS OR JUDICIAL OR ADMINISTRATIVE DECISIONS (WHETHER HAVING RETROACTIVE OR PROSPECTIVE EFFECT) PERTAINING TO MATTERS OF LICENSURE, SURVEY, REIMBURSEMENT OR PRIVATE PAY CENSUS. 7.12 Inspection. The Buyers shall have until May 20, 1992 (June 1, ---------- 1992 with respect to environmental matters) (a) to conduct or cause to be conducted such inspections and investigations of the Purchased Assets and the Leased Facilities as the Buyers desire and (b) to give notice to the Seller that the Buyers have disapproved any aspect of any physical condition of any Facility or any of the other Purchased Assets. If the Buyers fail to give notice of disapproval to the Seller on or before such date, as applicable, then the Buyers shall conclusively be deemed to have approved the physical condition of the Facilities and the other Purchased Assets. If the Buyers give to the Seller notice of disapproval on or before such date in respect of any aspect of the physical condition of any Facility or any of the other Purchased Assets, then, at the Seller's sole option and without any obligation to do so, the Seller may repair or otherwise correct to the reasonable satisfaction of the Buyers such disapproved aspect of the physical condition of such Facility or such other Purchased Asset, whereupon the Buyers shall conclusively be deemed to have the condition of the Facilities and the other Purchased Assets. If the Buyers give to the Seller notice of disapproval on or before such date in respect of any aspect of the physical condition of such Facility or any of the other Purchased Assets and the Seller does not elect to repair or otherwise correct such disapproved aspect of the physical condition of such Facility or such other Purchased Asset to the reasonable satisfaction of the Buyers, then, at the Buyers sole option, the Buyers either (i) may terminate this Agreement by giving written notice of termination to the Seller and the Escrow Agent on or before May 25, 1992 (June 5, 1992 with respect to environmental matters), whereupon all funds, documents and instruments -26- deposited in escrow by the Buyers shall be returned to the Buyer: and all funds documents and instruments deposited in escrow by the Seller shall be returned to the Seller or (ii) may waive their previous disapproval, whereupon (subject to satisfaction or waiver of the conditions set forth in Article IX) the transactions contemplated by this Agreement shall be consummated as scheduled and the Buyers shall acquire the Purchased Assets and sublease the Leased Facilities subject to the previously disapproved physical condition. Each of the Seller and the Buyers shall pay one-half of the aggregate costs and expenses of any environmental assessments obtained by the Buyers with respect to the Purchased Assets and the Leased Facilities up to $100,000, and all such costs and expenses in excess of $100,000, and all such costs and expenses of any inspections and investigations of the Purchased Assets and the Leased Facilities, shall be paid by the Buyer. 7.13 Destruction of or Damage to Facilities. -------------------------------------- (a) Within five days after the destruction of or any material damage to any Facility by fire or other casualty or any other cause prior to the Closing Date, the Seller shall give to the Buyers notice of such destruction or damage. (b) If any Facility is destroyed or damaged prior to the Closing Date and the cost to replace, repair or restore the destroyed or damaged portion of such Facility would equal or exceed twenty-five percent of the insurable value of such Facility, then the Buyers may: (i) terminate this Agreement by giving written notice of termination to the Seller within twenty days after receipt by the Buyers from the Seller of notice of such destruction or damage, whereupon this Agreement shall terminate; or (ii) accept such Facility as so destroyed or damaged plus an assignment at the Closing by the Seller to the Buyer: of the proceeds of property and casualty insurance paid or payable in respect of such destruction or damage, whereupon (subject to satisfaction or waiver of the conditions set forth in Article IX) the transactions contemplated by this Agreement shall be consummated as scheduled and the Buyers shall accept such assignment of insurance proceeds and shall accept and take title to or sublease such Facility, as the case may be. (c) If any Facility is damaged prior to the Closing Date and the cost to replace, repair or restore the damaged portion of such Facility would be less than twenty-five percent of the insurable value of such Facility, then the Seller, in its discretion, may replace, repair or restore the destroyed or damaged portion of such Facility prior to the Closing Date, whereupon (subject to satisfaction or waiver of the conditions set forth in Article IX) the transactions contemplated by this Agreement shall be consummated as scheduled. If any Facility is damaged prior to the Closing Date, and the cost to replace, repair or restore the damaged portion of such Facility would be less than twenty-five percent of the insurable value of such Facility, and the Seller does not replace, repair or restore the destroyed or damaged portion of such Facility prior to the Closing Date, then the Buyers may: (i) terminate this Agreement by giving written notice of termination to the Seller, whereupon this Agreement shall terminate; or (ii) accept such Facility as so damaged plus an assignment at the Closing by the Seller to the Buyers of the proceeds of property and casualty insurance paid or payable in respect of such damage, whereupon (subject to satisfaction or waiver of the conditions set forth in Article IX) the transactions contemplated by this Agreement shall be consummated as scheduled and the Buyers shall accept such -27- assignment of insurance proceeds and shall accept and take title or sublease such Facility, as the case may be. (d) Notwithstanding anything to the contrary set forth in this Section 7.13, the Seller and the Buyers acknowledge and agree that the provisions of this Section 7.13 are Sect to the provisions of the Leases, agreements relating to the Bond-financed Owned Facilities and other documents that govern matters relating to the destruction of or damage to certain of the Facilities and the application of insurance proceeds. 7.14 Consents. Each of the Seller and the Buyers shall use -------- reasonable, diligent efforts to obtain all consents that are required for, or that are reasonably requested by the Seller or the Buyers in connection with, the consummation of the transactions contempLated by this Agreement. If requested by the Buyers, the Seller shall use reasonable, diligent efforts to obtain estoppel certificates or the equivalent from the lessor under any Lease or from any party to any financing documents pertaining to any Facility. Each of the Seller and the Buyers shall pay one-half of all costs and expenses, including the reasonable Fees and disbursements of attorneys other than the respective counsel for the Seller and the Buyers, incurred in connection with obtaining such consents. 7.15 Inventory. Prior to the Closing, the Seller and the Buyers --------- agree to perform, together, an inventory count of the Personal Property and the personal property located in or upon or used exclusively in connection with the Leased Facilities. The costs and expenses incurred in connection with such inventory count shall be paid by the party incurring such cost or expense. 7.16 Schedules and Exhibits. If any Schedule or Exhibit is not ---------------------- attached to this Agreement at the date hereof, then the Seller or the Buyers, as appropriate, shall prepare such Schedules and Exhibits as soon as practicable. When the form and substance of such Schedules and exhibits have been agreed to by the Seller and the Buyers, such Schedules and Exhibits shall be attached to this Agreement. If such Schedules and Exhibits are not attached to this Agreement by May 20, 1992, or such other date in respect of a particular Schedule or Exhibit as may be mutually agreed upon in writing by the Seller and Buyers, then the Seller or the Buyers may terminate this Agreement by giving written notice of such termination to the other party within two business days of such date. The Seller and the Buyers hereby agree that Schedule 2.07 may be attached to this Agreement at any time prior to the Closing Date. 7.17 Financing. The Buyers agree to use reasonable, diligent efforts --------- to obtain, on terms reasonably acceptable to the Buyers, financing for the portion of the Purchase Price payable at Closing. The Buyers shall have until April 30, 1992, to obtain from a financial institution or other lender a commitment to provide such financing. On May 1, 1992, the Buyers shall give to the Seller written notice stating whether the Buyers have obtained or have failed to obtain such commitment. If the Buyers fail to give such written notice to the Seller on May 1, 1992, or if the Buyers give to the Seller such written notice stating that the Buyers have Failed to obtain such commitment on or before April 30, 1992, then either the Seller or the Buyers may terminate this Agreement by giving written notice of notice to the other party to this Agreement not later than May 2, 1992 whereupon all funds, documents and instruments deposited in escrow by the Buyers shall be returned to the Buyers and an funds, documents and instruments deposited in escrow by the Seller shall be returned to the Seller. If neither the Seller nor the Buyers gives written notice of termination to the other party to this Agreement pursuant to this Section 7.17 on or before May 2, 1992, then (subject to the satisfaction or waiver of the conditions set forth in Article IX) the transactions contemplated by this Agreement shall be consummated as scheduled. -28- 7.18 Delivery of Certain Documents. On the date of this Agreement, ----------------------------- the Seller and the Buyers shall deliver to the other party the following properly executed and acknowledged documents: the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases. ARTICLE VIII CLOSING 8.01 Closing. The consummation of the purchase and sale of the ------- Purchased Assets, the lease or sublease of the Bond-financed Owned Facilities, the assumption of the Assumed Liabilities and the sublease of the Leased Facilities under this Agreement, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick SubLease and the Subleases (the "Closing") shall take place simultaneously at the offices of Bogle & Gates at Seattle, Washington, or at such other place or on such other date as the Seller and the Buyers may agree in writing. Subject to the expiration of all notice periods applicable under the Employment Laws in connection with the termination of the employment of the Employees as contemplated by Section 7.07(a), the Closing shall take place on the first day of the calendar month immediately following the calendar month in which the Seller and the Buyers shall have received all consents of all governmental and regulatory authorities and an other Persons required for the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated by this Agreement and the other Transaction Documents, or on such other date as the Seller and the Buyers may agree in writing; provided that in no event shall the Closing take place -------- prior to June 1, 1992 or later than July 31, 1992. 8.02 Conveyance; Sublease. At the Closing, the Seller shall convey -------------------- to the Buyers the Real Property and the Improvements by deeds substantially in the form of Exhibit F (the "Deeds"), subject to no Liens other than the Permitted Liens. At the Closing, the Seller shall convey to the Buyers the Inventory, the Permits, the Personal Property and the Records by bills of sale and general assignments each substantially in the form of Exhibit G (the "Bills of Sale"), subject to no Liens other than the Permitted Liens. At the Closing, the Seller shall lease or sublease to the Buyers the Bond-financed Owned Facilities by the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease. At the Closing, the Seller shall sublease to the Buyers the Leased Facilities by the Subleases. Any Liens to be discharged by the Seller may be paid out of the Purchase Price at the Closing. 8.03 Possession and Risk of Loss. Possession of the Purchased Assets --------------------------- and the Leased Facilities shall pass to the Buyers at the Closing. The Seller shall bear the risk of loss of the Purchased Assets and the Leased Facilities prior to the Closing. The Buyers shall bear the risk of loss of the Purchased Assets and the Leased Facilities from and after the Closing. 8.04 Seller's Delivery of Documents at Closing. At the Closing, the ----------------------------------------- Seller shall deliver or cause to be delivered to the Buyers the following properly executed and, where appropriate, acknowledge documents: (a) the Assignment and Assumption Agreements; (b) the Deeds; (c) the Bills of Sale; (d) a binding commitment of the Title Company to issue the Owner's Title Policy; (e) originals or copies of the Assumed Contracts-and the Permits; -29- (f) an affidavit of nonforeign status required pursuant to section 1445 of the Internal Revenue Code, as amended; (g) a certificate signed by the President or a Vice President of the Seller, dated the Closing Date, certifying that the representations and warranties of the Seller contained in this Agreement and in any certificate or other writing delivered by the Seller pursuant to this Agreement are true on and as of the Closing Date, as if made on and as of the Closing Date, with only such exceptions as would not in the aggregate reasonably be expected to have a Material Adverse Effect; (h) certified copies of the resolutions of the board of directors of the Seller approving and authorizing the execution, delivery and performance by the Seller of this Agreement and the Subleases and the consummation of the transactions contemplated thereby; (i) an affidavit of the Seller with respect to mechanics' and materialmen's liens; (j) estoppel certificates from the lessors under the Leases, in form and substance reasonably satisfactory to the Buyers; (k) a written opinion of General Counsel to the Seller, dated the Closing Date, substantially in the form of Exhibit H; (l) a pharmacy partnership agreement, dated as of the Closing Date, substantially in the form of ExhIbit I (the "Pharmacy Partnership Agreement"); (m) a pharmacy management agreement dated as of the Closing Date, substantially in the form of Exhibit J (the "Pharmacy Management Agreement; (n) a partnership agreement relating to rehab services, dated as of the Closing Date, substantially in the form of Exhibit K (the "Rehab Partnership Agreement"); (o) a management agreement relating to rehab services, dated as of the Closing Date, substantially in the form of Exhibit L (the "Rehab Management Agreement"); (p) accounting and data processing services agreements, dated as of the Closing Date, each substantially in the form of Exhibit M (the "Accounting Services Agreements"); and (q) such other documents as may be reasonably required by the Title Company. 8.05 Buyers' Delivery of Documents and Purchase Price at Closing. At ----------------------------------------------------------- the Closing, the Buyers shall deliver or cause to be delivered to the Seller cash or immediately available funds in an amount equal to $3,850,000 and the Rent due on the Closing Date, and the following properly executed and, where appropriate, acknowledged documents: (a) the Assignment and Assumption Agreements; (b) the Promissory Notes; (c) the Mortgages; -30- (d) Uniform Commercial Code financing statements naming the Buyers, as debtors, and the Seller, as secured party, in appropriate forms for filing in all jurisdictions as shall be necessary or appropriate to perfect the security interest created by the Mortgages; (e) written evidence of the insurance required by the Mortgages, the charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases; (f) a binding commitment of the Title Company to issue the Mortgagee's Title Policy; (g) a certificate signed by the President of the General Partner in the Buyers, dated the Closing Date, certifying that the representations and warranties of the Buyers contained in this Agreement and in any certificate or other writing delivered by the Buyers pursuant to this Agreement are true in all material respects on and as of the Closing Date, as if made on and as of the Closing Date; (h) a written opinion of House & Blanco, P.A. counsel to the Buyers, dated the Closing Date, substantially in the Form of Exhibit N; (i) the Receipt and Assumption Agreements; (j) the Guaranty; (k) the Pharmacy Partnership Agreement; (l) the Pharmacy Management Agreement; (m) the Rehab Partnership Agreement; (n) the Rehab Management Agreement; (o) the Accounting Services Agreements; and (p) a Kansas Real Estate Validation Questionnaire for the Register of Deeds. 8.06 Certain Payments and Prorations. At the Closing: ------------------------------- (a) the Seller shall pay all then unpaid Taxes that are to be paid by the Seller on or prior to the Closing Date pursuant to Section 5.04; (b) the Seller shall pay one-half of all then unpaid transfer, documentary, sales, use, excise and similar Taxes which are assessed upon or with respect to the sale, assignment, transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers and which are to be paid to the Seller on or prior to the Closing Date pursuant to section 7.05(b); (c) the Seller shall pay one-half of all recording and filing fees with respect to any Transaction Document and any related financing statement and otherwise with respect to the sale, assignment, transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers; -31- (d) the Seller shall pay all then unpaid charges that are to be paid by the Seller on or prior to the Closing Date pursuant to Section 7.06; (e) the Seller shall pay the premium for the Owner's Title Policy at ordinary premium rates without any requirement for additional premiums or charges for endorsements, surveys or of otherwise; (f) the Seller shall pay any additional premiums or charges for any endorsements (including any comprehensive or extended coverage endorsements) or surveys that it requests in connection with the Mortgagee's Title Policy; (g) the Seller shall pay one-half of the Escrow Agent's fees; (h) the Buyers shall pay one-half of ad then unpaid transfer, documentary, sales, use, excise and similar Taxes which are assessed upon or with respect to the sale, assignment transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers and which are to be paid by the Buyers on or prior to the Closing Date pursuant to SectIon 7.05(b); (i) the Buyers shall pay one-half of all recording and filing fees with respect to any Transaction Document and any related financing statements and otherwise with respect to the sale, assignment, transfer, conveyance and delivery of the Purchased Assets and the sublease of the Leased Facilities to the Buyers; (j) the Buyers shall pay all then unpaid charges, and shall reimburse the Seller for the payment of any and all deposits and prepaid amounts, that are to be paid or reimbursed by the Buyers on or prior to the Closing Date pursuant to Section 7.06; (k) the Buyers shall pay the premium for the Mortgagee's Title Policy at ordinary premium rates without any requirement for additional premiums or charges for endorsements, surveys or otherwise; (l) the Buyers shall pay any additional premiums or charges for any endorsements (including any comprehensive or extended coverage endorsements) or surveys that it requests in connection with the Owner's Title Policy; and (m) the Buyers shall pay one-half of the Escrow Agent's fees. ARTICLE IX CONDITIONS TO CLOSING 9.01 Conditions to the Obligations of Seller and Buyers. The -------------------------------------------------- respective obligations of the Seller and the Buyers to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions: (a) Any applicable waiting period under the HSR Act relating to the transactions contemplated by this Agreement shall have expired or early termination of such waiting period shall have been granted. (b) No court, arbitrator or governmental or regulatory authority shall have issued any order, and there shall not be any law, rule, regulation or ordinance, restraining or prohibiting -32- the consummation of the transactions contemplated by this Agreement and no proceeding challenging this Agreement or the transactions contemplated by this Agreement or seeking to prohibit, alter, prevent or materially delay the Closing shall have been instituted by any Person before any court, arbitrator or governmental or regulatory authority and shall be pending. (c) The Seller and the Buyers shall have received all consents of any governmental or regulatory authority or any other Person required for the execution and delivery of this Agreement, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease, the Subleases, the Deeds and the consummation of the transactions contemplated by this Agreement. (d) Any applicable notice period under any Employment Law relating to the termination of the employment of the Employees contemplated by Section 7.07 shall have expired. 9.02 Additional Conditions to the Obligation of Buyers. The ------------------------------------------------- obligation of the Buyers to consummate the transactions contemplated by this Agreement is further subject to the satisfaction of the Following conditions; (a) The Seller shall have performed in all material respects all of the Seller's obligations under this Agreement required to be performed by the Seller at or prior to the Closing. (b) The representations and warranties of the Seller contained in this Agreement and in any certificate or other writing delivered by the Seller pursuant to this Agreement shall be true on and as of the Closing Date, as if made on and as of the Closing Date, with only such exceptions as would not in the aggregate reasonably be expected to have a Material Adverse Effect. (c) The Buyers shall have received the documents required by Section 8.04. (d) The Buyers shall have received from the lessors under the Leases in respect of the Leased Facilities listed in Schedule 1.01D the option to purchase such Leased Facilities, provided, that any such option to -------- purchase shall be expressly conditioned upon the unconditional release by such lessor of the Seller and all affiliates of the Seller from all duties, obligations and liabilities arising under or by reason of such Lease upon the consummation of such purchase. 9.03 Additional Conditions to the Obligation of Seller. The ------------------------------------------------- obligation of the Seller to consummate the transactions contemplated by this Agreement is further subject to the satisfaction of the following conditions: (a) The Buyers shall have performed in all material respects all of the Buyers' obligations under this Agreement required to be performed by the Buyers at or prior to the Closing. (b) The representations and warranties of the Buyers contained in this Agreement and in any certificate or other writing delivered by the Buyers pursuant to this Agreement shall be true in all material respects on and as of the Closing Date, as if made on and as of the Closing Date. (c) The Seller shall have received cash or immediately available funds in an amount equal to $3,850,000 and the Rent due on the Closing Date, and the documents required by Section 8.05. -33- ARTICLE X SURVIVAL; INDEMNIFICATION 10.01 Survival. The covenants set forth in Sections 2.01, 2.11, 2.12, -------- 2.14, 5.07, 5.09, 5.10, 5.11, 5.12, 6.03, 6.04, 6.05, 7.06, 7.08. 7.09, 7.11, 10.01, 10.02 10.03, 10.04, 10.05 and 12.11 and in the Assignment and Assumption Agreements, the Receipt and Assumption Agreements and the Deeds shall survive the Closing indefinitely. The covenants, representations and warranties set forth in Sections 2.07, 3.09, 3.15, 5.04, 5.05, 7.04, 7.05 and 7.07 shall survive the Closing until the expiration of all applicable statutory periods of limitations (after giving effect to any waiver, mitigation or extension of any such statutory periods of limitations). Except as otherwise provided therein, the covenants, representations and warranties of the Buyers set forth in Section 6.07 and in the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease, the Promissory Notes, the Mortgages and the Subleases shall survive the Closing until all obligations, of the Buyers thereunder shall have been paid and performed in full. The covenant of the Seller set forth in Section 5.08 shall survive the Closing until the expiration of the period specified therein. All of the other covenants, representations and warranties of the Seller and the Buyers set forth in this Agreement or in any certificate or other writing delivered pursuant to this Agreement or in connection with this Agreement shall survive the Closing until the second anniversary of the Closing Date. Notwithstanding anything to the contrary set forth in this Section 10.01 or elsewhere in this Agreement or any other Transaction Document, any covenant, representation or warranty in respect of which indemnity may be sought under section 10.02 or Section 10.03 shall survive the time at which such cover representation or warranty would otherwise terminate pursuant to the preceding two sentences if notice of the incorrectness or breach of such covenant, representation or warranty giving rise to such right to indemnity shall have been given to the party against whom such indemnity may be sought prior to the time at which such covenant, representation or warranty would otherwise terminate pursuant to the preceding two sentences. Any such notice shall describe the event, circumstance or state of facts giving rise to the claimed incorrectness or breach of such covenant, representation or warranty and the Section or Sections of this Agreement or any other Transaction Document upon which such right to indemnity is based. 10.02 Indemnification by Seller. The Seller hereby indemnifies and ------------------------- agrees to defend and hold harmless the Buyers, the General Partner and the employees and agents of the Buyers, and their respective successors and assigns, from and against any and all Buyer Losses arising from or by reason of: (a) any incorrectness or breach of any of the representations, warranties or covenants of the Seller set forth in this Agreement or in any certificate or other writing delivered pursuant to this Agreement or in connection with this Agreement; or (b) any obligation or liability relating to any Excluded Asset; or (c) the Seller's ownership, lease, use, operation, disposition or loss of any of the Purchased Assets or the Leased Facilities prior to the Closing Date, but expressly excluding the condition of any of the Purchased Assets and any use, generation, manufacture, treatment storage, recycling transportation, disposal, spill, leak or release of any Hazardous Substance in, on or under any Facility or any of the other Purchased Assets prior to the Closing; provided that the -------- Seller shall not be liable under this Section 10.02 unless the aggregate amount of the Buyer Losses with respect to all matters referred to in this Section 10.02 (determined without regard to any materially qualification contained in any representation, warranty or covenant giving rise to the claim for indemnity under this Agreement) exceeds $5,000 and then only to the extent of such excess. 10.03 Indemnification by Buyers. The Buyers hereby indemnify and ------------------------- agree to defend and hold harmless the Seller and the directors, officers, employees and agents of the Seller, and their respective successors and assigns, from and against any and all Seller Losses arising from or by reason of: (a) any incorrectness or breach of any of the representations, warranties or covenants of the Buyers set forth in this Agreement or in any certificate or other writing delivered pursuant to this Agreement or in connection with this Agreement; (b) any Assumed Liability; or (c) the ownership, -34- sublease, use, operation, condition, disposition or loss of any of the Purchased Assets or the Leased Facilities, or the conduct of the business at any Facility, on and after the Closing Date, including the employment or performance of any Transferred Employee and any use, generation, manufacture, treatment, storage, recycling, transportation, disposal, split, leak or release of any Hazardous Substance in, on or under any Facility or any of the other Purchased Assets after the Closing; provided that the Buyers shall not be liable under this -------- Section 10.03 unless the aggregate amount of the Seller Losses with respect to all matters referred to in this Section 10.03 (determined without regard to any materiality qualification contained in any representation, warranty or covenant giving rise to the claim for indemnity under this Agreement) exceeds $5,000 and then only to the extent of such excess. 10.04 Procedures. The party seeking indemnification under Section ---------- 10.02 or Section 10.03 (the "Indemnified Party") shall give prompt notice to the party against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under Section 10.02 or Section 10.03, as the case may be. Such notice shall be accompanied by copies of any claim, process, legal pleading or other document received by the Indemnified Party from any Person (other than the Indemnified Party's legal counsel) relating to any such claim, suit, action or proceeding. The Indemnifying Party may, and at the request of the Indemnified Party shall, participate in and control the defense of any such claim, suit, action or proceeding at the Indemnifying Party's own expense: The party controlling the defense of any such claim, suit, action or proceeding shall be entitled to employ counsel in connection with such defense, and any counsel so employed shall be reasonably acceptable to the other party to this Agreement. The Indemnifying Party shall not be liable be under Section 10.02 or Section 10.03 for any Buyer Loss or any Seller Loss, as the case may be, in respect of which indemnity may be sought if any claim, suit, action or proceeding in respect of which indemnity is sought under this Agreement with respect to such Buyer Loss or Seller Loss is Settled or Seller without the prior consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 10.05 Exclusivity. After the Closing, this ArtIcle X and the ----------- provisions of the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease, the Promissory Notes, the Mortgages, the Subleases and the Guaranty shall provide the exclusive remedies for the incorrectness or breach of any representation, warranty or covenant (other than those contained in Sections 5.07, 5.08 and 6.04) set forth in this Agreement or in any certificate or other writing delivered pursuant to this Agreement or in connection with this Agreement. ARTICLE XI TERMINATION 11.01 Grounds for Termination. This Agreement may be terminated at ----------------------- any time prior to the Closing: (a) by mutual written agreement of the Seller and the Buyers; (b) by the Seller or the Buyers pursuant to Section 7.16 or if the Closing shall not have taken place on or before July 31, 1992; (c) by the Buyers pursuant to Section 7.10, Section 7.12 Section 7.13 or Section 7.17; (d) by the Seller or the Buyers if there shall be any applicable law, rule, regulation or ordinance that makes the consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or if consummation of the transactions contemplated by this -35- Agreement would violate any non-appealable final order, decree or judgment of any court or governmental or regulatory body having competent jurisdiction; or (e) by the Seller or the Buyers if any of the conditions to Closing shall not have been fulfilled or waived. The party to this Agreement desiring to terminate this Agreement pursuant to clause (b) clause (c) clause (d) or clause (e) of this Section 11.01 shall give notice of such termination to the other party to this Agreement. 11.02 Effect of Termination. If this Agreement is terminated as --------------------- permitted by Section 11.01, then such termination shall be without liability of either party to this Agreement (or the General Partner or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement; provided that if any termination of this -------- Agreement or any other failure to consummate the transactions contemplated by this Agreement, shall result from the willful failure of the Seller to fulfill a condition to the performance of the obligations of the Buyers or to perform a covenant of this Agreement to be performed by the Seller, then, in recognition of the difficulty or impossibility of determining the amount of actual damages that would be suffered by the Buyers, the Seller agrees to pay to the Buyers, and the Buyers agree to accept from the Seller, as liquidated damages, and not as a penalty, an aggregate amount equal to $250,000, and such termination or other failure to consummate the transactions contemplated by this Agreement, shall be willful failure liability of the Seller (or any shareholder, director, officer, employee, agent, consultant or representative of the Seller) to the Buyers; provided, further, that if any termination of this Agreement, or any -------- ------- other failure to consummate the transaction contemplated by this Agreement, shall result from the willful failure of the Buyers to fulfill a condition to the performance of the obligations of the Seller or to perform a covenant of this Agreement to be performed by the Buyers, then, in recognition of the difficulty or impossibility of determining the amount of actual damages that would be suffered by the Seller, the Buyers agree to pay to the Seller, and the Seller agrees to accept form the Buyers, liquidated damages, and not as a penalty, an aggregate amount equal to $250,000, and such termination or other failure to consummate the transactions contemplated by this Agreement shall be without further liability of the Buyers (or the General Partner or any employee, agent consultant or representative of the Buyers) to the Seller. Each of the Seller and the Buyers agree that the aggregate amount of $250,000 is a reasonable estimate as of the date of this Agreement of the amount of damages that would be suffered by either party to this Agreement if any termination of this Agreement, or any other failure to consummate the transactions contemplated by this Agreement, shall result from the willful failure of the other party to fulfill a condition to performance or to perform a covenant of such other party to be performed by such other party. The provisions of Section 12.04 shall any failure to consummate the transactions contemplated by this Agreement, whether by reason of any termination of this Agreement or otherwise. ARTICLE XII MISCELLANEOUS 12.01 Notices. Except as otherwise provided in this Agreement all ------- notices, consents, requests and other communications to any party under or in connection with this Agreement or the Promissory Notes shall be in writing and shall be sent via personal delivery, via telephone facsimile transmission, via certified or registered mail, return receipt requested, or via express courier or delivery service, addressed to such party at such party's address or telephone facsimile number set forth below or at such other address or telephone facsimile number as shall be designated by such party in a written notice given to each other party complying as to delivery with the terms of this Section 12.01: -36- if to the Seller, at: c\o The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 96402 Attn: Vice President Acquisitions and Development Facsimile: (206) 756-4871 with a copy to: The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 96402 Attn: General Counsel Facsimile: (206) 75-4845 or (206) 756-4743 if to the Buyers, at: c/o Don G. Angell P.O. Box 1670 Clemmons, North Carolina 27012 Facsimile: (919) 998-2560 c/o Daniel D. Mosca 4901 Holly Ridge Drive Raleigh, North Carolina 27612 Facsimile: (919) 783-9981 with a copy to: George E. Hollodick House & Blanco. P.A. 215 Executive Park Boulevard P.O. Drawer 25008 Winston-North Carolina 27114-5008 Facsimile: (919) 765-4830 An such notices, consents, requests and other communications shall be deemed given (a) when given and receipted for (or upon the date of attempted delivery when delivery is refused), if sent via personal delivery, via certified or registered mail, return receipt requested, or via express courier or delivery service or (b) when received, if sent via telephone facsimile transmission (confirmation of such receipt via confirmed telephone facsimile transmission being deemed receipt of any such notice, consent request or other communication sent via telephone facsimile transmission). 12.02 Amendments, Etc. No amendment or waiver of any provision of --------------- this Agreement or the Promissory Notes, nor consent to any departure by either the Seller or the Buyers from any such provision shall in any event be effective unless such amendment, waiver or consent is in a writing which specifically refers to this Section 12.02 and which is signed by the Buyers and by the -37- Chief Executive Officer or the President of the Seller, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 12.03 No Waivers, Remedies Cumulative. No Failure by either party to ------------------------------- this Agreement to exercise, and no delay by either party in exercising, any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement and the other Transaction Documents shall be cumulative and not exclusive of a,ny rights or remedies provided by law. 12.04 Expenses. Except as others provided in this Agreement, all -------- costs and expenses incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Transaction Documents shall be paid by the party incurring such cost or expense. 12.05 Successors and Assigns. The provisions of this Agreement shall ---------------------- be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that neither party may assign, -------- delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other party to this Agreement. 12.06 Joint and Several Liability. All obligations of the Buyers in --------------------------- this Agreement shall be joint and several. 12.07 Counterparts; Effectiveness. This Agreement may be executed in --------------------------- any number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement Delivery of an executed counterpart of a signature page to this Agreement via telephone facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement shall become effective when each of the Seller and the Buyers shall have received a counterpart of this Agreement executed by the other party to this Agreement. 12.08 Entire Agreement. This Agreement and the other Transaction ---------------- Documents constitute the entire agreement between the Seller and the Buyers with respect to the subject matter of this Agreement and supersede all prior agreements, understandings and negotiations, both written and oral, between the Seller and the Buyers with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty that is not set forth in this Agreement or any other Transaction Document has been made or relied upon by either the Seller or the Buyers. Neither this Agreement nor any provision of this Agreement is intended to confer any rights or remedies under this Agreement upon any Person other than the Seller, the Buyers and their respective successors and permitted assigns. 12.09 Severability. Any provision of this Agreement that is ------------ prohibited or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 12.10 Captions. The table of contents and the headings of the -------- Articles, Sections, subsections, paragraphs and other divisions of this Agreement are included for convenience of reference only, and shall not in any way limit or affect the construction or interpretation of any provision of this Agreement. -36- 12.11 Arbitration. Any dispute or controversy arising out of or ----------- relating to this Agreement, but excluding any dispute or controversy arising out of or relating to any of the other Transaction Documents, shall be settled by arbitration to be held in Kansas City, Missouri, in accordance with the rules of the American Arbitration Association or its successor. The decision of the arbitrator shall be conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction and the Seller and the Buyers shall irrevocably consent to the jurisdiction of the courts of the State of Washington or the federal courts of the United States of America for the Western District of the State of Washington for this purpose. The prevailing party in any arbitration shall be entitled to recover from the nonprevailing party the costs and expenses of maintaining such arbitration, including reasonable attorneys' fees and disbursements incurred before such arbitration is commenced, during arbitration, and on appeal. 12.12 Bulk Sales Laws. The Seller and the Buyers hereby waive --------------- compliance by the Seller with the provisions of the "bulk sales," "bulk transfer" or similar laws of any state or other jurisdiction. The Seller agrees to indemnify and hold the Buyers harmless against any and all claims, losses, damages, liabilities, costs and expenses incurred by the Buyers as a result of any failure to comply with any such "bulk sales," "bulk transfer" or similar laws. 12.13 Governing Laws. This Agreements shall be deemed to be a -------------- contract made under the laws of the State of Washington, and for all purposes shall be governed by, and construed in all respects (including matters of construction, validity and performance) in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. -39- IN WITNESS WHEREOF, the Seller and the Buyers have caused this Agreement to be duly executed as of the date first above written. FIRST HEALTHCARE CARE By [SIGNATURE NOT LEGIBLE] ---------------------------- Title: Vice President of Acquisitions and Development MEADOWBROOK MANOR OF BALDWIN LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP I By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF COUNCIL GROVE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -40- MEADOWBROOK MANOR OF HAYSVlLLE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF ST. CHARLES LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF OVERLAND PARK LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR TERRACE OF OVERLAND PARK LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -41- MEADOWBROOK MANOR OF CHANUTE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF SPRINGFIELD LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF TOPEKA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF WICHITA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -42- MEADOWBROOK MANOR OF COLUMBIA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF SEDGWICK LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR COLONIAL TERRACE OF INDEPENDENCE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Patter By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF LARNED LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -43- MEADOWBROOK MANOR APARTMENTS OF LARNED LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF AVA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF BUFFALO LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF CLINTON LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -44- MEADOWBROOK MANOR OF DES PERES LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] -------------------------------- Title: President MEADOWBROOK MANOR OF JEFFERSON LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] -------------------------------- Title: President MEADOWBROOK MANOR OF MARCELINE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] -------------------------------- Title: President MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP II By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] -------------------------------- Title: President -45- MEADOWBROOK MANOR OF LAMAR LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF SHADY OAKS LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF CRANE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR OF KIMBERLING CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -46- MEADOWBROOK MANOR RESIDENTIAL OF KIMBERLING CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR WORNALL OF KANSAS CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR BLUE HILLS OF KANSAS CITY LIMITED PARTNERSHIP I By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President -47- MEADOWBROOK MANOR RESIDENTIAL OF KIMBERLING CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR WORNALL OF KANSAS CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President MEADOWBROOK MANOR BLUE HILLS OF KANSAS CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE NOT LEGIBLE] ___________________________ Title: President Schedule 1.01B to Facility Agreement Owned Facilities and Certain Bonds PART A ------ Owned Facilities Facility Name and Location - -------------------------- Clayton House Healthcare (445) Ballwin, Missouri Columbia House Healthcare (446) Columbia, Missouri Country Club Home (809) Council Grove, Kansas Green Meadows Nursing Center (861) Haysville, Kansas Hammond Holiday Home (857) Larned, Kansas Hammond Holiday Apartments (858) Larned, Kansas Hillhaven-Topeka (838) Topeka, Kansas Hillhaven-Wichita (844) Wichita, Kansas Indian Creek Nursing Center (895) Overland Park, Kansas Indian Meadows Nursing Center (896) Overland Park, Kansas Medicenter-Springfield (834) Springfield, Missouri Tradition House Healthcare (260) Joplin, Missouri -1- SCHEDULE 1.01B Schedule 1.01B to Facility Agreement Owned Facilities and Certain Bonds PART B ------ Bond-Financed Owned Facilities Facility Name and Location Related Bonds - -------------------------- ------------- Bethesda Nursing Center (803)* City of Chanute, Kansas Industrial Chanute, Kansas Development Revenue Bonds (Hillhaven Project) Series 1983 Charlevoix Nursing Center (823)* The Industrial Development Authority of St. Charles, Missouri St. Charles County, Missouri, Industrial Development Revenue Bonds (Hillhaven Project) Series 1983 Sedgwick Convalescent Center (833)* City of Sedgwick, Kansas Industrial Sedgwick, Kansas Development Revenue Bonds (Nursing Home Facility) Series A, 1974, and City of Sedgwick, Kansas, Industrial Development Revenue Bonds (Sedgwick Convalescent Center, Inc. Tenant) Series A, 1978 * Sale is subject to the payment or prepayment and redemption of the related Bonds. See Section 2.01 of the Facility Agreement. -2- SCHEDULE 1.01B Schedule 1.01C to Facility Agreement Leased Facilities Facility Name and Location - -------------------------- Colonial Terrace-Independence (845) Independence, Kansas Colonial Lodge-Independence (846) Independence, Kansas Crestview Healthcare (251) Ava, Missouri Hickory Lane Care Center (253) Buffalo, Missouri Sycamore View Healthcare (254) Clinton, Missouri Des Peres Health Care (255) Des Peres, Missouri Hillside Healthcare (256) Jefferson, Missouri Marceline Healthcare (257) Marceline, Missouri Joplin House Healthcare (259) Joplin, Missouri Lakeview Health Care Center (261) Lamar, Missouri Shady Oaks Health Care Center (262) Thayer, Missouri Crane Health Care Center (263) Crane, Missouri Table Rock Health Care Center (265) Kimberling City, Missouri Table Rock Health Care Center Residential Project (266) Kimberling Cit, Missouri Wornall Health Care Center (819) Kansas City, Missouri -1- SCHEDULE 1.01C Facility Name and Location - -------------------------- Blue Hills Living Center (843) Kansas City, Missouri Blue Hills Centre (860) Kansas City, Missouri -2- SCHEDULE 1.01C Schedule 1.01D to Facility Agreement List of Leased Facilities As to Which Buyers Shall Have Been Assigned Option to Purchase Facility Name and Location - -------------------------- Crestview Healthcare (251) Ava, Missouri Hickory Lane Care Center (253) Buffalo, Missouri Sycamore View Healthcare (254) Clinton, Missouri Des Peres Health Care (255) Des Peres, Missouri Hillside Healthcare (256) Jefferson, Missouri Marceline Healthcare (257) Marceline, Missouri Joplin House Healthcare (259) Joplin, Missouri Lakeview Health Care Center (261) Lamar, Missouri Shady Oaks Health Care Center (262) Thayer, Missouri SCHEDULE 1.01D Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Tradition House Healthcare (260) (Joplin, Missouri) Beginning at the intersection of the South line of Twenty-eighth Street and the West line of Jackson Avenue, if extended, thence South and parallel with the West line of Jackson Avenue, if extended, 535 feet, more or less, to a point 135 feet South of the North line of the Southeast Quarter (SE1/4) of the Southwest Quarter (SW1/4) of Section 15, Township 27, Range 33, thence West parallel with the North line of said Southeast Quarter of the Southwest Quarter a distance of 325 feet, thence North and parallel with the West line of Jackson Avenue, if extended, to the South line of Twenty-eight Street, thence Easterly and on the South line of Twenty-eighth Street to the point of beginning, the same being part of Miscellaneous Tracts Four (4) and Five (5) in Section 15, Township 27, Range 33, and all of Lots Numbered One (1), Two (2), Three (3) and Four (4) and a portion of Lot Numbered Five (5) in BRIARCLIFF ADDITION, SECOND PLAT, to the City of Joplin, Jasper County, Missouri, according to the recorded Plat thereof. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Clayton House Healthcare (445) (Ballwin, Missouri) PARCEL 1: A tract of land in Section 13, Township 45 North, Range East, St. Louis County, Missouri, and described as follows: Beginning at the point on the North line of Clayton Road, 60 feet wide, from which point the intersection of the west line of said Section 19 with said North line of Clayton Road bears South 84 degrees 31 minutes west 12.07 feet: thence North 0 degrees 52 minutes East, along a line parallel with and 12.00 feet East, measured perpendicular to the west line of said Section 19, 941.71 feet to a point: thence south __ degrees 59 minutes west 12.00 feet to a point on the west line of said Section 19; thence North 0 degrees 51 minutes East, along the west line of said Section 19, 198.82 feet to a point; thence South 89 degrees 07 minutes 30 seconds East 475.04 feet to a point; thence South __degrees__minutes 30 second West 1191.57 east to a point on said North __ of Clayton Road: thence South 84 degrees 51 minutes West, along said North line of Clayton Road, 465.73 feet to the point of beginning. PARCEL 2: The East Twelve (12) feet of the following described tract: A tract of land in Section 24, Township 45 North, Range 4 East, and Section 19, Township 45 North, Range 5 East, St. Louis County, Missouri, and described as follows: Beginning at a point on the North line of Clayton Road, 60 feet wide, distant North __ degrees 51 minutes East 12.07 feet from the intersection of the West line of said Section 19 with the North line of said Clayton Road; thence South 84 degrees 51 minutes West 368.70 feet to a point; thence South 65 degrees 45 minutes 48 seconds west 141.25 feet to a point on the East line of Old Woods Mill Road (40 feet wide); thence South 1 degree 55 minutes 57 seconds Est 35.66 feet to a point; thence North 14 degrees 33 minutes 06 seconds East, 419.59 feet to a point; thence North 8 degrees 50 minutes 51 seconds East, 144.25 feet to a point; thence North 14 degrees 32 minutes 50 seconds West, 350.15 feet to a point; thence North 89 degrees 58 minutes 30 seconds East 484.16 feet to a point; thence North 0 degrees 52 minutes East 11.56 feet to a point; thence __ 89 degrees 59 minutes East 12.00 feet to a point; thence South __ degrees, 52 minutes West 941.72 feet to the point of beginning. 13991 Clayton Rd. & 13999 Clayton Rd. (Parcel 1) 930 Old Woods Mill Rd. (Parcel 2) SECHDULE 1.0 Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Columbia House Healthcare (446) Columbia, Missouri TRACT SIX (6) OF WHITE GATE COMMUNITY AS SHOWN BY THE PLAT RECORDED IN PLAT BOOK 7, PAGE 15, RECORDS OF BOONE COUNTY, MISSOURI. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Bethesda Nursing Center (803) (Chanute, Kansas) Beginning at a point on the West line of the NE 1/4 of Section 29, Township 27 South, Range 18 East of the 6th P.M., 50 feet North of the Southwest corner or said NE 1/4; thence North, along the West line of said quarter, a distance of 623.4 feet; thence South 88 degrees 45' East, a distance of 137.2 feet to the West side of Lafayette Avenue; thence S 01 degrees 16' West a distance of 27.63 feet to the South side of Twelfth Street; thence S 88 degrees 51' E a distance of 187.0 feet to the Northeast corner of Lot 28 of Block 4 of Park Place Second Addition; thence South 1 degree 16' W a distance of 604.05 feet to the North Right of Way line of Fourteenth Street; thence N 87 degrees 15'10" W along the North Right-of-way line, a distance of 310.54 feet to the point of beginning, subject to any part thereof in street, road or highway, now in and a part of the City of Chanute, Neosho County, Kansas. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Country Club Home (809) (Council Grove, Kansas) Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 42, 43, 44, 45, 46, 47, 48, 49 and 50, West Highland Addition to the City of Council Grove; and vacated Kansas Street lying adjacent to its Lots 1 15, both inclusive and Lots 48, 49, and 50, in said subdivision; and tract of land in Section 15, Township 16, Range 8, described as follows: Beginning at a point being the Southwest corner of Lot 5 West Highland Addition to the City of Council Grove, and thence proceeding in a Westerly direction and extending the South boundary line of said Lot 50, 285.5 feet; thence in a Northerly direction parallel with the West line of said Lot 50 and Lot 1 of said West Highland Addition to the City of Council Grove, 234.81 feet; thence an Easterly direction 285.5 feet to a point designated as the Northwest corner of Lot 1, West Highland Addition to the City of Council Grove; thence in a Southerly direction along the West line said Lot 1 and Lot 50 of the West Highland Addition to the City of Council Grove to the point of beginning, all in Morris County, Kansas.*** SCHEDULE 1.03E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Charlevoix Nursing Center (823) (St. Charles, Missouri) A tract of land in Lot No. 34 in Block 9 of Steen and Cunningham Survey of the St. Charles Commons, Township 46 North, Range 5 East, more particularly described as follows: Beginning at an iron pipe at the intersection of the South right-of-way line of Boonslick Road, 60 feet wide, with the common lot line of Lot 31 of Boone's Survey and Lot 34, Block 9, Steen and Cunningham's Survey; thence South 59 degrees 28' West, 203.00 feet to the place of beginning of the tract herein described; thence South 59 degrees 28' West, along the Southern right-of-way of Boonslick Road, 13.83 feet to an iron pipe; thence continuing along the Southern right-of-way of Boonslick Road South 73 degrees 45' West 170.88 feet to an iron pipe; thence continuing along the Southern right-of-way of Boonslick Road South 81 degrees 51' West, 241.19 feet to an iron pipe; thence leaving said Southern right-of-way the following bearings and distances: South 8 degrees 07' West, 391.29 feet to an iron pipe; on the Northern right-of-way line of Interstate Highway 70; thence South 65 degrees 35' East, along said right-of- way line 376.36 feet to an iron pipe; thence North 13 degrees 35' 30" East, 590.03 feet to an iron pipe; thence North 11 degrees 01' 30" West, 59.57 feet to the place of beginning of the tract herein described. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Sedgwick Convalescent Center (833) Sedgwick, Kansas TRACT 1: Lots Forty-five (45), Forty-seven (47) and Forty-nine (49) on Seventh Street in Hurd's Addition to the City of Sedgwick, Kansas as shown by the recorded plat thereof. TRACT 2: Lots Thirty-nine (39), Forty-one (41) and Forty-three (43) on Seventh Street in Hurd's Addition to the City of Sedgwick, Kansas, as shown by the recorded plat thereof. TRACT 3: All of Block "F" on Eight Street, Hurd's Addition to the City of Sedgwick, Kansas, and Lots Fifty-one (51), Fifty-three (53), Fifty-five (55), Fifty-seven (57), Fifty-nine (59), Sixty-one (61), Sixty-three (63), Sixty-five (65), Sixty- seven (67) and Sixty-nine (69) on Seventh Street, in Hurd's Addition to the City of Sedgwick, Kansas. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Medicenter-Springfield (834) (Springfield, Missouri) THE EAST ONE-HALF (E 1/2) OF LOTS FIFTY-THREE (53) AND FIFTY-FOUR (54), EXCEPT THE SOUTH SEVENTY-SIX (76) FEET OF LOT FIFTY-FOUR (54) LATOKA HEIGHTS SUB- DIVISION, IN SPRINGFIELD, GREENE COUNTY, MISSOURI ACCORDING TO THE RECORDED PLAT THEREOF. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Hillhaven-Topeka (838) Topeka, Kansas The South 6 1/4 feet of Lot 221, all of Lots 223, 225, 227, 229, 231, 233, 235 and 237, Garfield Street, BRIGHAM'S ADDITION, and Lots 226, 228, 230, 232, 234, 236, 238, 240 and the North 6 1/4 feet of Lot 242, Mulvane Street, formerly Morris Avenue, MARTIN PLACE ADDITION, all in the City of Topeka, Shawnee County, Kansas, together with that part of the vacated alley lying adjacent to said lots. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Hillhaven-Wichita (844) Wichita, Kansas Parcel 1: All of Lot 5, on Topeka Avenue, in Tuttle's Addition to the City of Wichita, Sedgwick County, Kansas. Parcel 2: All of Lots 2, 4, 6, 8, 10, 12, 14, 16, 18, 20 and 22 on Topeka Avenue, in Clio Addition to the City of Wichita, Sedgwick County, Kansas, together with the west 10 feet of the vacated alley adjacent to Lots 2, 4, 20 and 22, as vacated by Ordinance No. 30-686 and by Ordinance No. 30-222. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Hammond Holiday Home (857) (Larned, Kansas) TRACT 1: All of Blocks Seven (7) and Eight (8), of the Larned Community Development Corporation Addition No. 3 to the City of Larned, Pawnee County, Kansas, LESS AND EXCEPT TRACT 2 described below. TRACT 2: A tract situate in Block Seven (7) and Eight (8), a portion of vacated 12th Street situate between said Blocks 7 and 8 and the vacated alley of Block 7, Larned Community Development Corporation Addition No. 3, to the City of Larned, Pawnee County, Kansas, described as follows: Commencing at the Southeast corner (SEc) of Block 6, L.C.D.C. No. 3, for a point of beginning, thence North along the East line of Block 8, 257.00 feet to a point; thence West parallel with the South line of Block 8, 81.00 feet to a point; thence North parallel with the East line of Block 8, 43.00 feet to a point; thence West parallel with the South line of Block 8, 142.00 feet to a point; thence North parallel with the East line of Block 7, 180.00 feet to a point on the South right of way of the alley through Block 7; thence West along the South alley right of way, 343.59 feet to a point on the East right of way of Morris Avenue; thence South along the East right of way of Morris Avenue, 480.00 feet to a point at the Southwest corner (SWc) of Block 8; thence East along the South boundary of Block 8, 565.51 feet to the point of beginning. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Hammond Holiday Apartments (858) (Larned, Kansas) TRACT 1: All of Blocks Seven (7) and Eight (8), of the Larned Community Development Corporation Addition No. 3 to the City of Larned, Pawnee County, Kansas, LESS AND EXCEPT TRACT 2 described below. TRACT 2: A tract situate in Block Seven (7) and Eight (8), a portion of vacated 12th Street situate between said Blocks 7 and 8 and the vacated alley of Block 7, Larned Community Development Corporation Addition No. 3, to the City of Larned, Pawnee County, Kansas, described as follows: Commencing at the Southeast corner (SEc) of Block 8, L.C.D.C. No. 3, for a point of beginning, thence North along the East line of Block 8, 257.00 feet to a point; thence West parallel with the South line of Block 8, 81.00 feet to a point; thence North parallel with the East line of Block 8, 43.00 feet to a point; thence West parallel with the South line of Block 8, 142.00 feet to a point; thence North parallel with the East line of Block 7, 180.00 feet to a point on the South right of way of the alley through Block 7; thence West along the South alley right of way, 343.59 feet to a point on the East right of way of Morris Avenue; thence South along the East right of way of Morris Avenue, 480.00 feet to a point at the Southwest corner (SWc) of Block 8; thence East along the South boundary of Block 8, 565.51 feet to the point of beginning. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Green Meadows Nursing Center (861) (Haysville, Kansas) Lot 2, Replat of Blocks 6 and 7, Green Meadows Addition, Haysville, Sedgwick County, Kansas. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Indian Creek Nursing Center (895) (Overland Park, Kansas) All that part of Tract 4, METCALF 103, a subdivision of land now the City of Overland Park, Johnson County, Kansas, more particularly described as follows: Beginning at the Northwesterly corner of said Tract 4; thence North 68 degrees 31 minutes 24 seconds East, along the Northerly line of said Tract 4, a distance of 319.37 feet; thence South 60 degrees minutes 31 seconds East, along the Northerly line of said Tract 4 distance of 269.12 feet, to the Northeasterly corner thereof; the South 2 degrees 07 minutes 20 seconds East, along the East line o: said Tract 4, a distance of 558.60 feet, to a point on the Easterly extension of the centerline of a 15 foot water line easement to Water District No. 1 of Johnson County, Kansas, as filed in Volume 1032 Page 879 in the Office of the Register of Deeds of Johnson County Kansas; thence South 88 degrees 58 minutes 59 seconds West, along centerline and its extension of said 15 foot water line easement, distance of 340.43 feet, to a point on the Westerly line of said Tract 4; thence Northwesterly, along the Westerly line of said Tract 4, said line being on a curve to the left, having a radius of 11.56, feet, a central angle of 3 degrees 47 minutes 22 seconds and whose initial tangent bearing is Northwest 19 degrees 59 minutes 55 seconds West, a distance of 103.17 feet, to a point of tangency; thence N 23 decrees 47 minutes 17 seconds West, along the Westerly line of said Tract 4, a distance of 260 feet to a point of curvature; the: Northwesterly, along the Westerly line of said Tract 4, said line being on a curve to the right, having a radius of 1,270 feet and central angle of 4 degrees 19 minutes, a distance of 95.68 feet; thence North 10 degrees 11 minutes 36 seconds West, along the Westerly line of said Tract 4, a distance of 75,82 feet; thence Northwesterly, along the Westerly line of said Tract 4, said line being on a curve to the right, having a radius of 1,260 feet, a central angle of 3 degrees 48 minutes 44 seconds, and whose initial tangent bearing is North 16 degrees 04 minutes West, a distance of 83.84 feet, to the point of beginning. SCHEDULE 1.01E Schedule 1.01E to Facility Agreement Part A Real Property Legal Description for Indian Meadows Nursing Center (896) (Overland Park, Kansas) TRACT I: The South 350 feet of the West 350 feet of the Northeast 1/4 of the Northwest 1/4 of Section 8, Township 13, Range 25, in the City of Overland Park, in Johnson County, Kansas, together with the easements described in Tract III. TRACT II: All that part of the West 1/2 of the Northeast 1/4 of the Northwest 1/4 of Section 8, Township 13, Range 25, in the City of Overland Park, Johnson County, Kansas, described as follows: Beginning at a point on the West line of said 1/4, 1/4 Section, said point being North 0 degrees 0 minutes 54 Seconds West a distance of 400 feet from the Southwest corner of said 1/4, 1/4 Section; thence North 0 degrees 0 minutes 54 seconds West along the West line of said 1/4, 1/4 Section a distance of 491.18 feet; thence North 89 degrees 59 minutes 06 seconds East a distance of 36.02 feet to a point on the Westerly line of a roadway easement granted in Miscellaneous Book 205, at Page 88 and Misc. Book 206, at Page 414; thence Southeasterly along a curve to the right, the initial tangent having a bearing of South 56 degrees 37 minutes 35 seconds East, having a radius of 588.88 feet; a distance of 152.55 feet; thence along a curve to the right, tangent SCHEDULE 1.01E to the last mentioned curve having a radius of 856.50 feet, a distance of 131.30 feet; thence along a curve to the right, tangent to the last mentioned curve, having a radius of 1407.50 feet, a distance of 98.26 feet; thence along a curve to the right, tangent to the last mentioned curve, having a radius of 384.26 feet, a distance or 127.43 feet; thence South 10 degrees East a distance of 14 feet; thence along a curve to the left having the last described course as a tangent, having a radius of 343.50 feet, a distance of 72.36 feet to a point 400 feet North of the South line of said 1/4, 1/4 Section thence South 80 degrees (deeded) 89 degrees (measured) 53 minutes 59 seconds West and parallel to the South line of said 1/4, 1/4 Section a distance of 346.03 feet to the point of beginning; and also the North 50 feet of the South 400 feet of the West 350 feet of the West 1/2 of the Northeast 1/4 of the Northwest 1/4 of Section 8, Township 13, Range 25, in the City of Overland Park, Johnson County, Kansas, together with the easements described in Tract III. TRACT III: Permanent easements and right-of-way for ingress and egress and for signs appurtenant to the aforesaid premises, as recorded in Misc. Book 204, at Page 88, as File No. 847494, over the following described property: All that part of the Northeast 1/4 of the Northwest 1/4 of Section 8 Township 13, Range 25, now in the City of Overland Park, Johnson County, Kansas, more particularly described as follows: Beginning a point on the North line of the Northeast 1/4 of the Northwest 1/4 of said Section 8 and 65 feet East of the Northwest corner thereof; thence South 0 degrees 04 minutes 08 seconds East, along a line perpendicular to the North line of the Northeast 1/4 of said Section 8, a distance of 40 feet to the true point of beginning of subject tract; thence North 89 degrees 55 minutes 52 seconds East, a distance of 20 feet; thence South 0 degrees 04 minutes 08 seconds East, a distance of 25 feet; thence Northwesterly to the true point of beginning of subject tract, and all that part of the Northeast 1/4 of the Northwest 1/4 of Section 8, Township 13, Range 25, now in the City of Overland Park, Johnson County, Kansas, more particularly described as follows: Beginning at a point on the North line of the Northeast 1/4 of the Northwest 1/4 of said Section 8 and 155 feet East of the Northwest corner thereof; thence South 0 degrees 04 minutes 08 seconds East, along a line perpendicular to the North line of the Northeast 1/4 of the Northwest 1/4 of said Section 8 a distance of 40 feet, to the true point of beginning of subject tract thence South 89 degrees 55 minutes 52 seconds West, a distance of 20 feet; thence South 0 degrees 04 minutes 08 seconds East, a distance of 25 feet; thence Northeasterly, to the true point of beginning of subject tract; and permanent easements for roadway, utility services and the right of ingress and egress, as recorded in Misc. Book 205, at Page 88, as File No. 849273, and in Misc. Book 206, at Page 414, as File No. 852253, over the following described property: A strip of land 50 feet in width across a part of the Northeast quarter of the Northwest quarter of Section 8, Township 13, Range 25 SCHEDULE 1.01E now in the City of Overland Park, Johnson County, Kansas, lying 25 feet on each side of the following described centerline: Beginning at a point on the North line of the Northeast quarter of the Northwest quarter of said Section 8 and 110 feet East of the Northwest corner thereof; thence South 0 degrees 04 minutes 08 seconds East, along a line perpendicular to the North line of the Northeast quarter of the Northwest quarter of said Section 8, a distance of 110 feet to a point of curvature; thence southerly and Southwesterly, along a curve to the right having a radius of 818.5 feet, a distance of 316.99 feet; thence Southeasterly, along a curve to the right having a radius of 613.88 feet and whose initial tangent bearing is South 56 degrees 37 minutes 35 seconds East, a distance of 159.03 feet, to a point of compound curvature; thence Southeasterly along a curve to the right having a radius of 881.50 feet, a distance of 135.13 feet, to a point of compound curvature; thence Southeasterly along a curve to the right having a radius of 1432.5 feet, a distance of 100.01 feet, to a point of compound curvature; thence Southeasterly and southerly along a curve to the right having a radius of 409.26 feet, a distance of 135.72 feet; to a point of tangency; thence South 10 degrees 00 minutes East, a distance of 14 feet, to a point of curvature; thence southerly and southeasterly, along a curve to the left having a radius of 318.50 feet, a distance of 266.83 feet ... and ... Beginning at a point on the West line of the Northeast quarter of the Northwest quarter of said Section 8 an 375 feet North of the South line of the Northeast quarter of the Northwest quarter of said Section 8; thence easterly, along a line 375 feet North of and parallel to the South line of the Northeast quarter of the Northwest quarter of said Section 8, a distance of 385.90 feet; and a strip of land 10 feet wide adjacent to and parallel with the West line of the entire tract of land described the above easement for roadway purposes. SCHEDULE 1.01E Schedule 2.03(a) to Facility Agreement Certain Assumed Liabilities All obligations and liabilities for any and all services and all goods (including, but not limited to, perishable and nonperishable food, central supplies, linen, housekeeping and other supplies) that are ordered by or on behalf of the Seller in the ordinary course prior to the Closing Date for provision to, or use in connection with the operation of, any of the Facilities, and which are provided or received at such Facilities after the Closing Date. SCHEDULE 2.03(A) [Schedule 2.07 - Allocation Schedule] Schedule 2.08(c) to Facility Agreement Promissory Note Principal Amounts
Promissory Notes (as identified by the respective Owned Facilities) Principal Amounts ----------------------------------- ----------------- Bethesda Nursing Center (803) $ 922,500.00* Chanute, Kansas Charlevoix Nursing Center (823) 1,617,300.00** St. Charles, Missouri Clayton House Healthcare (445) 7,760,700.00 Ballwin, Missouri Columbia House Healthcare (446) 2,340,000.00 Columbia, Missouri Country Club Home (809) 2,700,000.00 Council Grove, Kansas Green Meadows Nursing Center (861) 4,131,000.00 Haysville, Kansas Hammond Holiday Home/Apartments (857/858) 1,597,500.00 Larned, Kansas Hillhaven-Topeka (838) 3,591,000.00 Topeka, Kansas Hillhaven-Wichita (844) 513,000.00 Wichita, Kansas Indian Creek Nursing Center (895) 1,516,500.00 Overland Park, Kansas Indian Meadows Nursing Center (896) 1,516,500.00 Overland Park, Kansas
_________________________ * Initially, to be paid by the applicable Buyer as Rent pursuant to the Bethesda Sublease. See Section 2.01 of the Facility Agreement. ** Initially, to be paid by the applicable Buyer as Rent pursuant to the Charlevoix Lease. See Section 2.01 of the Facility Agreement. -1- SCHEDULE 2.08(C) Medicenter-Springfield (834) 4,050,000.00 Springfield, Missouri Sedgwick Convalescent Center (833) 990,000.00*** Sedgwick, Kansas Tradition House Healthcare (260) 1,404,000.00 Joplin, Missouri
_________________________ ***Initially, to be paid by the applicable Buyer as Rent pursuant to the Sedgwick Sublease. See Section 2.01 of the Facility Agreement -2- SCHEDULE 2.08(C) Schedule 2.11 to Facility Agreement Subsidy Reduction Upon Certain Sublease Terminations
Facility Name and Location Percentage Subsidy Reduction -------------------------- ---------------------------- Crestview Healthcare (251) 4.92 % Ava, Missouri Hickory Lane Care Center (253) 3.28 Buffalo, Missouri Des Peres Health Care (255) 4.10 Des Peres, Missouri Hillside Healthcare (256) 8.20 Jefferson, Missouri Marceline Healthcare (257) 6.97 Marceline, Missouri Lakeview Health Care Center (261) 4.43 Lamar, Missouri Shady Oaks Health Care Center (262) 2.46 Thayer, Missouri Crane Health Care Center (263) 1.64 Crane, Missouri Table Rock Health Care Center (265) 5.75 Kimberling City, Missouri Table Rock Health Care Center Residential Project (266) 3.28 Kimberling City, Missouri Wornall Health Care Center (819) 32.82 Kansas City, Missouri Blue Hills Living Center/Centre (843/860) 22.15 Kansas City, Missouri
SCHEDULE 2.11 Schedule 2.12 to Facility Agreement Subsidy Reduction PART A ------ Census as of 02/12/92
Facility Name and Location Census -------------------------- ------ Crestview Healthcare (251) 64.0 Ava, Missouri Hickory Lane Care Center (253) 53.0 Buffalo, Missouri Sycamore View Healthcare (254) 80.6 Clinton, Missouri Des Peres Health Care (255) 37.8 Des Peres, Missouri Hillside Healthcare (256) 47.3 Jefferson, Missouri Marceline Healthcare (257) 17.9 Marceline, Missouri Joplin House Healthcare (259) 67.8 Joplin, Missouri Tradition House Healthcare (260) 71.3 Joplin, Missouri Lakeview Health Care Center (261) 56.8 Lamar, Missouri Shady Oaks Health Care Center (262) 74.0 Thayer, Missouri Crane Health Care Center (263) 64.0 Crane, Missouri Table Rock Health Care Center (265) 64.3 Kimberling City, Missouri Clayton House Healthcare (445) 97.7 Ballwin, Missouri
-1- SCHEDULE 2.12
Facility Name and Location Census -------------------------- ------ Columbia House Healthcare (446) 101.8 Columbia, Missouri Wornall Health Care Center (819) 49.0 Kansas City, Missouri Charlevoix Nursing Center (823) 85.4 St. Charles, Missouri Medicenter-Springfield (834) 71.5 Springfield, Missouri Blue Hills Centre (860) 55.5 Kansas City, Missouri
-2- SCHEDULE 2.12 Schedule 2.12 to Facility Agreement Subsidy Reduction PART B ------ Missouri Medicaid Per Diem Rate
Facility Name and Location Medicaid Per Diem Rate -------------------------- ---------------------- Crestview Healthcare (251) $35.60 Ava, Missouri Hickory Lane Care Center (253) 36.97 Buffalo, Missouri Sycamore View Healthcare (254) 41.62 Clinton, Missouri Des Peres Health Care (255) 46.04 Des Peres, Missouri Hillside Healthcare (256) 48.60 Jefferson, Missouri Marceline Healthcare (257) 43.62 Marceline, Missouri Joplin House Healthcare (259) 40.45 Joplin, Missouri Tradition House Healthcare (260) 40.72 Joplin, Missouri Lakeview Health Care Center (261) 35.60 Lamar, Missouri Shady Oaks Health Care Center (262) 39.14 Thayer, Missouri Crane Health Care Center (263) 55.56 Crane, Missouri Table Rock Health Care Center (265) 54.81 Kimberling City, Missouri Clayton House Healthcare (445) 56.98 Ballwin, Missouri
-1- SCHEDULE 2.12
Facility Name and Location Medicaid Per Diem Rate -------------------------- ---------------------- Columbia House Healthcare (446) $47.83 Columbia, Missouri Wornall Health Care Center (819) 56.98 Kansas City, Missouri Charlevoix Nursing Center (823) 56.98 St. Charles, Missouri Medicenter-Springfield (834) 54.15 Springfield, Missouri Blue Hills Centre (860) 56.98 Kansas City, Missouri
-2- SCHEDULE 2.12 Schedule 2.12 - Subsidy Reduction PART C ------ Schedule 3.04 to Facility Agreement Seller Litigation 1. Joplin House Healthcare (259). The facility received a letter ----------------------------- from the lawyer of a resident alleging that the resident suffered head and facial injuries while being transferred from an Arjo Century Tub. The lawyer indicated an intent to make a formal demand in the matter. 2. Tradition House Healthcare (260). A lawsuit was filed in Newton -------------------------------- County on July 20, 1990, by the children of a deceased former resident of the facility. The children allege that the former resident's death was wrongful due to failure of the attending physician and the Seller to provide proper care for the former resident's diabetic condition. 3. Clayton House Healthcare (445). A lawsuit was filed in the ------------------------------ Circuit Court for St. Louis County in April of 1990 by the wife and children of a deceased former resident who suffered from Alzheimer's disease and died as a result of a fall. The wife and children allege that the former resident's death was wrongful due to the negligent failure of the Seller to restrain and monitor the former resident. 4. Columbia House Healthcare (446). A lawsuit was filed on April ------------------------------- 16,1992, by a resident of the facility who was allegedly injured while being transported by a driver employed by the facility. 5. Sedgwick Convalescent Center (833). Pursuant to an annual survey ---------------------------------- performed in February of 1992 by the State of Kansas on behalf of the federal government, the facility received a Level A deficiency with respect to its ability to meet the care needs of individual residents. Upon subsequent re- survey, the State removed the Level A deficiency. 6. Blue Hills Living Center (843). The facility received a letter ------------------------------ from the lawyer of a resident of the facility who was allegedly injured in an automobile accident occurring while an employee of the facility was attempting to take the resident to a medical appointment using the employee's car. The lawyer requested the resident's medical records. 7. Hillhaven Convalescent Center - Wichita (844). A lawsuit was --------------------------------------------- filed in Sedgwick County on January 6. 1992, by a delivery person who claims to be suffering from health problems resulting from an incident in which he allegedly was splashed with and inhaled potassium hydroxide while delivering food to the facility. 8. Blue Hills Centre (860). A lawsuit was filed in Jackson County on ----------------------- July 30, 1991, by a resident of the facility who alleges she suffered injuries (broken hips) as a result of the Seller's negligence. 9. Blue Hills Centre (860). A lawsuit was filed in Jackson County on ----------------------- March 4, 1991, by the general contractor who constructed the facility. The general contractor alleges that NME Properties Corporation and Hillhaven Properties. Ltd. acted wrongfully in claiming structural problems and making only a partial payment. -1- SCHEDULE 3.04 10. Blue Hills Centre (860). A complaint was filed with the EEOC by a ----------------------- former employee of the facility alleging that the former employee suffered discrimination due to his race. 11. Green Meadows Nursing Center (861). A complaint was filed with ----------------------------- ---- the EEOC by a former employee of the facility alleging that the former employee suffered discrimination at the facility due to her age and gender. 12. Indian Meadows Nursing Center (896). A complaint was filed with ------------------------------ ---- the EEOC by a former employee of the facility who claims she was constructively discharged in January of 1991 as a result of being sexually harassed by another employee at the facility. The EEOC is currently investigating the claim. 13. All Facilities. There are a total of 117 workers' compensation -------------- claims outstanding for a total incurred of $1,657,606. 14. Certain Facilities. The following items reflect matters regarding ------------------ which the Seller has been contacted by a lawyer, but which reasonably are not expected to have a Material Adverse Effect. a. Hillside Healthcare (256). On or near September 1,1990, the ------------------------- Seller received a letter from a lawyer requesting medical records of a resident who is dissatisfied with the care the resident received at the facility. b. Hillside Healthcare (256). On or near August 4,1991, the ------------------------- Seller received a letter from a lawyer regarding a resident who suffered a hip injury at the facility. c. Hillhaven - Wichita (844). On or near April 16, 1991, the ------------------------- Seller received a letter from a lawyer requesting medical records of a resident. d. Green Meadows Nursing Center (861). On or near November 15, ---------------------------------- 1990, the Seller received a letter from a lawyer alleging that the Seller did not care for a now deceased former resident in a timely manner. -2- SCHEDULE 3.04 Schedule 3.08 - Licensure Schedule 3.10 to Facility Agreement Life Care Contracts None. SCHEDULE 3.10 Schedule 4.04 to Facility Agreement Buyer Litigation None. SCHEDULE 4.04 Exhibit A to Facility Agreement ASSIGNMENT AND ASSUMPTION AGREEMENT This ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of [____________________], 1992 (this "Agreement"), is made between FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Seller"), and [______________________], a North Carolina limited partnership (the "Buyer"). RECITALS A. The Seller and the Buyer and affiliates of the Buyer have entered into a Facility Agreement, dated as of April 23, 1992 (the "Facility Agreement"). B. The execution and delivery of this Agreement by the Seller and the Buyer is a condition precedent to the respective obligations of the Seller and the Buyer and such Affiliates to consummate the transactions contemplated by the Facility Agreement NOW, THEREFORE, in consideration of the premises and the covenants and agreements set forth in this Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Seller and the Buyer, the Seller and the Buyer agree as follows: 1. The Seller hereby sells, assigns, transfers and conveys to the Buyer the Seller's right, title and interest in, to and under, and hereby delegates to the Buyer the Seller's duties and obligations under, (a) the leases, licenses, contracts and agreements listed or otherwise described in Schedule 1 (individually, an "Assumed Contract" and collectively, the "Assumed Contracts") and (b) the obligations and liabilities listed or otherwise described in Schedule 2 (all such obligations and liabilities, together with all duties, obligations and liabilities of the Seller under the Assumed Contracts (other than obligations or liabilities attributable to any failure by the Seller to comply with the provisions of the Assumed Contracts prior to the date of this Agreement), being individually an "Assumed Liability" and collectively the "Assumed Liabilities". 2. The Buyer hereby accepts the sale, assignment, transfer and conveyance of the Seller's right, title and interest in, to and under, and the delegation of the Seller's duties and obligations under, the Assumed Contracts and the Assumed Liabilities. The Buyer hereby assumes the Assumed Contracts and the Assumed Liabilities. The Buyer hereby further agrees to pay, perform and discharge promptly and fully when due the Assumed Liabilities and timely to perform and observe the covenants, agreements, terms and conditions of the Assumed Contracts on the Seller's part to be performed and observed on or after the date of this Agreement in the same manner and with the same force and effect as if the Buyer had originally executed the Assumed Contracts in the place and stead of the Seller. 3. Notwithstanding anything in this Agreement to the contrary, (i) this Agreement shall not constitute a sale, assignment, transfer, conveyance or delegation of any Assumed Contract or any duty, obligation or liability under any Assumed Contract, if an attempted -1- EXHIBIT A assignment thereof, without the consent of any third party, would constitute a breach or other contravention of such Assumed Contract or would result in the cancellation, termination, invalidity or unenforceability of such Assumed Contract or would in any other way adversely affect the rights and benefits of the Seller or the Buyer under such Assumed Contract, and (ii) this Agreement shall not affect the respective rights and obligations of the Seller and the Buyer under Sections 10.02 and 10.03 of the Facility Agreement. 4. If any action or proceeding is commenced to enforce or interpret this Agreement, the prevailing party shall be entitled to recover from the non- prevailing party the costs and expenses of maintaining such action or proceeding, including reasonable attorneys' fees and disbursements (including reasonable charges allocated for internal corporate counsel) incurred before such action or proceeding is commenced, before trial, at trial, after trial and on appeal, whether the action or proceeding is at law, in equity or in a bankruptcy case or proceeding. 5. This Agreement shall be binding upon, and shall inure to the benefit of, the Seller, the Buyer and their respective successors and assigns. 6. This Agreement may be executed in any number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same Agreement. Delivery of an executed counterpart of a signature page to this Agreement via telephone facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. 7. The Buyer hereby irrevocably submits to the jurisdiction of any court of the State of Washington or any federal court of the United States of America for any district of the State of Washington, and any appellate court from any of such courts, in any action or proceeding arising from or by reason of, or otherwise relating to, this Agreement, and the Buyer hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of Washington or in such federal court of the United States of America for any district of the State of Washington. The Buyer, to the fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of such action or proceeding. The Buyer agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 7 shall affect the right of the Seller to serve legal process in any other manner permitted by law or shall affect the right of the Seller to bring any action or proceeding against the Buyer or the Buyer's property in the courts of any other jurisdictions. 8. Each of the Seller and the Buyer hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) arising from or by reason of or relating to this Agreement or any actions of the Seller or the Buyer in the negotiation, administration, performance or enforcement of this Agreement 9. This Agreement shall be deemed to be a contract made under the laws of the State of Washington, and for all purposes shall be governed by, and construed in all respects (including matters of construction, validity and performance) in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. -2- EXHIBIT A IN WITNESS WHEREOF, the Seller and the Buyer have caused this Agreement to be duly executed as of the date first above written. FIRST HEALTHCARE CORPORATION [NAME OF THE BUYER] By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By____________________ Title:___________________ By ____________________ Title:_____________________ -3- EXHIBIT A Schedule 1 to Assignment and Assumption Agreement Assumed Contracts ----------------- [Reserved.] EXHIBIT A Schedule 2 to Assignment and Assumption Agreement Certain Assumed Liabilities --------------------------- 1. All obligations and liabilities for any and all services and all goods (including, but not limited to, perishable and nonperishable food, central supplies, linen, housekeeping and other supplies) that are ordered by or on behalf of the Seller in the ordinary course prior to the date of this Agreement for provision to, or use in connection with the operation of, the [name of Facility] located in [__________, ____________] (the "Facility"), and which are provided or received at the Facility after the date of this Agreement. 2. [Reserved.] EXHIBIT A CONSENT AND RELEASE The undersigned hereby acknowledges notice of, and hereby consents to the terms and provisions of, the foregoing Assignment and Assumption Agreement, dated as of [________________], 1992 (the "Assignment"), between FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Seller"), and [_____________________], a North Carolina limited partnership (the "Buyer"). The undersigned hereby releases the Seller and all subsidiaries and other affiliates of the Seller from all duties, obligations and liabilities arising under or by reason of the Assigned Agreement (as defined below) on and after the date of the Assignment. For the purposes of this Consent and Release, the term "Assigned Agreement" means that certain [_____________________], dated [as of] [__________________], 19[____], between the Seller and the undersigned, as the same has been supplemented, amended or otherwise modified. DATED: [____________], 1992 [NAME OF CONSENTING PARTY] By _____________________________ Title: ______________________ EXHIBIT A Exhibit B to Facility Agreement PROMISSORY NOTE $[______________]/1/ Tacoma, Washington [________], 1992/2/ FOR VALUE RECEIVED, the undersigned, [________________], a North Carolina limited partnership (the "Maker"), HEREBY PROMISES TO PAY to the order of FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Payee"), the principal sum of [_________________________________ and /100] Dollars ($[_________________])/3/, plus interest, on the terms set forth below. 1. Interest. The unpaid principal sum of this Promissory Note shall bear -------- interest, from the date of this Promissory Note until such principal sum is paid in full, at the rates of interest per annum (the "Regular Rate") equal to: (a) Nine percent (9%) per annum from [________], 1992/4/, to [_________] 199[__]/5/; and (b) Eleven percent (11%) per annum from [________], 199[_____]/6/, to [___________], 199[___]/7/; provided that any amount of principal of this Promissory Note that is not paid - -------- when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum (the "Default Rate") equal at all times to the sum of the Regular Rate plus five percent (5%) per annum. 2. Repayment and Interest The Maker shall pay the principal of, and the ---------------------- interest on, this Promissory Note in consecutive monthly installments of principal and interest as follows: _______________________ /1/ Insert the appropriate principal amount from Schedule A attached hereto. /2/ Insert the Closing Date. /3/ Insert the appropriate principal amount from Schedule A attached hereto. /4/ Insert the Closing Date. /5/ Insert the first day of the 42nd month following the month in which the Closing occurs. /6/ Insert the first day of the 42nd month following the month in which the Closing occurs. /7/ Insert the first day of the 84th month following the month in which the Closing occurs. -1- EXHIBIT B (a) consecutive monthly installments of principal and interest in the amount of [____________] and [____]/100] Dollars ($[__________________])/8/, payable on the first day of each calendar month, commencing on [________________], 1992/9/, and ending on [______________], 199[____]/10/; and (b) consecutive monthly installments of principal and interest in the amount of [____________] and [____]/100] Dollars ($[__________________])/11/, payable on the first day of each calendar month, commencing on [________________], 199[____]/12/, and ending on [_________________], 199[____]/13/; provided that the final installment on [___________________], 199[____]/14/, - -------- shall be in the amount necessary to pay in full the then unpaid principal amount of this Promissory Note plus all interest then accrued on this Promissory Note. 3. Application of Payments. Except as otherwise expressly provided in ----------------------- this Promissory Note, each payment under this Promissory Note, at the option of the Payee, may be applied first to any costs and expenses payable by the Maker under this Promissory Note, then to any late charges payable under this Promissory Note, then to interest then accrued, and then to principal. 4. Prepayments: Release Premium. So long as no Event of Default shall ---------------------------- have occurred and be continuing, the Maker may prepay the unpaid principal amount of this Promissory Note, in whole or in part, plus accrued interest to the date of such prepayment on the principal amount prepaid, plus any late charges then payable under this Promissory Note, plus any costs and expenses then payable under this Promissory Note; provided that each partial prepayment -------- shall be in a principal amount of not less than $5,000; provided, further that -------- ------- upon prepayment in whole of the unpaid principal amount of this Promissory Note plus such accrued interest, late charges and costs and expenses the Maker shall pay to First Healthcare Corporation, a Delaware corporation, a release premium (the "Release Premium") in an amount, determined at the date of such prepayment, equal to five percent of the principal amount of this Promissory Note that would then have been outstanding if this Promissory Note had been timely paid in accordance with the regularly scheduled required installment payments provided for in Section 2 without regard to any prepayments. The Release Premium shall be applied as provided in the Mortgage (as defined below). Each partial prepayment of this Promissory Note shall be applied first to any costs and expenses then payable by the Maker under this Promissory Note, second to any late charges then payable under this Promissory Note, third to interest then accrued on this Promissory Note, and then to the principal installments under this Promissory Note in the inverse order of their maturities without deferral or limitation of the intervening installments of principal or interest. _______________________ /8/ Compute on the basis of a 30-year amortization schedule. /9/ Insert the first day of the month immediately following the month in which the Closing occurs. /10/ Insert the first day of the 42nd month following the month in which the Closing occurs. /11/ Compute on the basis of a 30-year amortization schedule. /12/ Insert the first day of the 43rd month following the month in which the Closing occurs. /13/ Insert the first day of the 84th month following the month in which the Closing occurs. /14/ Insert the first day of the 84th month following the month in which the Closing occurs. -2- EXHIBIT B 5. Late Charge. If any installment of principal or interest is not paid ----------- within ten days after such installment becomes due and payable, then the Maker shall pay a late charge, with respect to each such delinquent installment, equal to the lesser of (a) five percent of the amount of such delinquent installment or (b) $500.00. The Maker acknowledges that the actual damages that the Payee would incur due to the Maker's late payment are impossible to determine accurately and that such late charge is a reasonable estimate of such actual damages. 6. Payments and Computations. ------------------------- (a) All payments under this Promissory Note shall be payable in lawful money of the United States of America, to the Payee at P.O. Box 34138, Seattle, Washington 98124-1138, Attention: Corporate Accounting, or at such other place as the Payee may specify in writing from time to time. Whenever any payment to be made under this Promissory Note is stated to be due on a day when banks are required or authorized to close in Raleigh, North Carolina, or Tacoma, Washington, such payment may be made on the next succeeding day on which banks are not so required or authorized to close, and such extension of time shall in such case be included in the computation of payment of interest. (b) All computations of interest shall be made by the Payee on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest is payable. (c) Whenever the computation of a period of time from a specified date to a later specified date is required by this Promissory Note, the word "from" shall mean "from and including" and each of the words "to" and "until" shall mean "to but excluding." 7. Security. This Promissory Note and payment of the sums evidenced -------- by this Promissory Note are secured by a [Mortgage,] [Deed of Trust,] Assignment, Security Agreement and Financing Statement (Fixture Filing), dated of even date with this Promissory Note (said agreement, as it may be supplemented, amended or otherwise modified from time to time, being the "Mortgage"), executed and delivered by the Maker to the Payee. 8. Guaranty. Payment of twenty percent (20%) of the Makers total -------- obligations at any time outstanding under this Promissory Note in respect of principal, interest and any late charges, has been jointly and severally guaranteed by Don G. Angell and Daniel D. Mosca (together, the "Guarantors"), pursuant to a Guaranty, dated of even date with this Promissory Note, for the benefit of the Payee. 9. Events of Default; Remedies. If any of the following events --------------------------- ("Events of Default") shall occur and be continuing: (a) The Maker shall fail to pay any principal of, or interest on, this Promissory Note within ten days alter the same becomes due and payable; or (b) The Maker shall fail to pay any other sum (whether for premium, fees, expenses or otherwise) under this Promissory Note, the Mortgage or the Facility Agreement (as defined below) when and as the same become due and payable, whether on any stated due date, at maturity or upon acceleration, and such failure shall remain unremedied for ten days after written notice of such failure shall have been given to the Maker by the Payee; or (c) Any representation or warranty made by the Maker (or any general partner in the Maker or any officers of any general partner in the Maker) or any Guarantor under or in connection -3- EXHIBIT B with any Transaction Document (as defined in the Facility Agreement) shall prove to have been incorrect in any material respect when made; or (d) The Maker shall fail at any time to obtain, provide, maintain or keep in force the insurance policies required by the Mortgage; or (e) The Maker shall fail to perform or observe any other provision contained in any Transaction Document on the Maker's part to be performed or observed a such failure shall remain unremedied beyond the applicable grace period for such provision or, if no such grace period is applicable, if such failure shall remain unremedied for thirty days after written notice of such failure shall have been given to the Maker by the Payee; or (f) The Maker shall fail to pay any principal of or premium or interest on any indebtedness (but excluding indebtedness evidenced by this Promissory Note) of the Maker in an aggregate principal amount of at least $100,000 at any one time outstanding, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (g) The Maker shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Maker seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization arrangement, adjustment protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of sixty days, or any of the actions sought in such proceeding (including, but not limited to, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Maker shall take any action to authorize any of the actions set forth above in this subparagraph (g); or (h) Any judgment or order for the payment of money in excess of $250,000 shall be rendered against the Maker and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) them shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Any of the events referred to in subsections (f) through (h) above shall occur with respect to any Guarantor (and, for the purposes of this subsection (i), each reference to the Maker in subsections (f) through (h) above shall mean and be a reference to "any Guarantor," the reference to "$100,000" in subsection (f) above shall mean and be a reference to "$1,000,000," and the reference to "$250,000" in subsection (h) above shall mean and be a reference to "$1,000,000"); or -4- EXHIBIT B (j) Any of the events referred to in subsections (f) through (h) above shall occur with respect to any general partner in the Maker and, for purposes of this subsection (j), each reference to "the Maker" in subsections (f) through (h) above shall mean and be a reference to "any general partner in the Maker"; or (k) Any other Transaction Document to which the Maker is a party, alfer delivery of such other Transaction Document to the Payee, shall for any reason cease to be valid and binding on the Maker, or the Maker shall so state in writing; or (l) The Mortgaged Property (as defined in the Mortgage) or any interest in the Mortgaged Property shall be the subject of a "transfer" (as defined in the Mortgage); or (m) The Maker shall abandon the Mortgaged Property or shall cease to do business or shall terminate its business for any reason whatsoever; or (n) The Mortgaged Property shall be taken, attached or sequestered on execution or other process of law in any action against the Maker; or (o) Any event shall occur or condition shall exist which constitutes a default by the Maker under any lease or sublease or agreement to lease or sublease between the Maker, as lessee or sublessee, and the Payee or any subsidiary or affiliate of the Payee, as lessor or sublessor, in respect of real or personal property, and such event or condition shall continue after the applicable grace period, if any, specified in such lease or agreement of lease; or (p) Any event shall occur or condition shall exist which constitutes a default by any Buyer (as defined in the Facility Agreement) under any purchase or sale agreement, lease or sublease or agreement to lease or sublease, promissory note, mortgage, deed of trust or other instrument or agreement between such Buyer and the Payee or any subsidiary or affiliate of the Payee, and such event or condition shall continue alter the applicable grace period, if any, specified in such instrument or document; then, and in any such event, the Payee, by notice to the Maker, may declare the entire unpaid balance of this Promissory Note (including the entire principal balance of this Promissory Note and all accrued and unpaid interest on this Promissory Note and all other sums payable under this Promissory Note) to be immediately due and payable, and upon any such declaration the entire unpaid balance of this Promissory Note shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Maker. anything in this Promissory Note or any other Transaction Document to the contrary notwithstanding; provided that in -------- the event of an actual or deemed entry of an order for relief with respect to the Maker or any Guarantor under the United States Bankruptcy Code, as amen, or under any present or future law or statute of the United States of America or of any state or other jurisdiction thereof relevant to bankruptcy. insolvency or other relief of debtors, the entire unpaid balance of this Promissory Note automatically shall become and be immediately due and payable, without presentment demands protest or further notice of any kind, all of which are hereby expressly waived by the Maker, anything in this Promissory Note or any other Transaction Document to the contrary notwithstanding. 10. Costs and Expenses. The Maker hereby agrees to pay all costs and ------------------ expenses (whether or not any action or proceeding is instituted, and including, but not limited to, reasonable attorneys' fees and disbursements, whether incurred or expended before, during or after any action, proceeding or appeal is instituted) incurred by the Payee in connection with or incidental to (a) any Event of Default -5- EXHIBIT B or (b) the exercise or enforcement by or on behalf of the Payee of any of its rights or remedies or the Maker's obligations under this Promissory Note, the Mortgage or any other Transaction Document. Reasonable attorneys' fees and disbursements shall include reasonable charges allocated for internal corporate counsel. 11. No Waivers; Remedies Cumulative. Acceptance by the Payee of any ------------------------------- payment after the occurrence of an Event of Default shall not be deemed a waiver or a cure of such Event of Default, and acceptance by the Payee of any payment less than any amount then due shall be deemed an acceptance on account only. No right or remedy of the Payee under this Promissory Note is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and continuing, shall be in addition to every other right or remedy provided under this Promissory Note or any other Transaction Document or now or hereafter existing at law or in equity, and may be exercised from time to time and as often as may be deemed expedient by the Payee. No delay by the Payee in exercising, and no omission by the Payee to exercise, any right or remedy under this Promissory Note or any other Transaction Document upon the occurrence of an Event of Default shall impair such exercise or be construed to be a waiver of, or an acquiescence in, such Event of Default or any other then existing or thereafter occurrIng Event of Default. No single or partial exercise by the Payee of any right or remedy under this Promissory Note or any other Transaction Document shall preclude any other or further exercise of such right or remedy or the exercise of any other right or remedy. 12. Limitation on Interest. Notwithstanding any other provisions of this ---------------------- Promissory Note or any other Transaction Document to the contrary, no provision of this Promissory Note or any other Transaction Document shall require the payment or permit the collection of interest, fees or charges in excess of the maximum rate permitted by applicable law. 13. Construction of Certain Provisions. ---------------------------------- (a) This Promissory Note is the Promissory Note referred to in, and is entitled to the benefits of, the Facility Agreement, dated as of April 23, 1992 (said agreement, as it may be supplemented, amended or otherwise modified from time to time, being the "Facility Agreement"), among the Payee and the Maker and the other Buyers, including but not limited to Section 5.10 of the Facility Agreement. (b) For the purposes of this Promissory Note, the term "indebtedness" shall mean (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) indebtedness created or arising under any conditional sale or other title retention agreement with respect to property, (v) obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (vi) obligations (contingent or otherwise) under acceptance, letter-of-credit or similar facilities, (vii) obligations in respect of interest rate swap agreements, currency swap agreements and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates and (viii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of the types referred to in any of clauses (i) through (vii) above. (c) For the purpose of this Promissory Note, the term "Payee" shall mean the original payee under this Promissory Note and any subsequent holder of this Promissory Note. -6- EXHIBIT B 14. Amendments, Etc. No amendment or waiver of any provision of this --------------- Promissory Note, nor consent to any departure by the Maker from any such provision, shall in any event be effective unless such amendment, waiver or consent is in a writing which specifically refers to Section 12.02 of the Facility Agreement and which is signed by the Maker and by the Chief Executive Officer or the President of the Payee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15. Consent to Jurisdiction. The Maker hereby irrevocably submits to the ----------------------- jurisdiction of any court of the State of Washington or any federal court of the United States of America for any district of the State of Washington, and any appellate court from any of such courts, in any action or proceeding arising from or by reason of, or otherwise relating to, this Promissory Note, and the Maker hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of Washington or in such federal court of the United States of America for any district of the State of Washington. The Maker, to the fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of such action or proceeding. The Maker agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 15 shall affect the right of the Payee to serve legal process in any other manner permitted by law or shall affect the right of the Payee to bring any action or proceeding against the Maker or the Maker's property in the courts of any other jurisdictions. 16. Waiver of Jury Trial. The Maker, and the Payee by accepting this -------------------- Promissory Note, hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) arising from or by reason of or relating to this Promissory Note or any actions of the Payee in the negotiation, administration, performance or enforcement of this Promissory Note. 17. Governing Law. This Promissory Note shall be governed by, and ------------- construed in all respects (including matters of construction, validity and performance) in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. 18. Oral Agreements Unenforceable. ORAL AGREEMENTS OR ORAL COMMITMENTS ----------------------------- ----------------------------------- TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT - ------------------------------------------------------------------------------ ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. - ---------------------------------------- IN WITNESS WHEREOF, the Maker has executed this Promissory Note on the date first above written. [NAME OF THE MAKER] By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By_____________________ Title:_______________ -7- EXHIBIT B Schedule A Principal Amounts of Promissory Notes ------------------------------------- in Respect of Each Owned Facility/*/ ------------------------------------
Facility Name and Location Principal Amounts - -------------------------- ----------------- Clayton House Healthcare (445) $7,760,700 Ballwin, Missouri Tradition House Healthcare (260) 1,404,000 Joplin, Missouri Country Club Home (809) 2,700,000 Council Grove, Kansas Green Meadows Nursing Center (861) 4,131,000 Haysville, Kansas Indian Creek Nursing Center (895) 1,516,500 Overland Park, Kansas Indian Meadows Nursing Center (896) 1,516,500 Overland Park, Kansas Medicenter-Springfield (834) 4,050,000 Springfield, Missouri Hillhaven-Topeka (838) 3,591,000 Topeka, Kansas Hillhaven-Wichita (844) 513,000 Wichita, Kansas Columbia House Healthcare (446) 2,340,000 Columbia, Missouri Hammond Holiday Home/Apartments (857/858) 1,597,500 Larned, Kansas
___________________ /*/ Excluding the Bond-financed Owned Facilities. EXHIBIT B Exhibit C-1 to Facility Agreement DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING) (Name of the Facility) (Facility No.[____]) Dated as of [________ ____], 1992 By [NAME OF GRANTOR], as the Grantor to DON F. DAGENAIS, as the Trustee and to FIRST HEALTHCARE CORPORATION, as the Beneficiary EXHIBIT C-1 TABLE OF CONTENTS -----------------
Page ---- RECITALS............................................................. 1 Land....................................................... 3 Improvements; Facility..................................... 3 Personal Property.......................................... 4 Contract Interests......................................... 4 After Acquired Property.................................... 4 Proceeds, Etc.............................................. 5 ARTICLE I - Representations and Warranties of the Grantor............ 5 1.01 Warranty of Title.......................................... 5 1.02 Non-Agricultural Use....................................... 5 1.03 Certificates and Permits................................... 5 ARTICLE II - Covenants of the Grantor................................ 5 2.01 Payment of Obligations..................................... 5 2.02 Good Standing; Etc......................................... 6 2.03 Security Agreement......................................... 6 2.04 Further Assurances......................................... 6 2.05 Protection of Lien; Defense of Action...................... 7 2.06 Repair and Maintenance..................................... 7 2.07 Compliance with Laws....................................... 7 2.08 Use........................................................ 7 2.09 Zoning; Title Matters...................................... 8 2.10 Insurance.................................................. 8 (a) Property and Casualty Insurance....................... 8 (b) Liability Insurance................................... 8 (c) Forms of Policies..................................... 9 (d) Transfer of Title..................................... 9 (e) Amounts of Coverage................................... 9 2.11 Damage and Destruction..................................... 9 2.12 Condemnation............................................... 10 2.13 Liens...................................................... 10 2.14 Taxes and Other Charges.................................... 11 2.15 Tax Deposits............................................... 11 2.16 Inspection................................................. 12 2.17 Maintenance of Records..................................... 12 2.18 Grantor's Certificates..................................... 12 2.19 Prepayments; Release Premium............................... 12 2.20 Reporting Requirements..................................... 13 ARTICLE III - Assignment of Rents and Other Sums..................... 14 3.01 Assignment................................................. 14 3.02 Right to Collect........................................... 15 3.03 Revocation of Right to Collect; Etc........................ 15
-i- EXHIBIT C-1
ARTICLE IV - Additional Advances; Expenses; Indemnity................ 16 4.01 Additional Advances and Disbursements...................... 16 4.02 Other Expenses............................................. 16 4.03 Indemnity.................................................. 16 ARTICLE V - Transfer of the Mortgaged Property....................... 17 5.01 Transfer of the Mortgaged Property......................... 17 ARTICLE VI - Defaults and Remedies................................... 17 6.01 Events of Default.......................................... 17 6.02 Remedies................................................... 19 6.03 Expenses................................................... 21 6.04 Rights Pertaining to Sales................................. 22 6.05 Application of Proceeds.................................... 23 6.06 Additional Provisions as to Remedies....................... 24 6.07 Waiver of Rights and Defenses.............................. 25 ARTICLE VII - Defeasance; Provisions as to Trustee................... 25 7.01 Defeasance................................................. 25 7.02 Reconveyance............................................... 25 7.03 Trustee's Resignation...................................... 26 7.04 Exculpation................................................ 26 ARTICLE VIII - Additional Provisions................................. 27 8.01 Construction of Certain Provisions......................... 27 8.02 Limitation on Interest..................................... 28 8.03 Lease...................................................... 28 8.04 Amendments, Etc............................................ 28 8.05 Notices.................................................... 28 8.06 No Merger.................................................. 30 8.07 Severability............................................... 30 8.08 Obligations of Grantor..................................... 30 8.09 Successors and Assigns..................................... 30 8.10 No Waiver.................................................. 30 8.11 Attorneys' Fees............................................ 30 8.12 Consent to Jurisdiction.................................... 30 8.13 Waiver of Jury Trial....................................... 31 8.14 Applicable Law............................................. 31 Schedule A - Land Schedule B - Permitted Exceptions Schedule C - Affiliates
-ii- EXHIBIT C-1 DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING) ([Name of the Facility])/1/ (Facility No. [____])/2/ THIS DOCUMENT SECURES FUTURE ADVANCES AND IS GOVERNED BY SECTION 443.055 OF THE REVISED STATUTES OF MISSOURI This DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING), dated as of[_________ ___], 1992 (this "Deed of Trust"), is made by [_____________________], a North Carolina limited partnership whose address is P.O. Box 1670, Clemmons, North Carolina 27012, as the grantor under this Deed of Trust (the "Grantor"), to DON F. DAGENAIS, a resident of Jackson County, Missouri, as the trustee under this Deed of Trust (the "Trustee"), and to FIRST HEALTHCARE CORPORATION, a Delaware corporation ("First Healthcare") whose address is The Cornerstone Building, 1148 Broadway Plaza, Tacoma, Washington, 98402 as the beneficiary under this Deed of Trust (the "Beneficiary"). RECITALS A. The Beneficiary, as seller, and the Grantor and the Affiliates (as defined below), jointly and severally as buyers (the "Buyers"), have entered into a Facility Agreement, dated as of [______________ ___], 1992 (said Facility Agreement, as it may be supplemented, amended or otherwise modified from time to time, being the "Facility Agreement"). B. Pursuant to the terms and subject to the conditions set forth in the Facility Agreement, the Beneficiary has agreed to permit the Grantor to defer the payment of a portion of the purchase price for the properties (real, personal and mixed) that constitute the Mortgaged Property (as defined below) and that are the subject of the Facility Agreement, in a principal amount not to exceed [________________] and [____]/100 Dollars ($[__________]). C. Pursuant to the terms of the Facility Agreement, the Grantor has executed and delivered to the order of the Beneficiary a Promissory Note, dated [____________ ___], 1992,/3/ in the stated principal sum of [_______________] and [_____]/100 Dollars ($[_______________]) (said Promissory Note, as it may be supplemented, amended, extended, renewed or otherwise modified from time to time, being the "Promissory Note"), evidencing the obligation of the Grantor to pay the deferred portion of the purchase price in respect of the Mortgaged Property. ____________________________ /1/ Insert the name of the Facility. /2/ Insert the number assigned to the Facility. /3/ Insert the Closing Date. -1- EXHIBIT C-1 D. The total of the indebtedness and liabilities to be secured by this Deed of Trust equals the sum of the following (such indebtedness and liabilities or the instruments evidencing the same, as applicable, being collectively referred to in this Deed of Trust as the "Obligations"): (1) the principal amount of [___________________] and [______]/100 Dollars ($[__________])(the "Purchase Price Balance"); plus (2) interest on the unpaid principal amount of the Purchase Price Balance at a rate of interest per annum (the "Regular Rate") equal to: (a) nine percent (9%) per annum from [______________], 1992,/4/ to [_____________], 199[__];/5/ and (b) eleven percent (11%) per annum from [_______________], 199[__],/6/ to the date on which the Purchase Price Balance is paid in full; and at a rate per annum (the "Default Rate") equal at all times to the sum of the Regular Rate plus five percent (5%) per annum; plus (3) all other amounts that are or become payable by the Grantor and all other obligations of the Grantor under the Facility Agreement, the Promissory Note and this Deed of Trust; [E./7/ The lien of this Deed of Trust is junior to the lien of the [______________],/8/ dated [as of] [______________________], 19[___] (the "First Lien Mortgage"), made by [________________]/9/ to [_______________]/10/ securing the payment of a Promissory Note, dated [___________], 19[___] (the "First Lien Promissory Note"), in the stated principal amount of $[________________]. The obligations evidenced by the First Lien Promissory Note and secured by the First Lien Mortgage are and remain the obligations of the Beneficiary.] ____________________________ /4/ Insert the Closing Date. /5/ Insert the last day of the forty-first calendar month immediately following the calendar month in which the Closing occurs. /6/ Insert the first day of the forty-second calendar month immediately following the calendar month in which the Closing occurs. /7/ Include this recital if this Deed of Trust is to be subordinate and inferior to any existing mortgage or deed of trust in respect of the Mortgaged Property. /8/ Insert the title of the existing mortgage or deed of trust to which this Deed of Trust is to be subordinate and inferior. /9/ Insert the name of the mortgagor or grantor under the First Lien Mortgage. /10/ Insert the name of the mortgagee or beneficiary under the First Lien Mortgage. -2- EXHIBIT C-1 [F./11/ All of the Obligations have a scheduled maturity of not later than [____________ ____], 199[___]./12/] G. The execution and delivery of this Deed of Trust by the Grantor is a condition precedent to the obligation of the Beneficiary to consummate the transactions contemplated by the Facility Agreement. H. The rules of construction set forth in Section 8.01 shall be applicable for all purposes of this Deed of Trust. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Grantor, and to secure the punctual payment by the Grantor when due (whether at stated maturity, by acceleration or otherwise) of the Obligations and the performance and observance of all other covenants, obligations and liabilities of the Grantor under the Facility Agreement, the Promissory Note and this Deed of Trust, the Grantor does hereby GRANT, BARGAIN, SELL MORTGAGE, WARRANT, CONVEY, ALIEN, REMISE, RELEASE, ASSIGN, PLEDGE, HYPOTHECATE, TRANSFER, SET OVER, DELIVER and CONFIRM unto the Trustee, IN TRUST, WITH FULL POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, each and all of the following described properties, rights, interests and privileges and all of the Grantor's estate, right, title and interest in, to and under, or derived from, the following described properties, rights, interests and privileges (all of such properties, rights, interests and privileges being collectively referred to in this Deed of Trust as the "Mortgaged Property"): Land. All those certain lots, pieces and parcels of land more ---- particularly described in SCHEDULE A, and all of the reversions and remainders in and to said land and the tenements, hereditaments, easements, rights-of-way or use, rights (including alley, drainage, mineral, water, oil and gas rights), privileges, royalties and appurtenances to said land, now or hereafter belonging or in anywise appertaining to said land, including any such right, title or interest in, to or under any agreement or right granting, conveying or creating, for the benefit of said land, any easement, right or license in any way affecting other property and in, to or under any streets, ways, alleys, vaults, gores or strips of land adjoining any portion of said land, or in or to the air space over said land, all rights of ingress and egress by motor vehicles to parking facilities on or within said land, and all claims or demands of the Grantor, either at law or in equity, in possession or expectancy, of, in or to the same (all of the foregoing being collectively referred to in this Deed of Trust as the "Land"); Improvements; Facility. All buildings, structures, facilities and ---------------------- other improvements now or hereafter erected on, attached to or located in or upon the Land, and all building materials of every kind and nature now or hereafter located on the Land or attached to, contained in, or used in connection with, any such buildings, structures, facilities or other improvements, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by the Grantor or in which the Grantor has or shall acquire an interest (all of the foregoing being collectively _____________________________ /11/ Include this recital if required by applicable law. /12/ Insert the first day of the eighty-fourth calendar month immediately following the calendar month in which the Closing occurs. -3- EXHIBIT C-1 referred to in this Deed of Trust as the "Improvements," and the Land and the Improvements being together referred to in this Deed of Trust as the "Facility"): Personal Property. All machinery, equipment, furniture, ----------------- furnishings, fixtures, chattels and other items of personal property, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by the Grantor or in which the Grantor has or shall acquire an interest, wherever situated, and now or hereafter located on, attached to, contained in or used in connection with the Land, the Improvements or the Contract Interests, or placed on any part thereof although not attached thereto (all of the foregoing being collectively referred to in this Deed of Trust as the "Personal Property"), including all partitions, screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, gas, steam, electrical, incinerating and/or compacting plants, systems, fixtures and equipment, elevators, escalators, ranges, vacuum and other cleaning systems, call systems, switchboards, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, equipment, utensils, tools, implements, fittings and fixtures and all permits, licenses, franchises, certificates and other rights and privileges obtained in connection with the Mortgaged Property; Contract Interests. All the leases, lettings and licenses of, and ------------------ all other contracts and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) affecting, the Land, the Improvements, the Personal Property and/or any other property or rights mortgaged or otherwise conveyed or encumbered by this Deed of Trust, or any part thereof, now or hereafter entered into, and all supplements, amendments, modifications, additions, extensions and renewals thereof, and all right, title and interest of the Grantor therein and thereunder, including cash and securities deposited thereunder or pursuant thereto, the right to receive and collect the rents, proceeds, issues and profits due and to become due and payable thereunder or pursuant thereto and the rights to enforce, whether at law or in equity or by any other means, all provisions and options thereof (all of the foregoing being collectively referred to in this Deed of Trust as the "Contract Interests"); After Acquired Property. Any and all moneys and other every kind ----------------------- and nature, which may from time to time be subjected to the lien of this Deed of Trust by the Grantor, through a supplement to this Deed of Trust or otherwise, or by any other person, or which may come into the possession of or be subject to the control of the Trustee or the Beneficiary, it being the intention and agreement of the Grantor that all property hereafter acquired or constructed by the Grantor shall forthwith upon acquisition or construction thereof by the Grantor and without any act or deed by the Grantor be subject to the lien and security interest of this Deed of Trust as if such property were now owned by the Grantor and were specifically described in this Deed of Trust and conveyed or encumbered by or pursuant to this Deed of Trust, and the Trustee and the Beneficiary are hereby authorized to receive any and all such property as and for additional security under this Deed of Trust (all of the foregoing being collectively referred to in this Deed of Trust as the "After Acquired Property"); and -4- EXHIBIT C-1 Proceeds, Etc. All unearned premiums (whether accrued, accruing ------------- or to accrue) under insurance policies now or hereafter obtained by the Grantor, all proceeds of the conversion (whether voluntary or involuntary) of the Mortgaged Property into cash or other liquidated claims (excluding proceeds of title insurance, but including proceeds of hazard and other insurance), and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Land, the Improvements, the Personal Property, the Contract Interests and/or any other property or rights encumbered or conveyed by this Deed of Trust for any injury thereto or decrease in the value thereof for any reason, or by any governmental or other lawful authority for the taking by eminent domain, condemnation or otherwise of all or any part thereof, including awards for any change of grade of streets; TO HAVE AND TO HOLD, subject to the matters listed or otherwise described in SCHEDULE B (the "Permitted Exceptions"), all and singular the Mortgaged Property, whether now owned or leased or hereafter acquired and whether now or hereafter existing, together with all the rights, privileges and appurtenances thereunto belonging, unto the Trustee and the Beneficiary forever, for the uses and purposes set forth in this Deed of Trust. AND the Grantor covenants and agrees with the Trustee and the Beneficiary as follows: ARTICLE I Representations and Warranties of the Grantor --------------------------------------------- 1.01 Warranty of Title. (a) The Grantor has and will have good, ----------------- marketable and insurable fee simple title to the Facility, free and clear of all liens, charges and encumbrances of every kind and character, subject only to the Permitted Exceptions; (b) the Grantor owns and will own all of the other Mortgaged Property, free and clear of all liens, charges and encumbrances of every kind and character, subject only to the Permitted Exceptions; (c) the Grantor hereby warrants and will forever warrant and defend such title and the validity, enforceability and priority of the lien and security interest of this Deed of Trust against the claims of all persons whomsoever; (d) the Grantor has and will have full power and lawful authority to encumber and convey the Mortgaged Property as provided in this Deed of Trust; and (e) this Deed of Trust is and will remain a valid and enforceable lien on, and security interest in, the Mortgaged Property, subject only to the Permitted Exceptions. 1.02 Non-Agricultural Use. The Mortgaged Property is not used -------------------- principally for agricultural or farming purposes. 1.03 Certificates and Permits. The Grantor has and will maintain ------------------------ in effect all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the operation of the Facility as a [_________]-bed [[skilled] [intermediate] care] [nursing] facility and for the conduct of the Grantor's business at the Facility. ARTICLE 11 Covenants of the Grantor ------------------------ 2.01 Payment of Obligations. The Grantor will punctually pay the ---------------------- Obligations when due, and will perform and observe all of its other obligations under this Deed of Trust, the Promissory Note, the Facility Agreement and each other document or instrument to which the Grantor is a party and that relates to any of the Facility Agreement, the Promissory Note or any security for the obligations of the Grantor under the Facility Agreement or the Promissory Note (this Deed of Trust, the Promissory -5- EXHIBIT C-1 Note, the Facility Agreement and such other documents and instruments, in each case as the same may be supplemented, amended or otherwise modified from time to time, being sometimes referred to in this Deed of Trust individually as a "Transaction Document" and collectively as the "Transaction Documents"). 2.02 Good Standing; Etc. The Grantor will maintain in good standing ------------------ its partnership existence, franchises, rights and privileges under the law of the jurisdiction of its formation and its right to transact business in the jurisdiction in which the Facility is located. Subject to and without limitation of Sections 2.19 and 5.01, the Grantor, without the prior consent of the Beneficiary, will not sell, lease or otherwise dispose of (whether directly or indirectly, or by operation of law, or in one transaction or a series of transactions) all or substantially all of its assets. Subject to and without limitation of Section 2.19 and 5.01, the Beneficiary may withhold its consent to any proposed disposition of all or substantially all of the Grantor's assets for no reason or any reason. The Grantor, without at least thirty days prior notice to the Beneficiary and compliance with the provisions of Section 2.04, will not change its name, identity or legal structure. 2.03 Security Agreement. The Grantor hereby further grants to the ------------------ Beneficiary a security interest in all of the Grantor's right, title and interest in, to and under the following, whether now owned or hereafter acquired (collectively, the "Collateral"): (a) the Personal Property; (b) the Contract Interests; (c) the After Acquired Property; and (d) all proceeds of any and all of the foregoing Collateral, including proceeds which constitute property of the types included in the Personal Property, the Contract Interests and the After Acquired Property and, to the extent not otherwise included, all cash, all unearned premiums (whether accrued, accruing or to accrue) under insurance policies now or hereafter obtained by the Grantor, all proceeds of the conversion (whether voluntary or involuntary) of any of the Mortgaged Property into cash or other liquidated claims (including proceeds of hazard and other insurance), and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Land, the Improvements, the Personal Property, the Contract Interests and/or any other property or rights encumbered or conveyed by this Deed of Trust for any injury thereto or decrease in the value thereof for any reason, or by any governmental or other lawful authority for the taking by eminent domain, condemnation or otherwise of all or any part thereof, including awards for any change of grade of streets. The Trustee and the Beneficiary shall have, in addition to all rights and remedies provided in the Transaction Documents, all of the rights and remedies of a "secured party" under the Uniform Commercial Code in effect in the jurisdiction in which the Facility is located. This Deed of Trust constitutes and shall be deemed to be a "security agreement" for all purposes of said Uniform Commercial Code. Notwithstanding any provision in this Section 2.03 or elsewhere in this Deed of Trust to the contrary, this Deed of Trust shall not be construed to create a lien on or a security interest in any patient accounts or any other accounts constituting any right of the Grantor to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. 2.04 Further Assurances. Promptly upon request by the Trustee or the ------------------ Beneficiary, the Grantor will (a) correct any defect, error or omission that may be discovered in the contents of, or in the execution, acknowledgment or recordation of, this Deed of Trust or any other Transaction Document, and (b) do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, mortgages, deeds of trust, assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other documents and instruments as the Trustee or the Beneficiary may require from time to time in order to effectuate the purposes of this Deed of Trust and to perfect and maintain the validity, effectiveness and priority of the lien and security interest created by this Deed of Trust. -6- EXHIBIT C-1 2.05 Protection of Lien; Defense of Action. If any action or ------------------------------------- proceeding is instituted against the Grantor with respect to any right, title or interest in or to the Mortgaged Property or with respect to the lien, security interest, validity or priority of this Deed of Trust, or if any such right, title, interest, lien, security interest, validity, effectiveness or priority is otherwise challenged or attacked, then the Grantor promptly will notify the Trustee and the Beneficiary of such action, proceeding, challenge or attack, diligently will endeavor to cure any defect that may be developed or claimed, and will take all necessary and proper steps for the defense of such action or proceeding, including the employment of counsel, the prosecution or defense of litigation and, subject to the prior written approval of the Beneficiary, the compromise, release or discharge of any and all adverse claims. The Trustee and the Beneficiary, or either of them (whether or not named as a party to such action or proceeding), are hereby authorized and empowered (but shall not be obligated) to take such additional steps (including the employment of counsel, the prosecution or defense of litigation, the compromise, release or discharge of such adverse claims, the purchase of any tax title and the removal of prior liens and security interests) as they may deem necessary or proper for the defense of any such action or proceeding or the protection of such right, title, interest, lien, security interest, validity, effectiveness or priority. The Grantor, on demand, shall pay all costs and expenses (including reasonable attorneys' fees and disbursements) incurred by either of the Trustee or the Beneficiary in connection with the foregoing matters. All such costs and expenses of the Trustee and/or the Beneficiary, until paid by the Grantor, shall be part of the Obligations and shall be secured by this Deed of Trust. 2.06 Repair and Maintenance. The Grantor will operate and maintain the ---------------------- Facility and the Personal Property in good order, repair and operating condition, and promptly will make all repairs, renewals, replacements, additions and improvements to the Facility and the Personal Property that are necessary to ensure that the Facility and the Personal Property shall not in any way be diminished or impaired as part of the security under this Deed of Trust. The Grantor will keep the Facility fully equipped and will replace all worn-out or obsolete Personal Property with fixtures or personal property comparable to such Personal Property when new and, without the prior consent of the Beneficiary, will not remove any Personal Property from the Facility unless such Personal Property is replaced by the Grantor with fixtures or personal property of equal suitability and value when new, owned by the Grantor free and clear of any lien or security interest (other than the Permitted Exceptions and the lien and security interest created by this Deed of Trust). No part of the Improvements shall be removed, demolished or structurally or materially altered (including an alteration which impairs the value of the Improvements), nor shall any new building, structure, facility or other improvement be constructed on the Land without the prior consent of the Beneficiary. The Grantor, without the prior consent of the Beneficiary, will not cause or allow the Mortgaged Property to be misused or wasted or to deteriorate. 2.07 Compliance with Laws. The Grantor promptly will comply with, and -------------------- will cause the Facility to be maintained, used and operated at all times in accordance with, any and all present and future laws, rules, regulations, ordinances and requirements (including any and all licensing, accrediting and insurance requirements) applicable to the Grantor or the Facility. The Grantor promptly will notify the Beneficiary of any alleged noncompliance by the Grantor or the Facility with any such laws, rules, regulations, ordinances or requirements, and of any action or proceeding initiated under or with respect to any of such laws, rules, regulations, ordinances or requirements. 2.08 Use. The Grantor will not use or occupy the Facility, or permit --- the Facility to be used or occupied, in any manner which violates any applicable law, rule, regulation, ordinance or order, or which constitutes a public or private nuisance or which makes void, voidable or cancellable, or increases the premium of, any insurance then in force with respect to the Facility. Without limiting the generality of the preceding sentence, the Grantor will use and occupy the Facility, or cause the Facility to be used and occupied, as and for a[n] [[skilled] [intermediate] care] [nursing] facility and for no other principal use unless agreed to in writing by the Beneficiary. The Grantor shall at all times -7- EXHIBIT C-1 maintain in full force and effect all registrations, qualifications, licenses and other authorizations and approvals required to use and occupy the Facility as and for a [__________]-bed [[skilled] [intermediate] care] [nursing] facility. Notwithstanding any other provision in this SECTION 2.08 or elsewhere in this Deed of Trust or any other Transaction Document to the contrary, the Grantor, without the prior consent of the Beneficiary, will not permit any person other than the Grantor to operate the Facility, whether pursuant to any lease, any management agreement or otherwise; provided that, without the -------- prior consent of the Beneficiary, the Grantor may permit Meadowbrook Healthcare Services Incorporated, a North Carolina corporation, or any wholly-owned subsidiary of Meadowbrook Healthcare Services Incorporated, to operate the Facility pursuant to a management agreement with the Grantor. 2.09 Zoning; Title Matters. The Grantor, without the prior consent --------------------- of the Beneficiary, will not (a) initiate or support any zoning reclassification of the Facility, seek any variance under existing zoning ordinances applicable to the Facility or use or permit the use of the Facility in a manner which would result in such use becoming a non-conforming use under applicable zoning ordinances, (b) supplement, amend or otherwise modify any of the Permitted Exceptions, (c) impose any restrictive covenants upon the Facility, (d) execute or file any subdivision plat affecting the Facility or consent to the annexation of the Facility to any municipality or (e) permit or suffer the Facility to be used by the public or any person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement. 2.10 Insurance. --------- (a) Property and Casualty Insurance. The Grantor will keep the ------------------------------- Improvements and the Personal Property insured for the benefit of the Trustee and the Beneficiary as follows: (i) against damage or loss by fire and such other hazards (including lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, flood, earthquake, vandalism, malicious mischief, aircraft, vehicle and smoke) as are covered by the broadest form of "all-risk" coverage as is available from time to time in the jurisdiction in which the Facility is located, in an amount not less than the full insurable value (as defined below) of the Improvements and the Personal Property; (ii) rent or business interruption or use and occupancy insurance on an actual loss sustained basis; (iii) against damage or loss from sprinkler system leakage and boilers, boiler tanks, heating and air conditioning equipment, pressure vessels, auxiliary piping, mechanical and electrical equipment and such similar apparatus as is commonly insured under a comprehensive definition of insured object, on such basis and in such amounts as shall be reasonably required by the Beneficiary; and (iv) during the period of any permitted construction, repair, restoration or replacement of the Facility, against damage or loss and such other hazards as are covered by a standard all-risk builder's risk policy with extended coverage, including coverage against collapse, written on a completed value basis, for an amount at least equal to the full insurable value of the Improvements and the Personal Property. The Grantor shall ensure that any contractor performing any permitted construction, repair, restoration or replacement of the Facility shall procure and maintain at all times insurance equal to that required of the Grantor and that such contractor also shall comply with all statutory and regulatory requirements related to workers' compensation. (b) Liability Insurance. The Grantor shall procure and maintain ------------------- commercial public liability insurance covering the Grantor, the Trustee and the Beneficiary against claims for bodily injury and death and property damage occurring in, on or about or resulting from the Facility, or any street, drive, sidewalk, curb or passageway adjacent to the Facility, in standard form and with such insurance company or companies and in such amounts as may be acceptable to the Beneficiary in its reasonable judgement, which insurance shall include blanket contractual liability coverage that insures contractual liability under any indemnification of the Trustee or the Beneficiary by the Grantor in the Facility Agreement the Promissory Note, this Deed of Trust or any other Transaction Document (but -8- EXHIBIT C-1 such coverage or the amount of such coverage shall in no way limit such indemnification). In addition to the commercial public liability insurance required by the preceding sentence, the Grantor also shall procure and maintain employer's liability, automobile, personal injury and professional liability coverage in amounts of $1,000,000 primary coverage and $5,000,000 excess coverage. (c) Forms of Policies. All insurance required under this ----------------- Section 2.10 shall be fully paid for and nonassessable and shall contain such provisions, endorsements and expiration dates, as the Beneficiary shall from time to time reasonably request, and shall be in such form and amounts, and be issued by such insurance companies, as shall be approved by the Beneficiary in its reasonable judgment. Without limiting the generality of the preceding sentence, all such policies shall have endorsed thereon, in form acceptable to the Beneficiary, the New York Standard Mortgagee Clause, or the local equivalent, without contribution, in the name of the Trustee and the Beneficiary, and a waiver of subrogation endorsement. Each such policy shall provide that it will not be cancelled, amended or materially altered (including by reduction in the scope or limits of coverage) without at least thirty days prior notice to the Beneficiary. The Grantor shall deliver, or cause to be delivered, to the Beneficiary (i) duplicate original policies evidencing the insurance required under this Section 2.10, (ii) receipts evidencing payment of all premiums on such policies and (iii) at least thirty days prior to the expiration of each such policy, a duplicate original renewal policy with evidence satisfactory to the Beneficiary of payment of all premiums on such policy. In lieu of the duplicate original policies required by this Section 2.10 to be delivered to the Beneficiary, the Grantor may deliver original certificates from the issuing insurance company or companies, evidencing that such policies are in full force and effect and containing information which, in the Beneficiary's reasonable judgment, is sufficient to allow the Beneficiary to determine whether such policies comply with the requirements of this Section 2.10, the Grantor shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this Section 2.10, unless endorsed in favor of the Trustee and the Beneficiary in accordance with the requirements of this Deed of Trust and otherwise approved by the Beneficiary in all respects. (d) Transfer of Title. In the event of foreclosure of this ----------------- Deed of Trust or other transfer of title or assignment of the Mortgaged Property in extinguishment in whole or in part, of the Obligations, all right, title and interest of the Grantor in and to all policies of insurance required under this Section 2.10 or otherwise then in force with respect to the Mortgaged Property and all proceeds payable thereunder and unearned premiums thereof shall immediately vest in the purchaser or other transferee of the Mortgaged Property. (e) Amounts of Coverage. For the purposes of this ------------------- Section 2.10, the term "full insurable value" shall mean the cost of replacing the improvements and the Personal Property, exclusive of the cost of excavations, foundations, and footings, as determined from time to time (but not less often than once every three years) by the insurance company or companies holding such insurance or by an appraiser, engineer, architect or contractor proposed by the Grantor and approved by said insurance company or companies and the Beneficiary. All deductibles shall be commercially reasonable and, in any event, subject to the prior written approval of the Beneficiary or the Beneficiary's designee. 2.11 Damage and Destruction. In the event the Facility is damaged, ---------------------- lost or destroyed, (a) the Grantor promptly shall notify the Beneficiary of such event (b) the Grantor, unless otherwise instructed by the Beneficiary, promptly shall commence and diligently pursue to completion the restoration, replacement or rebuilding of the Facility as nearly as possible to its value, condition and character immediately prior to such damage, loss or destruction, regardless of whether the insurance proceeds, if any, shall be sufficient for the purpose or shall be otherwise applied by the Beneficiary as provided in this Deed of Trust, (c) the Beneficiary may, but shall not be obligated to, make proof of loss -9- EXHIBIT C-1 if not made promptly by the Grantor and settle, adjust or compromise any claims for damage, loss or destruction (and the Grantor hereby authorizes and empowers the Beneficiary to make any such proof of loss, settlement, adjustment or compromise, and the Grantor hereby authorizes and directs each insurance company concerned to make payment for any such damage, loss or destruction directly to the Beneficiary) and (d) the Beneficiary shall have the right to apply the insurance proceeds, first, to reimburse the Trustee and the Beneficiary for all reasonable costs and expenses, including attorneys fees and disbursements, incurred in connection with the collection of such proceeds, and, second, at the option of the Beneficiary, (i) to pay all or any part of the Obligations then due in the order and manner determined by the Beneficiary in its sole discretion, (ii) to cure any then current default under this Deed of Trust, or (iii) to repair, restore or replace, in whole or in part, the portion of the Facility so damaged, lost or destroyed. Notwithstanding anything in this Deed of Trust or at law or in equity to the contrary, no insurance proceeds that are paid to the Beneficiary as provided in this Deed of Trust shall be deemed trust funds, and the Beneficiary shall be entitled to dispose of such proceeds as provided in this Deed of Trust. The Grantor expressly assumes all risk of loss, including a decrease in the use, enjoyment or value, of the Mortgaged Property from any casualty whatsoever, whether or not insurable or insured against. 2.12 Condemnation. The Grantor, immediately upon obtaining knowledge ------------ of any pending or threatened proceeding for the condemnation of the Facility or of any right of eminent domain, or of any other proceeding arising out of injury or damage to the Facility (including a change in grade of any street), will notify the Beneficiary of the pendency or threat of such proceeding. The Beneficiary may participate in such proceeding, and the Grantor from time to time will execute and deliver to the Beneficiary all instruments requested by the Beneficiary to permit such participation. The Grantor shall diligently prosecute such proceeding, deliver to the Beneficiary copies of all papers served in connection with such proceeding and consult and cooperate with the Beneficiary and the Beneficiary's attorneys and agents in the prosecution and defense of such proceeding; provided that the Grantor shall not settle such -------- proceeding without the prior consent of the Beneficiary. The Grantor hereby assigns to the Beneficiary all proceeds of condemnation awards, all proceeds of sale in lieu of condemnation, and all proceeds of all judgments, decrees and awards for injury or damage to the Mortgaged Property. The Grantor shall execute and deliver such further assignments of such proceeds as the Beneficiary may request and hereby authorizes the Beneficiary to collect and receive any and all such proceeds, to give receipts and acquittances therefor, and to appeal from any such judgment, decree or award. The Beneficiary shall in no event be liable or responsible for any failure to collect, or to exercise diligence in the collection of, any of such proceeds. The Beneficiary shall have the right to apply any such proceeds, first, to reimburse the Trustee and the Beneficiary for all costs and expenses, including reasonable attorneys' fees and disbursements incurred in connection with the proceeding in question or the collection of such proceeds and, second, as provided in Section 2.11 in respect of the application of insurance proceeds held by the Beneficiary. Notwithstanding anything in this Deed of Trust or at law or in equity to the contrary, none of the proceeds that are paid to the Beneficiary as provided in this Section 2.12 shall be deemed trust funds, and the Beneficiary shall be entitled to dispose of such proceeds as provided in this Deed of Trust. Notwithstanding any condemnation, taking or other proceeding that causes injury to or a decrease in value of the Facility (including a change in grade of any street), the Grantor shall continue to pay the Obligations as provided in the Promissory Note. 2.13 Liens. The Grantor, without the prior consent of the ----- Beneficiary, will not create, assume or suffer to exist any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual (except for the lien for ad valorem taxes on the Mortgaged Property -- ------- which are not yet due and payable), security interest encumbrance or charge, or conditional sale or other title retention document against or covering the Mortgaged Property, prior to, on a parity with or subordinate to the lien of this Deed of Trust, other than the Permitted Exceptions and other than -10- EXHIBIT C-1 purchase money security interests in personal property (other than replacement fixtures and personal property pursuant to Section 2.06) acquired or held by the Grantor in the ordinary course of business to secure the purchase price of such property so long as no such purchase money security interest shall extend to or cover any property other than the personal property being acquired and so long as the aggregate principal amount of the indebtedness at any one time outstanding secured by the purchase money security interests permitted by this SECTION 2.13 shall not otherwise be prohibited by the terms of any Transaction Document and shall not exceed the lesser of eighty percent of the cost of such personal property or the then fair value of such personal property. The Grantor will pay, bond or otherwise discharge, from time to time when the same shall become due, all lawful claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in, or permit the creation of, a lien on the Mortgaged Property, or on the rents, proceeds, issues and profits due or to become due and payable under or pursuant to any of the Mortgaged Property. Except as otherwise provided in this Section 2.13, the Beneficiary may withhold its consent to any proposed deed of trust, mortgage, lien, security interest, encumbrance, charge, or conditional sale or other title retention document for no reason or any reason. 2.14 Taxes and Other Charges. The Grantor will pay when due, and ----------------------- before any penalty, interest or cost for nonpayment thereof may be added thereto, all taxes, assessments, vault, water and sewer rents, rates, charges and assessments, levies, permits, inspection and license fees and other governmental and quasi-governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, heretofore or hereafter assessed, levied or otherwise imposed against or upon, or which may become a lien upon, the Mortgaged Property or the rents, proceeds, issues and profits due or to become due and payable under or pursuant to the Mortgaged Property or arising in respect of the occupancy, use or possession of the Mortgaged Property. The Grantor will promptly pay all income, franchise and other taxes owing by the Grantor, together with any interest or penalties thereon. 2.15. Tax Deposits. Following any failure by the Grantor to pay when ------------ due any real property tax or personal property tax required to be paid by the Grantor under Section 2.14, and without limiting the obligations of the Grantor under Section 2.14, if required by the Beneficiary, the Grantor, at its sole cost and expense, shall deposit with such service or financial institution as the Beneficiary shall designate, monthly on the first day of each calendar month, one/twelfth of the aggregate annual amount of the real property and personal property taxes required to be paid by the Grantor under SECTION 2.14. In addition, if required by the Beneficiary, the Grantor also shall deposit with such service or financial institution a sum of money which, together with the monthly installments required under the preceding sentence, will be sufficient to make each of the payments of such real property and personal property taxes at least three days before such payments are due. If the amount of any such payments is not ascertainable at the time any such deposit is required to be made pursuant to this Section 2.15, then the deposit shall be made on the basis of the Beneficiary estimate of such amount, and, when such amount is fixed for the then-current year the Grantor promptly shall deposit any deficiency with such service or financial institution. All funds deposited with such service or financial institution pursuant to this Section 2.15, until applied as provided below, shall Constitute additional security for the Obligations, shall be held by such service or financial institution in a separate interest-bearing account and, provided that no Event of Default (as defined below) shall have occurred and be continuing, such funds and any interest earned thereon shall be applied in payment of the amounts of such real property and personal property taxes prior to their becoming delinquent to the extent that such service or financial institution shall have such funds on hand; provided that neither the Beneficiary -------- nor such service or financial Institution shall have any obligation to use such funds to pay any installment of such real property or personal property taxes prior to the last day on which payment thereof may be made without penalty or interest. The Grantor shall be responsible for furnishing to the Beneficiary bills or invoices for such real property and personal property taxes in sufficient time to pay -11- EXHIBIT C-1 the same before any penalty or interest attaches, and neither the Beneficiary nor such service or financial institution shall have any responsibility (for payment of such real property or personal property taxes in the absence of such bills or invoices. If an Event of Default shall have occurred and be continuing, or if the Obligations shall be accelerated as provided in this Deed of Trust or the Promissory Note, then all funds deposited with such service or financial institution under this SECTION 2.15 and any interest earned thereon, at the Beneficiary's option, may be applied to the Obligations in the order and manner determined by the Beneficiary or to cure such Event of Default or otherwise as provided in this SECTION 2.15. Upon an assignment or other transfer of this Deed of Trust the Beneficiary shall thereupon be completely released from all liability with respect to such deposits, and the Grantor or the owner of the Mortgaged Property shall look solely to such service or financial institution or the assignee or transferee with respect to such deposits. The preceding sentence shall apply to each transfer of such deposits to a new assignee or transferee. A permissible transfer of record title to the Facility automatically shall transfer to the new owner the beneficial interest in any deposits made under this SECTION 2.15. Upon full payment and satisfaction of this Deed of Trust or, at the Beneficiary's option, at any prior time, the balance of deposited amounts and any interest earned thereon in the possession of such service or financial institution shall be paid over to the record owner of the Facility, and no other person shall have any right or claim to such deposited amounts or interest in any event. 2.16 Inspection. Upon reasonable notice from the Beneficiary or the ---------- Trustee to the Grantor, the Grantor will allow the Trustee or the Beneficiary or its authorized representatives, at all reasonable times, to enter upon and inspect the Mortgaged Property and the books and records with respect to the operations of the Mortgaged Property. 2.17 Maintenance of Records. The Grantor shall keep and maintain ---------------------- complete and accurate books and records in accordance with sound accounting principles with respect to all operations of or transactions involving the Mortgaged Property. 2.18 Grantor's Certificates. The Grantor, within ten days after ---------------------- request by the Beneficiary, shall furnish to the Beneficiary a written statement, duly acknowledged, certifying to the Beneficiary and/or any proposed assignee of this Deed of Trust as to (a) the amount of the Obligations then owing, (b) the terms of payment and maturity date of the Obligations, (c) the date to which interest has been paid under the Promissory Note and (d) whether any offsets or defenses exist against the Obligations and, if any are alleged to exist, a detailed description thereof. 2.19 Prepayments; Release Premium. So long as no Event of Default ---------------------------- shall have occurred and be continuing, the Grantor may prepay the unpaid principal amount of the Promissory Note, in whole or in part, plus accrued interest to the date of such prepayment on the principal amount prepaid, plus any late charges then payable under the Promissory Note, plus any costs and expenses then payable by the Grantor under the Promissory Note; provided that -------- each partial prepayment shall be in a principal amount of not less than Five Thousand and No/100 Dollars ($5,000.00); provided, further that upon prepayment -------- ------- in whole of the unpaid principal amount of the Promissory Note plus accrued interest to the date of such prepayment plus the amount of any late charges then payable under the Promissory Note plus any costs and expenses then payable by the Grantor under the Promissory Note, the Grantor shall pay to First Healthcare a release premium (the "Release Premium") in an amount determined at the date of such prepayment equal to five percent of the amount of the Purchase Price Balance that would then have been outstanding if the Purchase Price Balance had ben timely paid in accordance with the regularly scheduled required installment payments provided for in the Promissory Note without regard to any prepayments made in respect of the Promissory Note. The Release Premium shall be applied first to any costs and expenses then payable by the Grantor or any Affiliate under any Related Promissory Note (as defined below), second to any late charges then payable under any Related Promissory Note, and then to the principal of any Related Promissory Note -12- EXHIBIT C-1 and accrued interest thereon as agreed to by the Grantor and First Healthcare, or, if the Grantor and First Healthcare cannot agree, then to such principal and accrued interest determined by the Grantor in its sole discretion as to fifty percent of the Release Premium and in the order and to such principal and accrued interest determined by First Healthcare in its sole discretion as to fifty percent of the Release Premium. Each partial prepayment shall be applied first to any costs and expenses then payable by the Grantor under the Promissory Note, second to any late charges then payable under the Promissory Note, third to interest then accrued, and then to the principal installments under the Promissory Note in the inverse order of their maturities without deferral or limitation of the intervening installments of principal or interest. For the purposes of this Deed of Trust, the term "Related Promissory Note" means any of the promissory notes made by one or more of the persons listed or otherwise described in SCHEDULE C (the persons listed or otherwise described in SCHEDULE C being sometimes referred to in this Deed of Trust individually as an "Affiliate" and collectively as the "Affiliates") to the order of First Healthcare and evidencing the obligation of such Affiliate or Affiliates to pay a portion of the purchase price for the properties (real, personal and mixed) that are the subject of the Facility Agreement. 2.20 Reporting Requirements. So long as the Promissory Note shall ---------------------- remain unpaid, the Grantor shall furnish to the Beneficiary: (a) as soon as possible and in any event within five days after the occurrence of each Event of Default and each event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default continuing on the date of such statement, a statement of the chief financial officer of the general partner in the Grantor setting forth details of such Event of Default or event and the action which the Grantor has taken and proposes to take with respect thereto; (b) as soon as available and in any event within sixty days alter the end of each of the first three quarters of each fiscal year of the Grantor, a balance sheet of the Grantor as of the end of such quarter and statements of income and expense and of cash flow of the Grantor for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certIfied (subject to year-end audit adjustments) by the chief financial officer of the general partner in the Grantor as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial condition of the Grantor as of the respective dates of such financial statements and the results of the operations of the Grantor for the periods ended on such dates, together with a certificate of said officer stating that no Event of Default, or event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default has occurred and is continuing or, if an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof and the action which the Grantor has taken and proposes to take with respect thereto; (c) as soon as available and in any event within sixty days after the end of each quarter of each fiscal year of the Grantor, a balance sheet for the Facility as of the end of such quarter and statements of income and expense and of cash flow for the Facility for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the general partner in the Grantor as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial condition of the Facility as of the respective dates of such financial statements and the results of the operations of the Facility for the periods ended on such dates; -13- EXHIBIT C-1 (d) as soon as available and in any event within one-hundred twenty days after the end of each fiscal year of the Grantor, a balance sheet of the Grantor as of the end of such fiscal year and statements of income and expense and of cash flow of the Grantor for such fiscal year, accompanied by a report and an opinion of independent certified public accountants of recognized standing or, if such report and opinion are not available, duly certified by the chief financial officer of the general partner in the Grantor as having been prepared in accordance with generally accepted accounting principles and practices consistently applied and as fairly presenting the financial condition of the Grantor as of the end of such fiscal year and the results of the operations of the Grantor for such fiscal year; (e) as soon as available and in any event within ninety days alter the end of each fiscal year of the Grantor, a certificate of the chief financial officer of the general partner in the Grantor stating that no Event of Default, or event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, has occurred and is continuing or, if an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof and the action which the Grantor has taken and proposes to take with respect thereto; (f) as soon as available and in any event within sixty days after the end of each quarter of each fiscal year of the Grantor, detailed operational statistics for the Facility pertaining to occupancy rates, patient or resident mix and patient or resident rates by type for the period commencing at the end of the previous fiscal year and ending with the end of such quarter; (g) promptly and in any event within thirty days after the sending or filing thereof, copies of all cost reports (including all cost reports filed pursuant to Titles XVIII and XIX of the Social Security Act, as amended) and all amendments thereto required to be flied with any governmental or regulatory authority in respect of the Facility, in each case duly certified by an authorized officer of the general partner in the Grantor as being accurate and complete and as having been prepared in accordance with applicable governmental and regulatory requirements; (h) promptly and in any event within thirty days after receipt thereof by the Grantor, a copy of each survey prepared by any governmental or regulatory authority with respect to the Facility, together with a copy of any related plan of correction; (i) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which the Grantor sends to its partners, and copies of all regular, periodic and special reports, and all registration statements, that the Grantor files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (j) such other information respecting the business, properties, operations or condition (financial or otherwise) of the Grantor and the Affiliates as the Beneficiary may from time to time reasonably request, in each case certified by an appropriate officer of the general partner in the Grantor. ARTICLE III Assignment of Rents and Other Sums ---------------------------------- 3.01 Assignment. The Grantor hereby bargains, sells, assigns, ---------- transfers and sets over to the Beneficiary, absolutely and not as additional security for the payment of the Obligations, all rents, proceeds, issues and profits due and to become due and payable under or pursuant to or to be derived from the Mortgaged Property, or the use and occupation of the Mortgaged Property, including -14- EXHIBIT C-1 all rents, royalties, revenues, rights, deposits (including security deposits) and benefits accruing to the Grantor under all leases and all other contracts and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) now or hereafter covering the Mortgaged Property, whether before or after foreclosure or during the full period of redemption, if any, and the right to receive the same and apply them against the Obligations or against the Grantor's other obligations under this Deed of Trust, together with all contracts, bonds, leases and other documents and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) evidencing the same now or hereafter in effect and all rights of the Grantor thereunder. Nothing contained in the preceding sentence shall be construed to bind the Beneficiary to the performance of any of the provisions of any such contract, bond, lease or other document or agreement or otherwise to impose any obligation upon the Beneficiary (including any liability under a covenant of quiet enjoyment contained in any lease or under applicable law in the event that any tenant shall have been joined as a party defendant in any action to foreclose this Deed of Trust and shall have been foreclosed of all right, title and interest and all equity of redemption in the Mortgaged Property), except that the Beneficiary shall be accountable for any money actually received by the Beneficiary pursuant to such assignment The assignment of said rents, proceeds, issues and profits, and of the aforesaid rights with respect thereto and to the contracts, bonds, leases and other documents and agreements evidencing the same is intended to be and is an absolute present assignment from the Grantor to the Beneficiary and not merely the passing of a security interest. The Grantor will, as and when requested from time to time by the Beneficiary, execute, acknowledge and deliver to the Beneficiary, in form approved by the Beneficiary, one or more general or specific assignments of the lessor's interest under any lease, contract or agreement (including any patient care agreement, life care contract, admission agreement and other contract or agreement with any resident, patient or other person pertaining to the care of residents or patients) now or hereafter affecting the Mortgaged Property. Notwithstanding any provision in this Section 3.01 or elsewhere in this Deed of Trust to the contrary, this Deed of Trust shall not be construed to constitute an assignment of any patient accounts or any other accounts constituting any right of the Grantor to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. 3.02 Right to Collect. So long as there shall exist no Event of ---------------- Default, and except as otherwise expressly provided in this Deed of Trust, the Grantor shall have the right and license to collect, as the same shall accrue, the rents, proceeds, issues and profits due and to become due and payable under or pursuant to or to be derived from the Mortgaged Property or the use and occupation of the Mortgaged Property. The Grantor agrees to hold the same in trust and to use the same in payment of the Obligations, taxes, assessments, levies, fees, charges and insurance premiums payable under this Deed of Trust and all other charges on or against the Mortgaged Property. 3.03 Revocation of Right to Collect; Etc. Upon the occurrence of any ----------------------------------- Event of Default, (i) the right and license set forth in Section 3.02 may be revoked by the Beneficiary, and thereafter the Trustee or the Beneficiary shall have the right and authority to exercise any of the rights or remedies referred to or set forth in Article VI and (ii) the Grantor shall promptly pay to the Trustee or the Beneficiary (A) all prepayments and security or other deposits paid to the Grantor pursuant to any contract, bond, lease or other document or agreement assigned under this Deed of Trust and (B) all charges for services or facilities or for escalation which were paid pursuant to any such contract, bond, lease or other document or agreement to the extent allocable to any period from and after the occurrence of such Event of Default. If the Grantor is not required by this Deed of Trust to surrender possession of the Mortgaged Property upon the occurrence of an Event of Default, then the Grantor shall pay monthly in advance to the Trustee or the Beneficiary, on the entry by the Trustee or the Beneficiary into possession pursuant to Article VI, or to any receiver appointed to collect said rents, -15- EXHIBIT C-1 proceeds, issues and profits, the fair and reasonable rental value for the use and occupation of the Mortgaged Property or such part thereof as may be in the possession of the Grantor. Upon a default in any such payment, the Grantor will vacate and surrender such possession to the Trustee, the Beneficiary or such receiver and, upon a default in vacating and surrendering the same, may be evicted by summary or any other available proceedings. ARTICLE IV Additional Advances; Expenses; Indemnity ---------------------------------------- 4.01 Additional Advances and Disbursements. The Grantor agrees that, ------------------------------------- if the Grantor fails to pay or perform any obligation of the Grantor under this Deed of Trust (including the obligation to procure and maintain the insurance at the limits of coverage required by Section 2.10), then the Trustee or the Beneficiary shall have the right, but not the obligation, in the Grantor's name or otherwise, and without notice to the Grantor, to pay or perform, or to cause the payment or performance of, such obligation and, for such purpose, the Grantor expressly grants to the Trustee and the Beneficiary, in addition and without prejudice to any other rights and remedies under this Deed of Trust the right to enter upon and take possession of the Mortgaged Property to such extent and as often as the Trustee or the Beneficiary may deem necessary or desirable to prevent or remedy any failure by the Grantor to pay or perform such obligation. No such payment or performance by the Trustee or the Beneficiary shall be deemed to have cured such default by the Grantor or any Event of Default with respect thereto. All sums so paid, and all expenses incurred, by the Trustee or the Beneficiary in connection with such payment or performance shall be deemed obligations owing by the Grantor to the Trustee or the Beneficiary and shall bear interest, from the date paid or incurred until repaid, at the Default Rate provided for in the Promissory Note. The amount of all such payments and expenses, and all such interest thereon, shall be part of the Obligations and shall be secured by this Deed of Trust. This Deed of Trust secures future advances or future obligations. This Deed of Trust is governed by the provisions of Section 443.055 of the Revised Statutes of Missouri. The total amount of the Obligations that may be secured by this Deed of Trust is $[_______________]. 4.02 Other Expenses. The Grantor, on demand, will pay or reimburse -------------- the Trustee or the Beneficiary for the payment of, any costs or expenses (including reasonable attorneys' fees and disbursements) incurred or expended in connection with or incidental to (a) any Event of Default or (b) the exercise or enforcement by or on behalf of the Trustee or the Beneficiary of any of its rights or remedies or the Grantor's obligations under any Transaction Document. 4.03 Indemnity. The Grantor agrees to indemnify and hold harmless the --------- Trustee and the Beneficiary from and against any and all claims, demands, losses, liabilities, suits, obligations, fines, damages, judgments, penalties, charges, costs and expenses (including reasonable attorneys' fees and disbursements) which may be imposed on, incurred or paid by or asserted against the Trustee or the Beneficiary by reason or on account of, or in connection with, (a) any Event of Default, (b) the exercise by the Trustee or the Beneficiary of any of its rights and remedies, or the performance of any of its duties, under this Deed of Trust or (c) any accident, injury, death or damage to any person (including any employee of the Grantor) or property occurring in, on or about the Facility or any street, drive, sidewalk, curb or passageway adjacent to the Facility, but excepting claims, demands, losses, liabilities, suits, obligations, fines, damages, judgments, penalties, charges, costs and expenses resulting from the willful misconduct or gross negligence of the Trustee or the Beneficiary. Any amount payable to the Trustee or the Beneficiary under this Section 4.03 shall be deemed a demand obligation, shall be part of the Obligations and shall be secured by this Deed of Trust. -16- EXHIBIT C-1 ARTICLE V Transfer of the Mortgaged Property ---------------------------------- 5.01 Transfer of the Mortgaged Property. The Grantor acknowledges ---------------------------------- that the continuous ownership of the Mortgaged Property by the Grantor is of a material nature to the transaction contemplated by, and the Beneficiary's agreement to create the Obligations under, the Transaction Documents. The Grantor agrees that, except as otherwise provided in any Transaction Document, the Grantor will not, directly or indirectly, sell, grant, convey, assign or otherwise transfer (collectively, a "transfer"), or permit any transfer of, the Mortgaged Property or any legal or beneficial interest in the Mortgaged Property, by operation of law or otherwise, without the prior consent of the Beneficiary. For the purposes of this Deed of Trust, but without limiting the foregoing, a transfer of the legal or beneficial ownership, directly or indirectly, of thirty-three percent or more of the issued and outstanding stock of any class of stock of any corporate general pate in the Grantor, substantially all of the assets of the Grantor or thirty-three percent or more of the capital or profits of the Grantor or of any general partner in the Grantor, shall be deemed a transfer of the Mortgaged Property or an interest in the Mortgaged Property; provided that a transfer of the legal or beneficial -------- ownership of thirty-three percent or more of the issued and outstanding stock of any class of stock of any corporate general partner in the Grantor or thirty- three percent or more of the capital or profits of the Grantor or of any general partner in the Grantor shall not be deemed a transfer of the Mortgaged Property or an interest in the Mortgaged Property if such transfer is to any Affiliate, to Don G. Angell, to Daniel D. Mosca, to any heir or devisee of Don G. Angel or Daniel D. Mosca or to the trustee of any living trust of Don G. Angel or Daniel D. Mosca Upon the occurrence of any transfer of the Mortgaged Property or any legal or beneficial interest in the Mortgaged Property, by operation of law or otherwise, without the prior consent of the Beneficiary, the Beneficiary may elect to declare the Obligations, together with any other sums secured by this Deed of Trust, immediately due and payable. The Beneficiary may withhold its consent to any proposed transfer for no reason or any reason, including the failure of the prospective transferee of the Mortgaged Property to reach an agreement in writing with the Beneficiary increasing the interest payable on the Obligations to such rate as the Beneficiary shall request Any transfer or attempted transfer contrary to the provisions of this Article V shall be void. ARTICLE VI Defaults and Remedies --------------------- 6.01 Events of Default. The term "Event of Default" shall mean the ----------------- occurrence of any of the following events: (a) The Grantor shall fail to pay any principal of, or interest on, the Promissory Note within ten days alter the same becomes due and payable; or (b) The Grantor shall fail to pay any of the other Obligations (whether for principal, interest, premiums, fees, expenses or otherwise) when and as the same become due and payable, whether on any stated due date, at maturity or upon acceleration, and such failure shall remain unremedied for ten days after written notice of such failure shall have been given to the Grantor by the Beneficiary; or (c) Any representation or warranty made by the Grantor (or any general partner in the Grantor or any officers of any general partner in the Grantor) under or in connection with any Transaction Document shall prove to have been incorrect in any material respect when made; or (d) The Grantor shall fail at any time to obtain, provide, maintain or keep in force the insurance policies required by Section 2,10; or -17- EXHIBIT C-1 (e) The Grantor shall fail to perform or observe any other provision contained in any Transaction Document on the Grantor's part to be performed or observed if such failure shall remain unremedied beyond the applicable grace period for such provision or, if no such grace period is applicable, if such failure shall remain unremedied for thirty days after written notice of such failure shall have been given to the Grantor by the Beneficiary; or (f) The Grantor shall fail to pay any principal of or premium or interest on any indebtedness (but excluding indebtedness evidenced by the Promissory Note) of the Grantor in an aggregate principal amount of at least $100,000 at any one time outstanding, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (g) The Grantor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Grantor seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of sixty days, or any of the actions sought in such proceeding (including the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Grantor shall take any action to authorize any of the actions set forth above in this subsection (g); or (h) Any judgment or order for the payment of money in excess of $250,000 shall be rendered against the Grantor and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Any of the events referred to in subsections (f) through (h) of this Section 6.01 shall occur with respect to any Guarantor (such term being used in this Deed of Trust as such term is defined in the Facility Agreement) and, for the purposes of this subsection (i), each reference to "the Grantor" in subsections (f) through (h) above shall mean and be a reference to "any Guarantor", the reference to "$100,000" in subsection (f) above shall mean and be a reference to "$1,000,000", and the reference to "$250.000" in subsection (h) above shall mean and be a reference to "$1,000,000"; or (j) Any of the events referred to in subsections (f) through (h) of this Section 6.01 shall occur with respect to any general partner in the Grantor and, for the purposes of -18- EXHIBIT C-1 this subsection (j), each reference to "the Grantor" in subsections (f) through (h) above shall mean and be a reference to "any general partner in the Grantor"; or (k) Any other Transaction Document to which the Grantor is a party, after delivery of this Deed of Trust or such other Transaction Document to the Beneficiary, shall for any reason cease to be valid and binding on the Grantor, or the Grantor shalL so state in writing; or (l) The Mortgaged Property or any interest in the Mortgaged Property shall be the subject of a 'transfer,' as that term is defined in SECTION 5.01; or (m) The Grantor shall abandon the Mortgaged Property or shall cease to do business or shall terminate its business for any reason whatsoever: or (n) The Mortgaged Property shall be taken, attached or sequestered on execution or other process of law in any action against the Grantor; or (o) Any event shall occur or condition shall exist which constitutes a default by the Grantor under any lease or agreement to lease between the Grantor, as lessee or sublessee, and the Beneficiary or any subsidiary or affiliate of the Beneficiary, as lessor or sublessor, in respect of real or personal property, and such event or condition shall continue after the applicable grace period, if any, specified in such lease or agreement to lease; or (p) Any event shall occur or condition shall exist which constitutes a default by any Affiliate under any purchase or sale agreement lease or agreement to lease, promissory note, mortgage, deed of trust or other instrument or agreement between such Affiliate and the Beneficiary, or any subsidiary or affiliate of the Beneficiary, and such event or condition shall continue after the applicable grace period, if any, specified in such instrument or agreement. 6.02 Remedies. Upon the occurrence of any one or more Events of -------- Default, the Trustee or the Beneficiary may (but shall not be obligated to), in addition to any rights or remedies available to it under any Transaction Document take such action personally or by its agents or attorneys, with or without entry, and without notice, demand, presentment or protest (each and all of which are hereby waived by the Grantor), as the Trustee or the Beneficiary deems necessary or advisable to protect and enforce its rights and remedies against the Grantor and in and to the Mortgaged Property, including the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as the Trustee or the Beneficiary may determine, in its sole discretion, without impairing or otherwise affecting any other rights or remedies of the Trustee or the Beneficiary: (a) Declare the entire balance of the Obligations (including the entire principal balance thereof, all accrued and unpaid interest and any premium thereon and all other such sums secured by this Deed of Trust) to be immediately due and payable, and upon any such declaration the entire unpaid balance of the Obligations shall become and be immediately due and payable, without presentment demand, protest or further notice of any kind, all of which are hereby expressly waived by the Grantor, anything in this Deed of Trust or any other Transaction Document to the contrary notwithstanding; provided that in -------- the event of an actual or deemed entry of an order for relief with respect to the Grantor or any guarantor referred to in subsection (i) of Section 6.01 or any general partner in the Grantor under the United States Bankruptcy Code, as amended, or under any present or future law or statute of the United States of America or of any state or other jurisdiction thereof relevant to bankruptcy, insolvency or other relief of debtors, the entire unpaid balance of the Obligations automatically shall become and be immediately due and payable, without presentment, -19- EXHIBIT C-1 demand, protest or further notice of any kind, all of which are hereby expressly waived by the Grantor, anything in this Deed of Trust or any other Transaction Document to the contrary notwithstanding; or (b) Institute a proceeding or proceedings for the complete foreclosure of this Deed of Trust under any applicable provision of law; or (c) Institute a proceeding or proceedings for the partial foreclosure of this Deed of Trust under any applicable provision of law for the portion of the Obligations then due and payable, subject to the lien of this Deed of Trust continuing unimpaired and without loss of priority so as to secure the balance of the Obligations not then due and payable; or (d) To the extent permitted by applicable law, sell the Mortgaged Property, and all estate, right, title, interest, claim and demand of the Grantor in the Mortgaged Property, and all rights of redemption of the Mortgaged Property, at one or more sales, as an entirety or in parcels, with such elements of real and/or personal property (and, to the extent permitted by applicable law, may elect to deem all of the Mortgaged Property to be real property for purposes of such sale or sales), and at such time and place and upon such terms as the Trustee or the Beneficiary may deem expedient, or as may be required by applicable law, and in the event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged Property, this Deed of Trust shall continue as a lien and security interest on the remaining portion of the Mortgaged Property; or (e) Institute an action, suit or proceeding in equity for the specific performance of any of the provisions contained in this Deed of Trust or any other Transaction Document; or (f) Sue and recover a judgment on the Obligations, as the same become due and payable, or on account of any Event of Default; or (g) Apply for the appointment of a receiver, custodian, trustee, liquidator or conservator of the Mortgaged Property, to be invested with the fullest powers permitted under applicable law, as a matter of right and without regard to or the necessity to disprove the adequacy of the security for the Obligations or the solvency of the Grantor or any other person liable for the payment of the Obligations, and the Grantor and each other person so liable waives or shall be deemed to have waived such necessity and consents or shall be deemed to have consented to such appointment; or (h) Enter upon the Mortgaged Property, and exclude the Grantor and the Grantor's agents and servants wholly from the Mortgaged Property, without liability for trespass, damages or otherwise, and take possession of all books, records and accounts relating to the Mortgaged Property, and the Grantor agrees to surrender possession of the Mortgaged Property and of such books, records and accounts to the Trustee or the Beneficiary on demand after the occurrence of any Event of Default; and the Trustee or the Beneficiary may use, operate, manage, preserve, control and otherwise deal with the Mortgaged Property and such books, records and accounts and may conduct the business of the Facility, either personally or by its superintendents, managers, agents, servants, attorneys or receivers, without interference from the Grantor; and upon each such entry, and from time to time thereafter, the Trustee or the Beneficiary, at the expense of the Grantor and the Mortgaged Property, without interference by the Grantor, may (i) maintain and restore the Mortgaged Property by purchase, repair or construction, (ii) insure or reinsure the Mortgaged Property, (iii) make all necessary or proper repairs, renewals, replacements, alterations, additions, betterments and improvements to and on the Mortgaged Property, (iv) complete the construction of the improvements and, in the course of such completion, make such changes in the contemplated or completed -20- EXHIBIT C-1 improvements as the Trustee or the Beneficiary may deem advisable and (v) in every such case in connection with the foregoing have the right to exercise all rights and powers of the Grantor with respect to the Mortgaged Property, either in the Grantor's name or otherwise, including the right to make, cancel, enforce or modify leases and subleases, obtain and evict tenants and subtenants on such terms as the Trustee or the Beneficiary shall deem advisable; or (i) With or without the entrance upon or taking possession of the Mortgaged Property, collect and receive all rents, proceeds, issues and profits due and to become due and payable under or pursuant to or derived from the Mortgaged Property, and after deducting therefrom all costs and expenses of every character incurred by the Trustee or the Beneficiary in collecting the same and in using, operating, managing, preserving and controlling the Mortgaged Property, and otherwise in exercising the rights of the Trustee or the Beneficiary under subsection (h) of this Section 6.02, including all amounts necessary to pay taxes, assessments, levies, fees, insurance premiums and other charges in connection with the Mortgaged Property, as well as reasonable compensation for the services of the Trustee, the Beneficiary and their respective attorneys, agents and employees, apply the remainder as provided in Section 6.05; or (j) Release any portion of the Mortgaged Property for such consideration as the Trustee or the Beneficiary may require without, as to the remainder of the Mortgaged Property, in any way impairing or affecting the lien or priority of this Deed of Trust, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the Obligations shall have been reduced by the actual monetary consideration, if any, received by the Trustee or the Beneficiary for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as the Trustee or the Beneficiary may require without being accountable for so doing to any other lienor; or (k) Take all actions permitted under the Uniform Commercial Code of the jurisdiction in which the Facility is located; or (l) Take any other action, or pursue any other right or remedy, as the Trustee or the Beneficiary may have under applicable law, and the Grantor does hereby grant the same to the Trustee and the Beneficiary. In the event that the Trustee or the Beneficiary shall exercise any of the rights or remedies set forth in subsections (h) and (i) of this Section 6.02, neither the Trustee nor the Beneficiary shall be deemed to have entered upon or taken possession of the Mortgaged Property except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose, nor shall the Trustee or the Beneficiary be deemed a mortgagee in possession by reason of such entry or taking possession. Neither the Trustee nor the Beneficiary will be liable to account for any action taken pursuant to any such exercise other than for rents and payments on patient accounts actually received by the Trustee or the Beneficiary, nor liable for any loss sustained by the Grantor resulting from any failure to let the Mortgaged Property, or from any other act or omission of the Trustee or the Beneficiary except to the extent such loss is caused by the willful misconduct or bad faith of the Trustee or the Beneficiary. The Grantor hereby consents to, ratifies and confirms the exercise by either the Trustee or the Beneficiary of said rights and remedies, and appoints each of the Trustee and the Beneficiary as the Grantor's attorney-in- fact, which appointment shall be deemed to be coupled with an interest and is irrevocable, for such purposes. 6.03 Expenses. In any proceeding to foreclose this Deed of Trust or -------- to enforce any other remedy of the Trustee or the Beneficiary under this Deed of Trust or any other Transaction Document, there shall be allowed and included as an addition to and a part of the Obligations in the -21- EXHIBIT C-1 decree for sale or other judgment or decree all expenditures and expenses (including reasonable attorneys' fees and disbursements) which may be paid or incurred in connection with the exercise by the Trustee or the Beneficiary of any of its rights and remedies provided or referred to in SECTION 6.02 and the same shall be secured by this Deed of Trust. 6.04 Rights Pertaining to Sales. The following provisions shall -------------------------- apply to any sale or sales of the Mortgaged Property under or by virtue of this ARTICLE VI: (a) The Beneficiary or the Trustee may conduct any number of sales from time to time. The power of sale set forth in Section 6.02(d) shall not be exhausted by any one or more such sales as to any part of the Mortgaged Property which shall not have been sold, nor by any sale which is not completed or is defective in the opinion of the Trustee or the Beneficiary, until the Obligations shall have been paid in full. (b) Any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice. (c) After each sale, the Trustee shall execute and deliver to the purchaser or purchasers at such sale a good and sufficient instrument or instruments granting, conveying, assigning and transferring all right, title and interest of the Grantor in and to the property and rights sold and shall receive the proceeds of said sale or sales and apply the same as provided in this Deed of Trust. The Trustee is hereby appointed the true and lawful attorney-fact of the Grantor, which appointment is irrevocable and shall be deemed to be coupled with an interest, in the Grantor's name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, and for that purpose the Trustee may execute all necessary instruments of conveyance, assignment transfer and delivery, and may substitute one or more persons with like power, the Grantor hereby ratifying and confirming all that said attorney or such substitute or substitutes shall lawfully do by virtue thereof. Nevertheless, the Grantor, if requested by the Trustee, shall ratify and confirm any such sale or sales by executing and delivering to the Trustee or such purchaser or purchasers all such instruments as may be advisable, in the judgment of the Trustee or the Beneficiary, for the purposes designated in such request. (d) Any and all statements of fact or other recitals made in any of the instruments referred to in subsection (c) of this Section 6.04 given by the Trustee or the Beneficiary as to nonpayment of the Obligations, or as to the occurrence of any Event of Default, or as to the Beneficiary having declared all or any of the Obligations to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and of the property or rights to be sold having been duly given, or as to the refusal, failure or inability to act of the Trustee, or as to the appointment of any substitute or successor Trustee, or as to any other act or thing having been duly done by the Trustee or the Beneficiary, shall be taken as prima facie evidence of the truth of the ----- ----- facts so stated and recited. The Trustee or the Beneficiary may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale so held, including the posting of notices and the conduct of sale. (e) The receipt of the Trustee or the Beneficiary for the purchase money paid at any such sale, or the receipt of any other person authorized to give the same, shall be sufficient discharge therefor to any purchaser of any property or rights sold as aforesaid, and no such purchaser, or its representatives, grantees or assigns, after paying such purchase price and receiving such receipt, shall be bound to see to the application of such purchase price or any part thereof upon or for any trust or purpose of this Deed of Trust or, in any manner whatsoever, be answerable for any loss, -22- EXHIBIT C-1 misapplication or nonapplication of any such purchase money, or part thereof, or be bound to inquire as to the authorization, necessity, expediency or regularity of any such sale. (f) Any such sale or sales shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of the Grantor in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against the Grantor and any and all persons claiming or who may claim the same, or any part thereof, by, through or under the Grantor to the fullest extent permitted by applicable law. (g) Upon any such sale or sales, the Beneficiary may bid for and acquire the Mortgaged Property and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the Obligations the amount of the bid made therefor, after deducting therefrom the expenses of the sale, the cost of any enforcement proceeding under this Deed of Trust and any other sums which the Trustee or the Beneficiary is authorized to deduct under the terms of this Deed of Trust, to the extent necessary to satisfy such bid. (h) In the event that the Grantor, or any person claiming by, through or under the Grantor, shall transfer or refuse or fail to surrender possession of the Mortgaged Property after any sale of the Mortgaged Property, then the Grantor or such person shall be deemed a tenant at sufferance of the purchaser at such sale, subject to eviction by means of forcible entry and detainer proceedings, or subject to any other right or remedy available under this Deed of Trust or under applicable law. (i) Upon any such sale, the Trustee, the Beneficiary or any public officer acting under execution or order of court shall not be required to have present or constructively in its possession any or all of the Mortgaged Property. (j) In the event of any sale referred to in this SECTION 6.04, all of the Obligations, if not previously due and payable, immediately thereupon shall become due and payable, notwithstanding anything to the contrary contained in this Deed of Trust or any other Transaction Document (k) In the event a foreclosure under this Deed of Trust shall be commenced by the Trustee, the Trustee or the Beneficiary may, at any time before the sale of the Mortgaged Property, abandon or direct the Trustee to abandon the sale, and may institute suit for the collection of the Obligations and for the foreclosure of this Deed of Trust, or in the event that the Trustee or the Beneficiary should institute a suit for collection of the Obligations, and for the foreclosure of this Deed of Trust, the Beneficiary may at any time before the entry of final judgment in said suit dismiss the same and require the Trustee to sell the Mortgaged Property in accordance with the provisions of this Deed of Trust. 6.05 Application of Proceeds. The purchase money, proceeds or avails ----------------------- of any sale referred to in Section 6.04, together with any other sums that may be held by the Trustee or the Beneficiary under this ARTICLE VI or any other provision of this Deed of Trust, except as expressly provided in this Deed of Trust or under applicable law to the contrary, shall be applied as follows: First: To the payment of the costs and expenses of any such ----- sale, including compensation to the Trustee, the Beneficiary and their agents and counsel, and of any judicial proceeding in which such sale may be made, and of all expenses (including reasonable attorneys' fees and disbursements), liabilities and advances made or incurred by the Trustee or the Beneficiary under this Deed of Trust, together with interest thereon as provided in this Deed of Trust, and all taxes, -23- EXHIBIT C-1 assessments and other charges, except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold. Second: To the payment in full of the Obligations (including ------ principal, interest, premium and fees in such order as the Beneficiary may elect). Third: To the payment of any other sums secured by this Deed ----- of Trust or required to be paid by the Grantor pursuant to any provision of this Deed of Trust or any other Transaction Document. Fourth: To the extent permitted by applicable law, to be set ------ aside by the Trustee or the Beneficiary as adequate security in its judgment for the payment of sums which would have been paid by application under clauses First through Third above to the Trustee or the Beneficiary, arising out of an - ----- ----- obligation or liability with respect to which the Grantor has agreed to indemnify the Trustee or the Beneficiary, but which sums are not yet due and payable or liquidated. Fifth: To the payment of the surplus, if, any, to whomsoever ----- may be lawfully entitled to receive the same. 6.06 Additional Provisions as to Remedies. ------------------------------------ (a) No right or remedy of the Trustee or the Beneficiary under this Deed of Trust is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and continuing, shall be in additIon to every other right or remedy given under this Deed of Trust or any other Transaction Document or now or hereafter existing at law or in equity, and may be exercised from time to time and as often as may be deemed expedient by the Trustee or the Beneficiary. (b) No delay or omission by the Trustee or the Beneficiary to exercise any right or remedy under this Deed of Trust upon an Event of Default shall impair such exercise, or be construed to be a waiver of any such Event of Default or an acquiescence in any such Event of Default. (c) The failure, refusal or waiver by the Trustee or the Beneficiary of its right to assert any right or remedy under this Deed of Trust upon any Event of Default or other occurrence shall not be construed as waiving such right or remedy upon any other or subsequent Event of Default or other occurrence. (d) Neither the Trustee nor the Beneficiary shall have any obligation to pursue any rights or remedies it may have under any other agreement prior to pursuing its rights or remedies under this Deed of Trust or any other Transaction Document. (e) The Trustee and the Beneficiary may resort to any security given by this Deed of Trust or any other security now given or hereafter existing to secure the Obligations, in whole or in part in such portions and in such order as the Trustee or the Beneficiary may deem advisable, and no such action shall be construed as a waiver of any of the liens, rights or benefits granted under this Deed of Trust. (f) Acceptance of any payment after the occurrence of an Event of Default shall not be deemed a waiver or a cure of such Event of Default, and acceptance of any payment less than any amount then due shall be deemed an acceptance on account only. -24- EXHIBIT C-1 (g) In the event that the Trustee or the Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, sale, entry or otherwise, and such proceeding shall be discontinued, abandoned or determined adversely for any reason, then the Grantor, the Trustee and the Beneficiary shall be restored to their former positions and rights under this Deed of Trust with respect to the Mortgaged Property, subject to the lien and security interest of this Deed of Trust. 6.07 Waiver of Rights and Defenses. To the full extent the Grantor ----------------------------- may do so, the Grantor agrees with the Beneficiary as follows: (a) The Grantor will not at any time insist on, plead, claim or take the benefit or advantage of any statute or rule of law now or hereafter in force providing for any appraisement, valuation, stay, extension, moratorium or redemption, or of any statute of limitations, and the Grantor, for itself and its successors and assigns, and for any and all persons ever claiming an interest in the Mortgaged Property, hereby waives and releases all rights of redemption, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, and all rights to a marshaling of the assets of the Grantor, including the Mortgaged Property, or to a sale in inverse order of alienation, in the event of foreclosure of the lien and security interest created under this Deed of Trust. (b) Regardless of consideration, and without the necessity for any notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Mortgaged Property, the Beneficiary may release any person at any time liable for the payment of the Obligations or any portion of the Obligations or any part of the security held for the Obligations and may extend the time of payment or otherwise modify the terms of this Deed of Trust and/or any other Transaction Document, including a modification of the interest rate payable on the principal balance of the Promissory Note, without in any manner impairing or affecting this Deed of Trust or the lien and security interest of this Deed of Trust or the priority of this Deed of Trust, as so extended and modified, as security for the Obligations over any such subordinate lien, encumbrance, right, title or interest. The Beneficiary may resort for the payment of the Obligations to any other security held by the Beneficiary in such order and manner as the Beneficiary, in its discretion, may elect. The Beneficiary may take action to recover all or any portion of the Obligations or to enforce any covenant in this Deed of Trust or any other Transaction Document without prejudice to the right of the Beneficiary thereafter to foreclose this Deed of Trust. ARTICLE VII Defeasance; Provisions as to Trustee ------------------------------------ 7.01 Defeasance. If the Obligations shall be paid in full as they ---------- become due and payable, then and (subject to Section 7.02) in that event only all rights under this Deed of Trust shall terminate and the Mortgaged Property shall become wholly released and cleared of the lien, security interest, conveyance and assignment evidenced by this Deed of Trust. In such event, the Beneficiary, at the request and the sole cost and expense of the Grantor, shall promptly deliver to the Grantor, in recordable form, all such documents as shall be necessary to release the Mortgaged Property from the lien, security interest, conveyance and assignment evidenced by this Deed of Trust; provided that nothing -------- in this Section 7.01 shall be construed to require the Grantor to pay any attorneys' fees or expenses incurred by the Beneficiary in connection with the preparation and delivery of such documents. 7.02 Reconveyance. If the entire unpaid principal amount of the ------------ Promissory Note shall be prepaid and all of the other Obligations and the Release Premium shall be paid pursuant to Section 2.19. then all rights under this Deed of Trust shall terminate and the Mortgaged Property shall -25- EXHIBIT C-1 become wholly released and cleared of the lien, security interest, conveyance and assignment evidenced by this Deed of Trust. In such event, the Beneficiary and the Trustee, at the request of the Grantor, shall promptly deliver to the Grantor, in recordable form, all such documents as shall be necessary to release the Mortgaged Property from the lien, security interest, conveyance and assignment evidenced by this Deed of Trust; provided that nothing in this -------- Section 7.02 shall be construed to require the Grantor to pay any attorneys' fees or expenses incurred by the Beneficiary or the Trustee in connection with the preparation and delivery of such documents. 7.03 Trustee's Resignation. The Trustee may resign by an instrument --------------------- in writing addressed to the Beneficiary, or the Trustee may be removed at any time with or without cause by an instrument in writing executed by the Beneficiary. In case of the death, resignation, removal or disqualification of the Trustee or if for any reason the Beneficiary shall deem it desirable to appoint a substitute or successor trustee to act instead of the Trustee named in this Deed of Trust or instead of any substitute or successor Trustee, then the Beneficiary shall have the right and is hereby authorized and empowered to appoint a successor Trustee, or a substitute Trustee, without other formality than appointment and designation in writing executed by the Beneficiary and recorded in the real estate records of the county where the Mortgaged Property is located, and the authority conferred by this Section 7.03 shall extend to the appointment of other successor and substitute Trustees successively until the Obligations have been paid in full or until the Mortgaged Property is sold under this Deed of Trust. Such appointment and designation by the Beneficiary shall be full evidence of the right and authority to make the same and of all facts therein recited. Any such appointment executed on behalf of the Beneficiary by an officer of the Beneficiary shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the Beneficiary. Upon the making of such appointment and designation, all of the estate and title of the Trustee in the Mortgaged Property shall vest in the named successor or substitute Trustee, and the named successor or substitute Trustee shall thereupon succeed to and shall hold, possess and execute all the rights, powers, privileges, immunities and duties conferred upon the Trustee in this Deed of Trust. Upon the written request of the Beneficiary or of the successor or substitute Trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor or substitute Trustee all of the estate and title in the Mortgaged Property of the Trustee so ceasing to act, together with all the rights, powers, privileges, immunities and duties conferred upon the Trustee in this Deed of Trust, and shall duly assign, transfer and deliver any of the properties and moneys held by said Trustee under this Deed of Trust to said successor or substitute Trustee. All references in this Deed of Trust to the Trustee shall be deemed to refer to the Trustee (including any successor or substitute appointed and designated as provided in this Deed of Trust) from time to time acting under this Deed of Trust The Grantor hereby ratifies and confirms any and all acts which the Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue of this Deed of Trust. 7.04 Exculpation. The Trustee shall not be liable for any error of ----------- judgment or act done by the Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for the Trustee's gross negligence or willful misconduct. The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by the Trustee under this Deed of Trust, believed by the Trustee in good faith to be genuine. All moneys received by the Trustee, until used or applied as provided in this Deed of Trust, shall be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and the Trustee shall be under no liability for interest on any moneys received by it under this Deed of Trust. -26- EXHIBIT C-1 ARTICLE VIII Additional Provisions --------------------- 8.01 Construction of Certain provisions. The following rules of ---------------------------------- construction shall be applicable for all purposes of this Deed of Trust: (a) All references in this Deed of Trust to Articles, Sections and Schedules are references to Articles and Sections of and Schedules attached to this Deed of Trust, unless stated otherwise in this Deed of Trust (b) The cover page of, and all recitals set forth in, and all Schedules to, this Deed of Trust are by this reference incorporated in this Deed of Trust. (c) The table of contents and the captions of the Articles, Sections, subsections, paragraphs and other divisions of this Deed of Trust are included for convenience of reference only, and shall not in any way limit or affect the construction or interpretation of any provisions of this Deed of Trust. (d) Each of the terms "Mortgaged Property" and "Facility" shall be construed as if followed by the phrase "or any part thereof." (e) The term "Obligations" shall be construed as if followed by the phrase "or any other sums secured hereby, or any part thereof." (f) The term "indebtedness" shall mean (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services (iv) indebtedness created or arising under any conditional sale or other title retention agreement with respect to property, (v) obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (vi) obligations (contingent or otherwise) under acceptance, letter-of- credit or similar facilities, (vii) obligations in respect of interest rate swap agreements, currency swap agreements and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates and (viii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of the types referred to in any of clauses (i) through (vii) above. (g) The terms "include", "including" and similar terms shall be construed as if followed by the phrase "but not limited to." (h) The term "provisions," when used with respect to this Deed of Trust or any other Transaction Document shall be construed as if preceded by the phrase "terms, covenants, agreements, requirements, conditions and/or." (i) The term "person" shall include natural persons, firms, partnerships, corporations and any other public and private legal entities. (j) The term "lease" shall mean "tenancy, subtenancy, lease or sublease" and the term "lessee" shall mean "tenant, subtenant, lessee or sublessee." -27- EXHIBIT C-1 (k) The phrase "sound accounting principles and practices" shall mean generally accepted accounting principles and practices consistently applied, but permitting, with respect to the preparation of financial statements, the omission of footnotes and federal and state income tax reserves, none of which omissions shall represent an omission of material items of revenue or expense other than federal and state income tax expense. (l) Except with respect to Sections 2.02, 2.13 and 5.01, the term "consent of the Beneficiary" shall be construed as if followed by the phrase", which consent shall not be unreasonably withheld." (m) The words "reasonable attorneys fees and disbursements" shall include reasonable charges allocated for internal corporate counsel. (n) Words of masculine, feminine or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa. ---- ----- (o) No inference in favor of, or against any party shall be drawn from the fact that such party has drafted any portion of this Deed of Trust. 8.02 Limitation on Interest. Notwithstanding any other provisions of ---------------------- this Deed of Trust or any other Transaction Document to the contrary, no provision of this Deed of Trust or any other Transaction Document shall require the payment or permit the collection of interest, fees or charges in excess of the maximum rate permitted by applicable law. 8.03 Lease. The Trustee leases the Mortgaged Property to the ----- Grantor, until either this Deed of Trust is released or the Mortgaged Property is sold under the above provisions; on the following terms and conditions: The Grantor and every person claiming or possessing the Mortgaged Property through or under the Grantor shall pay rent during the term at the rate of one cent per month, payable monthly upon demand, and shall without demand surrender peaceable possession of the Mortgaged Property to the Trustee, successors and assigns of the Trustee, or purchasers of the Mortgaged Property under any foreclosure sale, within ten days after the sale date. 8.04 Amendments, Etc. No amendment or waiver of any provision of --------------- this Deed of Trust, nor consent to any departure by the Grantor from any such provision, shall in any event be effective unless such amendment, waiver or consent is in a writing which specifically refers to this Section 8.04 and which is signed by the Grantor and by the Chief Executive Officer or the President of the Beneficiary and, to the extent required by applicable law, by the Trustee; provided that any such waiver or consent shall be effective only in the specific - -------- instance and for the specific purpose for which given; provided, further, that -------- ------- the Trustee shall not sign any amendment or waiver without the consent of the Beneficiary. 8.05 Notices. Except as otherwise provided in this Deed of Trust or ------- required by applicable law, all notices, consents, requests and other communications to any party under or in connection with this Deed of Trust shall be in writing and shall be sent via personal delivery, via telephone facsimile transmission, via certified or registered mail, return receipt requested, or via express courier or delivery service, addressed to such party at such party's address or telephone facsimile number set forth below or at such other address or telephone facsimile number as shall be designated -28- EXHIBIT C-1 by such party in a written notice given to each other party complying as to delivery with the terms of this SECTION 8.05: if to the Grantor, at: P.O. Box 1670 Clemmons, North Carolina 27012 Attn: Don G. Angell Facsimile: (919)998-2560 with a copy to: House & Blanco, P.A 215 Executive Park Boulevard P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5008 Attn: George E. Hollodick Facsimile: (919)765-4830 if to the Beneficiary, at: The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attn: Vice President - Acquisitions and Development Facsimile: (206)756-4871 with a copy to: The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attn: General Counsel Facsimile: (206)756-4845 or (206)756-4743 if to the Trustee, at: Don F. Dagenais Gage & Tucker 2345 Grand Avenue Suite 2800 Kansas City, Missouri 64108 Facsimile: (816)292-2001. All such notices, consents, requests and other communications shall be deemed given (a) when given and receipted for (or upon the date of attempted delivery when delivery is refused), if sent via personal delivery, via certified or registered mail, return receipt requested, or via express courier or delivery service or (b) when received, if sent via telephone facsimile transmission (confirmation of such receipt -29- EXHIBIT C-1 via confirmed telephone facsimile transmission being deemed receipt of any such notice, request or other communication sent via telephone facsimile transmission). 8.06 No Merger. If both the lessor's and the lessee's interest under --------- any lease which constitutes a part of the Mortgaged Property shall at any time become vested in any one person, this Deed of Trust and the lien and security interest created by this Deed of Trust shall not be destroyed or terminated by the application of the doctrine of merger and, in such event, the Trustee and the Beneficiary shall continue to have and enjoy all of the rights and privileges of the Trustee and the Beneficiary under this Deed of Trust as to each separate estate. Upon the foreclosure of the lien created by this Deed of Trust, any leases then existing shall not be destroyed or terminated by application of the doctrine of merger or as a matter of law or as a result of such foreclosure unless the Trustee or the Beneficiary or any purchaser at a foreclosure sale shall so elect by notice to the lessee in question. 8.07 Severability. Any provision of this Deed of Trust that is ------------ prohibited or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Deed of Trust or affecting the validity or enforceability of such provision in any other jurisdiction. 8.03 Obligations of Grantor. Time is of the essence with respect to ---------------------- all of the Grantor's covenants and agreements under this Deed of Trust and all of such covenants and agreements shall run with the land. All obligations of the Grantor under this Deed of Trust shall be performed and satisfied by or on behalf of the Grantor at the Grantor's sole cost and expense. 8.09 Successors and Assigns. The provisions of this Deed of Trust ---------------------- shall be binding upon the Grantor and the successors and assigns of the Grantor, including successors in interest of the Grantor in and to all or any part of the Mortgaged Property, and shall inure to the benefit of the Trustee and the Beneficiary and the respective substitutes, successors, transferees and assigns of the Trustee and the Beneficiary. All references in this Deed of Trust to the Grantor, the Trustee or the Beneficiary shall be construed as including all of such other persons with respect to the person to which reference is made. Where two or more persons have executed this Deed of Trust, the obligations of such persons shall be joint and several except to the extent the context clearly indicates otherwise. 8.10 No Waiver. No provision in Article I or Section 2.05 or --------- elsewhere in this Deed of Trust shall be construed as a waiver by the Grantor of any warranty of the Beneficiary under the deed, dated the date of the Promissory Note, made by the Beneficiary to the Grantor with respect to the Facility, nor shall any such provision be construed to require the Grantor to pay any costs and expenses (including reasonable attorneys' fees and disbursements) incurred by the Beneficiary in connection with the defense of any warranty of the Beneficiary under such deed. 8.11 Attorneys' Fees. If any action or proceeding is commenced to --------------- enforce or interpret this Deed of Trust the prevailing party shall be entitled to recover from the non-prevailing party the costs and expenses of maintaining such action or proceeding, including reasonable attorneys' fees and disbursements incurred before such action or proceeding is commenced, before trial, at trial, after trial and on appeal, whether the action or proceeding is at law, in equity or in a bankruptcy case or proceeding. 8.12 Consent to Jurisdiction. The Grantor hereby irrevocably submits ----------------------- to the jurisdictiOn of any court of the State of Washington or any federal court of the United States of America for any district of the State of Washington, and any appellate court from any of such courts, in any action or proceeding arising from or by reason of, or otherwise relating to, this Deed of Trust, and the -30- EXHIBIT C-1 Grantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of Washington or in such federal court of the United States of America (for any district of the State of Washington. The Grantor, to the fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding in such court of the State of Washington or in such federal court of the United States of America (for any district of the State of Washington. The Grantor hereby irrevocably appoints House & Blanco, P.A. (the "Process Agent"), as the Grantor's agent to receive on behalf of the Grantor and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Grantor in care of the Process Agent at 215 Executive Park Boulevard, P.O. Drawer 25008, Winston-Salem, North Carolina 27114-5008, and the Grantor hereby irrevocably authorizes and directs the Process Agent to accept such service on the Grantor's behalf. As an alternative method of service, the Grantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Grantor at its address specified in Section 8.05. The Grantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 8.12 shall affect the right of the Beneficiary to serve legal process in any other manner permitted by law or shall affect the right of the Beneficiary to bring any action or proceeding against the Grantor or the Grantor's property in the courts of any other jurisdictions. 8.13 Waiver of Jury Trial. Each of the Grantor and the Beneficiary -------------------- hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) arising from or by reason of or relating to this Deed of Trust or any actions of the Grantor or the Beneficiary in the negotiation, administration, performance or enforcement of this Deed of Trust. 8.14 Applicable Law. This Deed of Trust shall be governed by, and -------------- construed in accordance with, the laws of the State of Missouri. IN WITNESS WHEREOF, the Grantor has executed this Deed of Trust as of the date first above written. [NAME OF THE GRANTOR] By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By __________________________________ Title: ___________________________ -31- EXHIBIT C-1 STATE OF ________________) )SS. COUNTY OF _______________) On this ____ day of _____________, 1992, before me, the undersigned, a Notary Public within and for said County and State, personally appeared ______________________, to me personally known, who being by me duly sworn, did say that he is the [Vice] President of Meadowbrook Manor of Kansas & Missouri, Inc., a North Carolina corporation and the general partner of __________________'a North Carolina limited partnership, that the seal (if any) affixed to the foregoing instrument is the corporate seal of said corporation, that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said __________________ acknowledged said instrument to be the free act and deed of said limited partnership and the free act and deed of said corporation as general partner of said limited partnership. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at my office in _____________________, the day and year last above written. _________________________________________________ Notary Public in and for Said County and State _________________________________________________ (Type or stamp the Notary's name below his or her signature.) My Commission Expires: ________________________ -32- EXHIBIT C-1 Schedule A to Deed of Trust, Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/13/ (Facility No. [___])/14/ Land ---- [RESERVED.] ____________________________________ /13/ Insert the name of the Facility. /14/ Insert the number assigned to the Facility. -1- EXHIBIT C-1 Schedule B to Deed of Trust. Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/15/ (Facility No. [____]/16/ Permitted Exceptions -------------------- [Reserved.] - ---------------------------------- /15/ Insert the name of the Facility. /16/ Insert the number assigned to the Facility. -1- EXHIBIT C-1 Schedule C to Deed of Trust, Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/17/ (Facility No. [___]/18/ Affiliates/19/ ---------- 1. Meadowbrook Manor of Baldwin Limited Partnership, a North Carolina limited partnership. 2. Meadowbrook Manor of Joplin Limited Partnership I, a North Carolina limited partnership. 3. Meadowbrook Manor of Council Grove Limited Partnership, a North Carolina limited partnership. 4. Meadowbrook Manor of Haysville Limited Partnership, a North Carolina limited partnership. 5. Meadowbrook Manor of St Charles Limited Partnership, a North Carolina limited partnership. 6. Meadowbrook Manor of Overland Park Limited Partnership, a North Carolina limited partnership. 7. Meadowbrook Manor Terrace of Overland Park Limited Partnership, a North Carolina limited partnership. 8. Meadowbrook Manor of Chanute Limited Partnership, a North Carolina limited partnership. 9. Meadowbrook Manor of Springfield Limited Partnership, a North Carolina limited partnership. 10. Meadowbrook Manor of Topeka Limited Partnership, a North Carolina limited partnership. 11. Meadowbrook Manor of Wichita Limited Partnership, a North Carolina limited partnership. 12. Meadowbrook Manor of Columbia Limited Partnership, a North Carolina limited partnership. 13. Meadowbrook Manor of Sedgwick Limited Partnership, a North Carolina limited partnership. 14. Meadowbrook Manor Colonial Terrace of Independence Limited Partnership, a North Carolina limited partnership. - ------------------------ /17/Insert the name of the Facility. /18/Insert the number assigned to the Facility. /19/Delete the name of the Grantor from this Schedule C and, to the extent required, re-number the list of Affiliates. -1- EXHIBIT C-1 15. Meadowbrook Manor Colonial Lodge of Independence Limited Partnership, a North Carolina limited partnership. 16. Meadowbrook Manor of Larned Limited Partnership, a North Carolina limited partnership. 17. Meadowbrook Manor Apartments of Lamed Limited Partnership, a North Carolina limited partnership. 18. Meadowbrook Manor of Ava Limited Partnership, a North Carolina limited partnership. 19. Meadowbrook Manor of Buffalo Limited Partnership, a North Carolina limited partnership. 20. Meadowbrook Manor of Clinton Limited Partnership, a North Carolina limited partnership. 21. Meadowbrook Manor of Des Peres Limited Partnership, a North Carolina limited partnership. 21 Meadowbrook Manor of Jefferson Limited Partnership, a North Carolina limited partnership. 23. Meadowbrook Manor of Marceline Limited Partnership, a North Carolina limited partnership. 24. Meadowbrook Manor of Joplin Limited Partnership II, a North Carolina limited partnership. 25. Meadowbrook Manor of Lamar Limited Partnership, a North Carolina limited partnership. 26. Meadowbrook Manor of Shady Oaks Limited Partnership, a North Carolina limited partnership. 27. Meadowbrook Manor of Crane Limited Partnership, a North Carolina limited partnership. 28. Meadowbrook Manor of Kimberling City Limited Partnership, a North Carolina limited partnership. 29. Meadowbrook Manor Residential of Kimberling City Limited Partnership, a North Carolina limited partnership. 30. Meadowbrook Manor Wornall of Kansas City Limited Partnership, a North Carolina limited partnership. 31. Meadowbrook Manor Blue Hills of Kansas City Limited Partnership I, a North Carolina limited partnership. 32. Meadowbrook Manor Blue Hills of Kansas City Limited Partnership II, a North Carolina limited partnership. -2- EXHIBIT C-1 Exhibit C-2 to Facility Agreement MORTGAGE. ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING) (Name of the Facility) (Facility No. [____]) Dated as of [________] ___]. 1992 By [NAME OF MORTGAGOR]. as the Mortgagor to FIRST HEALTHCARE CORPORATION, as the Mortgagee EXHIBIT C-2 TABLE OF CONTENTS -----------------
Page ---- RECITALS................................................................ 1 Land...................................................... 3 Improvements; Facility.................................... 3 Personal Property......................................... 3 Contract Interests........................................ 4 After Acquired Property................................... 4 Proceeds. Etc............................................. 4 ARTICLE I - Representations and Warranties of the Mortgagor............. 5 1.01 Warranty of Title......................................... 5 1.02 Non-Agricultural Use...................................... 5 1.03 Certificates and Permits.................................. 5 ARTICLE II - Covenants of the Mortgagor................................. 5 2.01 Payment of Obligations.................................... 5 2.02 Good Standing; Etc........................................ 5 2.03 Security Agreement........................................ 6 2.04 Further Assurances........................................ 6 2.05 Protection of Lien; Defense of Action..................... 6 2.06 Repair and Maintenance.................................... 7 2.07 Compliance with Laws...................................... 7 2.08 Use....................................................... 7 2.09 Zoning; Title Matters..................................... 8 2.10 Insurance................................................. 8 (a) Property and Casualty Insurance....................... 8 (b) Liability Insurance................................... 8 (c) Forms of Policies..................................... 8 (d) Transfer of Title..................................... 9 (e) Amounts of Coverage................................... 9 2.11 Damage and Destruction.................................... 9 2.12 Condemnation.............................................. 10 2.13 Liens..................................................... 10 2.14 Taxes and Other Charges................................... 11 2.15 Tax Deposits.............................................. 11 2.16 Inspection................................................ 12 2.17 Maintenance of Records.................................... 12 2.18 Mortgagor's Certificates.................................. 12 2.19 Prepayments; Release Premium.............................. 12 2.20 Reporting Requirements.................................... 13
-i- EXHIBIT C-2 ARTICLE III - Assignment of Rents and Other Sums ...................... 14 3.01 Assignment.............................................. 14 3.02 Right to Collect........................................ 15 3.03 Revocation of Right to Collect; Etc..................... 15 ARTICLE IV - Additional Advances; Expenses; Indemnity................. 15 4.01 Additional Advances and Disbursements................... 15 4.02 Other Expenses.......................................... 16 4.03 Indemnity............................................... 16 ARTICLE V - Transfer of the Mortgaged Property....................... 16 5.01 Transfer of the Mortgaged Property...................... 16 ARTICLE VI - Defaults and Remedies.................................... 17 6.01 Events of Default....................................... 17 6.02 Remedies................................................ 19 6.03 Expenses................................................ 21 6.04 Rights Pertaining to Sales.............................. 21 6.05 Application of Proceeds................................. 22 6.06 Additional Provisions as to Remedies.................... 23 6.07 Waiver of Rights and Defenses........................... 24 ARTICLE VII - Defeasance............................................... 24 7.01 Defeasance.............................................. 24 7.02 Release................................................. 25 ARTICLE VIII - Additional Provisions.................................... 25 8.01 Construction of Certain Provisions...................... 25 8.02 Limitation on Interest.................................. 26 8.03 Appointment of Mortgagee................................ 26 8.04 Amendments. Etc......................................... 26 8.05 Notices................................................. 26 8.06 No Merger............................................... 27 8.07 Severability............................................ 28 8.06 Obligation of Mortgagor................................. 28 8.09 Successors and Assigns.................................. 28 8.10 No Waiver............................................... 28 8.11 Consent to Jurisdiction................................. 28 8.12 Applicable Law.......................................... 29
Schedule A - Land Schedule B - Permitted Exceptions Schedule C - Affiliates ii EXHIBIT C-2 MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING) ([Name of the Facility)/1/ (Facility No. [___])/2/ This MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (FIXTURE FILING), dated as of [___________ ____], 1992 (this "Mortgage"), is made by [______________], a North Carolina limited partnership whose address is P.O. Box 1670, Clemmons, North Carolina 27011 as the mortgagor under this Mortgage (the "Mortgagor"), to FIRST HEALTHCARE CORPORATION, a Delaware corporation ("First Healthcare") whose address is The Cornerstone Building, 1148 Broadway Plaza, Tacoma, Washington 96402, as the mortgagee under this Mortgage (the "Mortgagee"). RECITALS A. The Mortgagee, as seller, and the Mortgagor and the Affiliates (as defined below), jointly and severally as buyers (the "Buyers"), have entered into a Facility Agreement, dated as of [_________ ____], 1992 (said Facility Agreement, as it may be supplemented, amended or otherwise modified from time to time, being the "Facility Agreement"). B. Pursuant to the terms and subject to the conditions set forth in the Facility Agreement, the Mortgagee has agreed to permit the Mortgagor to defer the payment of a portion of the purchase price for the properties (real, personal and mixed) that constitute the Mortgaged Property (as defined below) and that are the subject of the Facility Agreement, in a principal amount not to exceed [____________ ] and [___]/100 Dollars ($[___________]) C. Pursuant to the terms of the Facility Agreement, the Mortgagor has executed and delivered to the order of the Mortgagee a Promissory Note, dated [_______________], 1992,/3/ in the stated principal sum of[___________] and [___]/100 Dollars ($[______________]) (said Promissory Note, as it may be supplemented, amended, extended, renewed or otherwise modified from time to time, being the "Promissory Note"), evidencing the obligation of the Mortgagor to pay the deferred portion of the purchase price in respect of the Mortgaged Property. D. The total of the indebtedness and liabilities to be secured by this Mortgage equals the sum of the following (such indebtedness and liabilities or the instruments evidencing the same, as applicable, being collectively referred to in this Mortgage as the "Obligations"): (1) the principal amount of [____________________] and [____]/100 Dollars ($[________________]) (the "Purchase Price Balance"); plus - ----------------------------- /1/ Insert the name of the Facility. /2/ Insert the name of the Facility. /3/Insert the Closing Date. -1- EXHIBIT C-2 (2) interest on the unpaid principal amount of the Purchase Price Balance at a rate of interest per annum (the "Regular Rate") equal to; (a) nine percent (9%) per annum from [___________ ________], 1992/4/, to [_________ ___] 199__]/5/, and (b) eleven percent (11%) per annum from [________ ___], 199[___]/6/, to the date on which the Purchase Price Balance is paid in full; and at a rate per annum (the "Default Rate") equal at all times to the sum of the Regular Rate plus five percent (5%) per annum; plus (3) all other amounts that are or become payable by the Mortgagor and all other obligations of the Mortgagor under the Facility Agreement, the Promissory Note and this Mortgage; [(E./7/ The lien of this Mortgage is junior to the lien of the [____________]/8/ dated [as of] [_____________], 19[__] (the "First Lien Mortgage"), made by [_____________]/9/ to [__________]/10/ securing the payment of a Promissory Note, dated [________ ____], 19[__] (the "First Lien Promissory Note"), in the stated principal amount of $[_________,___], The obligations evidenced by the First Lien Promissory Note and secured by the First Lien Mortgage are and remain the obligations of the Mortgagee.) (F,/11/ All of the Obligations have a scheduled maturity of not later than [___________], 199[__]/12/.) - ----------------------- /4/ Insert the Closing Date. /5/ Insert the last day of the forty-first calendar month immediately following the calendar month in which the Closing occurs. /6/ Insert the first day of the forty-second calendar month immediately following the calendar month if, which the Closing occurs. /7/ Include this recital if this Mortgage is to be subordinate and inferior to any existing mortgage in respect of the Mortgaged Property. /8/ Insert the title of the existing mortgage to which this Mortgage is to be subordinate and inferior. /9/ Insert the name of the mortgagor under the First Lien Mortgage. /10/ Insert the name of the mortgagee under the First Lien Mortgage. /11/ Include this recital of required by applicable law. /12/ Insert the first day of the eighty-fourth calendar month immediately following the calendar month in which the Closing occurs. -2- EXHIBIT C-2 G. The execution and delivery of this Mortgage by the Mortgagor is a condition precedent to the obligation of the Mortgagee to consummate the transactions contemplated by the Facility Agreement. I. The rules of construction set forth in Section 8.01 shall be applicable for all purposes of this Mortgage. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Mortgagor, and to secure the punctual payment by the Mortgagor when due (whether at stated maturity, by acceleration or otherwise) of the Obligations and the performance and observance of all other covenants, obligations and liabilities of the Mortgagor under the Facility Agreement, the Promissory Note and this Mortgage, the Mortgagor does hereby GRANT, BARGAIN, SELL MORTGAGE, WARRANT, CONVEY, ALIEN, REMISE, RELEASE, ASSIGN, PLEDGE, HYPOTHECATE, TRANSFER, SET OVER, DELIVER and CONFIRM unto the Mortgagee, each and all of the following described properties, rights, interests and privileges and all of the Mortgagor's estate, right, title and interest in, to and under, or derived from, the following described properties, rights, interests and privileges (all of such properties, rights, interests and privileges being collectively referred to in this Mortgage as the "Mortgaged Property"): Land. All those certain lots, pieces and parcels of land more ---- particularly described in Schedule A, and all of the reversions and remainders in and to said land and the tenements, hereditaments, easements, right-of-way or use, rights (including alley, drainage, mineral, water, oil and gas rights), privileges, royalties and appurtenances to said land, now or hereafter belonging or in anywise appertaining to said land, including any such right, title or interest in, to or under any agreement or right granting, conveying or creating, for the benefit of said land, any easement, right or license in any way affecting other property and in, to or under any streets, ways, alleys, vaults, gores or strips of land adjoining any portion of said land, or in or to the air space over said land, all rights of ingress and egress by motor vehicles to parking facilities on or within said land, and all claims or demands of the Mortgagor, either at law or in equity, in possession or expectancy, of, in or to the same (all of the foregoing being collectively referred to in this Mortgage as the "Land"); Improvements; Facility. All buildings, structures, facilities and ---------------------- other improvements now or hereafter erected on, attached to or located in or upon the Land, and all building materials of every kind and nature now or hereafter located on the Land or attached to, contained in, or used in connection with, any such buildings, structures, facilities or other improvements, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest (all of the foregoing being collectively referred to in this Mortgage as the "Improvements," and the Land and the Improvements being together referred to in this Mortgage as the "Facility"); Personal Property. All machinery, equipment furniture, ----------------- furnishings, fixtures, chattels and other items of personal property, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest, wherever situated, and now or hereafter located on, attached to, contained in or used in connection with the Land, the Improvements or the Contract Interests, or placed on any part thereof although not attached thereto (all of the foregoing being collectively referred -3- EXHIBIT C-2 to in this Mortgage as the "Personal Property"), including all partitions, screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, gas, steam, electrical, incinerating and/or compacting plants, systems, fixtures and equipment, elevators, escalators, ranges, vacuum and other cleaning systems, call systems, switchboards, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, equipment, utensils, tools, implements. Writings and fixtures and all permits, licenses, franchises, certificates and other rights and privileges obtained in connection with the Mortgaged Property; Contract Interests. All the leases, lettings and licenses of, ------------------ and all other contracts and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) affecting, the Land, the Improvements, the Personal Property and/or any other property or rights mortgaged or otherwise conveyed or encumbered by this Mortgage, or any part thereof, now or hereafter entered into, and all supplements, amendments, modifications, additions, extensions and renewals thereof, and all right, title and interest of the Mortgagor therein and thereunder, including cash and securities deposited thereunder or pursuant thereto, the right to receive and collect the rents, proceeds, issues and profits due and to become due and payable thereunder or pursuant thereto and the rights to enforce, whether at law or in equity or by any other means, all provisions and options thereof (all of the foregoing being collectively referred to in this Mortgage as the "Contract Interests"); After Acquired Property. Any and all moneys and other property, ----------------------- of every kind and nature, which may from time to time be subjected to the lien of this Mortgage by the Mortgagor, through a supplement to this Mortgage or otherwise, or by any other person, or which may come into the possession of or be subject to the control of the Mortgagee, it being the intention and agreement of the Mortgagor that all property hereafter acquired or constructed by the Mortgagor shall forthwith upon acquisition or construction thereof by the Mortgagor and without any act or deed by the Mortgagor be subject to the lien and security interest of this Mortgage as a such property were now owned by the Mortgagor and were specifically described in this Mortgage and conveyed or encumbered by or pursuant to this Mortgage, and the Mortgagee is hereby authorized to receive any and all such property as and for additional security under this Mortgage (all of the foregoing being collectively referred to in this Mortgage as the "After Acquired Property"); and Proceeds, Etc. All unearned premiums (whether accrued, accruing or to accrue) under insurance policies now or hereafter obtained by the Mortgagor, all proceeds of the conversion (whether voluntary or involuntary) of the Mortgaged Property into cash or other liquidated claims (excluding proceeds of title insurance, but including proceeds of hazard and other insurance), and all judgments, damages, awards, settlements and compensatIon (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Land, the Improvements, the Personal Property, the Contract Interests and/or any other property or rights encumbered or conveyed by this Mortgage for any injury thereto or decrease in the value thereof for any reason, or by any governmental or other lawful authority for the taking by eminent domain, -4- EXHIBIT C-2 condemnation or otherwise of all or any part thereof, including awards for any change of grade of streets; TO HAVE AND TO HOLD, subject to the matters listed or otherwise described in Schedule B (the "Permitted Exceptions"), all and singular the Mortgaged Property, whether now owned or leased or hereafter acquired and whether now or hereafter existing, together with all the rights, privileges and appurtenances thereunto belonging, unto the Mortgagee forever, for the uses and purposes set forth in this Mortgage. AND the Mortgagor covenants and agrees with the Mortgagee as follows: ARTICLE I Representations and Warranties of the Mortgagor ----------------------------------------------- 1.01 Warranty of Title. (a) The Mortgagor has and will have good, ----------------- marketable and insurable fee simple title to the Facility, free and clear of all liens, charges and encumbrances of every kind and character, subject only to the Permitted Exceptions; (b) the Mortgagor owns and will own all of the other Mortgaged Property, free and clear of all liens, charges and encumbrances of every kind and character, subject only to the Permitted Exceptions; (c) the Mortgagor hereby warrants and will forever warrant and defend such title and the validity, enforceability and priority of the lien and security interest of this Mortgage against the claims of all persons whomsoever; (d) the Mortgagor has and will have full power and lawful authority to encumber and convey the Mortgaged Property as prided in this Mortgage; and (e) this Mortgage is and will remain a valid and enforceable lien on, and security interest in, the Mortgaged Property, subject only to the Permitted Exceptions. 1.02 Non-Agricultural Use. The Mortgaged Property is not used -------------------- principally for agricultural or farming purposes. 1.03 Certificates and Permits. The Mortgagor has and will maintain ------------------------ in effect all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the operation of the Facility as a [___________]-bed [skilled] [intermediate care] [nursing] facility and for the conduct of the Mortgages business at the Facility. ARTICLE II Covenants of the Mortgagor -------------------------- 2.01 Payment of Obligations. The Mortgagor will punctually pay the ---------------------- Obligations when due, and will perform and observe all of its other obligations under this Mortgage, the Promissory Note, the Facility Agreement and each other document or instrument to which the Mortgagor is a party and that relates to any of the Facility Agreement the Promissory Note or any security for the obligations of the Mortgagor under the Facility Agreement or the Promissory Note (this Mortgage, the Promissory Note, the Facility Agreement and such other documents and instruments, in each case as the same may be supplemented, amended or otherwise modified from time to time, being sometimes referred to in this Mortgage individually as a "Transaction Document" and collectively as the "Transaction Documents"). 2.02 Good Standing; Etc. The Mortgagor will maintain in good standing ------------------ its partnership existence, franchises, rights and privileges under the law of the jurisdiction of its formation and its right to transact business in the jurisdiction in which the Facility is located. Subject to and without limitation of Sections 2.19 and 5.01, the Mortgagor, without the prior consent of the Mortgagee, will not sell, lease or otherwise dispose of (whether directly or indirectly, or by operation of law, or in one transaction -5- EXHIBIT C-2 or a series of transactions) all or substantially all of its assets. Subject to and without limitation of Sections 2.19 and 5.01, the Mortgagee may withhold its consent to any proposed disposition of all or substantially all of the Mortgagee assets for no reason or any reason. The Mortgagor, without at least thirty days prior notice to the Mortgagee and compliance with the provisions of Section 2.04, will not change its name, identity or legal structure. 2.03 Security Agreement. The Mortgagor hereby further grants to the ------------------ Mortgagee a security interest in all of the Mortgagor's right, title and interest in, to and under the following, whether now owned or hereafter acquired (collectively, the "Collateral"): (a) the Personal Property; (b) the Contract Interests; (c) the After Acquired Property; and (d) all proceeds of any and all of the foregoing Collateral, including proceeds which constitute property of the types included in the Personal Property, the Contract Interests and the After Acquired Property and, to the extent not otherwise included, all cash, all unearned premiums (whether accrued, accruing or to accrue) under insurance policies now or hereafter obtained by the Mortgagor, all proceeds of the conversion (whether voluntary or involuntary) of any of the Mortgaged Property into cash or other liquidated claims (including proceeds of hazard and other insurance), and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Land, the Improvements, the Personal Property, the Contract Interests and/or any other property or rights encumbered or conveyed by this Mortgage for any injury thereto or decrease in the value thereof for any reason, or by any governmental or other lawful authority for the taking by eminent domain, condemnation or otherwise of all or any part thereof, including awards for any change of grade of streets. The Mortgagee shall have, in addition to all rights and remedies provided in the Transaction Documents, all of the rights and remedies of a "secured party" under the Uniform Commercial Code in effect in the jurisdiction in which the Facility is located. This Mortgage constitutes and shall be deemed to be a "security agreement" for all purposes of said Uniform Commercial Code. Notwithstanding any provision in this section 2.03 or elsewhere in this Mortgage to the contrary, this Mortgage shall not be construed to create a lien on or a security interest in any patient accounts or any other accounts constituting any right of the Mortgagor to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. 2.04 Further Assurances. Promptly upon request by the Mortgagee, the ------------------ Mortgagor will (a) correct any defect, error or omission that may be discovered in the contents of, or in the execution, acknowledgment or recordation of, this Mortgage or any other Transaction Document and (b) do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, mortgages, deeds of trust assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other documents and instruments as the Mortgagee may require from time to time in order to effectuate the purposes of this Mortgage and to perfect and maintain the validity, effectiveness and priority of the lien and security interest created by this Mortgage. 2.05 Protection of Lien; Defense of Action. If any action or ------------------------------------- proceeding is instituted against the Mortgagor with respect to any right, title or interest in or to the Mortgaged Property or with respect to the lien, security interest, validity or priority of this Mortgage, or a any such right, title, interest, lien, security interest validity, effectiveness or priority is otherwise challenged or attacked, then the Mortgagor promptly will notify the Mortgagee of such action, proceeding, challenge or attack, diligently will endeavor to cure any defect that may be developed or claimed, and will take all necessary and proper steps for the defense of such action or proceeding, including the employment of counsel, the prosecution or -6- EXHIBIT C-2 defense of litigation and, subject to the prior written approval of the Mortgagee, the compromise, release or discharge of any and all adverse claims. The Mortgagee (whether or not named as a party to such action or proceeding), is hereby authorized and empowered (but shall not be obligated) to take such additional steps (including the employment of counsel, the prosecution or defense of litigation, the compromise, release or discharge of such adverse claims, the purchase of any tax title and the removal of prior liens and security interests) as it may deem necessary or proper for the defense of any such action or proceeding or the protection of such right, title, interest, lien, security interest, validity, effectiveness or priority. The Mortgagor, on demand, shall pay all costs and expenses incurred by the Mortgagee in connection with the foregoing matters. All such costs and expenses of the Mortgagee, until paid by the Mortgagor, shall be part of the Obligations and shall be secured by this Mortgage. 2.06 Repair and Maintenance. The Mortgagor will operate and maintain the Facility and the Personal Property in good order, repair and operating condition, and promptly will make all repairs, renewals, replacements, additions and improvements to the Facility and the Personal Property that are necessary to ensure that the Facility and the Personal Property shall not in any way be diminished or impaired as part of the security under this Mortgage. The Mortgagor will keep the Facility fully equipped and will replace all worn-out or obsolete Personal Property with Fixtures or personal property comparable to such Personal Property when new and, without the prior consent of the Mortgagee, will not remove any Personal Property from the Facility unless such Personal Property is replaced by the Mortgagor with Fixtures or personal property of equal suitability and value when new, owned by the Mortgagor free and clear of any lien or security interest (other than the Permitted Exceptions and the lien and security interest created by this Mortgage). No part of the Improvements shall be removed, demolished or structurally or materially altered (including an alteration which impairs the value of the Improvements), nor shall any new building, structure, facility or other improvement be constructed on the Land without the prior consent of the Mortgagee. The Mortgagor, without the prior consent of the Mortgagee, will not cause or allow the Mortgaged Property to be misused or wasted or to deteriorate. 2.07 Compliance with Laws. The Mortgagor promptly will comply with, -------------------- and will cause the Facility to be maintained, used and operated at all times in accordance with, any and all present and future laws, rules, regulations, ordinances and requirements (including any and all licensing, accrediting and insurance requirements) applicable to the Mortgagor or the Facility. The Mortgagor promptly will notify the Mortgagee of any alleged noncompliance by the Mortgagor or the Facility with any such laws, rules, regulations, ordinances or requirements, and of any action or proceeding initiated under or with respect to any of such laws, rules, regulations, ordinances or requirements. 2.08 Use. The Mortgagor will not use or occupy the Facility, or permit --- the Facility to be used or occupied, in any manner which violates any applicable law, rule, regulation, ordinance or order, or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect to the Facility. Without limiting the generality of the preceding sentence, the Mortgagor will use and occupy the Facility, or cause the Facility to be used and occupied, as and for a[n] ([skilled] [intermediate] care) [nursing] facility and for no other principal use unless agreed to in writing by the Mortgagee. The Mortgagor shall at all times maintain in full force and effect all registrations, qualifications, licenses and other authorizations and approvals required to use and occupy the Facility as and for a [_________]-bed ([skilled] [intermediate] [care] [nursing] facility. Notwithstanding any other provision in this Section 2.08 or elsewhere in this Mortgage or any other Transaction Document to the contrary, the Mortgagor, without the prior consent of the Mortgagee, will not permit any person other than the Mortgagor to operate the Facility, whether pursuant to any lease, any management agreement or otherwise; provided that, -------- without the prior consent of the Mortgagee, the Mortgagor may permit Meadowbrook Healthcare Services Incorporated, a North Carolina corporation, or any wholly-owned subsidiary of Meadowbrook Healthcare Services Incorporated, to operate the Facility pursuant to a management agreement with the Mortgagor. -7- EXHIBIT C-2 2.09 Zoning; Title Matters. The Mortgagor, without the prior consent --------------------- of the Mortgagee, will not (a) initiate or support any zoning reclassification of the Facility, seek any variance under existing zoning ordinances applicable to the Facility or use or permit the use of the Facility in a manner which would result in such use becoming a non conforming use under applicable zoning ordinances, (b) supplement, amend or otherwise modify any of the Permitted Exceptions, (c) impose any restrictive covenants upon the Facility, (d) execute or file any subdivision plat affecting the Facility or consent to the annexation of the Facility to any municipality or (e) permit or suffer the Facility to be used by the public or any person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement. 2.10 Insurance. --------- (a) Property and Casualty Insurance. The Mortgagor will keep the ------------------------------- Improvements and the Personal Property insured for the benefit of the Mortgagee as follows: (i) against damage or loss by fire and such other hazards (including lightning, windstorm, hail, explosion, not, not attending a strike, civil commotion, flood, earthquake, vandalism, malicious mischief, aircraft, vehicle and smoke) as are covered by the broadest form of "all-risk" coverage as is available from time to time in the jurisdiction in which the Facility is located, in an amount not less than the full insurable value (as defined below) of the Improvements and the Personal Property; (ii) rent or business interruption or use and occupancy insurance on an actual loss sustained basis; (iii) against damage or loss from sprinkler system leakage and boilers, boiler tanks, heating and air conditioning equipment, pressure vessels, auxiliary piping, mechanical and electrical equipment and such similar apparatus as is commonly insured under a comprehensive definition of insured object on such basis and in such amounts as shall be reasonably required by the Mortgagee; and (iv) during the period of any permitted construction, repair, restoration or replacement of the Facility, against damage or loss and such other hazards as are covered by a standard all-risk builder's risk policy with extended coverage, including coverage against collapse, written on a completed value basis, for an amount at least equal to the fu11 insurable value of the Improvements and the Personal Property. The Mortgagor shall ensure that any contractor performing any permitted construction, repair, restoration or replacement of the Facility shall procure and maintain at all times insurance equal to that required of the Mortgagor and that such contractor also shall comply with all statutory and regulatory requirements related to workers' compensation. (b) Liability Insurance. The Mortgagor shall procure and ------------------- maintain commercial public liability insurance covering the Mortgagor and the Mortgagee against claims for bodily injury and death and property damage occurring in, on or about or resulting from the Facility, or any street, drive, sidewalk, curb or passageway adjacent to the Facility, in standard form and with such insurance company or companies and in such amounts as may be acceptable to the Mortgagee in its reasonable judgment, which insurance shall include blanket contractual liability coverage that insures contractual liability under any indemnification of the Mortgagee by the Mortgagor in the Facility Agreement, the Promissory Note, this Mortgage or any other Transaction Document (but such coverage or the amount of such coverage shall in no way limit such indemnification). In addition to the commercial public liability insurance required by the preceding sentence, the Mortgagor also shall procure and maintain employer's liability, automobile, personal injury and professional liability coverage in amounts of $1,000,000 primary coverage and $5,000,000 excess coverage. (c) Forms of Policies. All insurance required under this Section ----------------- 2.10 shall be fully paid for and nonassessable and shall contain such provisions, endorsements and expiration dates, as the Mortgagee shall from time to time reasonably request, and shall be in such form and amounts, and be issued by such insurance companies, as shall be approved by the Mortgagee in its reasonable judgment Without limiting the generality of the preceding sentence, all such policies shall have endorsed thereon, in form acceptable to the Mortgagee, the New York Standard Mortgagee -8- EXHIBIT C-2 Clause, or the local equivalent, without contribution, in the name of the Mortgagee, and a waiver of subrogation endorsement. Each such policy shall provide that it will not be cancelled, amended or materially altered (including by reduction in the scope or limits of coverage) without at least thirty days prior notice to the Mortgagee. The Mortgagor shall deliver, or cause to be delivered, to the Mortgagee (i) duplicate original policies evidencing the insurance required under this section 2.10, (ii) receipts evidencing payment of all premiums on such policies and (iii) at least thirty days prior to the expiration of each such policy, a duplicate original renewal policy with evidence satisfactory to the Mortgagee of payment of all premiums on such policy. In lieu of the duplicate original policies required by this section 2.10 to be delivered to the Mortgagee. the Mortgagor may deliver original certificates from the issuing insurance company or companies, evidencing that such policies are in full force and effect and containing information which, in the Mortgagee's reasonable judgment, is sufficient to allow the Mortgagee to determine whether such policies comply with the requirements of this Section 2.10. The Mortgagor shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this section 2.10. unless endorsed in favor of the Mortgagee in accordance with the requirements of this Mortgage and otherwise approved by the Mortgagee in all respects. (d) Transfer of Title. In the event of foreclosure of this ----------------- Mortgage or extinguishment, in whole or in part of the Obligations, all right, title and interest of the Mortgagor in and to all policies of insurance required under this Section 2.10 or otherwise then in force with respect to the Mortgaged Property and all proceeds payable thereunder and unearned premiums thereon shall immediately vest in the purchaser or other transferee of the Mortgaged Property. (e) Amounts of Coverage. For the purposes of this section 2.10, ------------------- the term "full insurable value" shall mean the cost of replacing the Improvements and the Personal Property, exclusive of the cost of excavations, foundations and footings, as determined from time to time (but not less often than once every three years) by the insurance company or companies holding such insurance or by an appraiser, engineer, architect or contractor proposed by the Mortgagor and approved by said insurance company or companies and the Mortgagee. All deductibles shall be commercially reasonable and, in any event, subject to the prior written approval of the Mortgagee or the Mortgagee's designee. 2.11 Damage and Destruction. In the event the Facility is damaged, lost or destroyed, (a) the Mortgagor promptly shall notify the Mortgagee of such event, (b) the Mortgagor, unless otherwise instructed by the Mortgagee, promptly shall commence and diligently pursue to completion the restoration, replacement or rebuilding of the Facility as nearly as possible to its value, condition and character immediately prior to such damage, loss or destruction, regardless of whether the insurance proceeds, if any, shall be sufficient for the purpose or shall be otherwise applied by the Mortgagee as provided in this Mortgage, (c) the Mortgagee may, but shall not be obligated to, make proof of loss if not made promptly by the Mortgagor and settle, adjust or compromise any claims for damage, loss or destruction (and the Mortgagor hereby authorizes and empowers the Mortgagee to make any such proof of loss, settlement, adjustment or compromise, and the Mortgagor hereby authorizes and directs each insurance company concerned to make payment for any such damage, loss or destruction directly to the Mortgagee) and (d) the Mortgagee shall have the right to apply the insurance proceeds, first, to reimburse the Mortgagee for all reasonable costs and expenses incurred in connection with the collection of such proceeds, and, second, at the option of the Mortgagee, (i) to pay all or any part of the Obligations then due in the order and manner determined by the Mortgagee in its sole discretion, (ii) to cure any then current default under this Mortgage, or (iii) to repair, restore or replace, in whole or in part, the portion of the Facility so damaged, lost or destroyed. Notwithstanding anything in this Mortgage or at law or in equity to the contrary, no insurance proceeds that are paid to the Mortgagee -9- EXHIBIT C-2 as provided in this Mortgage shall be deemed trust funds, and the Mortgagee shall be entitled to dispose of such proceeds as provided in this Mortgage. The Mortgagor expressly assumes all risk of loss, including a decrease in the use, enjoyment or value, of the Mortgaged Property from any casualty whatsoever, whether or not insurable or insured against. 2.12 Condemnation. The Mortgagor, immediately upon obtaining knowledge ------------ of any pending or threatened proceeding for the condemnation of the Facility or of any right of eminent domain, or of any other proceeding arising out of injury or damage to the Facility (including a change in grade of any street), will notify the Mortgagee of the pendency or threat of such proceeding. The Mortgagee may participate in such proceeding, and the Mortgagor from time to time will execute and deliver to the Mortgagee all instruments requested by the Mortgagee to permit such participation. The Mortgagor shall diligently prosecute such proceeding, deliver to the Mortgagee copies of all papers served in connection with such proceeding and consult and cooperate with the Mortgagee and the Mortgagee's attorneys and agents in the prosecution and defense of such proceeding; provided that the Mortgagor shall not settle such proceeding -------- without the prior consent of the Mortgagee. The Mortgagor hereby assigns to the Mortgagee all proceeds of condemnation awards, all proceeds of sale in lieu of condemnation, and all proceeds of all judgments, decrees and awards for injury or damage to the Mortgaged Property. The Mortgagor shall execute and deliver such further assignments of such proceeds as the Mortgagee may request, and hereby authorizes the Mortgagee to collect and receive any and all such proceeds, to give receipts and acquittances therefor, and to appeal from any such judgment, decree or award. The Mortgagee shall in no event be liable or responsible for any failure to collect, or to exercise diligence in the collection of, any of such proceeds. The Mortgagee shall have the right to apply any such proceeds, first, to reimburse the Mortgagee for all costs and expenses incurred in connection with the proceeding in question or the collection of such proceeds and, second, as provided in section 2.11 in respect of the application of insurance proceeds held by the Mortgagee. Notwithstanding anything in this Mortgage or at law or in equity to the contrary, none of the proceeds that are paid to the Mortgagee as provided in this section 2.12 shall be deemed trust funds, and the Mortgagee shall be entitled to dispose of such proceeds as provided in this Mortgage. Notwithstanding any condemnation, taking or other proceeding that causes injury to or a decrease in value of the Facility (including a change in grade of any street), the Mortgagor shall continue to pay the Obligations as provided in the Promissory Note. 2.13 Liens. The Mortgagor, without the prior consent of the Mortgagee, ----- will not create, assume or suffer to exist any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual (except for the lien for ad valorem taxes on the Mortgaged Property which are not yet due and payable), security interest, encumbrance or charge, or conditional sale or other title retention document against or covering the Mortgaged Property, prior to, on a parity with or subordinate to the lien of this Mortgage, other than the Permitted Exceptions and other than purchase money security interests in personal property (other than replacement fixtures and personal property pursuant to Section 2.06) acquired or held by the Mortgagor in the ordinary course of business to secure the purchase price of such property so long as no such purchase money security interest shall extend to or cover any property other than the personal property being acquired and so long as the aggregate principal amount of the indebtedness at any one time outstanding secured by the purchase money securIty interests permitted by this section 2.13 shall not otherwise be prohibited by the terms of any Transaction Document and shall not exceed the lesser of eighty percent of the cost of such personal property or the then fair value of such personal property. The Mortgagor will pay, and or otherwise discharge, from time to time when the same shall become due, all lawful claims and demands of mechanics, materialmen, laborers and others which, a unpaid, might result in, or permit the creation of, a lien on the Mortgaged Property, or on the rents, proceeds, issues and profits due or to become due and payable under or pursuant to any of the Mortgaged Property. Except as otherwise provided in this Section 2.13, the Mortgagee may withhold its consent to any proposed deed of trust, mortgage, -10- EXHIBIT C-2 lien, security interest, encumbrance, charge, or conditional sale or other title retention document for no reason or any reason. 2.14 Taxes and Other Charges. The Mortgagor will pay when due, and ----------------------- before any penalty, interest or cost for nonpayment thereof may be added thereto, all taxes, assessments, vault, water and sewer rents, rates, charges and assessments, levies, permits, inspection and license fees and other governmental and quasi-governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, heretofore or hereafter assessed, levied or otherwise imposed against or upon, or which may become a lien upon, the Mortgaged Property or the rents, proceeds, issues and profits due or to become due and payable under or pursuant to the Mortgaged Property or arising in respect of the occupancy, use or possession of the Mortgaged Property. The Mortgagor will promptly pay all income, franchise and other taxes owing by the Mortgagor, together with any interest or penalties thereon. 2.15. Tax Deposits. Following any failure by the Mortgagor to pay when ------------ due any real property tax or personal property tax required to be paid by the Mortgagor under Section 2.14, and without limiting the obligations of the Mortgagor under section 2.14, if required by the Mortgagee, the Mortgagor, at its sole cost and expense, shall deposit with such service or financial institution as the Mortgagee shall designate, monthly on the first day of each calendar month, one-twelfth of the aggregate annual amount of the real property and personal property taxes required to be paid by the Mortgagor under Section 2.14. In addition, if required by the Mortgagee, the Mortgagor also shall deposit with such service or financial institution a sum of money which, together with the monthly installments required under the preceding sentence, will be sufficient to make each of the payments of such real property and personal property taxes at least three days before such payments are due, If the amount of any such payments is not ascertainable at the time any such deposit is required to be made pursuant to this Section 2.15, then the deposit shall be made on the basis of the Mortgagee's estimate of such amount, and, when such amount is fixed for the then-current year, the Mortgagor promptly shall deposit any deficiency with such service or financial institution. All funds deposited with such service or financial institution pursuant to this Section 2.15, until applied as provided below, shall constitute additional security for the Obligations, shall be held by such service or financial institution in a separate interest,bearing account and, provided that no Event of Default (as defined below) shall have occurred and be continuing, such funds and any interest earned thereon shall be applied in payment of the amounts of such real property and personal property taxes prior to their becoming delinquent, to the extent that such service or financial institution shall have such funds on hand; provided that neither the Mortgagee nor such service or financial institution - -------- shall have any obligation to use such funds to pay any installment of such real property or personal property taxes prior to the last day on which payment thereof may be made without penalty or interest The Mortgagor shall be responsible for furnishing to the Mortgagee bills or invoice; for such real property and personal property taxes in sufficient time to pay the same before any penalty or interest attaches, and neither the Mortgagee nor such service or financial institution shall have any responsibility for payment of such real property or personal property taxes in the absence of such bills or invoices. If an Event of Default shall have occurred and be continuing, or if the Obligations shall be accelerated as provided in this Mortgage or the Promissory Note, then all funds deposited with such soak or financial institution under this Section 2.15 and any interest earned thereon, at the Mortgagee's option, may be applied to the Obligations in the order and manner determined by the Mortgagee or to cure such Event of Default or otherwise as provided in this Section 2.15. Upon an assignment or other transfer of this Mortgage, the Mortgagee shall thereupon be completely released from all liability with respect to such deposits, and the Mortgagor or the owner of the Mortgaged Property shall look solely to such service or financial institution or the assignee or transferee with respect to such deposit. The preceding sentence shall apply to each transfer of such deposits to a new assignee or transferee. A permissible transfer of record title to the Facility automatically shall transfer to the new owner the beneficial interest in any -11- EXHIBIT C-2 deposits made under this section 2.15. Upon full payment and satisfaction of this Mortgage or, at the Mortgagee'S option, at any prior time, the balance of deposited amounts and any interest earned thereon in the possession of such service or financial institution shall be paid over to the record owner of the Facility, and no other person shall have any right or claim to such deposited amounts or interest in any event. 2.16 Inspection. Upon reasonable notice from the Mortgagee to the ---------- Mortgagor, the Mortgagor will allow the Mortgagee or its authorized representatives, at all reasonable times, to enter upon and inspect the Mortgaged Property and the books and records with respect to the operations of the Mortgaged Property. 2.17 Maintenance of Records. The Mortgagor shall keep and maintain ---------------------- complete and accurate books and records in accordance with sound accounting principles with respect to all operations of or transactions involving the Mortgaged Property. 2.18 Mortgagor's Certificates. The Mortgagor, within ten days after ------------------------ request by the Mortgagee, shall furnish to the Mortgagee a written statement, duly acknowledged, certifying to the Mortgagee and/or any proposed assignee of this Mortgage as to (a) the amount of the Obligations then owing, (b) the terms of payment and maturity date of the Obligations, (c) the date to which interest has been paid under the Promissory Note and (d) whether any offsets or defenses exist against the Obligations and, if any are alleged to exist, a detailed description thereof. 2.19 Prepayments; Release Premium. So long no Event of Default shall ---------------------------- have occurred and be continuing, the Mortgagor may prepay the unpaid principal amount of the Promissory Note, in whole or in part, plus accrued interest to the date of such prepayment on the principal amount prepaid, plus any late charges then payable under the Promissory Note, plus any costs and expenses then payable by the Mortgagor under the Promissory Note; provided that each partial -------- prepayment shall be in a principal amount of not less than Five Thousand and NO/100 Dollars ($5,000.00); provided, further, that upon prepayment in whole of -------- ------- the unpaid principal amount of the Promissory Note plus accrued interest to the date of such prepayment plus the amount of any late charges then payable under the Promissory Note plus any costs and expenses then payable by the Mortgagor under the Promissory Note, the Mortgagor shall pay to First Healthcare a release premium (the "Release Premium") in an amount, determined at the date of such prepayment, equal to five percent of the amount of the Purchase Price Balance that would then have been outstanding a the Purchase Price Balance had been timely paid in accordance with the regularly scheduled required installment payments provided for in the Promissory Note without regard to any prepayments made in respect of the Promissory Note. The Release Premium shall be applied first to any costs and expenses then payable by the Mortgagor or any Affiliate under any Related Promissory Note (as defined below), second to any late charges then payable under any Related Promissory Note, and then to the principal of any Related Promissory Note and accrued interest thereon as agreed to by the Mortgagor and First Healthcare, or, if the Mortgagor and First Healthcare cannot agree, then to such principal and accrued interest determined by the Mortgagor in its sole discretion as to fifty percent of the Release Premium and to such principal and accrued interest determined by First Healthcare in its sole discretion as to fifty percent of the Release Premium. Each partial prepayment shall be applied first to any costs and expenses then payable by the Mortgagor under the Promissory Note, second to any late charges then payable under the Promissory Note, third to interest then accrued, and then to the principal installments under the Promissory Note in the inverse order of their maturities without deferral or limitation of the intervening installments of principal or interest For the purposes of this Mortgage, the term "Related Promissory Note" means any of the promissory notes made by one or more of the persons listed or otherwise described in Schedule C (the persons listed or otherwise described in Schedule C, and their respective successors and permitted assigns, being sometimes referred to in this Mortgage individually as an -12- EXHIBIT C-2 "Affiliate" and collectively as the "Affiliates") to the order of First Healthcare and evidencing the obligation of such Affiliate or Affiliates to pay a portion of the purchase price for the properties (real, personal and mixed) that are the subject of the Facility Agreement. 2.20 Reporting Requirements. So long as the Promissory Note shall ---------------------- remain unpaid, the Mortgagor shall furnish to the Mortgagee: (a) as soon as possible and in any event within five days after the occurrence of each Event of Default and each event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, continuing on the date of such statement, a statement of the chief financial officer of the general partner in the Mortgagor setting forth details of such Event of Default or event and the action which the Mortgagor has taken and proposes to take with respect thereto; (b) as soon as available and in any event within sixty days after the end of each of the first three quarters of each Fiscal year of the Mortgagor, a balance sheet of the Mortgagor as of the end of such quarter and statements of income and expense and of cash flow of the Mortgagor for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the general partner in the Mortgagor as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial condition of the Mortgagor as of the respective dates of such financial statements and the results of the operations of the Mortgagor for the periods ended on such dates, together with a certificate of said officer stating that no Event of Default, or event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, has occurred and is continuing or, if an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof and the action which the Mortgagor has taken and proposes to take with respect thereto; (c) as soon as available and in any event within sixty days after the end of each quarter of each fiscal year of the Mortgagor, a balance sheet for the Facility as of the end of such quarter and statements of income and expense and of cash flow for the Facility for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, Setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal yew, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the general partner in the Mortgagor as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial conditIon of the Facility as of the respective dates of such financial statements and the results of the operations of the Facility for the periods ended on such dates; (d) as soon as available and in any event within one-hundred twenty days after the end of each fiscal year of the Mortgagor, a balance sheet of the Mortgagor as of the end of such fiscal year and statements of income and expense and of cash flow of the Mortgagor for such fiscal year, accompanied by a report and an opinion of independent certified public accountants of recognized standing or, a such report and opinion are not available, duly certified by the chief financial officer of the general partner in the Mortgagor as having been prepared in accordance with generally accepted accounting principles and practices consistently applied and as fairly presenting the financial condition of the Mortgagor as of the end of such fiscal year and the results of the operations of the Mortgagor for such fiscal year; -13- EXHIBIT C-2 (e) as soon as available and in any event within ninety days after the end of each fiscal year of the Mortgagor, a certificate of the chief financial officer of the general partner in the Mortgagor stating that no Event of Default, or event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, has occurred and is continuing or, if an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof and the action which the Mortgagor has taken and proposes to take with respect thereto; (f) as soon as available and in any event within sixty days after the end of each quarter of each fiscal year of the Mortgagor, detailed operational statistics for the Facility pertaining to occupancy rates, patient or resident mix and patient or resident rates by type for the period commencing at the end of the previous fiscal year and ending with the end of such quarter; (g) promptly and in any event within thirty days after the sending or filing thereof, copies of all cost reports (including all cost reports filed pursuant to Titles XVIII and XIX of the Social Security Act, as amended) and all amendments thereto required to be filed with any governmental or regulatory authority in respect of the Facility, in each case duly certified by an authorized officer of the general partner in the Mortgagor as being accurate and complete and as having been prepared in accordance with applicable governmental and regulatory requirements; (h) promptly and in any event within thirty days after receipt thereof by the Mortgagor, a copy of each survey prepared by any governmental or regulatory authority with respect to the Facility, together with a copy of any related plan of correction; (i) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which the Mortgagor sends to its partners, and copies of all regular, periodic and special reports, and all registration statements, that the Mortgagor files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (j) such other information respecting the business, properties, operations or condition (financial or otherwise) of the Mortgagor and the Affiliates as the Mortgagee may from time to time reasonably request, in each case certified by an appropriate officer of the general partner in the Mortgagor. ARTICLE III Assignment of Rents and Other Sums ---------------------------------- 3.01 Assignment. The Mortgagor hereby bargains, sells, assigns, ---------- transfers and sets over to the Mortgagee, absolutely and not as additional security for the payment of the Obligations, all rents, proceeds issues and profits due and to become due and payable under or pursuant to or to be derived from the Mortgaged Property, or the use and occupation of the Mortgaged Property, including all rents, royalties, revenues, rights, deposits (including security deposits) and benefits accruing to the Mortgagor under all leases and all other contracts and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) now or hereafter covering the Mortgaged Property, whether before or after foreclosure or during the full period of redemption, if any, and the right to receive the same and apply them against the Obligations or against the Mortgagor's other obligations under this Mortgage, together with all contracts, bonds, leases and other documents and agreements (including all patient care agreements, life care contracts, admission agreements and other contracts and agreements with residents, patients and other persons pertaining to the care of residents or patients) evidencing the same now or hereafter in effect and all rights of the -14- EXHIBIT C-2 Mortgagor thereunder. Nothing contained in the preceding sentence shall be construed to bind the Mortgagee to the performance of any of the provisions of any such contract, bond, lease or other document or agreement or otherwise to impose any obligation upon the Mortgagee (including any liability under a covenant of quiet enjoyment contained in any lease or under applicable law in the event that any tenant shall have been joined as a party defendant in any action to foreclose this Mortgage and shall have been foreclosed of all right, title and interest and all equity of redemption in the Mortgaged Property), except that the Mortgagee shall be accountable for any money actually received by the Mortgagee pursuant to such assignment. The assignment of said rents, proceeds, issues and profits, and of the aforesaid rights with respect thereto and to the contracts, bonds, leases and other documents and agreements evidencing the same is intended to be and is an absolute present assignment from the Mortgagor to the Mortgagee and not merely the passing of a security interest. The Mortgagor will, as and when requested from time to time by the Mortgagee, execute, acknowledge and deliver to the Mortgagee, in form approved by the Mortgagee, one or more general or specific assignments of the lessor's interest under any lease, contract or agreement (including any patient care agreement, life care contract, admission agreement and other contract or agreement with any resident, patient or other person pertaining to the cue of residents or patients) now or hereafter affecting the Mortgaged Property. Notwithstanding any provision in this section 3.01 or elsewhere in this Mortgage to the contrary, this Mortgage shall not be construed to constitute an assignment of any patient accounts or any other accounts constituting any right of the Mortgagor to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper. 3.02 Right to Collect. So long as there shall exist no Event of ---------------- Default, and except as otherwise expressly provided in this Mortgage, the Mortgagor shall have the right and license to collect, as the same shall accrue, the rents, proceeds, issues and profits due and to become due and payable under or pursuant to or to be derived from the Mortgaged Property or the use and occupation of the Mortgaged Property. The Mortgagor agrees to hold the same in trust and to use the same in payment of the Obligations, taxes, assessments, levies, fees, charges and insurance premiums payable under this Mortgage and all other charges on or against the Mortgaged Property. 3.03 Revocation of Right to Collect; Etc. Upon the occurrence of any ----------------------------------- Event of Default, (i) the right and license set forth in Section 3.02 may be revoked by the Mortgagee, and thereafter the Mortgagee shall have the right and authority to exercise any of the rights or remedies referred to or set forth in ArtIcle VI and (ii) the Mortgagor shall promptly pay to the Mortgagee (A) all prepayments and security or other deposits paid to the Mortgagor pursuant to any contract, bond, lease or other document or agreement assigned under this Mortgage and (B) all charges for services or facilities or for escalation which were paid pursuant to any such contract, bond, lease or other document or agreement to the extent allocable to any period from and after the occurrence of such Event of Default if the Mortgagor is not required by this Mortgage to surrender possession of the Mortgaged Property upon the occurrence of an Event of Default, then the Mortgagor shall pay monthly in advance to the Mortgagee, on the entry by the Mortgagee into possession pursuant to Article VI, or to any receiver appointed to collect said rents, proceeds, issues and profits, the fair and reasonable rental value for the use and occupation of the Mortgaged Property or such part thereof as may be in the possession of the Mortgagor. Upon a default in any such payment, the Mortgagor will vacate and surrender such possession to the Mortgagee or such receiver and, upon a default in vacating and surrendering the same, may be evicted by summary or any other available proceedings. ARTICLE IV Additional Advances; Expenses: Indemnity ---------------------------------------- 4.01 Additional Advances and Disbursements. The Mortgagor agrees that, if the Mortgagor fails to pay or perform any obligation of the Mortgagor under this Mortgage (including the -15- EXHIBIT C-2 obligation to procure and maintain the insurance at the limits of coverage required by Section 2.10), then the Mortgagee shall have the right, but not the obligation, in the Mortgagor's name or otherwise, and without notice to the Mortgagor, to pay or perform, or to cause the payment or performance of, such obligation and, for such purpose, the Mortgagor expressly grants to the Mortgagee, in addition and without prejudice to any other rights and remedies under this Mortgage, the right to enter upon and take possession of the Mortgaged Property to such extent and as often as the Mortgagee may deem necessary or desirable to prevent or remedy any failure by the Mortgagor to pay or perform such obligation. No such payment or performance by the Mortgagee shall be deemed to have cured such default by the Mortgagor or any Event of Default with respect thereto, All sums so paid, and all expenses incurred, by the Mortgagee in connection with such payment or performance shall be deemed obligations owing by the Mortgagor to the Mortgagee and shall bear interest, from the date paid or incurred until repaid, at the Default Rate provided for in the Promissory Note. The amount of all such payments and expenses, and all such interest thereon, shall be part of the Obligations and shall be secured by this Mortgage. 4.02 Other Expenses. The Mortgagor, on demand, will pay or reimburse -------------- the Mortgagee for the payment of, any costs or expenses incurred or expended in connection with or incidental to (a) any Event of Default or (b) the exercise or enforcement by or on behalf of the Mortgagee of any of its rights or remedies or the Mortgages obligations under any Transaction Document. 4.03 Indemnity. The Mortgagor agrees to indemnify and hold harmless --------- the Mortgagee from and against any and all claims, demands, losses, liabilities, suits, obligations, fines, damages, judgments, penalties, charges, costs and expenses which may be imposed on, incurred or paid by or asserted against the Mortgagee by reason or on account of, or in connection with, (a) any Event of Default, (b) the exercise by the Mortgagee of any of its rights and remedies, or the performance of any of its duties, under this Mortgage or (c) any accident, injury, death or damage to any person (including any employee of the Mortgagor) or property occurring in, on or about the Facility or any street, drive, sidewalk, curt or passageway adjacent to the Facility, but excepting claims, demands, losses, liabilities, suits, obligations, fines, damages, judgments, penalties, charges, costs and expenses resulting from the willful misconduct or gross negligence of the Mortgagee. Any amount payable to the Mortgagee under this section 4.03 shall be deemed a demand obligation, shall be part of the Obligations and shall be secured by this Mortgage. ARTICLE V Transfer of the Mortgaged Property ---------------------------------- 5.01 Transfer of the Mortgaged Property. The Mortgagor acknowledges ---------------------------------- that the continuous ownership of the Mortgaged Property by the Mortgagor is of a material nature to the transaction contemplated by, and the Mortgagee's agreement to create the Obligations under, the Transaction Documents. The Mortgagor agrees that, except as otherwise provided in any Transaction Document, the Mortgagor will not, directly or indirectly, sell, grant, convey, assign or otherwise transfer (collectively, a "transfer"), or permit any transfer of, the Mortgaged Property or any legal or beneficial interest in the Mortgaged Property, by operation of law or otherwise, without the poor consent of the Mortgagee. For the purposes of this Mortgage, but without limiting the foregoing, a transfer of the legal or beneficial ownership, directly or indirectly, of thirty-three percent or more of the issued and outstanding stock of any class of stock of -16 EXHIBIT C-2 any corporate general partner in the Mortgagor, substantially all of the assets of the Mortgagor or thirty-three percent or more of the capital or profits of the Mortgagor or of any general partner in the Mortgagor, shall not be deemed a transfer of the Mortgaged Property or an interest in the Mortgaged Property; if such transfer is to any Affiliate, to Don G. Angell, to Daniel D. Mosca, to any heir or devisee of Don G. Angell or Daniel D. Mosca or to the trustee of any living trust of Don G. Angell or Daniel D. Mosca. Upon the occurrence of any transfer of the Mortgaged Property or any legal or beneficial interest in the Mortgaged Property, by operation of law or otherwise, without the prior consent of the Mortgagee, the Mortgagee may elect to declare the ObligationS, together with any other sums secured by this Mortgage, immediately due and payable. The Mortgagee may withhold its consent to any proposed transfer for no reason or any reason, including the failure of the prospective transferee of the Mortgaged Property to reach an agreement in writing with the Mortgagee increasing the interest payable on the Obligations to such rate as the Mortgagee shall request. Any transfer or attempted transfer contrary to the provisions of this ArtIcle V shall be void. ARTICLE VI Defaults and Remedies --------------------- 6.01 Events of Default. The term "Event of Default" shall mean the ----------------- occurrence of any of the following events: (a) The Mortgagor shall fail to pay any principal of, or interest on, the Promissory Note within ten days after the same becomes due and payable; or (b) The Mortgagor shall fail to pay any of the other Obligations (whether for premium, fees, expenses or otherwise) when and as the same become due and payable, whether on any stated due date, at maturity or upon acceleration, and such failure shall remain unremedied for ten days alter written notice of such failure shall have been given to the Mortgagor by the Mortgagee; or (c) Any representation or warranty made by the Mortgagor (or any general partner in the Mortgagor or any officers of any general partner in the Mortgagor) under or in connection with any Transaction Document shall prove to have been incorrect in any material respect when made; or (d) The Mortgagor shall fail at any time to obtain, provide, maintain or keep in force the insurance policies required by Section 2.10; or (e) The Mortgagor shall fail to perform or observe any other provision contained in any Transaction Document on the Mortgagor's part to be performed or observed if such failure shall remain unremedied beyond the applicable grace period for such provision or, if no such grace period is applicable, a such failure shall remain unremedied for thirty days after written notice of such failure shall have been given to the Mortgagor by the Mortgagee; or (f) The Mortgagor shall fail to pay any principal of or premium or interest on any indebtedness (but excluding indebtedness evidenced by the Promissory Note) of the Mortgagor in an aggregate principal amount of at least $100,000 at any one time outstanding, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, a any, specified in any agreement or instrument relating to such indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness and shall continue after the applicable grace period, a any, specified in such agreement or instrument, a the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness or any -17- EXHIBIT C-2 such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (g) The Mortgagor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Mortgagor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of sixty days, or any of the actions sought in such proceeding (including the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Mortgagor shall take any action to authorize any of the actions set forth above in this subsection (g); or (h) Any judgment or order for the payment of money in excess of $250,000 shall be rendered against the Mortgagor and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Any of the events referred to in subsections (f) through (h) of this Section 6.01 shall occur with respect to any Guarantor (such term being used in this Mortgage as such term is defined in the Facility Agreement) and, for the purposes of this subsection (i), each reference to the Mortgagor in subsections (f) through (h) above shall mean and be a reference to "any Guarantor", the reference to "$100.000" in subsection (f) above shall mean and be a reference to "$1,000,000", and the reference to "$250.000" in subsection (h) above shall mean and be a reference to "$1,000,000"; or (j) Any of the events referred to in subsections (f) through (h) of this section 6.01 shall occur with respect to any general partner in the Mortgagor and, for the purposes of this subsection (j) each reference to "the Mortgagor" in subsections (f) through (h) above shall mean and be a reference to "any general partner in the Mortgagor"; or (k) Any other Transaction Document to which the Mortgagor is a party, after delivery of this Mortgage or such other Transaction Document to the Mortgagee, shall for any reason cease to be valid and binding on the Mortgagor, or the Mortgagor shall so state in writing; or (l) The Mortgaged Property or any interest in the Mortgaged Property shall be the subject of a "transfer," as that term is defined in section 5.01; or (m) The Mortgagor shall abandon the Mortgaged Property or shall cease to do business or shall terminate its business for any reason whatsoever; or (n) The Mortgaged Property shall be taken, attached or sequestered on execution or other process of law in any action against the Mortgagor; or -18- EXHIBIT C-2 (o) Any event shall occur or condition shall exist which constitutes a default by the Mortgagor under any lease or agreement to lease between the Mortgagor, as lessee or sublessee, and the Mortgagee or any subsidiary or affiliate of the Mortgagee, as lessor or sublessor, in respect of real or personal property, and such event or condition shall continue after the applicable grace period, if any specified in such lease or agreement to lease; or (p) Any event shall occur or condition shall exist which constitutes a default by any Affiliate under any purchase or sale agreement, lease or agreement to lease, promissory note, mortgage, deed of trust or other instrument or agreement between such Affiliate and the Mortgagee or any subsidiary or affiliate of the Mortgagee, and such event or condition shall continue after the applicable grace period, if any, specified in such instrument or agreement. 6.02 Remedies. Upon the occurrence of any one or more Events of -------- Default, the Mortgagee may (but shall not be obligated to), in addition to any rights or remedies available to it under any Transaction Document, take such action personally or by its agents or attorneys, with or without entry, and without notice, demand, presentment or protest (each and all of which are hereby waived by the Mortgagor), as the Mortgagee deems necessary or advisable to protect and enforce its rights and remedies against the Mortgagor and in and to the Mortgaged Property, including the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as the Mortgagee may determine, in its sole discretion, without impairing or otherwise affecting any other rights or remedies of the Mortgagee: (a) Declare the entire balance of the Obligations (including the entire principal balance thereof, all accrued and unpaid interest and any premium thereon and all other such sums secured by this Mortgage) to be immediately due and payable, and upon any such declaration the entire unpaid balance of the Obligations shall become and be immediately due and payable, without presentment demand, protest or further notice of any kind, all of which are hereby expressly waived by the Mortgagor, anything in this Mortgage or any other Transaction Document to the contrary notwithstanding; provided that in the -------- event of an actual or deemed entry of an order for relief with respect to the Mortgagor or any guarantor referred to in subsection (i) of Section 6.01 or any general partner in the Mortgagor under the United States Bankruptcy Code, as amended, or under any present or future law or statute of the United States of America or of any state or other jurisdiction thereof relevant to bankruptcy, insolvency or other relief of debtor's, the entire unpaid balance of the Obligations automatically shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Mortgagor, anything in this Mortgage or any other Transaction Document to the contrary notwithstanding; or (b) Institute a proceeding or proceedings for the complete foreclosure of this Mortgage under any applicable provision of law; or (c) Institute a proceeding or proceedings for the partial foreclosure of this Mortgage under any applicable provision of law for the portion of the Obligations then due and payable, subject to the lien of this Mortgage continuing unimpaired and without loss of priority so as to secure the balance of the Obligations not then due and payable; or (d) Institute an action, suit or proceeding in equity for the Specific performance of any of the provisions contained in this Mortgage or any other Transaction Document; or (e) Sue and recover a judgment on the Obligations, as the same become due and payable, or on account of any Event of Default; or -19- EXHIBIT C-2 (f) Apply for the appointment of a receiver, custodian, trustee, liquidator or conservator of the Mortgaged Property, to be invested with the fullest powers permitted under applicable law, as a mater of right and without regard to or the necessity to disprove the adequacy of the security for the Obligations or the solvency of the Mortgagor or any other person liable for the payment of the Obligations, and the Mortgagor and each other person so liable waives or shall be deemed to have waived such necessity and consents or shall be deemed to have consented to such appointment; or (g) Enter upon the Mortgaged Property, and exclude the Mortgagor and the Mortgagors' agents and servants wholly from the Mortgaged Property, without liability for trespass, damages or otherwise, and take possession of all books, records and accounts relating to the Mortgaged Property, and the Mortgagor agrees to surrender possession of the Mortgaged Property and of such books, records and accounts to the Mortgagee on demand after the occurrence of any Event of Default; and the Mortgagee may use, operate, manage, preserve, control and otherwise deal with the Mortgaged Property and such books, records and accounts and may conduct the business of the Facility, either personally or by its superintendents, managers, agents, servants, attorneys or receivers, without interference from the Mortgagor; and upon each such entry, and from time to time thereafter, the Mortgagee, at the expense of the Mortgagor and the Mortgaged Property, without interference by the Mortgagor, may (i) maintain and restore the Mortgaged Property by purchase, repair or construction, (ii) insure or reinsure the Mortgaged Property, (iii) make all necessary or proper repairs, renewals, replacements, alterations, additions, betterments and improvements to and on the Mortgaged Property, (iv) complete the construction of the Improvements and, in the course of such completion, make such changes in the contemplated or completed Improvements as the Mortgagee may deem advisable and (v) in every such case in connection with the foregoing have the right to exercise all rights and powers of the Mortgagor with respect to the Mortgaged Property, either in the Mortgagor's name or otherwise, including the right to make, cancel, enforce or modify leases and subleases, obtain and evict tenants and subtenants on such terms as the Mortgagee shall deem advisable; or (h) With or without the entrance upon or taking possession of the Mortgaged Property, collect and receive all rents, proceeds, issues and profits due and to become due and payable under or pursuant to or derived from the Mortgaged Property, and after deducting therefrom all costs and expenses of every character incurred by the Mortgagee in collecting the same and in using, operating, managing, preserving and controlling the Mortgaged Property, and otherwise in exercising the rights of the Mortgagee under subsection (g) of this Section 6.02, including all amounts necessary to pay taxes, assessments, levies, fees, insurance premiums and other charges in connection with the Mortgaged Property, as well as reasonable compensation for the services of the Mortgagee and its agents and employees, apply the remainder as provided in Section 6.05; or (i) Release any portion of the Mortgaged Property for such consideration as the Mortgagee may require without, as to the remainder of the Mortgaged Property, in any way impairing or affecting the lien or priority of this Mortgage, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the Obligations shall have been reduced by the actual monetary consideration, if any, received by the Mortgagee for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as the Mortgagee may require without being accountable for so doing to any other lienor; or (j) Take all actions permitted under the Uniform Commercial Code of the jurisdiction in which the Facility is located; or -20- EXHIBIT C-2 (k) Take any other action, or pursue any other right or remedy, as the Mortgagee may have under applicable law, and the Mortgagor does hereby grant the same to the Mortgagee. In the event that the Mortgagee shall exercise any of the rights or remedies set forth in subsections (g) and (h) of this Section 6.02, the Mortgagee shall not be deemed to have entered upon or taken possession of the Mortgaged Property except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose, nor shall the Mortgagee be deemed a mortgagee in possession by reason of such entry or taking possession. The Mortgagee will not be liable to account for any action taken pursuant to any such exercise other than for rents and payments on patient accountS actually received by the Mortgagee, nor liable for any loss sustained by the Mortgagor resulting from any failure to let the Mortgaged Property, or from any other act or omission of the Mortgagee except to the extent such loss is caused by the wilful misconduct or bad faith of the Mortgagee. The Mortgagor hereby consents to, ratifies and confirms the exercise by the Mortgagee of said rights and remedies, and appoints the Mortgagee as the Mortgagor's attorney, in fact, which appointment shall be deemed to be coupled with an interest and is irrevocable, for such purposes. 6.03 Expenses. In any suit to foreclose this Mortgage or to enforce -------- any other remedy of the Mortgagee under this Mortgage or any other Transaction Document, there shall be allowed and included as an addition to and a part of the Obligations in the decree for sale or other judgment or decree all expenditures and expenses which may be paid or incurred in connection with the exercise by the Mortgagee of any of its rights and remedies prided or referred to in section 6.02, and the same shall be secured by this Mortgage. 6.04 Rights Pertaining to Sales. The following provisions shall apply -------------------------- to any sale or sales of the Mortgaged Property under or by virtue of this Article VI, whether made under the power of sale granted in this Mortgage or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale: (a) Any number of sales may be conducted from time to time. (b) Any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice. (c) After each sale, an officer of any court empowered to do so shall execute and deliver to the purchaser or purchasers at such sale a good and sufficient instrument or instruments granting, conveying, assigning and transferring all right, title and interest of the Mortgagor in and to the property and rights sold and shall receive the proceeds of said sale or sales and apply the same as provided in this Mortgage. The Mortgagee is hereby appointed the true and lawful attorney,in-fact of the Mortgagor, which appointment is irrevocable and shall be deemed to be coupled with an interest, in the Mortgagor's name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, and for that purpose the Mortgagee may execute all necessary instruments of conveyance, assignment, transfer and delivery, and may substitute one or more persons with like power, the Mortgagor hereby ratifying and confirming all that said attorney or such substitute or substitutes shall lawfully do by virtue thereof. Nevertheless, the Mortgagor, a requested by the Mortgagee, shall ratify and confirm any such sale or sales by executing and delivering to such purchaser or purchasers all such instruments as may be advisable, in the judgment of the Mortgagee, for the purposes designated in such request -21- EXHIBIT C-2 (d) Any and all statements of fact or other recitals made in any of the instruments referred to in subsection (c) of this section 6.04 given as to nonpayment of the Obligations, or as to the occurrence of any Event of Default, or as to the Mortgagee having declared all or any of the Obligations to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and of the property or rights to be sold having been duly given, or as to any other act or thing having been duly done, shall be taken as prima facie evidence of the truth of the facts so stated and recited. The - ----- ----- Mortgagee may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale so held, including the posting of notices and the conduct of sale. (e) The receipt for the purchase money paid at any such sale shall be sufficient discharge therefor to any purchaser of any property or rights sold as aforesaid, and no such purchaser, or its representatives, grantees or assigns, after paying such purchase price and receiving such receipt, shall be bound to see to the application of such purchase price or any part thereof upon or for any trust or purpose of this Mortgage or, in any manner whatsoever, be answerable for any loss, misapplication or nonapplication of any such purchase money, or part thereof, or be bound to inquire as to the authorization, necessity, expediency or regularity of any such sale. (f) Any such sale or sales shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of the Mortgagor in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against the Mortgagor and any and all persons claiming or who may claim the same, or any part thereof, by, through or under the Mortgagor to the fullest extent permitted by applicable law. (g) Upon any such sale or sales, the, Mortgagee may bid for and acquire the Mortgaged Property and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the Obligations the amount of the bid made therefor, after deducting therefrom the expenses of the sale, the cost of any enforcement proceeding under this Mortgage and any other sums which the Mortgagee is authorized to deduct under the terms of this Mortgage, to the extent necessary to satisfy such bid. (h) In the event that the Mortgagor, or any person claiming by, through or under the Mortgagor, shall transfer or refuse or fail to surrender possession of the Mortgaged Property after any sale of the Mortgaged Property, then the Mortgagor or such person shall be deemed a tenant at sufferance of the purchaser at such sale, subject to eviction by means of forcible entry and detainer proceedings, or subject to any other right or remedy available under this Mortgage or under applicable law. (i) Upon any such sale, the Mortgagee or any public officer acting under execution or order of court shall not be required to have present or constructively in its possession any or all of the Mortgaged Property. (j) In the event of any sale referred to in this section 6.04, all of the Obligations a not previously due and payable, immediately thereupon shall become due and payable, notwithstanding anything to the contrary contained in this Mortgage or any other Transaction Document. 6.05 Application of Proceeds. The purchase money, proceeds or avails ----------------------- of any sale referred to in Section 6.04, together with any other sums that may be held by the Mortgagee under this Article VI or any other provision of this Mortgage, except as expressly provided in this Mortgage or under applicable law to the contrary, shall be applied as follows: -22- EXHIBIT C-2 First: To the payment of the costs and expenses of any such ----- sale, including compensation to the Mortgagee and its agents, and of any judicial proceeding in which such sale may be made, and of all expenses, liabilities and advances made or incurred by the Mortgagee under this Mortgage, together with interest thereon as provided in this Mortgage, and all taxes, assessments and other charges, except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold. Second: To the payment in full of the Obligations (including ------ principal, interest, premium and fees in such order as the Mortgagee may elect). Third: To the payment of any other sums secured by this Mortgage ----- or required to be paid by the Mortgagor pursuant to any provision of this Mortgage or any other Transaction Document. Fourth: To the extent permitted by applicable law, to be set ------ aside by the Mortgagee as adequate security in its judgment for the payment of sums which would have been paid by application under clauses First through Third ----- ----- above to the Mortgagee, arising out of an obligation or liability with respect to which the Mortgagor has agreed to indemnify the Mortgagee, but which sums are not yet due and payable or liquidated. Fifth: To the payment of the surplus, if any, to whomsoever may ----- be lawfully entitled to receive the same. 6.06 Additional Provisions as to Remedies. ------------------------------------ (a) No right or remedy of the Mortgagee under this Mortgage is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and continuing, shall be in addition to every other right or remedy given under this Mortgage or any other Transaction Document or now or hereafter existing at law or in equity, and may be exercised from time to time and as often as may be deemed expedient by the Mortgagee. (b) No delay or omission by the Mortgagee to exercise any right or remedy under this Mortgage upon an Event of Default shall impair such exercise, or be construed to be a waiver of any such Event of Default or an acquiescence in any such Event of Default. (c) The failure, refusal or waiver by the Mortgagee of its right to assert any right or remedy under this Mortgage upon any Event of Default or other occurrence shall not be construed as waiving such right or remedy upon any other or subsequent Event of Default or other occurrence. (d) The Mortgagee shall not have any obligation to pursue any rights or remedies it may have under any other agreement prior to pursuing its rights or remedies under this Mortgage or any other Transaction Document. (e) The Mortgagee may resort to any security given by this Mortgage or any other security now given or hereafter existing to secure the Obligations, in whole or in part in such portions and in such order as the Mortgagee may deem advisable, and no such action shall be construed as a waiver of any of the liens, rights or benefits granted under this Mortgage. -23- EXHIBIT C-2 (f) Acceptance of any payment after the occurrence of an Event of Default shall not be deemed a waiver or a cure of such Event of Default, and acceptance of any payment less than any amount then due shall be deemed an acceptance on account only. (g) In the event that the Mortgagee shall have proceeded to enforce any right or remedy under this Mortgage by foreclosure, sale, entry or otherwise, and such proceeding shall be discontinued, abandoned or determined adversely for any reason, then the Mortgagor and the Mortgagee shall be restored to their former positions and rights under this Mortgage with respect to the Mortgaged Property, subject to the lien and security interest of this Mortgage. 6.07 Waiver of Rights and Defenses. To the full extent the Mortgagor ----------------------------- may do so, the Mortgagor agrees with the Mortgagee as follows: (a) The Mortgagor will not at any time insist on, plead, claim or take the benefit or advantage of any statute or rule of law now or hereafter in force providing for any appraisement, valuation, stay, extension, moratorium or redemption, or of any statute of limitations, and the Mortgagor, for itself and its successors and assigns, and for any and all persons ever claiming an interest in the Mortgaged Property, hereby waives and releases all rights of redemption, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, and all rights to a marshaling of the assets of the Mortgagor, including the Mortgaged Property, or to a sale in inverse order of alienation, in the event of foreclosure of the lien and security interest created under this Mortgage. (b) Regardless of consideration, and without the necessity for any notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Mortgaged Property, the Mortgagee may release any person at any time liable for the payment of the Obligations or any portion of the Obligations or any part of the security held for the Obligations and may extend the time of payment or otherwise modify the terms of this Mortgage and/or any other Transaction Document, including a modification of the interest rate payable on the principal balance of the Promissory Note, without in any manner impairing or affecting this Mortgage or the lien and security interest of this Mortgage or the priority of this Mortgage, as so extended and modified, as security for the Obligations over any such subordinate lien, encumbrance, right, title or interest The Mortgagee may resort for the payment of the Obligations to any other security held by the Mortgagee in such order and manner as the Mortgagee, in its discretion, may elect. The Mortgagee may take action to recover all or any portion of the Obligations or to enforce any covenant in this Mortgage or any other Transaction Document without prejudice to the right of the Mortgagee thereafter to foreclose this Mortgage. ARTICLE VII Defeasance ---------- 7.01 Defeasance. If the Obligations shall be paid in full as they ---------- become due and payable, then and (subject to Section 7.02) in that event only all rights under this Mortgage shall terminate and the Mortgaged Property shall become wholly released and cleared of the lien, security interest, conveyance and assignment evidenced by this Mortgage. In such event, the Mortgagee, at the request of the Mortgagor, shall promptly deliver to the Mortgagor, in recordable form, all such documents as shall be necessary to release the Mortgaged Property from the lien, security interest, conveyance and assignment evidenced by this Mortgage; provided that nothing in this Section 7.01 shall be construed to -------- require the Mortgagor to pay any attorneys' fees or expenses incurred by the Mortgagee in connection with the preparation and delivery of such documents. -24- EXHIBIT C-2 7.02 Release. If the entire unpaid principal amount of the Promissory ------- Note shall be prepaid and all of the other Obligations and the Release Premium shall be paid pursuant to section 2.19, then all rights under this Mortgage shall terminate and the Mortgaged Property shall become wholly released and cleared of the lien, security interest, conveyance and assignment evidenced by this Mortgage. In such event, the Mortgagee, at the request of the Mortgagor, shall promptly deliver to the Mortgagor, in recordable form, all such documents as shall be necessary to release the Mortgaged Property from the lien, security interest, conveyance and assignment evidenced by this Mortgage; provided that -------- nothing in this Section 7.02 shall be construed to require the Mortgagor to pay any attorneys' fees or expenses incurred by the Mortgagee in connection with the preparation and delivery of such documents. ARTICLE VIII Additional Provisions --------------------- 8.01 Construction of Certain Provisions. The following rules of ---------------------------------- construction shall be applicable for all purposes of this Mortgage: (a) All references in this Mortgage to Articles, Sections and Schedules are references to Articles and Sections of and Schedules attached to this Mortgage, unless stated otherwise in this Mortgage. (b) The cover page of, and all recitals set forth in, and all Schedules to, this Mortgage are by this reference incorporated in this Mortgage. (c) The table of contents and the captions of the Articles, Sections, subsections, paragraphs and other divisions of this Mortgage are included for convenience of reference only, and shall not in any way limit or affect the construction or interpretation of any provisions of this Mortgage. (d) Each of the terms "Mortgaged Property" and "Facility" shall be construed as if followed by the phrase "or any part thereof." (e) The term "Obligations" shall be construed as if followed by the phrase "or any other sums secured hereby, or any part thereof." (f) The term "indebtedness" shall mean (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) indebtedness created or arising under any conditional sale or other title retention agreement with respect to property, (v) obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (vi) obligations (contingent or otherwise) under acceptance, letter-of- credit or similar facilities, (vii) obligations in respect of interest rate swap agreements, currency swap agreements and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates and (viii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of the types referred to in any of clauses (i) through (vii) above. (g) The terms "include", "including" and similar terms shall be construed as if followed by the phrase "but not limited to." -25- EXHIBIT C-2 (h) The term "provisions," when used with respect to this Mortgage or any other Transaction Document, shall be construed as if preceded by the phrase "terms, covenants, agreements, requirements, conditions and/or." (i) The term "person" shall include natural persons, firms, partnerships, corporations and any other public and private legal entities. (j) The term "lease" shall mean "tenancy, subtenancy, lease or sublease" and the term "lessee" shall mean "tenant, subtenant, lessee or sublease." (k) The phrase "sound accounting principles and practices" shall mean, generally accepted accounting principles and practices consistently applied, but permitting, with respect to the preparation of financial statements, the omission of footnotes and federal and state income tax reserves, none of which omissions shall represent an omission of material items of revenue or expense other than federal and state income tax expense. (l) Except with respect to Section, 2.02. 2.13 and 5.01, the term "consent of the Mortgagee" shall be construed as if followed by the phrase ", which consent shall not be unreasonably withheld." (m) Words of masculine, feminine or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa. ---------- (n) No inference in favor of, or against, any party shall be drawn from the fact that such party has drafted any portion of this Mortgage. 8.02 Limitation on Interest. Notwithstanding any other provisions of ---------------------- this Mortgage or any other Transaction Document to the contrary, no provision of this Mortgage or any other Transaction Document shall require the payment or permit the collection of interest, fees or charges in excess of the maximum rate permitted by applicable law. 8.03 Appointment of Mortgagee. The Mortgagor hereby appoints the ------------------------ Mortgagee its attorney, in-fact, which appointment is irrevocable and shall be deemed to be coupled with an interest, to execute, acknowledge, deliver and file or record for and in the name of the Mortgagor any of the documents or instruments referred to in Section 2.04 or in Section 6.04(c). 8.04 Amendments, Etc. No amendment or waiver of any provision of this --------------- Mortgage, nor consent to any departure by the Mortgagor from any such provision, shall in any event be effective unless such amendment, waiver or consent is in a writing which specifically refers to this Section 8.04 and which is signed by the Mortgagor and by the Chief Executive Officer or the President of the Mortgagee; provided that any such waiver or consent stall be effective only in -------- the specific instance and for the specific purpose for which given. 8.05 Notices. Except as otherwise provided in this Mortgage or ------- required by applicable law, all notices, consents, requests and other communications to any party under or in connection with this Mortgage shall be in writing and shall be sent via personal delivery, via telephone facsimile transmission, via certified or registered mail, return receipt requested, or via express courier or delivery service, addressed to such party at such party's address or telephone facsimile number set forth below -26- EXHIBIT C-2 or at such other address or telephone facsimile number as shall be designated by such party in a written notice given to each other party complying as to delivery with the terms of this Section 8.05. if to the Mortgagor, at: P.O. Box 1670 Clemmons, North Carolina 27012 Attn: Don G. Angell Facsimile: (919)998-2560 with a copy to: House & Blanco. P.A 215 Executive Park Boulevard P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5008 Attn: George E. Hollodick Facsimile: (919)765-4830 if to the Mortgagee, at: The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attn: Vice President Acquisitions and Development Facsimile: (206)758-4371 with a copy to: The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attn: General Counsel Facsimile: (206)756-4845 or (206)756-4743. All such notices, consents, requests and other communications shall be deemed given (a) when given and receipted for (or upon the date of attempted delivery when delivery is refused), a sent via personal delivery, via certified or registered mall, return receipt requested, or via express courier or delivery service or (b) when received, a sent via telephone facsimile transmission (confirmation of such receipt via confirmed telephone facsimile transmission being deemed receipt of any such notice, request or other communication sent via telephone facsimile transmission). 8.06 No Merger. If both the lessor's and the lessee's interest under --------- any lease which constitutes a part of the Mortgaged Property shall at any time become vested in any one person, this Mortgage and the lien and security interest created by this Mortgage shall not be destroyed or terminated by the application of the doctrine of merger and, in such event, the Mortgagee shall continue to have and enjoy all of the rights and privileges of the Mortgagee under this Mortgage as to each separate estate. Upon the foreclosure of the lien created by this Mortgage, any leases then existing shall not be destroyed or terminated by application of the doctrine of merger or as a matter of law or -27- EXHIBIT C-2 as a result of such foreclosure unless the Mortgagee or any purchaser at a foreclosure sale shall so elect by notice to the lessee in question. 8.07 Severability. Any provision of this Mortgage that is prohibited ------------ or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of Such prohibition or unenforceability without invalidating the remaining provisions of this Mortgage or affecting the validity or enforceability of such provision in any other jurisdiction. 8.08 Obligations of Mortgagor. Time is of the essence with respect to ------------------------ all of the Mortgagor's covenants and agreements under this Mortgage, and all of Such covenants and agreements shall run with the land. All obligations of the Mortgagor under this Mortgage shall be performed and satisfied by or on behalf of the Mortgagor at the Mortgagor's sole cost and expense. 8.09 Successors and Assigns. The provisions of this Mortgage shall be ---------------------- binding upon the Mortgagor and the successors and assigns of the Mortgagor, including successors in interest of the Mortgagor in and to all or any part of the Mortgaged Property, and shall inure to the benefit of the Mortgagee and the substitutes, successors, transferees and assigns of the Mortgagee. All references in this Mortgage to the Mortgagor or the Mortgagee shall be construed as including all of such other persons with respect to the person to which reference is made. Where two or more persons have executed this Mortgage, the obligations of such persons shall be joint and several except to the extent the context clearly indicates otherwise. 8.10 No Waiver. No provision in Article I or Section 2.05 or elsewhere --------- in this Mortgage shall be construed as a waiver by the Mortgagor of any warranty of the Mortgagee under the deed, dated the date of the Promissory Note, made by the Mortgagee to the Mortgagor with respect to the Facility, nor shall any such provision be construed to require the Mortgagor to pay any costs and expenses incurred by the Mortgagee in connection with the defense of any warranty of the Mortgagee under such deed. 8.11 Consent to Jurisdiction. The Mortgagor hereby irrevocably submits ----------------------- to the jurisdiction of any court of the State of Washington or any federal court of the United States of America for any district of the State of Washington, and any appellate court from any of such courts, in any action or proceeding arising from or by reason of, or otherwise relating to, this Mortgage, and the Mortgagor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of Washington or in such federal court of the United States of America for any district of the State of Washington. The Mortgagor, to the fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding in such court of the State of Washington or in such federal court of the United States of America for any district of the State of Washington. The Mortgagor hereby irrevocably appoints House & Blanco, P.A (the "Process Agent"), as the Mortgagor's agent to receive on behalf of the Mortgagor and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Mortgagor in care of the Process Agent at 215 Executive Park Boulevard, P.O. Drawer 25008, Winston-Salem, North Carolina 27114-5008, and the Mortgagor hereby irrevocably authorizes and directs the Process Agent to accept such service on the Mortgagor's behalf. As an alternative method of service, the Mortgagor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Mortgagor at its address specified in Section 8.05. The Mortgagor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 8.11 shall affect the right of the Mortgagee to serve legal process in any other manner -28- EXHIBIT C-2 permitted by law or shall affect the right of the Mortgagee to bring any action or proceeding against the Mortgagor or the Mortgagor's property in the courts of any other jurisdictions. 8.12 Applicable Law. This Mortgage shall be governed by, and construed -------------- in accordance with, the laws of the State of Kansas. IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage as of the date first above written. [NAME OF THE MORTGAGOR] By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By________________________________ Title:____________________________ STATE OF _______________ ) )ss. COUNTY OF ______________ ) BE IT REMEMBERED, that on this ________ day of _________, 1992, before me the undersigned, a Notary Public in and for said County and State aforesaid, came ________________________ [vice] President of Meadowbrook Manor of Kansas & Missouri, Inc., a corporation duly organized, incorporated and existing under and by virtue of the laws of North Carolina, and the general partner of _____________, a North Carolina limited partnership, who is personally known to me to be such officer of such general partner, and who is personally known to me to be the same person who executed, as such officer of such general partner, the within instrument on behalf of said corporation and said limited partnership, and such person duly acknowledged the execution of the same to be the act and deed of sad corporation and of said limited partnership. IN WITNESS WHEREOF, l have hereunto set my hand and affixed my official seal at my office in ___________________,the day and year last above written. ------------------------------------------ Notary Public in and for Said County and State ------------------------------------------ (Type or stamp the Notary's name below his or her signature.) My Commission Expires: - -------------------------- -29- EXHIBIT C-2 Schedule A to Mortgage, Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/13/ (Facility No. [____])/14/ Land ---- [Reserved.] - --------------------------- /13/ Insert the name of the Facility. /14/ Insert the number assigned to the Facility. -1- EXHIBIT C-2 Schedule B to Mortgage. Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/15/ (Facility No. [___])16 Permitted Exceptions -------------------- [Reserved.] - ------------------------------ /15/ Insert the name of the Facility. /16/ Insert the number assigned to the Facility. -1- EXHIBIT C-2 Schedule C to Mortgage, Assignment, Security Agreement and Financing Statement (Fixture Filing) ([Name of the Facility)/17/ (Facility No. [___])/18/ Affiliates/19/ ---------- 1. Meadowbrook Manor of Baldwin Limited Partnership, a North Carolina limited partnership. 2. Meadowbrook Manor of Joplin Limited Partnership I, a North Carolina limited partnership. 3. Meadowbrook Manor of Council Grove Limited Partnership, a North Carolina limited partnership. 4. Meadowbrook Manor of Haysville Limited Partnership, a North Carolina limited partnership. 5. Meadowbrook Manor of St. Charles Limited Partnership, a North Carolina limited partnership. 6. Meadowbrook Manor of Overland Park Limited Partnership, a North Carolina limited partnership. 7. Meadowbrook Manor Terrace of Overland Park Limited Partnership, a North Carolina limited partnership. 8. Meadowbrook Manor of Chanute Limited Partnership, a North Carolina limited partnership. 9. Meadowbrook Manor of Springfield Limited Partnership, a North Carolina limited partnership. 10. Meadowbrook Manor of Topeka Limited Partnership, a North Carolina limited partnership. 11. Meadowbrook Manor of Wichita Limited Partnership, a North Carolina limited partnership. 12. Meadowbrook Manor of Columbia Limited Partnership, a North Carolina limited partnership. 13. Meadowbrook Manor of Sedgwick Limited Partnership, a North Carolina limited partnership. 14. Meadowbrook Manor Colonial Terrace of Independence Limited Partnership, a North Carolina limited partnership. - ----------------------------- /17/ Insert the name of the Facility. /18/ Insert the number assigned to the Facility. /19/ Delete the name of the Mortgagor from this Schedule C and, to the extent required, renumber the list of Affiliates. -1- EXHIBIT C-2 15. Meadowbrook Manor Colonial Lodge of Independence Limited Partnership, a North Carolina limited partnership. 16. Meadowbrook Manor of Lamed Limited Partnership, a North Carolina limited Partnership. 17. Meadowbrook Manor Apartments of Larned Limited Partnership, a North Carolina limited partnership. 18. Meadowbrook Manor of Ava Limited Partnership, a North Carolina limited partnership. 19. Meadowbrook Manor of Buffalo Limited Partnership, a North Carolina limited partnership. 20. Meadowbrook Manor of Clinton Limited Partnership, a North Carolina limited Partnership. 21. Meadowbrook Manor of Des Peres Limited Partnership, a North Carolina limited partnership. 22. Meadowbrook Manor of Jefferson Limited Partnership, a Noah Carolina limited Partnership. 23. Meadowbrook Manor of Marceline Limited Partnership, a North Carolina limited Partnership. 24. Meadowbrook Manor of Joplin Limited Partnership Il, a North Carolina limited Partnership. 25. Meadowbrook Manor of Lamar Limited Partnership, a North Carolina limited Partnership. 26. Meadowbrook Manor of Shady Oaks Limited Partnership, a North Carolina limited Partnership. 27. Meadowbrook Manor of Crane Limited Partnership, a North Carolina limited Partnership. 28. Meadowbrook Manor of Kimberling City Limited Partnership, a North Carolina limited partnership. 29. Meadowbrook Manor Residential of Kimberling City Limited Partnership, a North Carolina limited partnership. 30. Meadowbrook Manor Wornall of Kansas City Limited Partnership, a North Carolina limited partnership. 31. Meadowbrook Manor Blue Hills of Kansas City Limited Partnership I, a North Carolina limited partnership. 32. Meadowbrook Manor Blue Hills of Kansas City Limited Partnership II, a North Carolina limited partnership. -2- EXHIBIT C-2 Exhibit D to Facility Agreement GUARANTY This GUARANTY (this "Guaranty"), dated [___________],1992, made jointly and severally by Don G. Angell and Daniel D. Mosca individually, a "Guarantor" and collectively, the "Guarantors"), in favor of FIRST HEALTHCARE CORPORATION, a Delaware corporation ("FHC"). PRELIMINARY STATEMENTS: (1) FHC has entered into a Facility Agreement dated as of April 23, 1992 (said Agreement, as it may be amended or otherwise modified, being the "Facility Agreement" the terms defined therein and not otherwise defined herein being used herein as therein defined) with the limited partnerships listed in schedule A attached hereto (individually, a "Buyer" and collectively, the "Buyers"). (2) Pursuant to the Facility Agreement certain Buyers have executed and delivered to FHC Promissory Notes aggregating $[___________] in principal amount, and certain Buyers will execute and deliver to FHC Promissory Notes aggregating the Purchase Price then due in respect of the Bond-financed Owned Facilities (said Promissory Notes, as they may be supplemented amended, extended, renewed or otherwise modified, being the "Promissory Notes"). (3) Pursuant to the Facility Agreement, certain Buyers have entered into the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease with FHC. (4) Pursuant to the Facility Agreement certain Buyers, as subleases, have entered into subleases with FHC, as sublessor, (said subleases, as they may be supplemented, amended or otherwise modified, being the "Subleases"). (5) The Guarantors collectively own, directly or indirectly, 100% of the issued and outstanding stock of the General Partner and own, directly or indirectly, a 100% interest in each Buyer. The Guarantors are financially interested in the well-being of the Buyers and will receive an economic benefit from FHC's willingness to accept the Promissory Notes and to enter into the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases. (6) It is a condition precedent to the obligation of FHC to consummate the transactions contemplated by the Facility Agreement, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases that the Guarantors shall have executed and delivered this Guaranty. NOW, THEREFORE, in consideration of the premises and for other, good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the Guarantors, the Guarantors hereby jointly and severally agree as follows: SECTION 1. Guaranty. The Guarantors hereby irrevocably and -------- unconditionally guarantee the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of twenty percent (20%) of all of the Buyers' aggregate obligations at any -1- EXHIBIT D time outstanding (a) under the Promissory Notes in respect of principal, interest and any late charges, (b) under the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease in respect of the rent thereunder, and (c) under the Subleases in respect of the Rent (said twenty percent (20%) of said obligations being the "Obligations"), and agree to pay all expresses (including counsel fees and expenses, including reasonable charges allocated for internal corporate counsel incurred by FHC in enforcing any rights under this Guaranty, Without limiting the generality of the foregoing, the Guarantors' liability shall extend to all amounts which constitute part of the Obligations and would be owed by any Buyer under the Promissory Notes, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease or the Subleases but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Buyer. SECTION 2. Guaranty Absolute. The Guarantors guarantee that the ----------------- Obligations will be paid strictly in accordance with the terms of the Promissory Notes, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases, respectively, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of FHC with respect thereto. The obligations of the Guarantors under this Guaranty are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Guarantors to enforce this Guaranty, irrespective of whether any action is brought against any Buyer or whether any Buyer is joined in any such action or actions. The liability of the Guarantors under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Facility Agreement, the Promissory Notes or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, any of the Obligations, or any other amendment or waiver of or any consent to departure from the Facility Agreement, the Promissory Notes, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease or the Subleases; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for any of the Obligations; (iv) any manner of application of collateral, or proceeds thereof, to any of the Obligations, or any manner of sale or other disposition of any collateral for any of the Obligations or any other assets of any Buyer: (v) any change, restructuring or termination of the partnership structure or existence of any Buyer: or (vi) any other circumstance which might otherwise constitute a defense (other than payment) available to, or a discharge of, any Buyer or any guarantor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by FHC upon the insolvency, bankruptcy or reorganization of any Buyer or otherwise, all as though such payment had not been made. SECTION 3. Waiver. Each Guarantor hereby waives promptness, ------ diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and -2- EXHIBIT D any requirement that FHC protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against any Buyer or any other person or entity or any collateral. Without limiting the foregoing, it shall not be necessary for FHC (and each Guarantor hereby waives any rights such Guarantor may have to require FHC), in order to enforce payment by the Guaranty under this Guaranty, first to enforce its rights against any, security that shall ever have been given to secure the Obligations, including, but not limited to, its rights under the Mortgages. SECTION 4. Waiver of Subrogation Rights. Each Guarantor hereby waives ---------------------------- all rights and claims that such Guarantor has or hereafter may have or acquire (whether arising directly or indirectly, by operation of law, by contract or otherwise) against any Buyer by reason of any payment to FHC pursuant to this Guaranty, including, but not limited to, rights of exoneration, indemnity, contribution reimbursement and subrogation. SECTION 5. Consent to Jurisdiction. Each Guarantor hereby irrevocably ----------------------- submits to the jurisdiction of any court of the State of Washington or any federal court of the United States of America (or any district of the state of Washington, and any appellate court from any of such courts, in any action or proceeding arising out of or relating to this Guaranty, and each Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the State of Washington or in such federal court of the United states of America for any district of the state of Washington. Each Guarantor, to fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of such action or proceeding. Each Guarantor hereby irrevocably appoints Don R. House (the "Process Agent") as his agent to receive on behalf of such Guarantor and his property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to such Guarantor in care of the Process Agent at 215 Executive Park Boulevard, Winston- Salem, North Carolina 27103-1594, and each Guarantor hereby irrevocably authorizes and directs the Process Agent to accept such service on his behalf. As an alternative of service, each Guarantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to such Guarantor at his address specified in Section 10 hereof. Each Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 5 shall affect the right of FHC to serve legal process in any other manner permitted by law or affect the right of FHC to bring any action or proceeding against the Guarantors or their respective property in the courts of any other jurisdictions. SECTION 6. Representations and Warranties. Each Guarantor hereby ------------------------------ represents and warrants as follows: (a) The execution, delivery and performance by such Guarantor of this Guaranty do not contravene any law or contractual restriction binding on or affecting such Guarantor or such Guarantor's property. (b) No authorization, consent, approval or other action by, and no notice to or filing, recording or registration with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Guarantor of this Guaranty. -3- EXHIBIT D (c) This Guaranty has been duly executed by such Guarantor and is a valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. (d) There is no pending or, to the knowledge of such Guarantor, threatened action or proceeding before any court governmental agency or arbitrator against or affecting such Guarantor which purports to affect the validity or enforceability of this Guaranty. (e) Except as set forth in Schedule 6(e) attached hereto, there is no pending or, to the knowledge of such Guarantor, threatened action or proceeding before any court, governmental agency or arbitrator against or affecting such Guarantor which, if determined adversely to such Guarantor, would materially and adversely affect the financial condition of such Guarantor. (f) The balance sheets of such Guarantor as of the end of the two most recently completed calendar years, which have been furnished to FHC by such Guarantor, fairly present the financial condition of such Guarantor as of the respective dates of such balance sheets, and there are no liabilities, direct or indirect, fixed or contingent, of such Guarantor as of the respective dates of such balance sheets that are not reflected therein. Since the latest date of such balance sheets, there have been no material adverse changes in the financial condition of such Guarantor. (g) There are no conditions precedent to the effectiveness of this Guaranty that have not been sated or waived. (h) Such Guarantor has, independently and without reliance upon FHC and based on documents and information as he has deemed appropriate, made his own credit analysis and decision to enter into this Guaranty. SECTION 7. Affirmative Covenants. Each Guarantor covenants and agrees --------------------- that, so long as any part of the Obligations shall remain unpaid, such Guarantor will, unless FHC shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects -------------------------- with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon such Guarantor or upon such Guarantor's property, except to the extent contested in good faith. (b) Reporting Requirements. Furnish to FHC (i) a: soon a ---------------------- available, and in any event within one-hundred twenty days after the end of each calendar year, a balance sheet of such Guarantor as of the end of such calendar year, certified by such Guarantor as fairly presenting the financial condition of such Guarantor at the date of such balance sheet and a reflecting all liabilities, direct or indirect, fixed or contingent, of such Guarantor at the date of such balance sheet, and (ii) such other information respecting the business, properties or financial condition of such Guarantor, in form and substance satisfactory to FHC, as FHC may reasonably request. (c) Net Worth. Together with the other Guarantor, maintain an --------- excess of total assets over total liabilities of not less than $10,000,000. -4- EXHIBIT D (d) Equity Interest. Together with the other Guarantor or any --------------- heir, devisee or trustee of any living trust of any Guarantor, own, directly or indirectly, not less than sixty-seven percent of the issued and outstanding stock having voting power of each corporate general partner in each Buyer and maintain, directly or indirectly, a sixty-seven percent interest in the capital or profits of each Buyer. SECTION 8. Negative Covenants. Each Guarantor covenants and agrees ------------------ that, so long as any part of the Obligations shall remain unpaid, such Guarantor will not, without the prior written consent of FHC, sell, assign, pledge, transfer, convey or otherwise dispose of, or permit any Person in which such Guarantor has an interest to sell, assign, pledge, transfer, convey or otherwise dispose of, any shares of the stock of any general partner in any Buyer or of any interest in any Buyer, except to the other Guarantor or to any Buyer or to any heir, devisee or trustee of any living trust of any Guarantor. SECTION 9. Amendments, Etc. No amendment or waiver of any provision --------------- of this Guaranty, and no consent to any departure by any Guarantor from this Guaranty, shall in any event be effective unless the same shall be in writing and signed by the Chief Executive Officer or the President of FHC, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. Notices. All notices, consents, requests and other ------- communications under or in connection with this Guaranty shall be in writing and shall be sent via personal delivery, via telephone facsimile transmission, via certified or registered mail, return receipt requested, or via express courier or delivery service, addressed as set forth below or at such other address or telephone facsimile number as shall be designated by a party in a written notice given to each other party complying as to delivery with the terms of this Section 10. If to FHC, at: c\o The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attn: Vice President - Acquisitions and Development Facsimile: (206)7564871 with a copy to: The Hillhaven Corporation The Cornerstone Building 1146 Broadway Plaza Tacoma, Washington 98402 Attn: General Counsel Facsimile: (206)756-4845 or (206)756-4743 -5- EXHIBIT D if to the Guarantors, at: Don G. Angell P.O. Box 1670 Clemmons, North Carolina 27012 Facsimile: (919) 998-2560 Daniel D. Mosca 4901 Holly Ridge Drive Raleigh, North Carolina 27612 with a copy to: George E. Hollodick House & Blanco, P.A. 215 Executive Park Boulevard Winston-Salem, North Carolina 27103 Facsimile: (919)765-4830 All such notices, consents, requests and other communications shall be deemed given (a) when given and receipted for (or upon the date of attempted delivery when delivery is refused), if sent via personal delivery, via certified or registered mail, return receipt requested, or via express courier or delivery service or (b) when received, if sent via telephone facsimile transmission (confirmation of such receipt via confirmed telephone facsimile transmission being deemed receipt of any such notice, consent, request or other communication sent via telephone facsimile transmission). SECTION 11. No Waiver; Remedies. No failure on the part of FHC to ------------------- exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12. Continuing Guaranty: Assignment. This Guaranty is a ------------------------------- continuing guaranty and shall (i) remain in full force and effect until payment in full of (a) all obligations of the Buyers now or hereafter existing under the Promissory Notes in respect of principal, interest and any late charges, (b) all rent that the Buyers are now or hereafter obligated to pay under the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease, (c) all the Rent that the Buyers are now or hereafter obligated to Pay under the Subleases and (d) all other amounts payable under the Guaranty, (ii) be binding upon each Guarantor and such Guarantor's heirs, personal representatives, successors and assigns, and (iii) inure to the benefit of, and be enforceable by, FHC and its successors, transferees and assigns. Without limiting the generality of the forgoing clause, (iii), FHC may assign or otherwise transfer all or any portion of its rights under this Guaranty, the Promissory Notes, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease and the Subleases to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to FHC herein or otherwise. SECTION 13. Waiver of Jury Trial. Each Guarantor, and FHC by accepting -------------------- this Guaranty, hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) arising from or by reason of or relating to this Guaranty, or any actions of FHC in the negotiation, performance or enforcement of this Guaranty. -6- EXHIBIT D SECTION 14. Applicable Law. This Guaranty shall be governed by, and -------------- construed in all respects (including matters of construction, validity and performance) in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. SECTION 15. Oral Agreements Unenforceable. ORAL AGREEMENTS OR ORAL ----------------------------- ----------------------- COMMITMENTS TO LOAN MONEY EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT - ------------------------------------------------------------------------------- OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. - -------------------------------------------------- IN WITNESS WHEREOF, the Guarantors have duly executed and delivered this Guaranty as of the date first above written. ------------------------------ Don G. Angell, individually ------------------------------ Daniel D. Mosca, individually -7- EXHIBIT D Exhibit E to Facility Agreement RECEIPT AND ASSUMPTION AGREEMENT This RECEIPT AND ASSUMPTION AGREEMENT is made by [____________], a North Carolina limited partnership (the "Buyer") to FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Seller"), pursuant to, and as a condition precedent to the obligation of the Seller to consummate the transactions contemplated by, the Facility Agreement, dated as of April 23, 1992 (the "Facility Agreement"), among the Seller and the Buyer and affiliates of the Buyer. The Buyer hereby acknowledges receipt from the Seller of personal funds of residents of the [name of Facility] located in [_________________, _____________] (the "Facility"), in the aggregate amount of $[__________] (the "Funds"). The Buyer hereby further acknowledges that the Funds have been transferred to and deposited in Account No. [___________], in the name of "[____________,]" with [Name of Bank] at its office at [ __________, ------------ __________], all in accordance with all laws, rules and regulations applicable to the management and protection of personal funds of residents of the Facility. In order to induce the Seller to consummate the transactions contemplated by the Facility Agreement, the Buyer hereby assumes all of the Seller's fiduciary, custodial and other obligations and liabilities with respect to the Funds. This Receipt and Assumption Agreement shall be binding upon the Buyer and its successors and assigns, shall inure to the benefit of and be enforceable by the Seller and its successors and assigns, and shall be governed by, and construed in all respects in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. IN WITNESS WHEREOF, the Buyer has executed this Receipt and Assumption Agreement on [__________ ___], 1992. [BUYER] By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By______________________________ Title:________________________ EXHIBIT E Exhibit G to Facility Agreement BILL OF SALE AND GENERAL ASSIGNMENT FIRST HEALTHCARE CORPORATION, a Delaware corporation (the "Seller") having an address at The Cornerstone Building, 1148 Broadway Plaza, Tacoma, County of Pierce, State of Washington 98402, for good and valuable consideration to it paid, the receipt and sufficiency of which are hereby acknowledged, and pursuant to the Facility Agreement dated as of April 23, 1992 (the "Facility Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined), among the Seller and _____________ a North Carolina limited partnership (the "Buyer"), having an address at [_____________], [_______], County of [_________], State of [____________] [_____________], and affiliates of the Buyer. has sold, assigned, transferred and conveyed, and does by these presents sell, assign, transfer and convey, unto the Buyer, as of the date set forth below (the "Closing Date"). the Seller's right, title and interest in, to and under the following assets (collectively, the "Purchased Assets"), "AS IS , WHERE IS and WITH ALL FAULTS", subject to the ----- -------- --------------- Permitted Liens: (a) all Inventory used exclusively in the operation of [name of Facility] located in [_______, _____________] (the "Facility"); (b) all Permits relating to or affecting the Facility; (c) all Personal Property located in or upon or used exclusively in connection with the Facility; and (d) all Records exclusively relating to or affecting the Facility; TO HAVE AND TO HOLD the Purchased Assets unto the Buyer and its successors and assigns to and for its use forever. The Seller hereby warrants to the Buyer that the Seller is the lawful owner of the Purchased Assets. that the Purchased Assets are free and clear of all Liens other than the Permitted Liens, and that the Seller has the right to sell the Purchased Assets subject to the terms and conditions of the Facility Agreement. This Bill of Sale and General Assignment is delivered pursuant to the Facility Agreement and shall be construed consistently with the Facility Agreement. Without limiting the generality of the preceding sentence, the Seller has not sold, assigned. transferred or conveyed, and does not sell, assign, transfer or convey, unto the Buyer or its successors and assigns any of the Sellers right, title or interest in, to or under any of the Excluded Assets. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III OF THE FACILITY AGREEMENT AND IN THIS BILL OF SALE AND GENERAL ASSIGNMENT, THE SELLER HAS NOT MADE AND DOES NOT MAKE, AND THE SELLER HEREBY EXPRESSLY DISCLAIMS, ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE PURCHASED ASSETS, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, TENANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (A) THE EXISTENCE OR ABSENCE OF ANY HAZARDOUS -1- EXHIBIT G SUBSTANCE IN, ON, UNDER OR AFFECTING ANY OF THE PURCHASED ASSETS, (B) THE COMPLIANCE OF ANY OF THE PURCHASED ASSETS, INCLUDING ITS OR THEIR USE OR OPERATION, WITH ANY ENVIRONMENTAL LAW. (C) THE ASSIGNABILITY OR TRANSFERABILITY OF ANY OF THE PERMITS, AND (D) THE EFFECT ON THE BUSINESS, ASSETS, CONDITION (FINANCIAL OR OTHERWISE) OR RESULTS OF OPERATIONS OF THE FACILITY OF ANY ENACTED, PUBLISHED OR REPORTED LAWS, RULES, REGULATIONS OR JUDICIAL OR ADMINISTRATIVE DECISIONS (WHETHER HAVING RETROACTIVE OR PROSPECTIVE EFFECT) PERTAINING TO MATTERS OF LICENSURE, SURVEY, REIMBURSEMENT OR PRIVATE PAY CENSUS. This Bill of Sale and General Assignment shall be governed by, and construed in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. IN WITNESS WHEREOF, the Seller has caused this Bill of Sale and General Assignment to be executed and delivered by its duly authorized officer on [____________ _____], 1992 FIRST HEALTHCARE CORPORATION By_____________________________ Title:_______________________ [ADD ALL REQUIRED PROVISIONS FOR ATTESTATIONS, SIGNATURES OF WITNESSES AND ACKNOWLEDGEMENTS] -2- EXHIBIT G Exhibit H to Facility Agreement [Form of Opinion of General Counsel to the Seller] [__________ ___],1992 The Limited Partnerships listed in Schedule A attached hereto P.O. Box 1670 Clemmons, North Carolina 27012 Ladies and Gentlemen: I am the General Counsel of First Healthcare Corporation, a Delaware corporation (the "Seller"), in connection with the preparation, execution and delivery of the Facility Agreement, dated as of April 23. 1992 (the "Agreement"), among the Sellers and the limited partnerships listed in Schedule A attached hereto (collectively. the "Buyers"). All capitalized terms that are used in this letter without definition shall have the respective meanings assigned to those terms in the Agreement. In the course of my legal review relating to this letter. I have examined or caused to be examined: (a) the Agreement; (b) the Assignment and Assumption Agreements listed in Schedule B attached hereto; (c) the Deeds listed in Schedule C attached hereto; (d) the Bills of Sale listed in Schedule D attached hereto; (e) the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease listed in Schedule E attached hereto; the Subleases listed in Schedule F attached hereto; (g) the certificate of incorporation of the Seller, and all amendments thereto; (h) the bylaws of the Seller, and all amendments thereto; (i) certificate of authorization, or the equivalent, dated [_________ __], 1992, issued with respect to the Seller by the Secretary of State of the State of Kansas; and (j) certificate of authorization, or the equivalent, dated [_________ __], 1992, issued with respect to the Seller by the Secretary of State of the State of Missouri. EXHIBIT H [______________] ________ ___, 1992 Page 2 In addition, I have examined or caused to be examined, the originals or copies, certified or otherwise identified to my satisfaction, of resolutions of the Board of Directors of the Seller and of such other documents, corporate records, certificates of public authorities and other documents and instruments as I have deemed necessary or advisable for the purpose of rendering the opinions expressed in this letter, for the purposes of this letter, the documents and instruments referred to in clauses (a) through (f) abode are sometimes referred to in this letter individually as a "Transaction Document" and collectively as the "Transaction Documents." I have assumed without independent verification: (a) the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents, instruments and certificates submitted to me as originals, and the exact conformity with the executed originals of all documents, instruments and certificates submitted to me as copies; (b) that the execution, delivery and performance of each document, instrument and certificate submitted to me has been duly authorized by all necessary action (corporate, partnership and otherwise) on the part of all persons and entities (other than the Seller) that are signatories thereto; (c) that each document, instrument and certificate submitted to me has been duly executed and delivered, pursuant to all requisite power and authority (corporate and otherwise"). by or on behalf of all persons and entities (other than the Seller) that are signatories thereto; and (d) that each Transaction Document to which any Buyer is a party constitutes a legal, valid and binding obligation of such Buyer, enforceable against such Buyer in accordance with its terms. As to questions of fact material to my opinions, I have relied without independent verification solely upon the documents, instruments and certificates submitted to me. Whenever my opinion relates to my "knowledge," by the use of terms such as "to my knowledge," my opinion is based solely upon the Transaction Documents and information obtained by making inquiries of officers of the Seller who are actively involved in the management and operation of the facilities. I am qualified to practice law in the State of California and do not express any opinions in this letter concerning any laws other than the laws of the State of California, the general corporation laws of the state of Delaware, and the federal laws of the United States of America. Based upon and subject to the foregoing, and further subject to the qualifications set forth below, I am of the opinion that: 1. The Seller is a corporation, duty incorporated and validly existing under the laws of the State of Delaware. The Seller has the corporate power and authority to execute and deliver, and to perform its obligations under, each of the Transaction Documents. The Seller is duly licensed or qualified to transact business as a foreign corporation in the States of Kansas and Missouri. EXHIBIT H [______________] ________ ___, 1992 Page 3 2. The execution and delivery by the Seller of, and the performance by the Seller of its obligations under, each Transaction Document have been duly authorized by all necessary corporate action on the part of the Seller. Each TransactIon Document has been duly executed and delivered on behalf of the Seller by an authorized officer of the Seller. Each Transaction Document constitutes a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. 3. Neither the execution and delivery by the Seller of. nor the performance by the Seller of its obligations under, the Transaction Documents conflicts with, or results in the breach of, or constitutes a default under any provisions of the certificate of incorporation of the Seller, the bylaws of the Seller or, to my knowledge, any agreement, instrument, judgment, order, award or decree to which the Seller is a party or by which the Seller is bound. 4. Except for [________________], all of which have been obtained or made, no authorization, consent or approval by, and no filing, registration or qualification with, any governmental authority or other person or entity is necessary for the due execution and delivery by the Seller of the Transaction Documents. 5. To my knowledge, except as set forth in Schedule 3.04 of the Agreement, there is no action, suit, legal proceeding. arbitration proceeding, administrative proceeding or investigation pending or threatened against or affecting any facility or any of the other Purchased Assets before any court, any arbitrator or any governmental body, agency or official which, if determined or resolved adversely to the Seller, would reasonably be expected to have a Material Adverse Effect or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by the Agreement. 6. To my knowledge, no bankruptcy, insolvency or similar proceeding is pending against or contemplated by the Seller. The opinions expressed ate are subject to the following qualifications: A. The enforceability of obligations and the availability of remedies are subject to and may be limited by (i) bankruptcy. insolvency, reorganization, arrangement, fraudulent transfer, moratorium and similar laws affecting creditors' rights generally and (ii) general principles of equity (including, but not limited to, concepts of materiality, reasonableness, good faith and fair dealing and principles that may limit the availability of specific performance or injunctive or other equitable relief) whether such enforceability of obligations or availability of remedies is considered in a proceeding in equity or at law. B. I express no opinion as to: (1) whether the Seller has, or at any time had, any right, title or interest in or to all or any portion of the Purchased Assets or the Leased Facilities; (2) any provisions in the Transaction Documents insofar as they purport to provide that any party (A) may have rights to indemnification, (B) may have rights to the payment or reimbursement of attorneys' fees except to the extent that a court determines that such fees are EXHIBIT H [______________] ________ ___, 1992 Page 4 reasonable, (C) may have rights to the payment of any sum as liquidated damages, (D) may exercise sets or similar rights or (E) waives any right or defense; (3) any provisions of the "bulk sales," "bulk transfer" or similar laws of any state or other jurisdiction; and (4) Section 5.08 of the Agreement. This letter is furnished to you at the request of the Seller pursuant to Section 8.04(k) of the Agreement and is solely for your benefit and for the purpose of the consummation of the transactions contemplated by the Agreement. This letter may not be relied upon or used by, and no copy of this letter may be furnished to, any other person or entity or for any other purpose without my express, prior written consent. I disclaim any obligation to update this letter or otherwise to advise you of any matters (including, but not limited to, any subsequently enacted, published or reported laws, rules, regulations or judicial decisions having retroactive effect) which may come to my attention after the date of this letter and which affect any of the opinions expressed in this letter. Very truly yours, Richard P. Adcock, General Counsel First Healthcare Corporation EXHIBIT H Exhibit M to Facility Agreement ACCOUNTING SERVICES AGREEMENT This ACCOUNTING SERVICES AGREEMENT (the "Agreement") dated as of _________, 1992, between First Healthcare Corporation, a Delaware corporation ("Vendor"), and _____________, a North Carolina limited partnership ("Owner"). WITNESSETH: ----------- WHEREAS, pursuant to that certain Facility Agreement dated as of April __, 1992 (the "Facility Agreement"), amoung Vendor, as Seller, and the parties referenced therein, including Owner, as Buyers, Seller has agreed, inter alia to ----- ---- [sell/sublease/lease] to Owner that certain [skilled nursing/retirement] facility known as ____________ (the "Facility"); and WHEREAS, Vendor has accounting systems and procedures in place to provide certain accounting services with respect to the Facility; and WHEREAS, Owner desires to engage Vendor to provide certain accounting services with respect to the Facility pursuant to the terms and conditions set forth herein. NOW THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Retention of Vendor. Owner hereby retains Vendor to provide ------------------- certain accounting services in connection with the Facility under the terms and conditions set forth herein. 2. Responsibilities of Vendor. During the Term, as defined below, -------------------------- Vendor shall provide the following accounting services to Owner in connection with the operation of the Facility: A. Accounts Payable. Vendor shall provide accounts payable ---------------- processing services with respect in accounts payable generated from operations of the Facility. Such accounts payable accounting services shall include processing accounts payable batch terminal input, maintaining history files and accounts payable distribution reports and vendor reports and distributing annual 1099's (where applicable) and checks. Vendor shall provide Owner with (i) printouts showing distribution of expenses to Vendor's standard chart of accounts, and (ii) all computer printouts it generates with respect to the Facility. Vendor shall not be responsible for reconciling bank accounts. B. Payroll. Vendor shall provide payroll processing services ------- with respect to employees of the Facility. Such payroll processing services shall include processing payroll input, maintaining payroll history files, distributing payroll registers and payroll checks and providing information for Owner to prepare quarterly tax reports and annual W-2's. C. Accounts Receivable. Vendor shall establish an electronic ------------------- billing service (but not with respect to Medicaid agency billings) which shall provide accounts receivable processing services with respect to the Facility. Such accounts receivable accounting services shall include processing accounts receivable input, maintaining files, preparing accounts receivable aging and -1- EXHIBIT M distributing reports. It is expressly understood that Vendor is not responsible for collecting accounts receivable. 3. Term. The term of this Agreement (the "Term") shall commence on ---- the date [Vendor transfers title to the facility to Owner/the sublease between Vendor and Owner with respect to the Facility commences] and shall continue for a period of six months, unless earlier terminated as herein provided. Notwithstanding anything to the contrary contained herein: (A) Vendor shall be entitled to terminate this Agreement at any time upon 30 days' prior written notice to Owner; and (B) Owner shall be entitled to terminate this Agreement at any time upon 30 days' prior written notice to Owner. 4. Fees. For services performed hereunder, Owner shall pay to ---- Vendor the following: A. Start-Up Fee. Owner shall pay to Vendor a one-time start-up ------------ fee in the amount of $1,000. B. Monthly Fee. Owner shall pay to Vendor a monthly fee equal ----------- to [$1,000/$750]. Upon 30 days' prior written notice as set forth in Section 3(B), Owner shall be entitled to terminate services provided pursuant to this Agreement, and upon the effectiveness of any such termination, Owner's obligation to pay the monthly fee with respect to the Facility shall also terminate. If the services of Vendor hereunder commence or terminate other than on the first day of a month, compensation set forth in this Section 4(B) shall be prorated for the number of days for which services are actually rendered with respect to the Facility. C. Expense Reimbursement. Owner shall reimburse Vendor for the --------------------- following items: (i) Overnight or other expedited mailing or delivery service costs in excess of first class regular mail; and (ii) Cost of check stock, if any. D. Late Charges. Owner shall pay to Vendor, to the extent ------------ permitted by applicable law, interest on any amount owing to Vendor under this Agreement which is not paid when due, for any period for which any of the same is overdue (without regard to any grace period), at a rate equal to the lesser of (i) four percent in excess of the rate announced from time to time by Chase Manhattan Bank, N.A. as its prime or reference rate, as such rate may change from time to time, and (ii) the maximum rate of the interest permitted by applicable law. E. Method of Payment. Owner shall pay the amount set forth in ----------------- Section 4(a) concurrently with the execution of this Agreement. Owner shall pay the amounts set forth in Sections 4(B) and (C) monthly, in arrears, no later than the tenth day of the month following the month during which such amounts were earned or expenses incurred. Owner shall pay any amounts owing pursuant to Section 4(D) upon Vendor's demand. 5. Proprietary Interest. The systems, methods, procedures and -------------------- controls employed by Vendor, including, without limitation, any operating manuals and computer software developed by Vendor, and any written materials or brochures developed by Vendor to document the same, are to remain the property of Vendor, and Owner shall not, at any time, utilize, distribute, copy or otherwise employ or acquire any such materials or brochures without Vendor's prior written consent, which Vendor may withhold in its sole discretion. -2- EXHIBIT M 6. No Guaranty of Profitability. Owner acknowledges that Vendor ---------------------------- does not guarantee that the Facility will be profitable. 7. Default. Either party may terminate this Agreement in the event ------- of any of the following events ("Events of Default") by or with respect to the party: (A) By Vendor. With respect to Vendor, the following shall --------- constitute Events of Default hereunder: (i) Vendor shall fail to keep, observe or perform any material agreement, term or provision of this Agreement, and such failure shall continue for a period of seven days after notice thereof shall have been given to Vendor by Owner, which notice shall specify the event or events constituting the failure; provided, however, that Vendor shall not be deemed to be in -------- ------- violation of this Agreement, and no Event of Default shall have occurred, if Vendor is prevented from performing any of its obligations hereunder for any reason beyond its control, including, without limitation, strikes, shortages, war, acts of God, lack of Owner's financial resources, or any statute, regulation or rule of federal, state or local government or agency thereof; or (ii) Vendor shall apply for or consent to the appointment of a receiver, trustee or liquidator of Vendor or of all or a substantial part of its assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or arrangement with creditors or taking advantage of any insolvency law; or an order, judgment or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Vendor a bankrupt or insolvent or approving a petition seeking reorganization of Vendor, or appointing a receiver, trustee or liquidator of Vendor or of all or a substantial part of its assets, and such order shall remain undismissed, undischarged or unbonded for a period of 60 days. (B) By Owner. With respect to Owner, the following shall -------- constitute Events of Default hereunder: (i) Owner shall fail to make or cause to be made any payment to Vendor required to be made hereunder, and such failure shall continue for a period of ten days after notice thereof shall have been given to Owner; (ii) Owner shall fail to keep, observe or perform any other agreement, term or provision of this Agreement and such default shall continue for a period of 30 days after notice thereof shall have been given to Owner by Vendor, which notice shall specify the event or events constituting the default; or (iii) Owner shall default under any provision set forth in any Transaction Documents, as that term is defined in the Facility Agreement. (iv) Owner shall be dissolved or shall apply for a consent to the appointment of a receiver, trustee or liquidator of Owner or of all or a substantial part of its assets, file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they become due, make a general assignment for the benefit of creditors, file, or have filed against it, a petition or an answer seeking reorganization or arrangement with creditors or taking advantage of any insolvency law; or an order, judgment or decree shall be entered by a court of competent jurisdiction, on the application of a creditor, adjudicating Owner a bankrupt or insolvent or approving a petition seeking reorganization of Owner, or appointing a receiver, trustee or liquidator of Owner or of all or a substantial -3- EXHIBIT M part of its assets and such order shall remain undismissed undischarged or unbonded for a period of 60 days. 8. Remedies Upon Default. --------------------- A. Remedies of Vendor. Upon the occurrence of an Event of ------------------ Default by Owner and at any time thereafter, Vendor may, in its discretion, do any one or more of the following: (i) terminate this Agreement, remove its hardware, software, manuals and other items owned by Vendor from the Facility and declare all sums earned but unpaid to the date of termination to be immediately due and payable; or (ii) exercise any other right or remedy available to its under applicable law, including without limitation the right to recover damages for the breach hereof. B. Remedies of Owner. Upon the occurrence of any Event of ----------------- Default by Vendor and at any time thereafter, Owner may, in its discretion, do any one or more of the following: (i) terminate this Agreement, whereupon Vendor shall remove its hardware, software, manuals and other items owned by Vendor from the Facility, and neither party shall have any further obligation whatsoever under this Agreement; or (ii) exercise any other right or remedy available to it under applicable law, including without limitation the right to recover damages for the breach hereof; provided, however, that Owner shall -------- ------- immediately pay to Vendor all amounts due and owing to Vendor through the date of termination. C. Rights Cumulative; No Waiver, Limitation. No right or ---------------------------------------- remedy herein conferred upon or reserved to either of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereafter legally existing. The failure of either party hereto to insist at any time upon the strict observance or performance of any of the provisions of this Agreement or to exercise any right or remedy as provided in this Agreement shall not impair any such right or remedy or be constructed as a waiver or relinquishment thereof with respect to subsequent defaults. Every right and remedy given by this Agreement to the parties hereof may be exercised from time to time and as often as may be deemed expedient by the parties hereto, as the case may be. Notwithstanding anything to the contrary contained in this Agreement, in no event shall either party be liable to the other for any incidental or consequential damages, loss of profits or any exemplary or punitive damages regardless of the circumstances from which such damages arise arising out of any breach of this Agreement. 9. Miscellaneous. ------------- A. Disclaimer of Employment of Facility Employees. No person ---------------------------------------------- employed by the Owner will be an employee of Vendor, and Vendor shall have no liability for payment of their wages, payroll taxes and other expenses of employment. All such persons shall be employees of the Owner. B. Relationship of the Parties; Disclaimer of Liability; ----------------------------------------------------- Indemnification. The relationship of Vendor to Owner shall be that of an - --------------- independent contractor, and all acts performed by Vendor pursuant to this Agreement during the Term shall be deemed to be performed in its capacity as an independent contractor. Vendor shall not be liable for any loss, expense, cost or liability incurred by or asserted against Owner, unless such loss, expense, cost or liability results from the gross negligence or willful misconduct of Vendor. Owner shall indemnify and hold Vendor harmless from and against any and all loss, expense, cost or liability arising from or related to the Facility; provided, however, that Owner shall not be obligated to indemnify Vendor for any - -------- ------- loss, expense, cost or liability which results from Vendor's gross negligence or willful misconduct. -4- EXHIBIT M C. Employee Non-solicitation. Recognizing the unique services ------------------------- provided by employees of Vendor, during the Term and for a period of two years after termination of the Agreement, Owner shall not directly or indirectly solicit or employ any accounting or finance employees of Vendor based in Tacoma, Washington to become employees of Owner without Vendor's prior written consent which Vendor may withhold in its sole discretion. D. Assignment; Binding Effect. This Agreement shall not be -------------------------- assigned by either party. Notwithstanding the foregoing, either party may assign its rights and obligations hereunder to an entity controlling, controlled by or under common control with such party. This Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties. E. Notices. All notices required or permitted hereunder shall ------- be given in writing and shall be personally delivered or be sent by registered or certified mail, postage prepaid, to the following addresses or at such other places as either party shall designate in writing: If to Vendor: FIRST HEALTHCARE CORPORATION c/o The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Senior Vice President and Chief Financial Officer With copies to: THE HILLHAVEN CORPORATION 1148 Broadway Plaza Tacoma, Washington 98402 Attention: General Counsel If to Owner: __________________________ P.O. Box 1670 Clemmons, North Carolina 27012 Attention: W. Stewart Swain With copies to: George E. Hollodick P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5006 Notices shall be deemed effective upon receipt. F. Entire Agreement. This Agreement contains the entire ---------------- agreement between the parties with respect to the subject matter hereof and shall supersede all prior understandings, agreements, or arrangements, oral or written, between the parties. G. Amendment. This Agreement shall not be modified or amended --------- except by written instrument signed by both of the parties. H. Captions. The captions and headings used herein are for -------- convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof. I. Attorney's Fees. In the event either party brings an action --------------- to enforce this Agreement, the prevailing party in such action shall be entitled to recover from the other all costs incurred in connection therewith, including reasonable attorney's fees. Reasonable attorney's fees shall include reasonable charges allocated for internal counsel. -5- EXHIBIT M J. Severability. In the event one or more of the provisions of ------------ this Agreement is deemed to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be impaired thereby. K. Authorization for Agreement. Each of its parties represents --------------------------- and warrants to the other as follows: (i) The execution, delivery and performance of this Agreement (a) are within the corporate or partnership powers of the respective parties, (b) have been duly authorized by all necessary corporate or partnership action, and (c) do not and will not (1) require any consent or approval by stockholders or partners or (2) violate any provision of any law, rule, regulation, order, writ, judgment, decree or award presently in effect having applicability to the parties or the articles of incorporation, bylaws or partnership agreement of the parties. (ii) This Agreement constitutes the valid and binding obligations of Owner and Vendor, enforceable in accordance with its terms. L. Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. M. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Washington. N. Quality of Service. Notwithstanding anything herein to the ------------------ contrary, Vendor represents and warrants that the quality of the services it is obligated to provide hereunder shall at all times be equal to the quality of the services that it provides with respect to other facilities which it operates. IN WITNESS WHEREOF, the parties have each caused this Agreement to be duly executed by its duly authorized officer, as of the date first above written. OWNER: ___________________________________________ By: Meadowbrook Manor of Kansas & Missouri, Inc., Its general partner By:________________________________ Its:____________________________ VENDOR: FIRST HEALTHCARE CORPORATION By:________________________________________ Its:____________________________________ -6- EXHIBIT M Exhibit N to Facility Agreement [Form of Opinion of House & Blanco, P.A.] [_________], 1992 First Healthcare Corporation c/o The Hillhaven Corporation The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Vice President of Acquisitions and Development Ladies and Gentlemen: We have acted as counsel to the limited partnerships listed in Schedule A attached hereto (collectively, the "Buyers") and to Don G. Angell and Daniel D. Mosca (collectively, the "Guarantors"), in connection with the preparation, execution and delivery of the Facility Agreement dated as of April 23, 1992 (the "Agreement"), among First Healthcare Corporation, a Delaware corporation (the "Seller"), and the Buyers. All capitalized terms that are used in this letter without definition shall have the respective meanings assigned to those terms in the Agreement. In the course of our legal review relating to this letter, we have examined: (a) the Agreement; (b) the Assignment and Assumption Agreements listed in Schedule B attached hereto; (c) the Promissory Notes listed in Schedule C attached hereto; (d) the Mortgages listed in Schedule D attached hereto; (e) the Charlevoix Lease, the Bethesda Sublease and the Sedgwick Sublease listed in Schedule E attached hereto; (f) the Subleases listed in Schedule F attached hereto; (g) the Guaranty, dated [_____________ ____], 1992, made by the Guarantors in favor of the Seller; EXHIBIT N First Healthcare Corporation [______________], 1992 Page 2 (h) the Form UCC-1 financing statements listed in Schedule G attached hereto (collectively, the "Financing Statements"); (i) the partnership agreement and the other organizational documents of each Buyer, and all amendments thereto; (j) a certificate of existence, or the equivalent, dated [_____________ ____], 1992, issued with respect to each Buyer by the Secretary of State of the State of North Carolina; (k) a certificate of authorization, or the equivalent, dated [____________________ ____], 1992, issued with respect to each Buyer by the Secretary of State of the State of Kansas; and (l) a certificate of authorization, or the equivalent, dated [_____________________ ____], 1992, issued with respect to each Buyer by the Secretary of State of the State of Missouri. In addition, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of resolutions of the Board of Directors of the General Partner in each Buyer, of partnership resolutions of each Buyer, and of such other documents, records, certificates of public authorities and other documents and instruments as we have deemed necessary or advisable for the purpose of rendering the opinions expressed in this letter. For the purposes of this letter, the documents and instruments referred to in clauses (a) through (g) above are sometimes referred to in this letter individually as a "Transaction Document" and collectively as the "Transaction Documents." We have assumed without independent verification: (a) the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents, instruments and certificates submitted to us as originals, and the exact conformity with the executed originals of all documents, instruments and certificates submitted to us as copies; (b) that the execution, delivery and performance of each document, instrument and certificate submitted to us has been duly authorized by all necessary action (corporate, partnership and otherwise) on the part of all persons and entities (other than the General Partner and the Buyers) that are signatories thereto; (c) that each document, instrument and certificate submitted to us has been duly executed and delivered, pursuant to all requisite power and authority (Corporate, Partnership and otherwise), by or on behalf of all persons and entities (other than the General Partner and the Buyers) that are signatories thereto; and (d) that each Transaction Document to which the Seller is a party constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. As to questions of fact material to our opinions, we have relied without independent verification solely upon the documents, instruments and certificates submitted to us. Whenever our opinion relates to our "knowledge," by the use of terms such as "to our knowledge," our opinion is EXHIBIT N First Healthcare Corporation [______________], 1992 Page 3 based solely upon the Transaction Documents and information obtained by making inquiries of officers of the General Partner in the Buyers, and of attorneys in this firm who are actively involved in the legal representation of the Buyers. We are qualified to practice law in the State of North Carolina and do not express any opinions in this letter concerning any laws other than the laws of the State of North Carolina and the federal laws of the United States of America. Based upon and subject to the foregoing, and further subject to the qualifications set forth below, we are of the opinion that: 1. Each of the Buyers is a limited partnership, duly formed and validly existing under the laws of the State of North Carolina. Each of the Buyers has the power and authority to execute and deliver, and to perform its obligations under, each of the Transaction Documents to which it is a party. Based solely upon the certificates of authorization, or the equivalent, issued by the Secretary of State of the States of Kansas and Missouri, respectively, each of the Buyers is duly licensed or qualified to transact business as a foreign limited partnership in the State of Kansas or Missouri, as appropriate. 2. The execution and delivery by each of the Buyers of, and the performance by each of the Buyers of its obligations under, each of the Transaction Documents to which it is a party have been duly authorized by all necessary action on the part of such Buyer. Each of such Transaction Documents has been duly executed and delivered by such Buyer. If each of such Transaction Documents were governed by the local law's of the State of North Carolina, then each such Transaction Document would constitute a valid and binding obligation of such Buyer, enforceable against such Buyer in accordance with its terms. 3. The Guaranty has been duly executed and delivered by the Guarantors. If the Guaranty were governed by the local laws of the State of North Carolina, then the Guaranty would constitute a valid and binding obligation of the Guarantors, enforceable against the Guarantors in accordance with its terms. 4. Neither the execution and delivery by each of the buyers of, nor the performance by such Buyer of its obligations under, any of the Transaction Documents to which it is a party conflicts with, or results in the breach of, or constitutes a default under, any provisions of the partnership agreement of such Buyer or, to our knowledge, any agreement, instrument, judgement, order, award or decree to which such Buyer is a party or by which such Buyer or the General Partner is bound. 5. To our knowledge, neither the execution and delivery by the Guarantors of, nor the performance by the Guarantors of their respective obligations under, the Guaranty conflicts with, or results in the breach of, or constitutes a default under, any agreement, instrument, judgement, order, award or decree to which either of the Guarantors is a party or by which either of the Guarantors is bound. 6. Except for the recording of the Mortgages and the filing of the Financing Statements, and except for [___________], all of which have been obtained or made, no authorization, consent or approval by, and no filing, registration or qualification with, any governmental authority or EXHIBIT N First Healthcare Corporation [______________], 1992 Page 4 other person or entity (including, but not limited to, any limited partner in any Buyer) is necessary for the due execution and delivery by the Buyers or the Guarantors of any of the Transaction Documents. 7. To our knowledge, except as set forth in Schedule 4.04 to the Agreement or in Schedule 6(e) to the Guaranty, there is no action, suit, legal proceeding, arbitration proceeding, administrative proceeding or investigation pending or threatened against or affecting any Buyer, the General Partner, any limited partner in any Buyer, or any Guarantor before any court, any arbitrator or any governmental body, agency or official which in any manner challenges or seeks to prevent, enjoin, after or materially delay the transactions contemplated by the Agreement. 8. To our knowledge, no bankruptcy, insolvency or similar proceeding is pending against or contemplated by the Buyers or the General Partner. 9. Meadowbrook Manor of Kansas & Missouri, Inc., a North Carolina corporation, is the only general partner in the Buyers. The opinions expressed above are subject to the following qualifications: A. The enforceability of obligations and the availability of remedies are subject to and may be limited by (i) bankruptcy, insolvency, reorganization, arrangements, fraudulent transfer, moratorium and similar laws affecting creditors' rights generally and (ii) general principles of equity (including, but not limited to, concepts of materiality, reasonableness, good faith and fair dealing and principles that may limit the availability of specific performance or injunctive or other equitable relief) whether such enforceability of obligations or availability of remedies is considered in a proceeding in equity or at law. B. The enforceability of obligations and the availability of remedies under the Transaction Documents further may be limited by other laws with respect to or affecting remedial or procedural provisions contained in the Transaction Documents; provided that such other laws do not make the remedies or -------- procedures afforded by the Transaction Documents inadequate for the practical realization of the principal benefits intended to be provided by the Transaction Documents. C. We express no opinion as to: (1) whether any Buyer has any right, title or interest in or to the Mortgaged Property (as defined in the Mortgages); (2) the priority of any liens, security interests or other encumbrances or charges against or affecting the Mortgaged Property; (3) any provisions in the Transaction Documents insofar as they purport to provide that any party (A) may have rights to indemnification, (B) may have rights to the payment or reimbursement of attorneys' fees except to the extent that a court determines that such fees are reasonable, (C) may have rights to the payment of any sum as liquidated damages, (D) may exercise sets or similar rights or (E) waives any right or defense; and EXHIBIT N First Healthcare Corporation [______________], 1992 Page 5 (4) any provisions of the "bulk sales," "bulk transfer" or similar laws of any state or other jurisdiction. This letter is furnished to you at the request of the Buyers pursuant to Section 8.05(h) of the Agreement and is solely for your benefit and for the purpose of the consummation of the transactions contemplated by the Agreement. This letter may not be relied upon or used by, and no copy of this letter may be furnished to, any other person or entity or for any other purpose without our express, prior written consent. We disclaim any obligation to update this letter or otherwise to advise you of any matters (including, but not limited to, any subsequently enacted, published or reported laws, rules, regulations or judicial decisions having retroactive effect) which may come to our attention after the date of this letter and which affect any of the opinions expressed in this letter. Very truly yours, EXHIBIT N EX-10.51 44 FIRST AMENDMENT TO FACILITY AGREEMENT EXHIBIT 10.51 FIRST AMENDMENT TO FACILITY AGREEMENT This FIRST AMENDMENT TO FACILITY AGREEMENT, dated as of July 31, 1992, is made among First Healthcare Corporation, a Delaware corporation (the "Seller"), and the limited partnerships listed on the signature pages hereto (collectively, the "Buyers"). RECITALS A. The Seller and the Buyers have entered into a Facility Agreement, dated as of April 23, 1992 (the "Agreement," the terms defined therein being used herein as therein defined unless otherwise defined herein). B. The Seller and the Buyers now wish to amend the Agreement. NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration, the parties agree as follows: 1. Deletion of Certain Buyers. Meadowbrook Manor Terrace of Overland -------------------------- Park: Limited Partnership and Meadowbrook Manor Apartments of Larned Limited Partnership are hereby deleted as parties to the Agreement, and all references to the Buyers in the Agreement shall be deemed to exclude such limited partnerships. 2. Closing and Closing Date. All references in the Agreement to the ------------------------ Closing and the Closing Date shall mean and be deemed a reference to August 1,1992, provided that the delivery of documents and the payment of the Purchase Price, the Rent and other payments pursuant to Sections 8.04, 8.05 and 8.06 of the Agreement shall occur on July 31, 1992. 3. Deletion of References to Certain Agreements. All references in -------------------------------------------- the Agreement to the Pharmacy Partnership Agreement, the Pharmacy Management Agreement, the Rehab Partnership Agreement, the Rehab Management Agreement and the Accounting Services Agreement are hereby deleted. 4. Amendment to Definitions. (a) The definition of "Excluded Assets" ------------------------ in Section 1.01 of the Agreement is hereby amended by adding at the end thereof a new clause (1) to read as follows: "(i) all vehicles." (b) The definition of "Transaction Document" in Section 1.01 of the Agreement is hereby amended in full to read as follows: "Transaction Document" means any of this Agreement, the Charlevoix Lease, the Bethesda Sublease, the Sedgwick Sublease, the Assignment and Assumption Agreements, the Promissory Notes, the Mortgages, the Subleases, the Management Agreements, the Guaranty, the Receipt and Assumption Agreements, the Deeds and the Bills of Sale. -1- 5. New Definition. The following new defined term is hereby added to -------------- Section 1.01 of the Agreement, to be placed in the proper alphabetical order: "Management Agreements" has the meaning assigned to that term in Section 2.15." 6. Rent Subsidy Payments. The Seller shall make the rent subsidy --------------------- payments required by Section 2.11 of the Agreement directly to the General Partner at the address specified in Said Section 2.11. 7. Subsidy Reduction: Amendment. (a) Reference is hereby made to ---------------------------- Section 2.12 of the Agreement. As a result of an increase in the Missouri Medicaid per diem rate that was effective on July 1, 1992, the Seller and the Buyer hereby agree that the Seller's monthly subsidy payments during the initial twelve month period of the term under the Subleases, commencing on August 1, 1992, until the next rate increase shall be reduced by $98,668.79. (b) The second sentence of the fourth paragraph of Section 2.12 of the Agreement is hereby amended by deleting the references to "June 1994" and "June 1993" therein and substituting therefor "March 1994" and "March 1993," respectively. 8. Management Agreements. Article II of the Facility Agreement is --------------------- hereby amended by adding thereto a new Section 2. 15, to read as follows: "Section 2.15 Management Agreements. Notwithstanding anything to --------------------- the contrary set forth in this Agreement or in the Subleases with respect to Crane Health Care Center, Table Rock Health Care Center Table Rock Health Care Center Residential Project, Crestview Healthcare, Hickory Lane Care Center, Sycamore View Healthcare, Des Peres Health Care, Hillside Healthcare, Marceline Healthcare, Joplin House Healthcare, Lakeview Health Care Center and Shady Oaks Health Care Center, the Seller and the respective Buyers that are a party thereto agree to enter into management agreements with respect to such Leased Facilities (collectively, the "Management Agreements"), pending the sublease of such Leased Facilities pursuant to such Subleases. The consummation of the sublease of such Leased Facilities pursuant to such Subleases shall occur as soon as reasonably practicable after receipt by the Seller of all consents required for such sublease. The Seller and the Buyers, as appropriate, agree to use reasonable, diligent efforts to obtain such consents. If any Buyer is in default in the payment of the Operator's Return (as defined in the respective Management Agreements), then the Seller may reduce its monthly subsidy payment pursuant to Section 2.11 by the aggregate amount of such Operator's Return in default In addition, if any Management Agreement is terminated other than as a result of (i) a default caused solely by the Seller under such Management Agreement or (ii) such consummation of the sublease of the Leased Facility to which such Management Agreement pertains, then the Seller's monthly subsidy payment shall be reduced by the percentage set forth in Schedule 2.11 with respect to the Leased Facility to which such Management Agreement pertains. In addition, the Guaranty shall also cover 20% -2- of the Buyers' aggregate obligations at any time outstanding in respect of such Operator's Return." 9. Certain Employee Benefit Program. Section 7.07(c) of the -------------------------------- Agreement is hereby amended by adding to the end thereof a new sentence, to read as follows: "Notwithstanding anything to the contrary set forth in this Section 7.07(c), for any Transferred Employee at Indian Creek Nursing Center and Indian Meadows Nursing Center only, Horizon Healthcare Corporation, as the Operator of such Facilities, shall not be required to offer disability insurance but shall be required to offer all other Employee Benefit Programs." 10. Certain Inspection Dates. Section 7.12 of the Agreement is hereby ------------------------ amended by replacing the dates "June 1, 1992" and "June 5, 1992," respectively, with respect to environmental matters, with the dates "July 29,1992" and "July 30, 1992," respectively. 11. Certain Schedules and Exhibits. Reference is hereby made to ------------------------------ Section 7.16 of the Agreement. The Seller and the Buyers hereby agree that Schedule 1.01A, Part B of Schedule 1.01E, Part C of Schedule 2.12, Schedule 3.08 and Exhibit F shall be attached to the Agreement not later than July 29, 1992. 12. Survival. Section 10.01 of the Agreement is hereby amended by -------- adding a reference to "Section 2.15" to the first sentence thereof. 13. Waiver. (a) The Seller and the Buyers hereby waive the condition ------ of Section 9.01(c) of the Agreement to the extent, and only to the extent, that it requires that the Seller and the Buyers shall have received the consents of Health Care Investors I, A.L. Schluter, Boatmen's Trust Company of St. Louis, as trustee, and Mercantile Bank of Joplin, N.A, as trustee. (b) The Buyers hereby waive the condition of Section 9.02(c) of the Agreement that the Buyers shall have received the estoppel certificates from the Lessors pursuant to Section 8.04(j) of the Agreement. (c) The Seller hereby waives the condition of Section 9.03(c) of the Agreement that the Seller shall have received the Receipt and Assumption Agreements pursuant to Section 8.05(i) of the Agreement. 14. No Representation or Warranty. Notwithstanding anything to the ----------------------------- contrary set forth in the Agreement, neither the Seller nor the Buyers make any representations or warranties under the Agreement with respect to the Management Agreements. 15. Cost Reports. The Seller hereby agrees to file by October ------------ 31,1992, final cost reports with respect to each Facility located in the State of Missouri other than any such Facility subject to a Management Agreement. 16. Cooperation. Upon the reasonable request of the Buyers, the ----------- Seller hereby agrees to provide to the Buyers (i) historical cost information with respect to the Facilities to the extent necessary for reimbursement purposes and (ii) written confirmation to other Persons of the rights of the Buyers set forth in Section 7 of the Management Agreements. -3- 17. Senior Debt. The Seller hereby agrees that the debt Secured by ----------- any First Lien Mortgage shall not exceed at any time the debt secured by the Mortgage that is junior to such First Lien Mortgage. 18. Tax Savings. The Buyers hereby agree to pay on demand their ----------- proportionate share (based on tax savings) of any consultant fees that may be billed as a result of a reduction in 1992 assessed value of the Facilities. 19. Amendment. Reference is hereby made to Section 12.02 of the --------- Agreement This First Amendment is intended to be an amendment to the Agreement and, except as amended hereby, the Agreement shall remain in full force and effect in accordance with its terms. Any reference to the Agreement contained in any notice, request, certificate or other document shall be deemed to include this First Amendment. 21. Counterparts: Effectiveness. This First Amendment may be execute --------------------------- in any number of counterparts and by different parties to this First Amendment in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same amendment Delivery of an executed counterpart of a signature page to this First Amendment via telephone facsimile transmission shall be effective as delivery of a manually executed counterpart of this First Amendment. This First Amendment shall become effective when each of the Seller and the Buyers shall have received a counterpart of this First Amendment executed by the other party to this First Amendment. 15. Governing Law. This First Amendment shall be deemed to be a ------------- contract made under the laws of the State of Washington, and for all purposes shall be governed by, and construed in all respects (including matters of construction, validity and performance) in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. -4- IN WITNESS WHEREOF, the Seller and the Buyers have caused this First Amendment to be duly executed as of the date first above written. FIRST HEALTHCARE CARE By [SIGNATURE ILLEGIBLE] --------------------------- Title _____________________ MEADOWBROOK MANOR OF BALDWIN LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP I By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF COUNCIL GROVE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF HAYSVILLE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF ST. CHARLES LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF OVERLAND PARK LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF CHANUTE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF SPRINGFIELD LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF TOPEKA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF WICHITA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF COLUMBIA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF SEDGWICK LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR COLONIAL TERRACE OF INDEPENDENCE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF LARNED LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF AVA LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF BUFFALO LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF CLINTON LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF DES PERES LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF JEFFERSON LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF MARCELINE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP II By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF LAMAR LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF SHADY OAKS LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF CRANE LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR OF KIMBERLING CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR RESIDENTIAL OF KIMBERLING CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR WORNALL OF KANSAS CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President MEADOWBROOK MANOR BLUE HILLS OF KANSAS CITY LIMITED PARTNERSHIP I By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General Partner By [SIGNATURE ILLEGIBLE] --------------------------- Title: President EX-10.52 45 FORBEARANCE AGREEMENT EXHIBIT 10.52 FORBEARANCE AGREEMENT dated as of August 25, 1995 among MEADOWBROOK MANOR OF AVA LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF BALLWIN LIMITED PARTNERSHIP (formerly known as Meadowbrook Manor of Baldwin Limited Partnership), MEADOWBROOK MANOR BLUE HILLS OF KANSAS CITY LIMITED PARTNERSHIP I, MEADOWBROOK MANOR OF BUFFALO LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF CHANUTE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF CLINTON LIMITED PARTNERSHIP, MEADOWBROOK MANOR COLONIAL TERRACE OF INDEPENDENCE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF COLUMBIA LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF COUNCIL GROVE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF CRANE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF DES PERES LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF HAYSVILLE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF JEFFERSON LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP I, MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP II, MEADOWBROOK MANOR OF KIMBERLING CITY LIMITED PARTNERSHIP, MEADOWBROOK MANOR RESIDENTIAL OF KIMBERLING CITY LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF LAMAR LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF LARNED LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF MARCELINE LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF SEDGWICK LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF SHADY OAKS LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF SPRINGFIELD LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF ST. CHARLES LIMITED PARTNERSHIP, MEADOWBROOK MANOR OF TOPEKA LIMITED PARTNERSHIP, MEADOWBROOK MANOR WORNALL OF KANSAS CITY LIMITED PARTNERSHIP, DON G. ANGELL, DANIEL D. MOSCA, MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., MIDAMERICA PHARMACIES LIMITED PARTNERSHIP, FIRST HEALTHCARE CORPORATION and MEDISAVE PHARMACIES, INC. TABLE OF CONTENTS
Page ---- RECITALS.................................................................. 2 ARTICLE I - CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION................. 8 1.01 Certain Defined Terms.......................................... 8 1.02 Accounting Terms............................................... 9 1.03 Recitals, Articles, Sections, Etc.............................. 9 1.04 Recitals....................................................... 9 1.05 No Construction against Drafter................................ 9 1.06 Reasonable Fees and Disbursements of Attorneys................. 9 ARTICLE II - WAIVERS OF DEFENSES AND RIGHTS; RELEASES..................... 9 2.01 WAIVER OF DEFENSES AND RIGHTS BY EACH FORBEARANCE ------------------------------------------------- PARTY.......................................................... 9 ----- 2.02 WAIVER OF DEFENSES AND RIGHTS BY EACH MIDAMERICA ------------------------------------------------ PARTY.......................................................... 10 ----- 2.03 RELEASE BY EACH FORBEARANCE PARTY.............................. 10 --------------------------------- 2.04 RELEASE BY EACH MIDAMERICA PARTY............................... 11 -------------------------------- 2.05 Consultation with Legal Counsel, Etc........................... 12 ARTICLE III - FORBEARANCE AND FORBEARANCE PERIOD.......................... 13 3.01 Forbearance.................................................... 13 3.02 Interest on the Notes.......................................... 13 3.03 Installment Payment Dates under the Notes...................... 13 3.04 Rent Payment Dates under the Subleases......................... 14 3.05 Operator's Return Payment Dates under the Management Agreements.......................................... 14 3.06 Payment of the Arrearages...................................... 14 3.07 Interest on the Arrearages..................................... 15 3.08 Application of Payments........................................ 15 3.09 Certain Payments and Computations.............................. 16 3.10 Tax Deposits................................................... 16 (a) Certain Tax Deposits....................................... 16 (b) Certain Other Tax Deposits................................. 16 (c) Additional Tax Deposits.................................... 17 (d) Use of Deposited Funds; Grant of Security Interest.......................................... 17 (e) Transfer of Transaction Documents or Forbearance Documents................................... 17 3.11 Waiver of Certain Designated Defaults, Etc..................... 18 3.12 Reporting Requirements......................................... 18 3.13 Title Search Reports........................................... 21 3.14 Certain Required Documents..................................... 21 3.15 Certain Other Required Documents............................... 24
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Page ---- 3.16 Escrowed Documents............................................. 25 3.17 Certain Other Documents Required by MediSave................... 27 3.18 Further Assurances............................................. 28 3.19 Consents....................................................... 29 3.20 Certain Junior Liens........................................... 29 3.21 Marceline Facility............................................. 31 3.22 Chastain's Facilities.......................................... 31 3.23 Optional Prepayments; Refinancing.............................. 32 (a) Optional Prepayments of the Arrearages..................... 32 (b) No Prepayments of the Notes................................ 32 (c) Refinancing................................................ 33 3.24 Transferees of First Healthcare................................ 34 3.25 Acceptance of Escrowed Documents............................... 35 (a) Confessions of Judgment.................................... 35 (b) Sublease Termination Agreements............................ 35 (c) Kansas Deeds in Lieu of Foreclosure........................ 35 (d) Missouri Deeds in Lieu of Foreclosure...................... 36 (e) Other Escrowed Documents................................... 36 3.26 Completion of Escrowed Documents............................... 36 3.27 Return of Escrowed Documents................................... 37 3.28 Limitation on Interest......................................... 37 3.29 Consent of Guarantors.......................................... 37 ARTICLE IV - CONDITIONS PRECEDENT......................................... 37 4.01 Conditions Precedent........................................... 37 ARTICLE V - REPRESENTATIONS AND WARRANTIES................................ 40 5.01 Certain Representations and Warranties of the Forbearance Parties........................................................ 40 (a) Validity, Enforceability, Etc.............................. 40 (b) Consents, Etc.............................................. 40 (c) Legal Proceedings.......................................... 40 (d) Disclosures................................................ 41 (e) Forbearance Defaults; Etc.................................. 41 (f) Purpose of Obligations..................................... 41 (g) No Claims.................................................. 41 5.02 Additional Representations and Warranties of the Partnerships................................................... 41 (a) Partnership Existence and Power............................ 41 (b) Partnership Authorization.................................. 42 (c) Non-Contravention.......................................... 42
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Page ---- (d) Unconditional Obligation; No Defenses, Etc................. 42 (e) Partners................................................... 42 (f) Address.................................................... 42 5.03 Certain Representations and Warranties of the MidAmerica Parties........................................................ 43 (a) Validity, Enforceability, Etc.............................. 43 (b) Consents, Etc.............................................. 43 (c) Legal Proceedings.......................................... 43 (d) Disclosures................................................ 43 (e) Forbearance Defaults; Etc.................................. 44 (f) Purpose of Obligations..................................... 44 5.04 Additional Representations and Warranties of MidAmerica........ 44 (a) Partnership Existence and Power............................ 44 (b) Partnership Authorization.................................. 44 (c) Non-Contravention.......................................... 44 (d) Unconditional Obligation; No Defenses, Etc................. 45 (e) Partners................................................... 45 (f) Address.................................................... 45 5.05 Additional Representations and Warranties of the Guarantors..................................................... 45 (a) Capacity................................................... 45 (b) Non-Contravention.......................................... 45 (c) No Defenses, Etc........................................... 46 5.06 Additional Representations and Warranties of the General Partner................................................ 46 (a) Corporate Existence and Power.............................. 46 (b) Corporate Authorization.................................... 46 (c) Non-Contravention.......................................... 46 (d) No Defenses, Etc........................................... 47 5.07 Representations and Warranties of First Healthcare............. 47 (a) Notes...................................................... 47 (b) Subleases.................................................. 47 (c) Corporate Authorization.................................... 47 5.08 Representations and Warranties of MediSave..................... 47 (a) MediSave Note.............................................. 47 (b) Corporate Authorization.................................... 48
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Page ---- ARTICLE VI - FORBEARANCE DEFAULTS......................................... 48 6.01 Forbearance Defaults........................................... 48 6.02 Remedies....................................................... 50 6.03 No Mortgagee in Possession, Etc................................ 55 6.04 Marketing of Facilities........................................ 55 6.05 Order of Acceptance of Escrowed Documents...................... 56 6.06 Deeds in Lieu of Foreclosure; Other Escrowed Documents...................................................... 57 (a) Absolute Conveyance; Termination of Right of Redemption; Etc......................................... 57 (b) No Merger.................................................. 57 (c) No Satisfaction of Obligations............................. 58 (d) Forbearance Parties Remain Liable.......................... 58 6.07 Guarantor Confessions of Judgment.............................. 59 ARTICLE VII - MISCELLANEOUS............................................... 66 7.01 Amendments, Etc................................................ 66 7.02 Notices........................................................ 67 7.03 Entire Agreement............................................... 70 7.04 No Waiver; Remedies Cumulative................................. 70 7.05 Costs and Expenses............................................. 71 7.06 Consent to Jurisdiction........................................ 72 7.07 Binding Effect................................................. 73 7.08 Severability................................................... 74 7.09 Captions....................................................... 74 7.10 Survival....................................................... 74 7.11 Execution in Counterparts...................................... 74 7.12 Governing Law.................................................. 74 7.13 Waiver of Jury Trial........................................... 74 7.14 Oral Agreements Unenforceable.................................. 75
Schedule A - Facilities Schedule B - Notes Schedule F - Mortgages Schedule G - Deeds of Trust Schedule J(1) - Delinquent Indebtedness Schedule J(2) - Delinquent Rent Schedule J(3) - Delinquent Management Obligations Schedule J(4) - Delinquent Taxes Schedule K - Cost Report Remittance Schedule Q - Tax Arrearage Schedule 1.01 - Certain Defined Terms Schedule 3.04 - Additional Rent Schedule 3.05 - Additional Operator's Return Schedule 3.06 - Shares -iv- Exhibit 3.14(a) - Form of Partnership Security Agreement Exhibit 3.14(b) - Form of Partnership Guaranty Exhibit 3.14(c) - Form of Restated First Healthcare Guaranty Exhibit 3.14(e) - Form of Escrow Agreement Exhibit 3.14(h) - Form of Stipulation for Relief Exhibit 3.14(i) - Form of Stipulation for Appointment of Receiver Exhibit 3.15(a) - Form of Agency Agreement Exhibit 3.15(b) - Form of Partnership Guaranty Mortgage Exhibit 3.15(c) - Form of Partnership Guaranty Deed of Trust Exhibit 3.15(d) - Form of Partnership Guaranty Security Agreement Exhibit 3.16(a) - Form of Guarantor Confession of Judgment Exhibit 3.16(b) - Form of Purchaser Confession of Judgment Exhibit 3.16(c) - Form of Sublessee Confession of Judgment Exhibit 3.16(d) - Form of Manager Confession of Judgment Exhibit 3.16(e) - Form of Sublease Termination Agreement Exhibit 3.16(f) - Form of Management Termination Agreement Exhibit 3.16(g) - Form of Escrowed Management Agreement Exhibit 3.16(h) - Form of Kansas Deed in Lieu of Foreclosure Exhibit 3.16(i) - Form of Missouri Deed in Lieu of Foreclosure Exhibit 3.16(j) - Form of Estoppel Affidavit Exhibit 3.16(k) - Form of Certificate of Non-Foreign Status Exhibit 3.16(l) - Form of Bill of Sale in Lieu of Foreclosure Exhibit 3.17(a) - Form of MediSave Note Modification Agreement Exhibit 3.17(b) - Form of Restated MediSave Guaranty Exhibit 3.17(c) - Form of MediSave Partnership Guaranty -v- FORBEARANCE AGREEMENT This FORBEARANCE AGREEMENT, dated as of August 25, 1995 (this "Agreement"), is made by and among MEADOWBROOK MANOR OF AVA LIMITED PARTNERSHIP ("Ava"), MEADOWBROOK MANOR OF BALLWIN LIMITED PARTNERSHIP (formerly known as Meadowbrook Manor of Baldwin Limited Partnership) ("Ballwin"), MEADOWBROOK MANOR BLUE HILLS OF KANSAS CITY LIMITED PARTNERSHIP I ("Blue Hills"), MEADOWBROOK MANOR OF BUFFALO LIMITED PARTNERSHIP ("Buffalo"), MEADOWBROOK MANOR OF CHANUTE LIMITED PARTNERSHIP ("Chanute"), MEADOWBROOK MANOR OF CLINTON LIMITED PARTNERSHIP ("Clinton"), MEADOWBROOK MANOR COLONIAL TERRACE OF INDEPENDENCE LIMITED PARTNERSHIP ("Colonial Terrace"), MEADOWBROOK MANOR OF COLUMBIA LIMITED PARTNERSHIP ("Columbia"), MEADOWBROOK MANOR OF COUNCIL GROVE LIMITED PARTNERSHIP ("Council Grove"), MEADOWBROOK MANOR OF CRANE LIMITED PARTNERSHIP ("Crane"), MEADOWBROOK MANOR OF DES PERES LIMITED PARTNERSHIP ("Des Peres"), MEADOWBROOK MANOR OF HAYSVILLE LIMITED PARTNERSHIP ("Haysville"), MEADOWBROOK MANOR OF JEFFERSON LIMITED PARTNERSHIP ("Jefferson"), MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP I ("Joplin I"), MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP II ("Joplin II"), MEADOWBROOK MANOR OF KIMBERLING CITY LIMITED PARTNERSHIP ("Kimberling City Manor"), MEADOWBROOK MANOR RESIDENTIAL OF KIMBERLING CITY LIMITED PARTNERSHIP ("Kimberling City Residential"), MEADOWBROOK MANOR OF LAMAR LIMITED PARTNERSHIP ("Lamar"), MEADOWBROOK MANOR OF LARNED LIMITED PARTNERSHIP ("Larned"), MEADOWBROOK MANOR OF MARCELINE LIMITED PARTNERSHIP ("Marceline"), MEADOWBROOK MANOR OF SEDGWICK LIMITED PARTNERSHIP ("Sedgwick"), MEADOWBROOK MANOR OF SHADY OAKS LIMITED PARTNERSHIP ("Shady Oaks"), MEADOWBROOK MANOR OF SPRINGFIELD LIMITED PARTNERSHIP ("Springfield"), MEADOWBROOK MANOR OF ST. CHARLES LIMITED PARTNERSHIP ("St. Charles"), MEADOWBROOK MANOR OF TOPEKA LIMITED PARTNERSHIP ("Topeka"), MEADOWBROOK MANOR WORNALL OF KANSAS CITY LIMITED PARTNERSHIP ("Wornall"), each a North Carolina limited partnership (Ava, Ballwin, Blue Hills, Buffalo, Chanute, Clinton, Colonial Terrace, Columbia, Council Grove, Crane, Des Peres, Haysville, Jefferson, Joplin I, Joplin II, Kimberling City Manor, Kimberling City Residential, Lamar, Larned, Marceline, Sedgwick, Shady Oaks, Springfield, St. Charles, Topeka and Wornall being sometimes referred to in this Agreement individually as a "Partnership" and collectively as the "Partnerships"), DON G. ANGELL, an individual ("Angell"), DANIEL D. MOSCA, an individual ("Mosca") (Angell and Mosca being sometimes referred to in this Agreement individually as a "Guarantor" and together as the "Guarantors"), MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., a North Carolina corporation (the "General Partner"), MIDAMERICA PHARMACIES LIMITED PARTNERSHIP, a North Carolina limited partnership ("MidAmerica"), FIRST HEALTHCARE CORPORATION, a Delaware corporation ("First Healthcare"), and MEDISAVE PHARMACIES, INC., a Delaware corporation ("MediSave"). -1- RECITALS A. First Healthcare, the Partnerships, Meadowbrook Manor of Overland Park Limited Partnership, a North Carolina limited partnership ("Overland Park"), Meadowbrook Manor Terrace of Overland Park Limited Partnership, a North Carolina limited partnership, Meadowbrook Manor Apartments of Larned Limited Partnership, a North Carolina limited partnership, and Meadowbrook Manor of Wichita Limited Partnership, a North Carolina limited partnership ("Wichita"), have entered into a Facility Agreement, dated as of April 23, 1992, as amended and otherwise modified by a First Amendment to Facility Agreement, dated as of July 31, 1992, among First Healthcare, the Partnerships, Overland Park and Wichita (said Facility Agreement, as so amended and otherwise modified and as it may be further amended or otherwise modified from time to time, being the "Facility Agreement"), pursuant to which, among other things, (i) Ballwin, Chanute, Columbia, Council Grove, Haysville, Joplin I, Larned, Sedgwick, Springfield, St. Charles and Topeka (Ballwin, Chanute, Columbia, Council Grove, Haysville, Joplin I, Larned, Sedgwick, Springfield, St. Charles and Topeka being sometimes referred to in this Agreement individually as a "Purchaser" and collectively as the "Purchasers") have purchased from First Healthcare the respective health care facilities (individually, a "Purchased Facility" and collectively, the "Purchased Facilities") listed opposite the names of the Purchasers in Part A of Schedule A, (ii) Ava, Blue Hills, Buffalo, Clinton, Colonial Terrace, Des Peres, Jefferson, Joplin II, Lamar, Marceline, Shady Oaks and Wornall (Ava, Blue Hills, Buffalo, Clinton, Colonial Terrace, Des Peres, Jefferson, Joplin II, Lamar, Marceline, Shady Oaks and Wornall being sometimes referred to in this Agreement individually as a "Sublessee" and collectively as the "Sublessees") have subleased from First Healthcare the respective health care facilities (individually, a "Subleased Facility" and collectively, the "Subleased Facilities") listed opposite the names of the Sublessees in Part B of Schedule A, and (iii) Crane, Kimberling City Manor and Kimberling City Residential (Crane, Kimberling City Manor and Kimberling City Residential being sometimes referred to in this Agreement individually as a "Manager" and collectively as the "Managers") have agreed to manage for First Healthcare the respective health care facilities (individually, a "Managed Facility" and collectively, the "Managed Facilities") listed opposite the names of the Managers in Part C of Schedule A (the Purchased Facilities, the Subleased Facilities and the Managed Facilities being sometimes referred to in this Agreement individually as a "Facility" and collectively as the "Facilities"). B. Pursuant to the Facility Agreement, the Purchasers have executed and delivered to First Healthcare the respective -2- promissory notes (such promissory notes, as they may be extended, renewed or otherwise modified from time to time, being individually a "Note" and collectively the "Notes") listed or otherwise described in Schedule B. The Notes evidence the indebtedness of the Purchasers for the respective amounts of the deferred portions of the purchase prices payable by the Purchasers to First Healthcare for the Purchased Facilities. C. The Purchasers are indebted to First Healthcare for unpaid principal plus accrued and unpaid interest under and pursuant to the provisions of the respective Notes. D. Pursuant to the Facility Agreement, First Healthcare and the respective Sublessees have entered into separate subleases, each dated as of April 23, 1992 (such subleases, as they may be amended or otherwise modified from time to time, being individually a "Sublease" and collectively the "Subleases"), with respect to the respective Subleased Facilities. E. Pursuant to the Facility Agreement, First Healthcare and the respective Managers have entered into separate management agreements, each dated as of July 31, 1992 (such management agreements, as they may be amended or otherwise modified from time to time, being individually a "Management Agreement" and collectively the "Management Agreements"), with respect to the respective Managed Facilities. F. The payment and performance of the respective obligations of Chanute, Council Grove, Haysville, Larned, Sedgwick and Topeka under the Facility Agreement and their respective Notes are secured by, among other things, valid and subsisting liens on and valid and perfected security interests in the real and personal properties and fixtures described in the respective mortgages (such mortgages, as they may be amended or otherwise modified from time to time, being individually a "Mortgage" and collectively the "Mortgages") listed or otherwise described in Schedule F. G. The payment and performance of the respective obligations of Ballwin, Columbia, Joplin I, Springfield and St. Charles under the Facility Agreement and their respective Notes are secured by, among other things, valid and subsisting liens on and valid and perfected security interests in the real and personal properties and fixtures described in the respective deeds of trust (such deeds of trust, as they may be amended or otherwise modified from time to time, being individually a "Deed of Trust" and collectively the "Deeds of Trust") listed or otherwise described in Schedule G. -3- H. The payment and performance of the respective obligations of the Sublessees under their respective Subleases are secured by, among other things, valid and perfected security interests in the personal properties described in the respective Subleases. I. The Guarantors have executed and delivered to and in favor of First Healthcare a Guaranty, dated July 31, 1992 (the "Guaranty"), pursuant to which, among other things, the Guarantors, jointly and severally, have guaranteed the punctual payment when due of certain obligations of the Partnerships under the Notes, the Subleases and the Management Agreements. J. The Partnerships are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust in the following respects (the following specified defaults being individually a "Designated Default" and collectively the "Designated Defaults"): (1) The Purchasers are in default under their respective Notes because the Purchasers have failed on and before June 30, 1995, to pay, within ten days after the same became due, two monthly installments of principal plus accrued and unpaid interest on the Notes (exclusive of late charges and interest at the post-default or post-maturity rate or rates provided for in the Notes) as of June 30, 1995, in an aggregate amount equal to $506,144.84 (the "Delinquent Indebtedness"), consisting of the respective amounts set forth opposite the names of the Purchasers in Schedule J(1); (2) The Sublessees are in default under their respective Subleases, because the Sublessees have failed on and before June 30, 1995, to pay, within ten days after the same became due, the Rent under the respective Subleases (exclusive of additional Rent attributable to any failure to pay Rent when due under the respective Subleases) in an aggregate amount equal to $1,087,249.73 (the "Delinquent Rent") as of June 30, 1995, consisting of the respective amounts set forth opposite the names of the Sublessees in Schedule J(2); (3) The Managers are in default under their respective Management Agreements, because the Managers have failed on and before June 30, 1995, to pay, within the applicable grace periods under the respective Management Agreements, operating costs and expenses of the respective Managed Facilities and the Operator's Return under the respective Management Agreements in an aggregate amount equal to $247,673.49 (the "Delinquent Management Obligations") as of -4- June 30, 1995, consisting of the respective amounts set forth opposite the names of the Managers in Schedule J(3); (4) The Partnerships also are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust, because the Partnerships have failed on and before June 30, 1995, to pay when due (whether upon demand, at stated maturity or otherwise) (a) real property taxes and personal property taxes payable pursuant to the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust in an aggregate amount of approximately $1,299,945.35 (the "Delinquent Taxes") as of June 30, 1995, consisting of the respective amounts set forth opposite the names of the Partnerships in Schedule J(4), and (b) late charges, interest at the post-default or post-maturity rate or rates provided for in the Notes and additional Rent attributable to any failure to pay Rent when due under the respective Subleases, all in an aggregate amount of approximately $135,000.00 as of June 30, 1995, other costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) and certain other obligations of the Partnerships payable on or before June 30, 1995 (all such late charges, interest, additional Rent, costs, expenses and obligations being collectively the "Other Delinquent Obligations"), pursuant to the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust; (5) The Partnerships also are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust, because the Partnerships have failed on and before June 30, 1995, to furnish to First Healthcare when due interim and annual financial statements and other reports required pursuant to the provisions of the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust; (6) The Partnerships also are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust, because certain of the Partnerships have failed on and before June 30, 1995, to pay certain obligations to the State of Kansas, Department of Human Resources, and the State of Missouri, Division of Employment Security, resulting in the filing or recording of liens, notices of lien and transcripts of judgment in respect of certain of the Facilities; (7) The Partnerships also are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust, because certain of the Partnerships have failed on and before June 30, 1995, to pay -5- when due principal of or premium or interest on indebtedness of each of such Partnerships (excluding indebtedness evidenced by the Notes) in an aggregate principal amount of at least $100,000.00 at any one time outstanding on or before June 30, 1995; and (8) The Partnerships also are in default under the Notes, the Subleases, the Management Agreements, the Mortgages and the Deeds of Trust, because Sedgwick and Topeka, respectively, have failed to maintain in full force and effect all registrations, qualifications, licenses and other authorizations and approvals required to use and occupy the Purchased Facility purchased by Sedgwick as and for a 95-bed intermediate care facility and to use and occupy the Purchased Facility purchased by Topeka as and for a 116-bed intermediate care and 58-bed skilled nursing facility (said respective failures by Sedgwick and Topeka to maintain in full force and effect such registrations, qualifications, licenses and other authorizations and approvals being collectively the "Licensure Default"). K. As of the date of this Agreement, certain of the Partnerships are liable pursuant to the Facility Agreement for the remittance to First Healthcare of the net aggregate amount of $152,742.00 (the "Cost Report Remittance") received by the Partnerships from governmental and regulatory authorities in respect of cost reports filed with respect to the Facilities for certain cost reporting periods, consisting of the respective amounts set forth opposite the names of those Partnerships in Schedule K. L. Pursuant to the provisions of the respective Notes, the Purchasers have agreed, among other things, to pay all costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred by First Healthcare in connection with or incidental to any Event of Default under and as defined, respectively, in the Notes or otherwise in connection with or incidental to the enforcement of the Notes and other Transaction Documents (such term being used in this Agreement as defined in Schedule 1.01). M. Pursuant to the provisions of the respective Subleases, the Sublessees have agreed, among other things, to indemnify First Healthcare against all costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred by First Healthcare by reason of any failure by the Sublessees to perform or comply with any provisions of their respective Subleases. N. Pursuant to the provisions of the respective Management Agreements, the Managers have agreed, among other things, to -6- indemnify First Healthcare against all costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred by First Healthcare by reason of any failure by the Managers to perform or comply with any provisions of their respective Management Agreements. O. As of the date of this Agreement, First Healthcare has incurred costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) in an aggregate amount exceeding $160,000.00 by reason of or in connection with or incidental to the Designated Defaults. A portion of such costs and expenses in the aggregate amount of $160,000.00 are sometimes referred to in this Agreement as the "Default Costs and Expenses." The Default Costs and Expenses, as well as all other costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred by First Healthcare by reason of or in connection with or incidental to the Designated Defaults, are payable by the Partnerships under and pursuant to the respective Transaction Documents. P. Because of the occurrence of the Designated Defaults and other events and conditions which constitute breaches of or defaults under the Transaction Documents, First Healthcare has the current right to exercise and enforce any and all rights and remedies of First Healthcare provided for in the Transaction Documents and otherwise available to First Healthcare by agreement, at law or in equity, including, but not limited to, the right to charge and collect interest at the post-default or post-maturity rate or rates provided for in the Notes and the other Transaction Documents, to terminate the Subleases and the Management Agreements, to take immediate possession of the Facilities and all of the other Collateral (such term being used in this Agreement as defined in Schedule 1.01), to foreclose, realize upon and otherwise proceed against any and all of the Collateral, and to enforce the Guaranty against any one or both of the Guarantors. Q. First Healthcare has paid to the appropriate taxation authorities a portion of the Delinquent Taxes in the aggregate amount of $253,928.87 (the "Tax Arrearage"), consisting of the respective amounts of taxes paid by First Healthcare and set forth opposite the names of the Partnerships listed in Schedule Q. R. MediSave and MidAmerica have entered into an Asset Purchase Agreement, dated as of July 31, 1992 (said Asset Purchase Agreement, as it has been or hereafter from time to time may be amended or otherwise modified, being the "MediSave Purchase Agreement"). -7- S. Pursuant to the MediSave Purchase Agreement, MidAmerica has executed and delivered to MediSave a Promissory Note, dated July 31, 1992 (the "MediSave Note"), made by MidAmerica payable to the order of MediSave in the stated principal sum of $320,397.00. MidAmerica is indebted to MediSave for unpaid principal plus accrued and unpaid interest under and pursuant to the provisions of the MediSave Note. T. The Guarantors have executed and delivered to and in favor of MediSave a Guaranty, dated July 31, 1992 (said Guaranty, as it has been or hereafter from time to time may be amended or otherwise modified, being the "MediSave Guaranty"), pursuant to which, among other things, the Guarantors, jointly and severally, have guaranteed the punctual payment when due of certain obligations of MidAmerica under the MediSave Note. U. The Partnerships, the General Partner and the Guarantors have requested that First Healthcare forbear from exercising First Healthcare's rights and remedies under the Transaction Documents and, although First Healthcare is under no obligation to do so, First Healthcare is willing, on terms and subject to conditions set forth below in this Agreement, and only during the specific forbearance period set forth below in this Agreement, to forbear from exercising First Healthcare's rights and remedies under the Transaction Documents. V. MidAmerica, the General Partner and the Guarantors have requested that MediSave agree to extend the scheduled maturity date of the MediSave Note and otherwise to modify the payment terms under the MediSave Note and, although MediSave is under no obligation to do so, MediSave is willing, on terms and subject to conditions set forth or provided for below in this Agreement, to agree to extend the scheduled maturity date of the MediSave Note and otherwise to modify the payment terms under the MediSave Note. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partnerships, the Guarantors, the General Partner, MidAmerica, First Healthcare and MediSave hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION 1.01 Certain Defined Terms. As used in this Agreement, the terms set --------------------- forth in Schedule 1.01 shall have the respective meanings assigned to those terms in Schedule 1.01 (such meanings to be equally applicable to both the singular and plural forms of the terms defined). -8- 1.02 Accounting Terms. All accounting terms that are not specifically ---------------- defined in this Agreement shall be construed in accordance with sound accounting principles and practices consistent with those applied in the preparation of the financial statements referred to in Section 3.12. The term "sound accounting principles and practices" means generally accepted accounting principles and practices consistently applied, but permitting, with respect to the preparation of financial statements, the omission of footnotes and federal and state income tax reserves, none of which omissions shall represent an omission of material items of revenue or expense other than federal and state income tax expense. 1.03 Recitals, Articles, Sections, Etc. Unless stated otherwise in this --------------------------------- Agreement, references in this Agreement to Recitals, Articles, Sections, Schedules and Exhibits are references to Recitals, Articles and Sections of, and Schedules and Exhibits attached to, this Agreement. Each Schedule to this Agreement is by this reference incorporated in this Agreement. 1.04 Recitals. All Recitals set forth in this Agreement are by this -------- reference incorporated in this Agreement. This Agreement is made in reliance on the accuracy of the Recitals set forth in this Agreement, which Recitals are acknowledged by the Forbearance Parties, the MidAmerica Parties, First Healthcare and MediSave to be true and accurate as of the date of this Agreement. 1.05 No Construction against Drafter. No inference in favor of, or ------------------------------- against, any party to this Agreement shall be drawn from the fact that such party has drafted any portion of this Agreement, any other Forbearance Document, any other MediSave Forbearance Document, any Escrowed Document, any Transaction Document or any MediSave Transaction Document. 1.06 Reasonable Fees and Disbursements of Attorneys. For the purposes of ---------------------------------------------- this Agreement, references to reasonable fees and disbursements of attorneys shall include, but shall not be limited to, reasonable fees and disbursements allocated for internal corporate counsel. ARTICLE II WAIVERS OF DEFENSES AND RIGHTS; RELEASES 2.01 WAIVER OF DEFENSES AND RIGHTS BY EACH FORBEARANCE PARTY. Each ------------------------------------------------------- Forbearance Party, for such Forbearance Party and the heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of such Forbearance Party, HEREBY WAIVES AND RELINQUISHES any and all defenses and any and all rights to set-off or recoupment, of any kind -9- whatsoever, that such Forbearance Party or any Person claiming by or through such Forbearance Party may now have or may claim to have in respect of payment of any or all of the Obligations of such Forbearance Party under any Transaction Document and/or enforcement of any or all of the Transaction Documents. 2.02 WAIVER OF DEFENSES AND RIGHTS BY EACH MIDAMERICA PARTY. Each ------------------------------------------------------ MidAmerica Party, for such MidAmerica Party and the heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of such MidAmerica Party, HEREBY WAIVES AND RELINQUISHES any and all defenses and any and all rights to set-off or recoupment, of any kind whatsoever, that such MidAmerica Party or any Person claiming by or through such MidAmerica Party may now have or may claim to have in respect of payment of any or all of the MidAmerica Obligations of such MidAmerica Party under any MediSave Transaction Document and/or enforcement of any or all of the MediSave Transaction Documents. 2.03 RELEASE BY EACH FORBEARANCE PARTY. Each Forbearance Party, for such --------------------------------- Forbearance Party and the heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of such Forbearance Party, HEREBY RELEASES, ACQUITS AND FOREVER DISCHARGES First Healthcare, Hillhaven, MediSave, First Rehab, the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, the respective directors, officers, employees, insurers, agents and representatives of First Healthcare, Hillhaven, MediSave, First Rehab and the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, all other Persons who are acting or at any time or times have acted for or on behalf of any of First Healthcare, Hillhaven, MediSave, First Rehab and the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, and all of their respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns, from all claims, demands, actions, causes of action, losses, liabilities, damages, costs, expenses and disbursements (including, but not limited to, fees and disbursements of accountants, attorneys, engineers and other professionals, experts and agents) of any kind whatsoever, both known and unknown, both foreseen and unforeseen, whether now or hereafter existing, whether matured or unmatured, liquidated or unliquidated or choate or inchoate, whether based upon tort, contract, breach of contract or otherwise, and whether or not asserted, which such Forbearance Party or any Person claiming by or through such Forbearance Party may now or hereafter have or incur or may now or hereafter claim to have or to have incurred, arising or to arise, directly or indirectly, from or by reason of, or in any manner related to or connected with, (a) the negotiation, preparation, execution and/or delivery of this Agreement, any other Forbearance Document, any other MediSave -10- Forbearance Document, any Escrowed Document, any Transaction Document and/or any MediSave Transaction Document and/or (b) any failure of title to be vested in Ballwin with respect to the estate or interest in the portion of the lots, tracts or parcels described as Parcel 2 in Exhibit A to the Ballwin Deed and/or (c) any other fact, event, transaction, condition, act or omission to act occurring on or prior to the date of this Agreement under or in any manner related to or connected with the Facility Agreement, any other Transaction Document, any MediSave Transaction Document, any Forbearance Document, any MediSave Forbearance Document, any Facility, any of the Collateral, any of the Obligations and/or any of the MidAmerica Obligations, regardless of when the cause of action with respect to any such fact, event, transaction, condition, act or omission to act shall be deemed to arise; provided that no provision of -------- this Section shall in any way limit, diminish, terminate or otherwise affect (i) any warranty of title set forth in any Deed other than as set forth in clause (b) of this Section with respect to the Ballwin Deed, (ii) any of the covenants of First Healthcare set forth in any of Sections 3.15, 5.04, 5.05, 7.06 and 7.07 of the Facility Agreement, (iii) any of the covenants of First Healthcare set forth in this Agreement or any other Forbearance Document, (iv) any of the covenants of MediSave set forth in this Agreement or any other MediSave Forbearance Document, (v) the enforceability against First Healthcare of any of the covenants of First Healthcare set forth in any of Sections 3.15, 5.04, 5.05, 7.06 and 7.07 of the Facility Agreement, (vi) the enforceability against First Healthcare of any of the covenants of First Healthcare set forth in this Agreement or any other Forbearance Document or (vii) the enforceability against MediSave of any of the covenants of MediSave set forth in this Agreement or any other MediSave Forbearance Document. 2.04 RELEASE BY EACH MIDAMERICA PARTY. Each MidAmerica Party, for such -------------------------------- MidAmerica Party and the heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of such MidAmerica Party, HEREBY RELEASES, ACQUITS AND FOREVER DISCHARGES First Healthcare, Hillhaven, MediSave, First Rehab, the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, the respective directors, officers, employees, insurers, agents and representatives of First Healthcare, Hillhaven, MediSave, First Rehab and the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, all other Persons who are acting or at any time or times have acted for or on behalf of any of First Healthcare, Hillhaven, MediSave, First Rehab and the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, and all of their respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns, from all claims, demands, actions, causes of action, losses, -11- liabilities, damages, costs, expenses and disbursements (including, but not limited to, fees and disbursements of accountants, attorneys, engineers and other professionals, experts and agents) of any kind whatsoever, both known and unknown, both foreseen and unforeseen, whether now or hereafter existing, whether matured or unmatured, liquidated or unliquidated or choate or inchoate, whether based upon tort, contract, breach of contract or otherwise, and whether or not asserted, which such MidAmerica Party or any Person claiming by or through such MidAmerica Party may now or hereafter have or incur or may now or hereafter claim to have or to have incurred, arising or to arise, directly or indirectly, from or by reason of, or in any manner related to or connected with, (a) the negotiation, preparation, execution and/or delivery of this Agreement, any other Forbearance Document, any other MediSave Forbearance Document, any Escrowed Document, any Transaction Document and/or any MediSave Transaction Document and/or (b) any fact, event, transaction, condition, act or omission to act occurring on or prior to the date of this Agreement (including, but not limited to, any such fact, event, transaction, condition, act or omission to act under or in any manner related to or connected with the Facility Agreement, any other Transaction Document, any MediSave Transaction Document, any of the Obligations and/or any of the MidAmerica Obligations), regardless of when the cause of action with respect to any such fact, event, transaction, condition, act or omission to act shall be deemed to arise; provided that no provision of -------- this Section shall in any way limit, diminish, terminate or otherwise affect (i) any of the covenants of First Healthcare set forth in this Agreement or any other Forbearance Document, (ii) any of the covenants of MediSave set forth in this Agreement or any other MediSave Forbearance Document, (iii) the enforceability against First Healthcare of any of the covenants of First Healthcare set forth in this Agreement or any other Forbearance Document or (iv) the enforceability against MediSave of any of the covenants of MediSave set forth in this Agreement or any other MediSave Forbearance Document. 2.05 Consultation with Legal Counsel, Etc. Each Forbearance Party ------------------------------------ acknowledges and agrees that (a) the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.01 and 2.03 have been specifically negotiated and are essential and material terms of this Agreement and a material part of the consideration for the execution and delivery of this Agreement by First Healthcare and MediSave, (b) such Forbearance Party has consulted with legal counsel of such Forbearance Party's own choosing prior to signing this Agreement and accepting and agreeing to the provisions of this Agreement, including, but not limited to, the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.01 and 2.03, and (c) such Forbearance Party voluntarily and knowingly -12- has signed this Agreement and accepted and agreed to the provisions of this Agreement, including, but not limited to, the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.01 and 2.03. Each MidAmerica Party acknowledges and agrees that (i) the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.02 and 2.04 have been specifically negotiated and are essential and material terms of this Agreement and a material part of the consideration for the execution and delivery of this Agreement by First Healthcare and MediSave, (ii) such MidAmerica Party has consulted with legal counsel of such MidAmerica Party's own choosing prior to signing this Agreement and accepting and agreeing to the provisions of this Agreement, including, but not limited to, the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.02 and 2.04, and (iii) such MidAmerica Party voluntarily and knowingly has signed this Agreement and accepted and agreed to the provisions of this Agreement, including, but not limited to, the waiver, relinquishment, release, acquittance and discharge set forth in Sections 2.02 and 2.04. ARTICLE III FORBEARANCE AND FORBEARANCE PERIOD 3.01 Forbearance. Subject to Article IV, during the period (the ----------- "Forbearance Period") from June 30, 1995, until the earlier of the occurrence of any Forbearance Default or December 25, 1997, First Healthcare will forbear from (a) making any demand or commencing any collection action with respect to any of the Delinquent Obligations, (b) terminating the Subleases and the Management Agreements, (c) taking any action, judicial or nonjudicial, to foreclose, realize upon or otherwise proceed against any or all of the Collateral and (d) making any demand under or commencing any action to enforce the Guaranty against any one or both of the Guarantors. 3.02 Interest on the Notes. Each Note shall bear interest during the --------------------- Forbearance Period at the Regular Rate under and as defined in such Note; provided that if, on or before February 1, 1996, no Forbearance Default shall - -------- have occurred, then the date on which the Regular Rate under and as defined in the respective Notes is scheduled to increase from nine percent (9%) per annum to eleven percent (11%) per annum shall be deferred, without further writing or other action by First Healthcare or any Forbearance Party, from February 1, 1996, to February 1, 1997. 3.03 Installment Payment Dates under the Notes. During the Forbearance ----------------------------------------- Period, each installment of principal and interest under any Note that is stated to be due on the first day of a calendar month may be made on or before, but not later than, the twenty-fifth day of such calendar month, and such extension -13- of time shall in such case be included in the computation of interest; provided -------- that in no event shall the final installment of principal and interest under any Note be extended beyond the stated maturity date of August 1, 1999. 3.04 Rent Payment Dates under the Subleases. During the Forbearance -------------------------------------- Period, each payment of Rent under a Sublease that is stated to be due on the first day of a calendar month may be made on or before, but not later than, the twenty-fifth day of such calendar month if, but only if, on the date any such payment of Rent is made other than on the first day of the calendar month in which such payment is stated to be due, the Sublessee under such Sublease also pays to First Healthcare, as additional Rent under such Sublease, a per diem amount equal to the amount set forth opposite the name of such Sublessee in Schedule 3.04 for each day (including the first day, but excluding the last day) occurring during the period from the first day of such calendar month until the day on which such payment of Rent is received by First Healthcare. 3.05 Operator's Return Payment Dates under the Management Agreements. --------------------------------------------------------------- During the Forbearance Period, each payment of Operator's Return under a Management Agreement that is stated to be due on the first day of a calendar month may be made on or before, but not later than, the twenty-fifth day of such calendar month if, but only if, on the date any such payment of Operator's Return is made other than on the first day of the calendar month in which such payment is stated to be due, the Manager under such Management Agreement also pays to First Healthcare, as additional Operator's Return under such Management Agreement, a per diem amount equal to the amount set forth opposite the name of such Manager in Schedule 3.05 for each day (including the first day, but excluding the last day) occurring during the period from the first day of such calendar month until the day on which such payment of Operator's Return is received by First Healthcare. 3.06 Payment of the Arrearages. Each Partnership shall pay such ------------------------- Partnership's Share of the Arrearages to First Healthcare in installments as follows: (a) One installment in an amount equal to such Partnership's Share of $252,000.00, payable on December 31, 1995; (b) Five equal, consecutive monthly installments, each in an amount equal to such Partnership's Share of $80,000.00, payable on the twenty- fifth day of each calendar month, commencing on January 25, 1996, and continuing to and including May 25, 1996; -14- (c) Eighteen equal, consecutive monthly installments, each in an amount equal to such Partnership's Share of $105,000.00, payable on the twenty-fifth day of each calendar month, commencing on June 25, 1996, and continuing to and including November 25, 1997; and (d) One final installment on December 25, 1997, in an amount equal to such Partnership's Share of the amount necessary to pay in full the then unpaid balance of the Arrearages plus all interest then accrued on the Arrearages. For the purposes of this Agreement, the term "Share" means, for each Partnership, the percentage set forth opposite such Partnership's name in Schedule 3.06. 3.07 Interest on the Arrearages. Each Partnership shall pay interest on -------------------------- the unpaid amount of such Partnership's Share of the Arrearages outstanding from time to time, from the respective dates on which interest begins to accrue as set forth below in this Section until such unpaid amount is paid in full, at the rate of nine percent per annum, payable monthly, commencing on December 31, 1995, and continuing on the twenty-fifth day of each consecutive calendar month thereafter, and on the date the unpaid balance of such Partnership's Share of the Arrearages is paid in full; provided that, to the extent permitted by -------- applicable law, each Partnership shall pay interest on any unpaid amount of such Partnership's Share of the Arrearages that is not paid when due, and on the unpaid amount of all interest, fees and other amounts payable by such Partnership under this Agreement that is not paid when due, in each case from the date on which such amount is due (whether at stated maturity, by acceleration or otherwise) until such amount is paid in full, payable on demand, at a rate per annum equal to fourteen percent (14%) per annum. The Delinquent Indebtedness shall bear interest from July 1, 1995, the Delinquent Rent shall bear interest from July 1, 1995, the Delinquent Management Obligations shall bear interest from July 1, 1995, the Tax Arrearage shall bear interest from July 1, 1995, the Cost Report Remittance shall bear interest from August 11, 1995, and the respective amounts constituting the Default Costs and Expenses shall bear interest from the respective dates on which such amounts are paid by First Healthcare. 3.08 Application of Payments. Each payment by a Partnership under ----------------------- Sections 3.06 and 3.07, at the option of First Healthcare, may be applied first to any costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) then payable by such Partnership under this Agreement, then to interest then accrued on the unpaid amount of such Partnership's Share of the Arrearages, and then to the unpaid amount of such Partnership's Share of the Arrearages in -15- such order and in such manner as First Healthcare shall determine in its sole discretion. 3.09 Certain Payments and Computations. Each Partnership shall make each --------------------------------- payment under Sections 3.06 and 3.07, and each deposit under Section 3.10, on the day when due to First Healthcare at 1148 Broadway Plaza, Tacoma, Washington 98402, attention of Credit Portfolio Manager, or at such other place as First Healthcare may specify from time to time. All computations of interest under this Agreement shall be made by First Healthcare on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest is payable. Whenever any payment under this Agreement or any other Forbearance Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the preceding Business Day. 3.10 Tax Deposits. ------------ (a) Certain Tax Deposits. The Partnerships shall deposit with First -------------------- Healthcare amounts required to pay the Delinquent Tax Balance and the Taxes, which deposits shall be made monthly, as follows: (i) One deposit of $450,000.00 on or before August 15, 1995, the receipt of which deposit in the amount of $450,000.00 is hereby acknowledged by First Healthcare; and (ii) Equal, consecutive monthly deposits of $150,000.00 each, payable on the twenty-fifth day of each consecutive calendar month, commencing on September 25, 1995, and continuing on the twenty-fifth day of each calendar month thereafter until the Tax Delinquency Payment Date. (b) Certain Other Tax Deposits. So long as the Facility purchased, -------------------------- subleased or managed by a Partnership remains subject to any Mortgage, any Deed of Trust, any Sublease, any Management Agreement, any Partnership Guaranty Mortgage or any Partnership Guaranty Deed of Trust, such Partnership shall deposit with First Healthcare amounts required to pay the Taxes with respect to the Facility purchased, subleased or managed by such Partnership, which amounts shall be deposited in an amount equal to one- twelfth of the aggregate annual amount of the Taxes then required to be paid by such Partnership under the Transaction Documents and the Forbearance Documents, on the twenty-fifth day of each consecutive calendar month, commencing on the twenty-fifth day of the calendar month immediately following the -16- calendar month in which the Tax Delinquency Payment Date occurs, and continuing on the twenty-fifth day of each calendar month thereafter until all of the Obligations shall have been paid and performed in full. (c) Additional Tax Deposits. If the amount of any Tax is not ----------------------- ascertainable at the time any deposit is required to be made pursuant to Section 3.10(a) or Section 3.10(b), then such deposit shall be made on the basis of First Healthcare's estimate of the amount of such Tax, and, when such amount is fixed for the then-current year, the Partnerships or the appropriate Partnership, as the case may be, promptly shall deposit the amount of any deficiency with First Healthcare. (d) Use of Deposited Funds; Grant of Security Interest. -------------------------------------------------- Notwithstanding any provision to the contrary in any Transaction Document, all funds deposited with First Healthcare pursuant to this Section 3.10, until applied as provided below, (i) shall constitute additional security for the payment and performance of the Obligations, (ii) shall be held by First Healthcare in a separate account, without interest, (iii) prior to the occurrence of a Forbearance Default, shall be applied by First Healthcare in payment of the Delinquent Tax Balance and the Taxes in such order and in such manner as First Healthcare shall determine in its sole discretion, and (iv) upon the occurrence of a Forbearance Default, at the option of First Healthcare, may be applied to the Obligations in such order and such manner as First Healthcare shall determine in its sole discretion or to cure such Forbearance Default or as provided in this Section 3.10. The Partnerships shall be responsible for furnishing to First Healthcare bills or invoices for the Taxes, and First Healthcare shall have no responsibility for payment of such Taxes in the absence of such bills or invoices. Each Partnership hereby pledges and assigns to First Healthcare, and hereby grants to First Healthcare a security interest in all of such Partnership's right, title and interest in, to and under, all funds at any time deposited with First Healthcare pursuant to this Section 3.10. (e) Transfer of Transaction Documents or Forbearance Documents. Upon ---------------------------------------------------------- an assignment or other transfer by First Healthcare of any Transaction Document or any Forbearance Document with respect to any Facility, First Healthcare shall have the right to pay over to the assignee or transferee the balance of the deposits then in the possession of First Healthcare with respect to such Facility and, upon the payment of such balance of the deposits over to such assignee or transferee and the assumption by such -17- assignee or transferee of First Healthcare's duties in respect of such balance of the deposits, First Healthcare, the Collateral Agent and the trustee under any Deed of Trust or any Partnership Guaranty Deed of Trust pertaining to such Facility shall be completely released from all liability with respect to such deposits, and the Partnerships or the owner of such Facility shall look solely to the assignee or transferee with respect to such deposits. The provisions of this Section 3.10(e) shall apply to every assignment or other transfer of such deposits to a new assignee or transferee. 3.11 Waiver of Certain Designated Defaults; Etc. If each of the ------------------------------------------ conditions precedent set forth in Article IV either shall have been satisfied or shall have been waived in writing in whole or in part by First Healthcare in its sole discretion, and if all of the Arrearages plus all interest accrued on the Arrearages shall have been paid in full pursuant to and in accordance with Sections 3.06 and 3.07, and if the Tax Delinquency Payment Date shall have occurred, and if no Forbearance Default shall have occurred, then the Designated Defaults other than the Licensure Default shall be waived by First Healthcare without further writing or other action by First Healthcare and without prejudice to or limitation of any rights or remedies (including, but not limited to, rights of set-off) exercised by First Healthcare prior to the date of this Agreement. First Healthcare hereby waives any breach by Ballwin of the warranty of title set forth in the Deed of Trust executed and delivered by Ballwin arising by reason of any failure of title to be vested in Ballwin with respect to the estate or interest in the portion of the lots, tracts or parcels described as Parcel 2 in Exhibit A to the Ballwin Deed. 3.12 Reporting Requirements. Notwithstanding any provision to the ---------------------- contrary in any Transaction Document, from the date of this Agreement until all of the Obligations shall have been paid and performed in full: (a) Each Partnership shall furnish to First Healthcare: (i) as soon as available and in any event within forty days after the last day of each calendar month during each fiscal year of such Partnership, with respect to the Facility purchased, subleased or managed by such Partnership, as the case may be, a balance sheet of such Facility as of the end of such calendar month and statements of income and expense of such Facility for the period commencing at the end of the immediately preceding fiscal year of such Partnership and ending with the end of such calendar month, all in -18- reasonable detail and duly certified (subject to year-end audit adjustments) by the chief executive officer or the chief financial officer of the General Partner or by the chief executive officer or the chief financial officer of Premiere as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial condition of such Facility as of the respective dates of such financial statements and the results of the operations of such Facility for the periods ended on such dates; (ii) if different than the financial statements furnished pursuant to Section 3.12(a)(i) with respect to the Facility purchased, subleased or managed by such Partnership, as the case may be, then as soon as available and in any event within forty days after the last day of each calendar month during each fiscal year of such Partnership, a balance sheet of such Partnership as of the end of such calendar month and statements of income and expense of such Partnership for the period commencing at the end of the immediately preceding fiscal year of such Partnership and ending with the end of such calendar month, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief executive officer or the chief financial officer of the General Partner or by the chief executive officer or the chief financial officer of Premiere as having been prepared in accordance with sound accounting principles and practices consistently applied and as fairly presenting the financial condition of such Partnership as of the respective dates of such financial statements and the results of the operations of such Partnership for the periods ended on such dates; (iii) within forty days after the last day of each calendar month during each fiscal year of such Partnership, a certificate of the chief executive officer or the chief financial officer of the General Partner or a certificate of the chief executive officer or the chief financial officer of Premiere stating that no Forbearance Default, and no event which, with the giving of notice or the lapse of time or both, would constitute a Forbearance Default, has occurred or is continuing or, if a Forbearance Default or other such event has occurred and is continuing, a statement as to the nature thereof and the action which such Partnership has taken and proposes to take with respect thereto; and -19- (iv) as soon as available and in any event within ten days after the last day of each calendar month during each fiscal year of such Partnership, with respect to the Facility purchased, subleased or managed by such Partnership, as the case may be, detailed operational statistics for such Facility pertaining to occupancy rates, patient or resident mix and patient or resident rates by type for the period commencing at the end of the immediately preceding fiscal year of such Partnership and ending with the end of such calendar month. (b) The Partnerships shall furnish, or cause to be furnished, to First Healthcare with respect to the Facilities, as soon as available and in any event within twenty days after the last day of each calendar month, a consolidated statement of cash receipts and cash utilization and reconciliation of the Facilities for such calendar month, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the cash manager of Premiere. (c) The Partnerships shall furnish, or cause to be furnished, to First Healthcare with respect to the Facilities, as soon as available and in any event within forty days after the last day of each calendar month, consolidated and consolidating accounts receivable aging reports for the Facilities as of the last day of such calendar month, consolidated and consolidating accounts payable aging reports for the Facilities as of the last day of such calendar month, and consolidated and consolidating monthly census report summaries for the Facilities as of the last day of such calendar month, all in reasonable detail. (d) Each Guarantor shall furnish to First Healthcare: (i) on or before September 6, 1995, a balance sheet of such Guarantor as of December 31, 1994, certified by such Guarantor as fairly presenting the financial condition of such Guarantor at December 31, 1994, and reflecting all liabilities, direct or indirect, fixed or contingent, of such Guarantor at December 31, 1994, and accompanied by a schedule listing all land and other real property owned by such Guarantor on December 31, 1994, whether alone or concurrently with one or more other Persons as joint tenants, as tenants by the entireties or otherwise (but excluding land and other real property in which any ownership interest of such Guarantor is solely an indirect interest as a shareholder, partner or member in a corporation, partnership or limited liability -20- company that owns such land or other real property) and specifying for each lot, tract, parcel or other division of such land and other real property the form of such ownership; (ii) on or before September 6, 1995, a complete copy of such Guarantor's federal income tax return, with all supporting schedules, filed with the Internal Revenue Service for 1993; and (iii) promptly and in any event within ten days after the filing thereof with the Internal Revenue Service, (A) copies of any and all requests for an extension of time for the filing of such Guarantor's income tax returns for any year subsequent to 1993, and (B) complete copies of such Guarantor's federal income tax returns, with all supporting schedules, for all years subsequent to 1993. (d) Except as expressly provided to the contrary in this Section 3.12, each Forbearance Party shall furnish to First Healthcare all other cost reports, surveys, financial statements and other reports, statements, certificates, materials and information to be furnished by such Forbearance Party to First Healthcare from time to time under the Transaction Documents, all in the forms and at the times provided in the Transaction Documents. 3.13 Title Search Reports. On or before the date of this Agreement, the -------------------- Forbearance Parties shall deliver or cause to be delivered to First Healthcare, in each case in form and detail satisfactory to First Healthcare, a preliminary commitment for title insurance or other title search report issued by the Title Company to First Healthcare with respect to the real property and improvements constituting each Facility, together with copies of all documents referred to in each such preliminary commitment or other title search report. 3.14 Certain Required Documents. On or before September 6, 1995, the -------------------------- Forbearance Parties and the MidAmerica Parties shall deliver or cause to be delivered to First Healthcare each of the following duly and properly executed and, where appropriate, acknowledged, attested or verified documents, in each case in form and substance satisfactory to First Healthcare: (a) A separate security agreement, duly executed by each Partnership in substantially the form of Exhibit 3.14(a) (individually, a "Partnership Security Agreement" and collectively, the "Partnership Security Agreements"), with respect to all accounts and general -21- intangibles (as those terms are defined in the Uniform Commercial Code in effect in the states of Kansas and Missouri) of such Partnership; (b) A separate guaranty, duly executed by each Partnership in substantially the form of Exhibit 3.14(b) (individually, a "Partnership Guaranty" and collectively, the "Partnership Guaranties"), with respect to all of the Obligations of the other Partnerships under the Transaction Documents; (c) A modified and restated guaranty, duly executed jointly and severally by the Guarantors in substantially the form of Exhibit 3.14(c) (the "Restated First Healthcare Guaranty"); (d) Financing statements, fixture filings and statements of amendment (individually, a "Financing Statement" and collectively, the "Financing Statements"), duly executed by each Partnership, in appropriate forms for filing or recording under the Uniform Commercial Code of all jurisdictions that First Healthcare may deem necessary or desirable in order to perfect and protect the security interests, and the priority of the security interests, created by the Transaction Documents and the Forbearance Documents; (e) An escrow agreement, duly executed by each Forbearance Party, First Healthcare and the Escrow Agent in substantially the form of Exhibit 3.14(e) (the "Escrow Agreement"), with respect to the Escrowed Documents; (f) A favorable, written opinion of Blanco Tackabery Combs & Matamoros, P.A., counsel to the Forbearance Parties and the MidAmerica Parties; (g) A favorable, written opinion of McAnany, Van Cleave & Phillips, P.A., special Kansas and Missouri counsel to the Forbearance Parties and the MidAmerica Parties; (h) A separate stipulation for immediate modification of or relief from any automatic or other stay, injunction or order imposed by the Bankruptcy Code or other law or by any court, duly executed by each Forbearance Party as well as by the General Partner in substantially the form of Exhibit 3.14(h) (individually, a "Stipulation for Relief" and collectively, the "Stipulations for Relief"); (i) A separate stipulation for immediate appointment of a receiver, custodian, trustee, liquidator or conservator -22- for the Facilities and the Collateral upon the occurrence of any Forbearance Default, duly executed by each Forbearance Party as well as by the General Partner in substantially the form of Exhibit 3.14(i) (individually, a "Stipulation for Appointment of Receiver" and collectively, the "Stipulations for Appointment of Receiver"); (j) Certified copies of resolutions of all of the partners, general and limited, in each Partnership authorizing, approving, ratifying and confirming the execution, delivery and performance by such Partnership of, and the consummation of the transactions contemplated by, each Transaction Document, each Forbearance Document and each Escrowed Document to which such Partnership is or is to be a party; (k) Certified copies of resolutions of all of the partners, general and limited, in MidAmerica authorizing, approving, ratifying and confirming the execution, delivery and performance by MidAmerica of, and the consummation of the transactions contemplated by, this Agreement; (l) Certified copies of resolutions of the board of directors of the General Partner authorizing, approving, ratifying and confirming the execution, delivery and performance by the General Partner of, and the consummation of the transactions contemplated by, each Transaction Document, each Forbearance Document and each Escrowed Document to which the General Partner is or is to be a party or a signatory for and on behalf of itself and as the general partner in MidAmerica or any one or more of the Partnerships; (m) Certified copies of all other documents evidencing any and all consents, authorizations and approvals required from any Person with respect to the execution, delivery and performance by any Forbearance Party of, and the consummation of the transactions contemplated by, this Agreement, any other Forbearance Document or any Escrowed Document; and (n) The binding written commitment of the Title Company to issue in favor of First Healthcare, as the assured, such supplemental endorsements (including, but not limited to, an update endorsement) to the Title Policies as First Healthcare may deem necessary or desirable to insure the respective liens created by the Mortgages and the Deeds of Trust as valid and enforceable liens, subject to no title defects or exceptions other than the permitted exceptions, if any, to which the Mortgages and Deeds of Trust by their respective terms are specifically subject, notwithstanding -23- any of the transactions contemplated by this Agreement and the other Forbearance Documents. 3.15 Certain Other Required Documents. On or before September 6, 1995, -------------------------------- the Forbearance Parties and the MidAmerica Parties shall deliver or cause to be delivered to the Collateral Agent, for the benefit of First Healthcare and MediSave, each of the following duly and properly executed and, where appropriate, acknowledged, attested or verified documents, in each case in form and substance satisfactory to each of First Healthcare and MediSave: (a) An agency and intercreditor agreement, duly executed by each Forbearance Party, each MidAmerica Party, First Healthcare, MediSave and the Collateral Agent in substantially the form of Exhibit 3.15(a) (the "Agency Agreement"); (b) A separate mortgage, assignment, security agreement and financing statement (fixture filing), duly executed by, and acknowledged with respect to, each of Chanute, Council Grove, Haysville, Larned, Sedgwick and Topeka in substantially the form of Exhibit 3.15(b) (individually, a "Partnership Guaranty Mortgage" and collectively, the "Partnership Guaranty Mortgages"), with respect to all real properties, all fixtures and all tangible and intangible personal properties of each such Partnership; (c) A separate deed of trust, assignment, security agreement and financing statement (fixture filing), duly executed by, and acknowledged with respect to, each of Ballwin, Columbia, Joplin I, Springfield and St. Charles in substantially the form of Exhibit 3.15(c) (individually, a "Partnership Guaranty Deed of Trust" and collectively, the "Partnership Guaranty Deeds of Trust"), with respect to all real properties, all fixtures and all tangible and intangible personal properties of each such Partnership; (d) A separate security agreement, duly executed by each Partnership in substantially the form of Exhibit 3.15(d) (individually, a "Partnership Guaranty Security Agreement" and collectively, the "Partnership Guaranty Security Agreements"), with respect to all fixtures and all tangible and intangible personal properties of each such Partnership; and (e) Financing statements, fixture filings and statements of amendment (individually, an "Agency Financing Statement" and collectively, the "Agency Financing Statements"), duly executed by each Partnership, in -24- appropriate forms for filing or recording under the Uniform Commercial Code of all jurisdictions that First Healthcare may deem necessary or desirable in order to perfect and protect the security interests, and the priority of the security interests, created by the Partnership Guaranty Mortgages, the Partnership Guaranty Deeds of Trust and the Partnership Guaranty Security Agreements. 3.16 Escrowed Documents. On or before September 6, 1995, the Forbearance ------------------ Parties shall deliver or cause to be delivered to, and held in escrow by, the Escrow Agent each of the following duly and properly executed and, where appropriate, acknowledged, attested or verified documents, in each case in form and substance satisfactory to First Healthcare: (a) A separate confession of judgment, duly executed by each Guarantor in substantially the form of Exhibit 3.16(a) (individually, a "Guarantor Confession of Judgment" and together, the "Guarantor Confessions of Judgment"), with respect to all Obligations of such Guarantor under the Restated First Healthcare Guaranty; (b) A separate confession of judgment for possession, duly executed by, and verified with respect to, the General Partner for itself and each of Ballwin, Columbia, Joplin I, Springfield and St. Charles in substantially the form of Exhibit 3.16(b) (individually, a "Purchaser Confession of Judgment" and collectively, the "Purchaser Confessions of Judgment"), with respect to the Purchased Facility purchased by each such Purchaser; (c) A separate confession of judgment for rent and possession, duly executed by, and verified with respect to, the General Partner for itself and each of Ava, Blue Hills, Buffalo, Clinton, Des Peres, Jefferson, Joplin II, Lamar, Marceline, Shady Oaks and Wornall in substantially the form of Exhibit 3.16(c) (individually, a "Sublessee Confession of Judgment" and collectively, the "Sublessee Confessions of Judgment"), with respect to the Subleased Facility subleased by each such Sublessee; (d) A separate confession of judgment for money due and possession, duly executed by, and verified with respect to, the General Partner for itself and each Manager in substantially the form of Exhibit 3.16(d) (individually, a "Manager Confession of Judgment" and collectively, the "Manager Confessions of Judgment"), with respect to the Managed Facility managed by each such Manager; (e) A separate termination agreement, duly executed by, and acknowledged with respect to, each Sublessee in -25- substantially the form of Exhibit 3.16(e) (individually, a "Sublease Termination Agreement" and collectively, the "Sublease Termination Agreements"), with respect to the respective Subleases; (f) A separate termination agreement, duly executed by each Manager in substantially the form of Exhibit 3.16(f) (individually, a "Management Termination Agreement" and collectively, the "Management Termination Agreements"), with respect to the respective Management Agreements; (g) A separate management agreement, duly executed by each of Ava, Ballwin, Blue Hills, Buffalo, Chanute, Clinton, Colonial Terrace, Columbia, Council Grove, Des Peres, Haysville, Jefferson, Joplin I, Joplin II, Lamar, Larned, Marceline, Sedgwick, Shady Oaks, Springfield, St. Charles, Topeka and Wornall in substantially the form of Exhibit 3.16(g) (individually, an "Escrowed Management Agreement" and collectively, the "Escrowed Management Agreements"), with respect to the Facility purchased or subleased by each such Partnership; (h) A separate non-merger warranty deed in lieu of foreclosure, duly executed by, and attested and acknowledged with respect to, each of Chanute, Council Grove, Haysville, Larned, Sedgwick and Topeka in substantially the form of Exhibit 3.16(h) (individually, a "Kansas Deed in Lieu of Foreclosure" and collectively, the "Kansas Deeds in Lieu of Foreclosure"), with respect to all estate, right, title, interest, claim and demand of each such Partnership (including, but not limited to, all right of redemption) in and to all real and personal property constituting collateral or other security for any or all of the Obligations of such Partnership under the Transaction Documents; (i) A separate non-merger warranty deed in lieu of foreclosure, duly executed by, and attested and acknowledged with respect to, each of Ballwin, Columbia, Joplin I, Springfield and St. Charles in substantially the form of Exhibit 3.16(i) (individually, a "Missouri Deed in Lieu of Foreclosure" and collectively, the "Missouri Deeds in Lieu of Foreclosure"), with respect to all estate, right, title, interest, claim and demand of each such Partnership (including, but not limited to, all right of redemption) in and to all real and personal property constituting collateral or other security for any or all of the Obligations of such Partnership under the Transaction Documents; -26- (j) A separate estoppel affidavit, duly executed by, and attested and verified with respect to, each Purchaser in substantially the form of Exhibit 3.16(j) (individually, an "Estoppel Affidavit" and collectively, the "Estoppel Affidavits"), with respect to the Deed in Lieu of Foreclosure executed and delivered by such Purchaser; (k) A separate certificate of non-foreign status, duly executed with all blanks appropriately completed by, and acknowledged with respect to, each Partnership in substantially the form of Exhibit 3.16(k) (individually, a "Certificate of Non-Foreign Status" and collectively, the "Certificates of Non-Foreign Status"), as described in section 1445 of the Internal Revenue Code, as amended, and the regulations promulgated thereunder; and (l) A separate non-merger bill of sale in lieu of foreclosure, duly executed by, and attested and acknowledged with respect to, each Sublessee and each Manager in substantially the form of Exhibit 3.16(l) (individually, a "Bill of Sale in Lieu of Foreclosure" and collectively, the "Bills of Sale in Lieu of Foreclosure"), with respect to all right, title and interest of each such Partner in and to all personal property constituting collateral or other security for any or all of the Obligations of such Partnership under the Transaction Documents. 3.17 Certain Other Documents Required by MediSave. On or before -------------------------------------------- September 6, 1995, the MidAmerica Parties shall deliver or cause to be delivered to MediSave each of the following duly and properly executed and, where appropriate, acknowledged, attested or verified documents, in each case in form and substance satisfactory to MediSave: (a) An allonge and note modification agreement, duly executed by MidAmerica and MediSave in substantially the form of Exhibit 3.17(a) (the "MediSave Note Modification Agreement"), with respect to the MediSave Note; (b) A modified and restated guaranty, duly executed jointly and severally by the Guarantors in substantially the form of Exhibit 3.17(b) (the "Restated MediSave Guaranty"); (c) A separate guaranty, duly executed by each Partnership in substantially the form of Exhibit 3.17(c) (individually, a "MediSave Partnership Guaranty" and collectively, the "MediSave Partnership Guaranties"), with respect to all of the MidAmerica Obligations of MidAmerica; (d) Each of the favorable, written opinions required by Sections 3.14(f) and 3.14(g); -27- (e) Certified copies of resolutions of all of the partners, general and limited, in MidAmerica authorizing, approving, ratifying and confirming the execution, delivery and performance by MidAmerica of, and the consummation of the transactions contemplated by, each MediSave Transaction Document and each MediSave Forbearance Document to which MidAmerica is or is to be a party; (f) Certified copies of resolutions of all of the partners, general and limited, in each Partnership authorizing, approving, ratifying and confirming the execution, delivery and performance by such Partnership of, and the consummation of the transactions contemplated by, each MediSave Forbearance Document to which such Partnership is or is to be a party; (g) Certified copies of resolutions of the board of directors of the General Partner authorizing, approving, ratifying and confirming the execution, delivery and performance by the General Partner of, and the consummation of the transactions contemplated by, each MediSave Transaction Document and each MediSave Forbearance Document to which the General Partner is or is to be a party or a signatory for and on behalf of itself and as the general partner in MidAmerica or any one or more of the Partnerships; and (h) Certified copies of all other documents evidencing any and all consents, authorizations and approvals required from any Person with respect to the execution, delivery and performance by any MidAmerica Party of, and the consummation of the transactions contemplated by, this Agreement or any other MediSave Forbearance Document. 3.18 Further Assurances. Each Forbearance Party, promptly upon the ------------------ request of First Healthcare and in any event within five days after such request, and at the sole cost and expense of such Forbearance Party, shall execute and deliver all such additional deeds, conveyances, stipulations, confessions of judgment, mortgages, deeds of trust, security agreements, assignments, financing statements, statements of amendment, continuation statements, estoppel certificates, applications, notices, certificates, affidavits, powers of attorney, assurances and other documents and instruments (including, but not limited to, documents relating to transfers of licenses and certificates of need with respect to the Facilities), and shall take such other action, as First Healthcare may require from time to time in order (a) to correct any defect, error or omission that may be discovered in the contents of any Transaction Document, any Forbearance Document or any Escrowed Document, or in the -28- execution, acknowledgment, filing or recordation of any Transaction Document, any Forbearance Document or any Escrowed Document, (b) to effectuate the purposes of the Transaction Documents, the Forbearance Documents and the Escrowed Documents, (c) to subject to the liens and security interests created by the Transaction Documents and the Forbearance Documents any of such Forbearance Party's properties, rights and interests covered or intended to be covered by any such liens and security interests, (d) to effect, perfect, protect and maintain the liens and security interests created by the Transaction Documents and the Forbearance Documents, or (e) to enable First Healthcare, readily and without procedural or other delays, to exercise and enforce its rights and remedies under the Transaction Documents and the Forbearance Documents with respect to any of the Collateral or otherwise. Each Forbearance Party acknowledges and agrees that the provisions of this Section have been specifically negotiated and are essential and material terms of this Agreement and constitute a material part of the consideration for the execution and delivery of this Agreement by First Healthcare. 3.19 Consents. First Healthcare, at its sole cost and expense, shall be -------- solely responsible for obtaining, and shall use reasonable, diligent efforts to obtain, any and all consents, authorizations and approvals by Hillhaven, MediSave, First Rehab, Tenet and the board of directors of First Healthcare that are required to authorize, approve and consummate the transactions contemplated by the Forbearance Documents and the Escrowed Documents. The Forbearance Parties, at their sole cost and expense, shall be and remain solely responsible for obtaining, and shall use their respective reasonable, diligent efforts to obtain, any and all consents, authorizations and approvals of any other Persons (including, but not limited to, the REIT, Capital Bank of Sikeston and NPF-PW) that are required to authorize, approve and consummate the transactions contemplated by the Forbearance Documents, the MediSave Forbearance Documents and the Escrowed Documents. First Healthcare, at the sole cost and expense of the Forbearance Parties, shall execute and deliver such documents as Capital Bank of Sikeston and NPF-PW reasonably may request to evidence that any security interest created by the Forbearance Documents in accounts (as that term is defined in the Uniform Commercial Code in effect in the states of Kansas and Missouri) of any Partnership is junior in order of priority to any security interest in such accounts previously granted by such Partnership to, and perfected in favor of, Capital Bank of Sikeston or NPF-PW, as the case may be. 3.20 Certain Junior Liens. Ballwin or Haysville may grant to a financial -------------------- institution or other lender a lien on and a security interest in all or any portion of the Collateral covered by the Ballwin Deed of Trust or the Haysville Mortgage, as the case may be, and First Healthcare and MediSave shall, and shall -29- cause the Collateral Agent to, execute and deliver such documents as such financial institution or other lender reasonably may request to subordinate the liens and security interests created by the Ballwin Partnership Guaranty Deed of Trust or the Haysville Partnership Guaranty Mortgage, as the case may be, to the lien and security interest granted to such financial institution or other lender if (a) such lien and such security interest granted to such financial institution or other lender secure only the repayment by Ballwin or Haysville, as the case may be, of indebtedness for funds borrowed by Ballwin or Haysville, as the case may be, in an aggregate amount not to exceed $1,550,000.00 and (except as expressly provided below in this Section) for the sole purpose of paying to First Healthcare a portion of the Obligations, (b) all proceeds of such borrowed funds (except as expressly provided below in this Section) are, in fact, paid by Ballwin or Haysville, as the case may be, to First Healthcare for application against the Obligations as provided below in this Section and (c) the documents creating or purporting to create such lien and such security interest provide by their respective terms, in form and substance satisfactory to First Healthcare, that, and Ballwin or Haysville furnishes or causes to be furnished to First Healthcare such endorsements to title insurance policies and such other documents as First Healthcare reasonably may request to insure or otherwise evidence that, such lien and such security interest are junior and subordinate to the liens and security interests created or purported to be created by the Transaction Documents; provided that if the proceeds of the funds -------- borrowed by Ballwin or Haysville, as the case may be, exceed an aggregate amount of $1,500,000.00, then Ballwin or Haysville, as the case may be, may use the proceeds of such borrowed funds in excess of $1,500,000.00 to pay reasonable closing costs associated with the consummation of such borrowing by Ballwin or Haysville, as the case may be, and to pay reasonable fees and disbursements of attorneys incurred by the Forbearance Parties in connection with the preparation, execution and delivery of the Forbearance Documents, the Escrowed Documents and the MediSave Forbearance Documents. The proceeds of funds borrowed by Ballwin or Haysville and paid to First Healthcare pursuant to this Section for application against the Obligations shall be applied by First Healthcare as follows: (i) if the installments in the aggregate amount of $252,000.00 have not then been made pursuant to and in accordance with Section 3.06(a), then first against the Arrearages, if any, in an amount up to the lesser of the then unpaid amount of the Arrearages or $252,000.00; (ii) then against the Delinquent Tax Balance, if any, by deposit with First Healthcare of an amount up to the lesser of the then unpaid amount of the Delinquent Tax Balance or one-half of the balance of the borrowed funds remaining after application (if any) of the amount provided in clause (i) of this Section for application first against the Delinquent Taxes payable with respect to the -30- Collateral covered by the Ballwin Deed of Trust or the Haysville Mortgage, as the case may be, and then as provided in Section 3.10(d); (iii) then against the Arrearages, if any, in an amount up to the lesser of the then unpaid amount of the Arrearages or one-half of the balance of the borrowed funds remaining after application (if any) of the amount provided in clause (i) of this Section; and (iv) then, the balance (if any) of the borrowed funds remaining after application of the amounts provided in clauses (i), (ii) and (iii) of this Section, against the Obligations in such order and in such manner as First Healthcare shall determine in its sole discretion. 3.21 Marceline Facility. Marceline shall use reasonable, diligent ------------------ efforts to negotiate an agreement with the REIT, on terms mutually satisfactory to Marceline and First Healthcare, providing for (a) the termination of the Marceline Lease and (b) the unconditional release of First Healthcare, Hillhaven and Tenet, and their respective subsidiaries, affiliates, directors, officers, employees, insurers, agents, representatives, successors and assigns, from any continuing liabilities and other obligations under the Marceline Lease. Marceline and each other Forbearance Party acknowledges and agrees that Marceline is and remains responsible and liable for the punctual payment and performance of all obligations of Marceline under the Marceline Sublease and that no provision of this Section shall in any way limit, diminish, terminate or otherwise affect any of such obligations. 3.22 Chastain's Facilities. If the Chastain's Facility Partnerships --------------------- prepay in full to First Healthcare on or before December 30, 1995, the entire portion of the Cost Report Remittance in the aggregate net amount set forth opposite the names of the Chastain's Facility Partnerships in Schedule K, and if each Chastain's Facility Partnership prepays in full to First Healthcare on or before December 30, 1995, the entire portion of the Delinquent Rent in the amount set forth opposite the name of such Chastain's Facility Partnership in Schedule J(2), plus the entire portion of the Tax Arrearage in the amount set forth opposite the name of such Chastain's Facility Partnership in Schedule Q, plus the entire amount of such Chastain's Facility Partnership's Share of the Default Costs and Expenses, plus all accrued interest to the date of each such prepayment on the amount of the Arrearages so prepaid by such Chastain's Facility Partnership, and if the Chastain's Facility Partnerships in fact, on or before December 30, 1995, obtain from the REIT a written agreement providing, among other things, for (a) the termination of all of the Chastain's Facility Leases and (b) the unconditional release of First Healthcare, Hillhaven and Tenet, and their respective subsidiaries, affiliates, directors, officers, employees, insurers, agents, representatives, successors and assigns, from any continuing liabilities and other -31- obligations under the Chastain's Facility Leases, and if no Forbearance Default shall have occurred, then (i) First Healthcare and MediSave shall cause the Collateral Agent (at the sole cost and expense of the Chastain's Facility Partnerships) to execute and deliver such Uniform Commercial Code statements of release as may reasonably be requested by the Chastain's Facility Partnerships to release the security interests created by the respective Partnership Guaranty Security Agreements executed and delivered by the Chastain's Facility Partnerships pursuant to this Agreement and (ii) if the release or termination of any Partnership Guaranty or any MediSave Partnership Guaranty executed and delivered by any Chastain's Facility Partnership is expressly required, as a condition to financing, by any financial institution or other lender providing financing for the purchase of any Chastain's Facility from the REIT, then First Healthcare or MediSave, as the case may be, shall release or terminate such Partnership Guaranty or such MediSave Partnership Guaranty; provided that -------- neither First Healthcare nor MediSave otherwise shall have any obligation to release or to consent to the termination of any Partnership Guaranty or any MediSave Partnership Guaranty executed and delivered by any Chastain's Facility Partnership except pursuant to the provisions of such Partnership Guaranty or such MediSave Partnership Guaranty, as the case may be. The Chastain's Facility Partnerships and the other Forbearance Parties acknowledge and agree that each Chastain's Facility Partnership is and remains responsible and liable for the punctual payment and performance of all obligations of such Chastain's Facility Partnership under the Chastain's Facility Sublease executed and delivered by such Chastain's Facility Partnership and that no provision of this Section shall in any way limit, diminish, terminate or otherwise affect any of such obligations. 3.23 Optional Prepayments; Refinancing. --------------------------------- (a) Optional Prepayments of the Arrearages. Any Partnership, at any -------------------------------------- time and from time to time, may prepay such Partnership's Share of the Arrearages, in whole or in part, plus accrued interest to the date of such prepayment on the amount of the Arrearages prepaid. Each partial prepayment of any Partnership's Share of the Arrearages may be applied, in the sole discretion of First Healthcare, to the installments of the Arrearages under Section 3.06 in the inverse order of their maturities, without deferral or limitation of the intervening installments of the Arrearages and interest on the Arrearages. (b) No Prepayments of the Notes. Each Forbearance Party acknowledges --------------------------- and agrees that, under the provisions of the Notes, the Purchasers do not have the right to prepay any principal amount evidenced by the Notes, that the -32- consent of First Healthcare is required for any requested prepayment, whether in whole or in part, of any principal amount evidenced by the Notes, that First Healthcare, in its sole discretion, may grant or withhold such consent for no reason or for any reason and that, in the event First Healthcare determines to consent to any requested prepayment of any principal amount evidenced by the Notes, First Healthcare may condition its consent on such terms as First Healthcare deems appropriate. Subject to the conditions to effectiveness of the Note Modification Agreement set forth in the Note Modification Agreement, MidAmerica may prepay the unpaid principal amount of the Modified MediSave Note pursuant to and in accordance with the provisions of the Modified MediSave Note. (c) Refinancing. If the Partnerships obtain sufficient financing to ----------- prepay (whether in one transaction or in a series of transactions) on or before June 30, 1996, all of the unpaid Arrearages plus all of the Delinquent Tax Balance plus the aggregate unpaid principal amounts evidenced by the Notes plus all interest accrued on the Arrearages plus all interest accrued on the principal amounts evidenced by the Notes, and if First Healthcare determines in its sole discretion to consent to prepayment of all such amounts on or before June 30, 1996, and if the Partnerships in fact, on or before June 30, 1996, and on such terms and subject to such conditions as First Healthcare may deem appropriate in its sole discretion, prepay in full to First Healthcare all of the unpaid Arrearages plus all of the Delinquent Tax Balance plus the aggregate unpaid principal amounts evidenced by the Notes plus all interest accrued on the Arrearages plus all interest accrued on the principal amounts evidenced by the Notes, and if all of the conditions to the release pursuant to Section 3.22 of the security interests created by the respective Partnership Guaranty Security Agreements executed and delivered by the Chastain's Facility Partnerships pursuant to this Agreement shall have been satisfied, and if no Forbearance Default shall have occurred, then an amount (the "Discount Amount") equal to ten percent of the sum of the principal amounts that are so prepaid under the Notes from time to time on or prior to June 30, 1996 (excluding any amount of the Arrearages and the amount of any regularly scheduled principal payments under the Notes), in the sole discretion of First Healthcare, either shall be remitted by First Healthcare to the General Partner for and on behalf of the Partnerships to be allocated among the Partnerships as they determine in their discretion or shall be held by First Healthcare as collateral for, and each Partnership hereby assigns and pledges to First Healthcare, and hereby grants to First Healthcare a security interest in, such amount as -33- security for the punctual payment and performance of, all of the Obligations; provided that if each of Blue Hills and Wornall prepays in -------- full to First Healthcare the entire portion of the Delinquent Rent in the amount set forth opposite the name of such Partnership in Schedule J(2), plus the entire portion of the Delinquent Taxes in the amount set forth opposite the name of such Partnership in Schedule J(4), plus the entire amount of such Partnership's Share of the Default Costs and Expenses, plus all accrued interest to the date of each such prepayment on the amount of the Arrearages so prepaid by such Partnership, and if the respective Leases pertaining to the respective Subleased Facilities subleased by Blue Hills and Wornall are terminated on terms providing, among other things, for the unconditional release of First Healthcare, Hillhaven and Tenet, and their respective subsidiaries, affiliates, directors, officers, employees, insurers, agents, representatives, successors and assigns, from any continuing liabilities and other obligations under such Leases, and if no Forbearance Default shall have occurred, then the Discount Amount that First Healthcare shall be entitled to hold as security for the punctual payment and performance of all of the Obligations pursuant to this Section shall be an amount equal to the lesser of (i) $750,000.00 or (ii) two and one-half percent, rather than ten percent, of the sum of the principal amounts that are prepaid under the Notes from time to time on or prior to June 30, 1996, as provided above in this Section (excluding any amount of the Arrearages and the amount of any regularly scheduled principal payments under the Notes) or (iii) an amount equal to the sum of (A) the product obtained by multiplying seven times the maximum amount of monthly Rent payable during the then remaining term of the Sublease executed and delivered by Colonial Terrace plus (B) the product obtained by multiplying seven times the maximum aggregate amount of monthly Operator's Return payable under the Management Agreements during the then remaining term of the Management Agreements. First Healthcare shall remit to the General Partner for and on behalf of the Partnerships, within ten days after receipt by First Healthcare from the General Partner of a written request for such remittance, any portion of the Discount Amount then held by First Healthcare which exceeds the Discount Amount that First Healthcare shall then be entitled to hold as security pursuant to this Section. 3.24 Transferees of First Healthcare. Without limiting the generality of ------------------------------- the first sentence of Section 7.07, First Healthcare may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement, the other Forbearance Documents and the Transaction Documents (including, -34- but not limited to, any Note, any Mortgage and any Deed of Trust) to any other Person, and such other Person, upon such assignment or transfer, shall become vested with all of the benefits that are granted to First Healthcare in this Agreement or otherwise in respect of the rights and obligations that are assigned or otherwise transferred. 3.25 Acceptance of Escrowed Documents. Notwithstanding any provision to -------------------------------- the contrary in this Agreement or any other Forbearance Document: (a) Confessions of Judgment. Acceptance by First Healthcare or its ----------------------- assignee or transferee of any Confession of Judgment shall occur when and only when, following the occurrence of a Forbearance Default, (i) First Healthcare shall have requested and received such Confession of Judgment from the Escrow Agent and (ii) First Healthcare or its assignee or transferee shall have presented such Confession of Judgment to a court of competent jurisdiction for entry by such court. If any Guarantor Confession of Judgment is accepted by First Healthcare or its assignee or transferee pursuant to this Section and if any Deed in Lieu of Foreclosure is accepted by First Healthcare or its assignee or transferee pursuant to Section 3.25(c) or Section 3.25(d), then the amount of the judgment under such Guarantor Confession of Judgment shall be credited with an amount equal to the amount of the Obligations under the Transaction Documents that are secured by the Mortgage or the Deed of Trust described in such Deed in Lieu of Foreclosure. (b) Sublease Termination Agreements. Acceptance by First Healthcare ------------------------------- or its assignee or transferee, with respect to any Sublease, of the Sublease Termination Agreement relating to such Sublease shall occur when and only when, following the occurrence of any Forbearance Default, (i) First Healthcare shall have requested and received such Sublease Termination Agreement from the Escrow Agent and (ii) First Healthcare or its assignee or transferee shall have recorded such Sublease Termination Agreement in the records of the county in the state of Kansas or the state of Missouri, as the case may be, in which the Subleased Facility covered by such Sublease is located. (c) Kansas Deeds in Lieu of Foreclosure. Acceptance by First ----------------------------------- Healthcare or its assignee or transferee of any Kansas Deed in Lieu of Foreclosure shall occur when and only when, following the occurrence of any Forbearance Default, (i) First Healthcare shall have requested and received such Kansas Deed in Lieu of Foreclosure from the Escrow Agent and (ii) First Healthcare or its assignee or transferee shall -35- have recorded such Kansas Deed in Lieu of Foreclosure in the records of the county in the state of Kansas in which the real property covered by such Kansas Deed in Lieu of Foreclosure is located. (d) Missouri Deeds in Lieu of Foreclosure. Acceptance by First ------------------------------------- Healthcare or its assignee or transferee of any Missouri Deed in Lieu of Foreclosure shall occur when and only when, following the occurrence of any Forbearance Default, (i) First Healthcare shall have requested and received such Missouri Deed in Lieu of Foreclosure from the Escrow Agent and (ii) First Healthcare or its assignee or transferee shall have recorded such Missouri Deed in Lieu of Foreclosure in the records of the county in the state of Missouri in which the real property covered by such Missouri Deed in Lieu of Foreclosure is located. (e) Other Escrowed Documents. Acceptance by First Healthcare or its ------------------------ assignee or transferee of any Management Termination Agreement, any Escrowed Management Agreement, any Estoppel Affidavit, any Certificate of Non-Foreign Status and any Bill of Sale in Lieu of Foreclosure shall occur when and only when, following the occurrence of any Forbearance Default, (i) First Healthcare shall have requested and received from the Escrow Agent such Management Termination Agreement, such Escrowed Management Agreement, such Estoppel Affidavit, such Certificate of Non-Foreign Status or such Bill of Sale in Lieu of Foreclosure, as the case may be, and (ii) First Healthcare or its assignee or transferee shall have requested and shall have obtained any consent, authorization or approval required from any federal, state or local governmental or regulatory authority or other Person for the assignment, conveyance or other transfer or other transaction contemplated by such Escrowed Document. 3.26 Completion of Escrowed Documents. Each Forbearance Party hereby -------------------------------- irrevocably authorizes First Healthcare, upon the occurrence of any Forbearance Default and receipt by First Healthcare of any Escrowed Document from the Escrow Agent, to attach to such Escrowed Document any cover page necessary to comply with applicable legal or procedural requirements, to complete any date or dates required to be completed in such Escrowed Document and to complete any blanks required to be completed in such Escrowed Document in order to enable First Healthcare, readily and without procedural or other delays, to exercise and enforce its rights and remedies under the Transaction Documents and the Forbearance Documents with respect to any of the Collateral, any of the Facilities, any of the Forbearance Parties or otherwise, including, but not limited to, the completion of blanks for the purpose of (a) stating the name -36- of any assignee or transferee of First Healthcare and any other identifying information necessary or appropriate with respect to such assignee or transferee and (b) stating the factual basis on which First Healthcare or any assignee or transferee of First Healthcare is entitled to the judgment, conveyance or other right or remedy provided for in such Escrowed Document. Each Forbearance Party agrees that such Forbearance Party shall not object to or otherwise oppose, or cause or encourage any other Person to object to or otherwise oppose, the completion of any Escrowed Document by First Healthcare pursuant to the authorization granted in this Section. 3.27 Return of Escrowed Documents. Upon request made to First Healthcare ---------------------------- by any Forbearance Party following the occurrence of each and all of the Tax Delinquency Payment Date, the payment in full of the Arrearages and all interest accrued on the Arrearages, and the payment in full of the entire, aggregate principal amount of, and all interest accrued on, the Notes, and if no Forbearance Default shall then have occurred, First Healthcare shall instruct the Escrow Agent to return the Escrowed Documents to the General Partner for and on behalf of the Forbearance Parties. 3.28 Limitation on Interest. Notwithstanding any provision to the ---------------------- contrary in any Transaction Document, any MediSave Transaction Document, any Forbearance Document, any MediSave Forbearance Document or any Escrowed Document, no provision of this Agreement, any other Forbearance Document, any other MediSave Forbearance Document, any Transaction Document, any MediSave Transaction Document or any Escrowed Document shall require the payment or permit the collection of interest, fees or charges in excess of the maximum rate permitted by applicable law. 3.29 Consent of Guarantors. Each Guarantor hereby consents to this --------------------- Agreement, the other Forbearance Documents, the other MediSave Forbearance Documents, the Escrowed Documents and the transactions contemplated by this Agreement, the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents, and hereby confirms and agrees that each of the Guaranty and the MediSave Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects. ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions Precedent. This Agreement shall not be effective, and -------------------- First Healthcare shall have no obligation to forbear from exercising any of First Healthcare's rights and remedies under the Transaction Documents, unless and until, on or -37- before September 6, 1995, each of the following conditions precedent either shall have been satisfied or shall have been waived in writing in whole or in part by First Healthcare in its sole discretion: (a) First Healthcare shall have received this Agreement duly executed by all of the Forbearance Parties; (b) Each Forbearance Party shall have performed all obligations of such Forbearance Party under this Agreement that are required to be performed by such Forbearance Party on or prior to September 6, 1995; (c) Each MidAmerica Party shall have performed all obligations of such MidAmerica Party under this Agreement that are required to be performed by such MidAmerica Party on or prior to September 6, 1995; (d) First Healthcare shall have received a deposit in the amount of at least $450,000.00 (which deposit in the amount of $450,000.00 has been received by First Healthcare as of the date of this Agreement) as required by Section 3.10(a)(i); (e) The representations and warranties of each Forbearance Party contained in this Agreement, the other Forbearance Documents, the Escrowed Documents and any certificate or other writing delivered by such Forbearance Party pursuant to this Agreement shall be true on and as of September 6, 1995, as if made on and as of September 6, 1995, and First Healthcare shall have received a certificate to that effect duly executed by each Guarantor with respect to the representations and warranties of such Guarantor and by the chief executive officer and the chief financial officer of the General Partner with respect to the respective representations and warranties of the Partnerships and the General Partner; (f) The representations and warranties of each MidAmerica Party contained in this Agreement, the other MediSave Forbearance Documents and any certificate or other writing delivered by such MidAmerica Party pursuant to this Agreement shall be true on and as of September 6, 1995, as if made on and as of September 6, 1995, and MediSave and First Healthcare shall have received a certificate to that effect duly executed by each Guarantor with respect to the representations and warranties of such Guarantor and by the chief executive officer and the chief financial officer of the General Partner with respect to the respective representations and warranties of the Partnerships, MidAmerica and the General Partner; -38- (g) First Healthcare shall have received each preliminary commitment for title insurance or other title search report required by Section 3.13; (h) First Healthcare shall have received each of the duly executed and, where appropriate, acknowledged, attested or verified documents required by Section 3.14; (i) First Healthcare shall have received evidence satisfactory to First Healthcare that the Collateral Agent has received each of the duly executed and, where appropriate, acknowledged, attested or verified documents required by Section 3.15; (j) First Healthcare shall have received evidence satisfactory to First Healthcare that the Escrow Agent has received each of the duly executed and, where appropriate, acknowledged, attested or verified documents required by Section 3.16; (k) First Healthcare shall have received evidence satisfactory to First Healthcare that MediSave has received each of the duly executed and, where appropriate, acknowledged, attested or verified documents required by Section 3.17; (l) First Healthcare shall have received evidence of the completion of all recordings and filings of the Financing Statements, the Partnership Guaranty Mortgages, the Partnership Guaranty Deeds of Trust and the Agency Financing Statements as First Healthcare may deem necessary or desirable to establish and perfect, or to give constructive notice of, the liens and security interests created or purported to be created by the Forbearance Documents; and (m) First Healthcare shall have received all cost reports, surveys, financial statements and other reports, statements, certificates, materials and information required to be furnished to First Healthcare by any Forbearance Party on or before September 6, 1995, pursuant to this Agreement or any Transaction Document. -39- ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01 Certain Representations and Warranties of the Forbearance Parties. ----------------------------------------------------------------- Each Forbearance Party represents and warrants to First Healthcare and MediSave as follows: (a) Validity, Enforceability, Etc. This Agreement has been duly ----------------------------- executed by such Forbearance Party. This Agreement and each Transaction Document to which such Forbearance Party is a party is, and each other Forbearance Document and each Escrowed Document to which such Forbearance Party is to be a party when executed and delivered by such Forbearance Party will be, a legal, valid and binding obligation of such Forbearance Party, enforceable against such Forbearance Party in accordance with its terms. (b) Consents, Etc. Except for the respective consents of Capital Bank ------------- of Sikeston and NPF-PW which will be obtained on or before September 6, 1995, and except for any other consents, authorizations, approvals, licenses, permits, waivers, exemptions, filings, recordings and registrations which have been obtained or made, no consent, authorization, approval, license, permit, waiver or exemption from, and no filing, recording or registration with, any court or any governmental or regulatory authority or any other Person (including, but not limited to, any limited partner in any Partnership) is required for the due execution, delivery and performance by such Forbearance Party of any Transaction Document, any Forbearance Document or any Escrowed Document to which such Forbearance Party is or is to be a party. (c) Legal Proceedings. There is no pending or threatened action, suit ----------------- or proceeding affecting such Forbearance Party or any of such Forbearance Party's properties before any court, arbitrator, mediator or governmental or regulatory authority which purports to affect the legality, validity or enforceability of this Agreement, any Transaction Document, any other Forbearance Document or any Escrowed Document and, except as disclosed in writing by such Forbearance Party to First Healthcare and MediSave prior to the date of this Agreement, there is no pending or threatened action, suit or proceeding affecting such Forbearance Party or any of such Forbearance Party's properties before any court, arbitrator, mediator or governmental or regulatory authority which may materially adversely affect the financial condition or operations of such Forbearance Party. -40- (d) Disclosures. No certificate, schedule, financial statement, ----------- report or other information furnished to First Healthcare by or on behalf of such Forbearance Party in connection with the negotiation or preparation of, or pursuant to the provisions of, this Agreement, any Transaction Document, any other Forbearance Document or any Escrowed Document contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained in such certificate, schedule, financial statement, report or other information not misleading. (e) Forbearance Defaults; Etc. No Forbearance Default or other event ------------------------- or condition which, with the giving of notice or the lapse of time or both, would constitute a Forbearance Default has occurred and is continuing. (f) Purpose of Obligations. None of the Obligations represents a loan ---------------------- for personal, family, household or agricultural purposes, and any loans constituting any portion of the Obligations are each more than $5,000.00 in amount. (g) No Claims. Such Forbearance Party is not aware of, and has not --------- received notice of, any fact, event, transaction, condition, act or omission to act occurring on or prior to the date of this Agreement that may constitute a failure by First Healthcare to perform any of the covenants of First Healthcare set forth in any of Sections 3.15, 5.04, 5.05, 7.06 and 7.07 of the Facility Agreement. 5.02 Additional Representations and Warranties of the Partnerships. Each ------------------------------------------------------------- Partnership represents and warrants to First Healthcare and MediSave as follows: (a) Partnership Existence and Power. Such Partnership is a limited ------------------------------- partnership duly formed, validly existing and in good standing under the laws of the state of North Carolina. Such Partnership is duly qualified and in good standing as a foreign limited partnership authorized to do business in each jurisdiction (other than the jurisdiction of its formation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify would have a materially adverse effect on such Partnership. Such Partnership has all requisite power and authority, partnership and otherwise, to own its properties and to conduct its business as such business currently is being conducted. -41- (b) Partnership Authorization. The execution, delivery and ------------------------- performance by such Partnership of this Agreement and the Transaction Documents, the other Forbearance Documents and the Escrowed Documents to which such Partnership is or is to be a party are within such Partnership's partnership powers and have been duly authorized by all necessary partnership action on the part of such Partnership. (c) Non-Contravention. The execution, delivery and performance by ----------------- such Partnership of this Agreement and the Transaction Documents, the other Forbearance Documents and the Escrowed Documents to which such Partnership is or is to be a party do not and will not: (i) require any consent by any of the limited partners in such Partnership other than any consent that has been obtained; (ii) contravene or conflict with the partnership agreement, the certificate of limited partnership or any other organizational documents of such Partnership; (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or award that currently is in effect and applicable to such Partnership or any of its properties; or (iv) contravene or constitute a breach of or a default under any contractual restriction that is binding on or that affects such Partnership or any of its properties. (d) Unconditional Obligation; No Defenses, Etc. The Note, if any, to ------------------------------------------ which such Partnership is a party is not subject to any claim, defense or right of set-off or recoupment of any kind whatsoever. Such Partnership has no claims, counterclaims or defenses against First Healthcare, MediSave or any other Person that would or might affect (i) the validity, enforceability or binding nature of any provision of any Transaction Document, any Forbearance Document or any Escrowed Document or (ii) the collectibility of any of the Obligations of such Partnership. (e) Partners. The General Partner is the only general partner in such -------- Partnership. The Don G. Angell Irrevocable Trust and AdvoCare Services, Inc., a North Carolina corporation, are all of the limited partners in such Partnership. (f) Address. A mailing address for such Partnership is P.O. Box 1670, ------- Clemmons, North Carolina 27012. -42- 5.03 Certain Representations and Warranties of the MidAmerica Parties. ---------------------------------------------------------------- Each MidAmerica Party represents and warrants to First Healthcare and MediSave as follows: (a) Validity, Enforceability, Etc. This Agreement has been duly ----------------------------- executed by such MidAmerica Party. This Agreement and each MediSave Transaction Document to which such MidAmerica Party is a party is, and each other MediSave Forbearance Document to which such MidAmerica Party is to be a party when executed and delivered by such MidAmerica Party will be, a legal, valid and binding obligation of such MidAmerica Party, enforceable against such MidAmerica Party in accordance with its terms. (b) Consents, Etc. Except for the respective consents of Capital Bank ------------- of Sikeston and NPF-PW, Inc. which will be obtained on or before September 6, 1995, and except for any other consents, authorizations, approvals, licenses, permits, waivers, exemptions, filings, recordings and registrations which have been obtained or made, no consent, authorization, approval, license, permit, waiver or exemption from, and no filing, recording or registration with, any court or any governmental or regulatory authority or any other Person (including, but not limited to, any limited partner in MidAmerica) is required for the due execution, delivery and performance by such MidAmerica Party of any MediSave Transaction Document or any MediSave Forbearance Document to which such MidAmerica Party is or is to be a party. (c) Legal Proceedings. There is no pending or threatened action, suit ----------------- or proceeding affecting such MidAmerica Party or any of such MidAmerica Party's properties before any court, arbitrator, mediator or governmental or regulatory authority which purports to affect the legality, validity or enforceability of this Agreement, any MediSave Transaction Document or any other MediSave Forbearance Document and, except as disclosed in writing by such MidAmerica Party to First Healthcare and MediSave prior to the date of this Agreement, there is no pending or threatened action, suit or proceeding affecting such MidAmerica Party or any of such MidAmerica Party's properties before any court, arbitrator, mediator or governmental or regulatory authority which may materially adversely affect the financial condition or operations of such MidAmerica Party. (d) Disclosures. No certificate, schedule, financial statement, ----------- report or other information furnished to MediSave by or on behalf of such MidAmerica Party in connection with the negotiation or preparation of, or pursuant to the -43- provisions of, this Agreement, any MediSave Transaction Document or any other MediSave Forbearance Document contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained in such certificate, schedule, financial statement, report or other information not misleading. (e) Forbearance Defaults; Etc. No Forbearance Default or other event ------------------------- or condition which, with the giving of notice or the lapse of time or both, would constitute a Forbearance Default has occurred and is continuing. (f) Purpose of Obligations. None of the MediSave Obligations ---------------------- represents a loan for personal, family, household or agricultural purposes, and any loans constituting any portion of the MediSave Obligations are each more than $5,000.00 in amount. 5.04 Additional Representations and Warranties of MidAmerica. MidAmerica ------------------------------------------------------- represents and warrants to First Healthcare and MediSave as follows: (a) Partnership Existence and Power. MidAmerica is a limited ------------------------------- partnership duly formed, validly existing and in good standing under the laws of the state of North Carolina. MidAmerica is duly qualified and in good standing as a foreign limited partnership authorized to do business in each jurisdiction (other than the jurisdiction of its formation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify would have a materially adverse effect on MidAmerica. MidAmerica has all requisite power and authority, partnership and otherwise, to own its properties and to conduct its business as such business currently is being conducted. (b) Partnership Authorization. The execution, delivery and ------------------------- performance by MidAmerica of this Agreement and the MediSave Transaction Documents and the other MediSave Forbearance Documents to which MidAmerica is or is to be a party are within MidAmerica's partnership powers and have been duly authorized by all necessary partnership action on the part of MidAmerica. (c) Non-Contravention. The execution, delivery and performance by ----------------- MidAmerica of this Agreement and the MediSave Transaction Documents and the other MediSave Forbearance Documents to which MidAmerica is or is to be a party do not and will not: (i) require any consent by any of the limited partners in MidAmerica other than any consent that has been -44- obtained; (ii) contravene or conflict with the partnership agreement, the certificate of limited partnership or any other organizational documents of MidAmerica; (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or award that currently is in effect and applicable to MidAmerica or any of its properties; or (iv) contravene or constitute a breach of or a default under any contractual restriction that is binding on or that affects MidAmerica or any of its properties. (d) Unconditional Obligation; No Defenses, Etc. The MediSave Note is ------------------------------------------ not subject to any claim, defense or right of set-off or recoupment of any kind whatsoever. MidAmerica has no claims, counterclaims or defenses against First Healthcare, MediSave or any other Person that would or might affect (i) the validity, enforceability or binding nature of any provision of any MediSave Transaction Document or any MediSave Forbearance Document or (ii) the collectibility of any of the MidAmerica Obligations of MidAmerica. (e) Partners. The General Partner is the only general partner in -------- MidAmerica. Manatee Medical Products & Services, Inc., a North Carolina corporation, and AdvoCare Services, Inc., a North Carolina corporation, are all of the limited partners in MidAmerica. (f) Address. A mailing address for MidAmerica is P.O. Box 1670, ------- Clemmons, North Carolina 27012. 5.05 Additional Representations and Warranties of the Guarantors. Each ----------------------------------------------------------- Guarantor represents and warrants to First Healthcare and MediSave as follows: (a) Capacity. Such Guarantor has the legal capacity to execute, -------- deliver and perform this Agreement and the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents to which such Guarantor is or is to be a party. (b) Non-Contravention. The execution, delivery and performance by ----------------- such Guarantor of this Agreement and the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents to which such Guarantor is or is to be a party do not and will not: (i) require any consent that has not been obtained; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or award that currently is in effect and applicable to such Guarantor or any of such Guarantor's properties; or (iii) contravene or constitute a breach of or a default under any contractual restriction -45- that is binding on or that affects such Guarantor or any of such Guarantor's properties. (c) No Defenses, Etc. Neither the Guaranty nor the MediSave Guaranty ---------------- is subject to any claim, defense or right of set-off or recoupment of any kind whatsoever. Such Guarantor has no claims, counterclaims or defenses against First Healthcare, MediSave or any other Person that would or might affect (i) the validity, enforceability or binding nature of any provision of any Transaction Document, any MediSave Transaction Document, any Forbearance Document, any MediSave Forbearance Document or any Escrowed Document or (ii) the collectibility of any of the Obligations of such Guarantor or any of the MidAmerica Obligations of such Guarantor. 5.06 Additional Representations and Warranties of the General Partner. ---------------------------------------------------------------- The General Partner represents and warrants to First Healthcare and MediSave as follows: (a) Corporate Existence and Power. The General partner is a ----------------------------- corporation duly incorporated, validly existing and in good standing under the laws of the state of North Carolina. The General partner is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify would have a materially adverse effect on the General Partner, MidAmerica or any Partnership. The General Partner has all requisite power and authority, corporate and otherwise, to own its properties and to conduct its business as such business currently is being conducted. (b) Corporate Authorization. The execution, delivery and performance ----------------------- by the General Partner of this Agreement and the Transaction Documents, the MediSave Transaction Documents, the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents to which the General Partner is or is to be a party or a signatory for and on behalf of itself or any Partnership or MidAmerica are within the General Partner's corporate powers and have been duly authorized by all necessary corporate action on the part of the General Partner. (c) Non-Contravention. The execution, delivery and performance by the ----------------- General partner of this Agreement and the Transaction Documents, the MediSave Transaction Documents, the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents to which -46- the General Partner is or is to be a party or a signatory for and on behalf of itself or any Partnership or MidAmerica do not and will not: (i) require any consent by any of the General Partner's shareholders; (ii) contravene or conflict with the articles of incorporation or bylaws of the General Partner; (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or award that currently is in effect and applicable to the General Partner, any Partnership or MidAmerica or any of their respective properties; or (iv) contravene or constitute a breach of or a default under any contractual restriction that is binding on or that affects the General Partner, any Partnership or MidAmerica or any of their respective properties. (d) No Defenses, Etc. The General Partner has no claims, ---------------- counterclaims or defenses against First Healthcare, MediSave or any other Person that would or might affect (i) the validity, enforceability or binding nature of any provision of any Transaction Document, any MediSave Transaction Document, any Forbearance Document, any MediSave Forbearance Document or any Escrowed Document, (ii) the collectibility of any of the Obligations of the General Partner or any Partnership or (iii) the collectibility of any of the MidAmerica Obligations of the General Partner or MidAmerica. 5.07 Representations and Warranties of First Healthcare. First -------------------------------------------------- Healthcare represents and warrants to the Forbearance Parties as follows: (a) Notes. First Healthcare is the legal and beneficial owner of each ----- Note, and has not assigned any Note to any other Person. (b) Subleases. First Healthcare has not assigned its rights under any --------- Sublease to any other Person. (c) Corporate Authorization. The execution, delivery and performance ----------------------- by First Healthcare of this Agreement and the other Forbearance Documents to which First Healthcare is or is to be a party are within First Healthcare's corporate powers and have been duly authorized by all necessary corporate action on the part of First Healthcare. 5.08 Representations and Warranties of MediSave. MediSave represents and ------------------------------------------ warrants to the Forbearance Parties as follows: (a) MediSave Note. MediSave is the legal and beneficial owner of the ------------- MediSave Note, and has not assigned the MediSave Note to any other Person. -47- (b) Corporate Authorization. The execution, delivery and performance ----------------------- by MediSave of this Agreement and the other MediSave Forbearance Documents to which MediSave is or is to be a party are within MediSave's corporate powers and have been duly authorized by all necessary corporate action on the part of MediSave. ARTICLE VI FORBEARANCE DEFAULTS 6.01 Forbearance Defaults. Any one or more of the following events or -------------------- conditions shall constitute, individually, a "Forbearance Default" and, collectively, the "Forbearance Defaults": (a) Any Purchaser shall fail during the Forbearance Period to pay on or before the twenty-fifth day of any calendar month all or any portion of any installment of principal and interest that is stated in the Note executed and delivered by such Purchaser to be due on the first day of such calendar month; (b) Any Sublessee shall fail during the Forbearance Period to pay on or before the twenty-fifth day of any calendar month (i) all or any portion of the Rent under the Sublease executed and delivered by such Sublessee that is stated in such Sublease to be due on the first day of such calendar month or (ii) all or any portion of the additional Rent required under Section 3.04; (c) Any Manager shall fail during the Forbearance Period to pay on or before the twenty-fifth day of any calendar month (i) all or any portion of the Operator's Return under the Management Agreement executed and delivered by such Manager that is stated in such Management Agreement to be due on the first day of such calendar month or (ii) all or any portion of the additional Operator's Return required under Section 3.05; (d) Any Partnership shall fail to pay any of such Partnership's Share of the Arrearages, or any interest on the unpaid amount of such Partnership's Share of the Arrearages, when the same becomes due and payable under this Agreement; (e) The Partnerships shall fail to deposit any amount with First Healthcare when the deposit of such amount is due under Section 3.10(a) of this Agreement; -48- (f) Any Partnership shall fail to deposit any amount with First Healthcare when the deposit of such amount is due under Section 3.10(b) of this Agreement; (g) Any Forbearance Party shall fail to pay to First Healthcare any other amount required to be paid by such Forbearance Party to First Healthcare under this Agreement or any other Forbearance Document when the same becomes due and payable or, in the case of any such amount that is payable on demand, when demand is made, and such failure shall remain unremedied for ten days after written notice of such failure shall have been given to such Forbearance Party by First Healthcare; (h) Any MidAmerica Party, prior to the payment in full of the entire unpaid principal amount evidenced by the Modified MediSave Note plus all accrued and unpaid interest on the Modified MediSave Note plus all other amounts payable under the Modified MediSave Note, shall fail to pay to MediSave any amount required to be paid by such MidAmerica Party to MediSave under this Agreement or any other MediSave Forbearance Document when the same becomes due and payable or, in the case of any such amount that is payable on demand, when demand is made, and such failure shall remain unremedied for ten days after written notice of such failure shall have been given to such MidAmerica Party by MediSave; (i) Any representation or warranty made by any Forbearance Party or any MidAmerica Party under or in connection with this Agreement, any other Forbearance Document, any other MediSave Forbearance Document or any Escrowed Document shall prove to have been incorrect in any material respect when made; (j) Any Forbearance Party shall fail to pay when due any indebtedness, liability or other obligation of such Forbearance Party to the State of Kansas, Department of Human Resources, or the State of Missouri, Division of Employment Security; (k) Any Forbearance Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Forbearance Document to be performed or observed by such Forbearance Party and, if such failure reasonably may be remedied by such Forbearance Party, such failure shall remain unremedied for ten days after written notice of such failure shall have been given to such Forbearance Party by First Healthcare; (l) Any MidAmerica Party, prior to the payment in full of the entire unpaid principal amount evidenced by the -49- Modified MediSave Note plus all accrued and unpaid interest on the Modified MediSave Note plus all other amounts payable under the Modified MediSave Note, shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other MediSave Forbearance Document to be performed or observed by such MidAmerica Party and, if such failure reasonably may be remedied by such Forbearance Party, such failure shall remain unremedied for ten days after written notice of such failure shall have been given to such MidAmerica Party by MediSave; (m) Any other event or condition (other than a Designated Default) which constitutes an Event of Default under and as that term is defined in any Transaction Document, or which constitutes a breach of or a default under any Transaction Document, shall have occurred; or (n) Any other event or condition which constitutes an Event of Default under and as that term is defined in any MediSave Transaction Document, or which constitutes a breach of or a default under any MediSave Transaction Document, shall have occurred prior to the payment in full of the entire unpaid principal amount evidenced by the Modified MediSave Note plus all accrued and unpaid interest on the Modified MediSave Note plus all other amounts payable under the Modified MediSave Note. 6.02 Remedies. Upon the occurrence of any Forbearance Default, and at -------- any and all times thereafter, First Healthcare and/or the Collateral Agent, in addition to any rights and remedies available to it under any Transaction Document, any Forbearance Document or any Escrowed Document, may (but shall not be obligated to) take such action personally or by its agents or attorneys, with or without entry, and without presentment, demand, protest, notice of nonpayment, notice of dishonor or any other notice of any kind, all of which are hereby waived by each Forbearance Party and each MidAmerica Party, as First Healthcare and/or the Collateral Agent deems necessary or advisable to protect and enforce its rights and remedies against the Forbearance Parties and the MidAmerica Parties and in and to the Collateral, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as First Healthcare and/or the Collateral Agent may determine, in its sole discretion, without impairing or otherwise affecting any other rights or remedies of First Healthcare and/or the Collateral Agent: (a) Deem the entire unpaid amount of the Arrearages, the entire, aggregate unpaid principal balances evidenced by the Notes, all accrued and unpaid interest on the Arrearages and under the Notes, and all other amounts payable under -50- this Agreement, the Notes, the other Transaction Documents and the other Forbearance Documents, to be immediately due and payable, whereupon the entire unpaid amount of the Arrearages, the entire, aggregate unpaid principal balances evidenced by the Notes, all accrued and unpaid interest on the Arrearages and under the Notes, and all other amounts payable under this Agreement, the Notes, the other Transaction Documents and the other Forbearance Documents shall become and be immediately due and payable; provided that in the event of an actual or deemed entry of an order for -------- relief with respect to any Forbearance Party or any MidAmerica Party under the Bankruptcy Code, or under any present or future law or statute of the United States of America or of any state or other jurisdiction thereof relevant to bankruptcy, insolvency or other relief of debtors, the entire unpaid amount of the Arrearages, the entire, aggregate unpaid principal balances evidenced by the Notes, all accrued and unpaid interest on the Arrearages and under the Notes, and all other amounts payable under this Agreement, the Notes, the other Transaction Documents and the other Forbearance Documents automatically shall become and be due and payable, without presentment, demand, protest, notice of nonpayment, notice of dishonor or any notice of any kind, all of which are hereby expressly waived by each Forbearance Party and each MidAmerica Party, anything in this Agreement, any other Forbearance Document, any Escrowed Document or any Transaction Document to the contrary notwithstanding; (b) Institute a proceeding or proceedings for the complete foreclosure of any or all of the Mortgages, the Deeds of Trust, the Partnership Guaranty Mortgages and the Partnership Guaranty Deeds of Trust under any applicable provision of law; (c) Institute a proceeding or proceedings for the partial foreclosure of any or all of the Mortgages, the Deeds of Trust, the Partnership Guaranty Mortgages and the Partnership Guaranty Deeds of Trust under any applicable provision of law for the portion of the Obligations then due and payable, subject to the liens of the Mortgages, the Deeds of Trust, the Partnership Guaranty Mortgages and the Partnership Guaranty Deeds of Trust continuing unimpaired and without loss of priority so as to secure the balance of the Obligations not then due and payable; (d) To the extent permitted by applicable law, sell the Collateral, and all estate, right, title, interest, claim and demand of the Forbearance Parties in the Collateral, and all rights of redemption of the Collateral, at one or more sales, as an entirety or in parcels, with -51- such elements of real and/or personal property (and, to the extent permitted by applicable law, may elect to deem all of the Collateral to be real property for purposes of such sale or sales), and at such time and place and upon such terms as First Healthcare and/or the Collateral Agent may deem expedient, or as may be required by applicable law, and in the event of a sale, by foreclosure or otherwise, of less than all of the Collateral, the Mortgages, the Deeds of Trust, the Partnership Guaranty Mortgages and the Partnership Guaranty Deeds of Trust shall continue as a lien and security interest on the remaining portion of the Mortgaged Property; (e) Institute an action, suit or proceeding in equity for the specific performance of any of the provisions contained in any Transaction Document or any Forbearance Document; (f) Sue and recover a judgment on the Obligations, as the same become due and payable, or on account of any Forbearance Default; (g) Apply for the appointment of a receiver, custodian, trustee, liquidator or conservator of the Collateral, to be invested with the fullest powers permitted under applicable law, as a matter of right and without regard to or the necessity to disprove the adequacy of the security for the Obligations or the solvency of any Forbearance Party or any other Person liable for the payment of any of the Obligations or to prove or establish mismanagement, waste or similar malfeasance, and each Forbearance Party and each other Person so liable hereby waives or shall be deemed to have waived such necessity and hereby consents or shall be deemed to have consented to such appointment; (h) Enter upon the Facilities and the other Collateral, and exclude the Forbearance Parties and the agents, servants and representatives of the Forbearance Parties wholly from the Facilities and the other Collateral, without liability for trespass, damages or otherwise, and take possession of all books, records and accounts relating to the Facilities and the other Collateral (and each Forbearance Party agrees to surrender possession of the Facilities and the other Collateral and of such books, records and accounts to First Healthcare and/or the Collateral Agent on demand after the occurrence of any Forbearance Default), and upon each such entry, and from time to time thereafter, at the expense of the Forbearance Parties, without interference by any Forbearance Party, (i) maintain and restore the Facilities and the other -52- Collateral by purchase, repair or construction, (ii) insure or reinsure the Facilities and the other Collateral, (iii) make all necessary or proper repairs, renewals, replacements, alterations, additions, betterments and improvements to and on the Facilities and the other Collateral and (iv) in every such case in connection with the foregoing have the right to exercise all rights and powers of the Forbearance Parties with respect to the Facilities, either in the name of any one or more of the Forbearance Parties or otherwise, including the right to make, cancel, enforce or modify leases and subleases, obtain and evict tenants and subtenants on such terms as First Healthcare and/or the Collateral Agent shall deem advisable; (i) Use, operate, manage, preserve, control and otherwise deal with the Facilities and the other Collateral and the books, records and accounts relating to the Facilities and the other Collateral, and conduct the business of the Facilities, either personally or by superintendents, managers, agents, servants, attorneys or receivers, without interference from any Forbearance Party; (j) With or without the entrance upon or taking possession of any Facility or any of the Collateral, to the extent not prohibited by applicable law, collect and receive all rents, income, proceeds, issues, profits, revenues, accounts, cash and other moneys and sums due and to become due and payable under or pursuant to or derived from the Facilities and the Collateral, and after deducting therefrom all costs and expenses of every character incurred by First Healthcare and/or the Collateral Agent in collecting the same and in using, operating, managing, preserving and controlling the Facilities and the Collateral, and otherwise in exercising the rights of First Healthcare and/or the Collateral Agent under the Transaction Documents and the Forbearance Documents (including, but not limited to, all amounts necessary to pay taxes, assessments, levies, fees, insurance premiums and other charges in connection with the Facilities and the Collateral), as well as reasonable compensation for the services of First Healthcare and/or the Collateral Agent and their respective attorneys, agents and employees, apply the remainder (if any) in such order and in such manner as First Healthcare shall determine in its sole discretion; (k) Release any portion of the Collateral for such consideration as First Healthcare may require without, as to the remainder of the Collateral, in any way impairing or affecting any lien or security interest, or the priority of any lien or security interest, created by any Transaction Document or any Forbearance Document or improving the -53- position of any subordinate holder of any lien or security interest with respect to any portion of the Collateral, except to the extent that the Obligations shall have been reduced by the actual monetary consideration, if any, received by First Healthcare for such release, and may accept by assignment, pledge or otherwise any other property in place of such portion of the Collateral as First Healthcare may require without being accountable for so doing to any other holder of any lien or security interest; (l) Take all actions permitted under the Uniform Commercial Code of the jurisdiction in which any portion of the Collateral is located; (m) Exercise in respect of the Collateral all other rights and remedies available to a mortgagee, a deed-of-trust beneficiary or a secured creditor under applicable law; (n) To the extent permitted by law and not included in the foregoing provisions, require the Sublessees and the Managers to quit and surrender the Subleased Facilities and the Managed Facilities to First Healthcare, and enter upon and repossess the Subleased Facilities and the Managed Facilities by reasonable force, summary proceedings, ejectment or otherwise, and remove the Sublessees and the Managers and all other Persons and any and all personal property from the Subleased Facilities and the Managed Facilities subject to rights of any residents or patients and to any applicable requirements of law; (o) Instruct the Escrow Agent to deliver to First Healthcare or any assignee or transferee of First Healthcare any one or more of the Escrowed Documents, and request, accept, present, file, record or register any one or more of the Escrowed Documents, in such order and in such manner as First Healthcare shall determine in its sole discretion; (p) Market any or all of the Facilities for sale, lease or other disposition to potential purchasers, lessees or transferees, whether directly or through brokers, finders and other agents and representatives, on such terms (including, but not limited to, price) as First Healthcare may deem acceptable in its sole discretion; (q) Exercise all other rights and remedies available to First Healthcare and/or the Collateral Agent under this Agreement, the other Forbearance Documents and the Transaction Documents; and -54- (r) Exercise all other rights and remedies available to First Healthcare and/or the Collateral Agent by agreement, at law, in equity or otherwise. 6.03 No Mortgagee in Possession, Etc. In the event that First Healthcare ------------------------------- or the Collateral Agent shall exercise any of the rights or remedies referred to in Section 6.02 or in any Transaction Document or any other Forbearance Document, neither First Healthcare nor the Collateral Agent shall be deemed to have entered upon or taken possession of the Facilities or the Collateral except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose, nor shall First Healthcare or the Collateral Agent be deemed a mortgagee in possession by reason of such entry or taking possession. Neither First Healthcare nor the Collateral Agent shall be liable to account for any action taken pursuant to any exercise of any of the rights or remedies set forth in Section 6.02 or in any Transaction Document or any other Forbearance Document, other than for rents actually received by First Healthcare or the Collateral Agent, as the case may be, and neither First Healthcare nor the Collateral Agent shall be liable for any loss sustained by any Forbearance Party resulting from any failure to let any Facility or any of the Collateral, or from any other act or omission of First Healthcare or the Collateral Agent, as the case may be, except to the extent such loss is caused by the willful misconduct or bad faith of First Healthcare or the Collateral Agent, as the case may be. Each Forbearance Party hereby consents to, ratifies and confirms the exercise by First Healthcare and/or the Collateral Agent of the rights and remedies referred to in Section 6.02 and in the Transaction Documents, the other Forbearance Documents and the Escrowed Documents, and each Forbearance Party hereby appoints each of First Healthcare and the Collateral Agent as such Forbearance Party's attorney-in-fact for such purposes, which appointment shall be deemed to be coupled with an interest and is irrevocable. 6.04 Marketing of Facilities. Without limiting the generality of the ----------------------- provisions in Section 6.02, each Forbearance Party hereby irrevocably authorizes First Healthcare, upon the occurrence of any Forbearance Default, (a) to market any or all of the Facilities, or any one or more combinations of the Facilities, for sale, lease or other disposition to potential purchasers, lessees or transferees on such terms (including, but not limited to, price) as First Healthcare may deem acceptable in its sole discretion and (b) if First Healthcare so desires, to retain or appoint one or more brokers, finders and other agents and representatives to perform any act or acts necessary or incident to any marketing of the Facilities by First Healthcare pursuant to the authority granted in this Section. Each Forbearance Party acknowledges and agrees that (i) the grant of authority set forth in this Section has been specifically -55- negotiated and (ii) the authority granted to First Healthcare in this Section is solely to protect First Healthcare's interest in the Facilities and the Collateral and shall not impose any duty upon First Healthcare to exercise any such authority. Each Forbearance Party further acknowledges and agrees that the grant of authority set forth in this Section has been made voluntarily and knowingly by such Forbearance Party notwithstanding the fact that the selection by First Healthcare of the Facility or Facilities to be marketed pursuant to the authority granted in this Section, and the time, method and other terms (including, but not limited to, price) of marketing, sale, lease or other disposition (whether for cash or on credit) deemed by First Healthcare to be acceptable in its sole discretion, may not be deemed desirable or acceptable to such Forbearance Party. First Healthcare shall have no obligation to provide any financing or credit support of any kind in connection with any sale, lease or other disposition of any or all of the Facilities pursuant to the authority granted in this Section or otherwise. 6.05 Order of Acceptance of Escrowed Documents. Without limiting the ----------------------------------------- generality of the provisions in Section 6.02, upon the occurrence of any Forbearance Default, First Healthcare or its assignee or transferee may (but shall not be obligated to) take any one or more of the following actions, each of which may be pursued concurrently or otherwise, at such time or times and in such order as First Healthcare may determine in its sole discretion, without impairing or otherwise affecting any other rights or remedies of First Healthcare and without presentment, demand, protest or any other notice, all of which are hereby expressly waived by each Forbearance Party and each MidAmerica Party: (a) Subject to Section 6.07, accept any Confession of Judgment by requesting and receiving such Confession of Judgment from the Escrow Agent and presenting such Confession of Judgment to a court of competent jurisdiction for entry by such court pursuant to Section 3.25(a); (b) Accept, with respect to any Sublease, the Sublease Termination Agreement relating to such Sublease by requesting and receiving such Sublease Termination Agreement from the Escrow Agent and recording such Sublease Termination Agreement pursuant to Section 3.25(b) in the records of the county in the state of Kansas or the state of Missouri, as the case may be, in which the Subleased Facility covered by such Sublease is located; (c) Accept any Kansas Deed in Lieu of Foreclosure by requesting and receiving such Kansas Deed in Lieu of Foreclosure from the Escrow Agent and recording such Kansas Deed in Lieu of Foreclosure pursuant to Section 3.25(c) in -56- the records of the county in the state of Kansas in which the real property covered by such Kansas Deed in Lieu of Foreclosure is located; (d) Accept any Missouri Deed in Lieu of Foreclosure by requesting and receiving such Missouri Deed in Lieu of Foreclosure from the Escrow Agent and recording such Missouri Deed in Lieu of Foreclosure pursuant to Section 3.25(d) in the records of the county in the state of Missouri in which the real property covered by such Missouri Deed in Lieu of Foreclosure is located; and (e) Accept, present, file, record or register any or all of the other Escrowed Documents pursuant to Section 3.25(e). 6.06 Deeds in Lieu of Foreclosure; Other Escrowed Documents. ------------------------------------------------------ (a) Absolute Conveyance; Termination of Right of Redemption; Etc. ------------------------------------------------------------ Each Forbearance Party acknowledges and agrees that: (i) upon acceptance and recordation by First Healthcare or its assignee or transferee of any Deed in Lieu of Foreclosure, such Deed in Lieu of Foreclosure shall be effective to convey absolutely to First Healthcare or its assignee or transferee all estate, right, title, interest, claim and demand of such Forbearance Party (including, but not limited to, all right of redemption) in and to the Collateral described in such Deed in Lieu of Foreclosure; (ii) the acceptance and recordation by First Healthcare or its assignee or transferee of any Deed in Lieu of Foreclosure shall terminate all estate, right, title, interest, claim and demand of such Forbearance Party (including, but not limited to, all right of redemption) in and to the Collateral described in such Deed in Lieu of Foreclosure and any and all rents, income, proceeds, issues, profits, revenues, accounts and other sums that are or may become due from or in respect of all or any part of such Collateral; and (iii) none of this Agreement, any other Forbearance Document, any Deed in Lieu of Foreclosure or any other Escrowed Document (whether considered individually or in conjunction with any Transaction Document, any other Forbearance Document, any other Escrowed Document or any other document or agreement) is intended as a mortgage, deed of trust, trust conveyance or other security agreement of any kind. (b) No Merger. The execution and delivery of any Deed in Lieu of --------- Foreclosure by any Forbearance Party, and any acceptance and recordation of such Deed in Lieu of Foreclosure by First Healthcare or its assignee or -57- transferee, is not intended to merge, and shall not constitute a merger of, the estate, right, title, interest, claim and demand conveyed by such Deed in Lieu of Foreclosure with any interest of First Healthcare now or in the future existing in all or any part of the Collateral described in such Deed in Lieu of Foreclosure, including, but not limited to, the liens and security interests created by any one or more of the Mortgages and the Deeds of Trust. Without limiting the generality of the preceding sentence, each Forbearance Party intends, acknowledges and agrees that, from and after the recordation by First Healthcare or its assignee or transferee of any Deed in Lieu of Foreclosure, the Collateral described in such Deed in Lieu of Foreclosure shall be and remain at all times subject to the liens and security interests created by the Mortgage or the Deed of Trust to which such Collateral is now subject. Notwithstanding the recordation by First Healthcare or its assignee or transferee of any Deed in Lieu of Foreclosure, First Healthcare shall have the right, but not the obligation, to foreclose any and all of its liens on and security interests in the Collateral for any reason, including, but not limited to, (i) the protection of the interests of First Healthcare in the Collateral from any Person claiming a subordinate lien on or interest in all or any part of the Collateral and (ii) the extinguishment of record any right of redemption of any Forbearance Party with respect to all or any part of the Collateral. (c) No Satisfaction of Obligations. Each Forbearance Party ------------------------------ acknowledges and agrees that neither the recordation by First Healthcare or its assignee or transferee of any Deed in Lieu of Foreclosure, nor the acceptance by First Healthcare or its assignee or transferee of any other Escrowed Document, is intended to be, or shall constitute, payment or satisfaction of any or all of the Obligations. (d) Forbearance Parties Remain Liable. Notwithstanding any provision --------------------------------- to the contrary in this Agreement, any other Forbearance Document, any Transaction Document, any Deed in Lieu of Foreclosure or any other Escrowed Document, the Forbearance Parties shall be and remain liable in respect of all contracts, agreements, claims and demands pertaining to all or any part of the Collateral, and in no event shall First Healthcare or any assignee or transferee of First Healthcare have any obligation or liability in respect of all or any part of the Collateral unless First Healthcare or such assignee or transferee expressly assumes such obligation or liability in writing. The Forbearance Parties, jointly and severally, shall indemnify, defend and hold harmless First Healthcare and the assignees and transferees of First Healthcare from -58- and against any and all claims, demands, actions, causes of action, losses, liabilities, damages, costs, expenses and disbursements (including, but not limited to, reasonable fees and disbursements of accountants, attorneys, engineers and other professionals, experts and agents), which accrue to or are made against or incurred or suffered by First Healthcare or any assignee or transferee of First Healthcare prior to, on or after any transfer of the Collateral, whether pursuant to foreclosure proceedings or in lieu of foreclosure proceedings, and which arise, directly or indirectly, from or by reason of, or in any manner related to or connected with, (i) any incorrectness or breach of any of the representations, warranties or covenants of any Forbearance Party set forth in this Agreement, any other Forbearance Document or any Escrowed Document or (ii) any ownership, lease, sublease, management, use, operation, possession or control of, or any activities on or about, any or all of the Collateral prior to the transfer of such Collateral to First Healthcare or any assignee or transferee of First Healthcare, whether pursuant to foreclosure proceedings or in lieu of foreclosure proceedings; provided that no -------- Forbearance Party shall be liable for any portion of such claims, demands, actions, causes of action, losses, liabilities, damages, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of First Healthcare or any assignee or transferee of First Healthcare. 6.07 Guarantor Confessions of Judgment. --------------------------------- (a) Subject to Section 6.07(b): (i) First Healthcare or its assignee or transferee shall forbear from presenting any Guarantor Confession of Judgment to any court for entry by such court during the period of ninety days following the occurrence of the first Forbearance Default (if any) to occur; (ii) First Healthcare or its assignee or transferee shall further forbear from presenting any Guarantor Confession of Judgment to any court for entry by such court during the period of one hundred eighty days following the occurrence of the first Forbearance Default (if any) to occur if, but only if, during the period of ninety days following the occurrence of the first Forbearance Default (if any) to occur, the Guarantors (A) pledge, assign and deliver to First Healthcare cash for deposit in the Collateral Account and/or cause to be delivered to First Healthcare one or more clean, irrevocable letters of credit, in form and -59- substance satisfactory to First Healthcare, issued by one or more national banking associations acceptable to First Healthcare, for the account of either or both of the Guarantors in favor of First Healthcare and having an expiry date not earlier than one year after the date of issuance of each such letter of credit, in the aggregate amount of such cash and/or letters of credit equal to $2,400,000.00, all as security and/or support for the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, (B) duly execute and deliver to First Healthcare such pledge and security agreements, as specified by and in form and substance satisfactory to First Healthcare, securing the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, and constituting pledges and assignments of and security interests in the Collateral Account, such cash as shall be pledged and delivered by the Guarantors to First Healthcare for deposit in the Collateral Account, all certificates and instruments evidencing the Collateral Account and all proceeds of such property, (C) take such action (including, but not limited to, the delivery to First Healthcare of original instruments and certificates, the filing of Uniform Commercial Code financing statements and amendments to financing statements and the giving of notices and endorsements) as may be necessary or advisable in the opinion of First Healthcare to vest in First Healthcare valid and perfected security interests in the properties purported to be subject to the pledge and security agreements delivered pursuant to this Section 6.07(a)(ii), enforceable against all third parties in accordance with their respective terms, (D) deliver to First Healthcare a signed favorable opinion, addressed to First Healthcare, of counsel for the Guarantors acceptable to First Healthcare as to such pledge and security agreements being legal, valid and binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their respective terms and as to such other matters as First Healthcare may reasonably request, and (E) execute and deliver to First Healthcare any and all further -60- certificates, instruments and documents and take all such other action as First Healthcare may deem desirable in obtaining the full benefits of, or in preserving the security interests of, such pledge and security agreements; (iii) First Healthcare or its assignee or transferee shall further forbear from presenting any Guarantor Confession of Judgment to any court for entry by such court during the period of two hundred seventy days following the occurrence of the first Forbearance Default (if any) to occur if, but only if, during the period of one hundred eighty days following the occurrence of the first Forbearance Default (if any) to occur, the Guarantors (A) pledge, assign and deliver to First Healthcare cash for deposit in the Collateral Account and/or cause to be delivered to First Healthcare one or more clean, irrevocable letters of credit, in form and substance satisfactory to First Healthcare, issued by one or more national banking associations acceptable to First Healthcare, for the account of either or both of the Guarantors in favor of First Healthcare and having an expiry date not earlier than one year after the date of issuance of each such letter of credit, in the aggregate amount of such cash and/or letters of credit delivered pursuant to Section 6.07(a)(ii) and this Section 6.07(a)(iii) equal to $4,600,000.00, all as security and/or support for the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, (B) duly execute and deliver to First Healthcare such pledge and security agreements, as specified by and in form and substance satisfactory to First Healthcare, securing the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, and constituting pledges and assignments of and security interests in the Collateral Account, such cash as shall be pledged and delivered by the Guarantors to First Healthcare for deposit in the Collateral Account, all certificates and instruments evidencing the Collateral Account and all proceeds of such property, (C) take such action (including, but not limited to, the delivery to First Healthcare of -61- original instruments and certificates, the filing of Uniform Commercial Code financing statements and amendments to financing statements and the giving of notices and endorsements) as may be necessary or advisable in the opinion of First Healthcare to vest in First Healthcare valid and perfected security interests in the properties purported to be subject to the pledge and security agreements delivered pursuant to Section 6.07(a)(ii) and this Section 6.07(a)(iii), enforceable against all third parties in accordance with their respective terms, (D) deliver to First Healthcare a signed favorable opinion, addressed to First Healthcare, of counsel for the Guarantors acceptable to First Healthcare as to such pledge and security agreements being legal, valid and binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their respective terms and as to such other matters as First Healthcare may reasonably request, and (E) execute and deliver to First Healthcare any and all further certificates, instruments and documents and take all such other action as First Healthcare may deem desirable in obtaining the full benefits of, or in preserving the security interests of, such pledge and security agreements; and (iv) First Healthcare or its assignee or transferee shall further forbear from presenting any Guarantor Confession of Judgment to any court for entry by such court during the period of three hundred sixty days following the occurrence of the first Forbearance Default (if any) to occur if, but only if, during the period of two hundred seventy days following the occurrence of the first Forbearance Default (if any) to occur, the Guarantors (A) pledge, assign and deliver to First Healthcare cash for deposit in the Collateral Account and/or cause to be delivered to First Healthcare one or more clean, irrevocable letters of credit, in form and substance satisfactory to First Healthcare, issued by one or more national banking associations acceptable to First Healthcare, for the account of either or both of the Guarantors in favor of First Healthcare and having an expiry date not earlier than one year after the date of issuance of each such letter of credit, in the aggregate amount of such cash and/or letters of credit delivered pursuant to Section 6.07(a)(ii), Section 6.07(a)(iii) and this Section 6.07(a)(iv) equal to $6,600,000.00, all as security and/or support for the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated -62- First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, (B) duly execute and deliver to First Healthcare such pledge and security agreements, as specified by and in form and substance satisfactory to First Healthcare, securing the payment of all indebtedness, liabilities and other obligations of the Guarantors now or hereafter existing under the Restated First Healthcare Guaranty, whether absolute or contingent and whether for or relating to principal, interest, Rent, Operator's Return, indemnities, fees, costs, expenses or otherwise, and constituting pledges and assignments of and security interests in the Collateral Account, such cash as shall be pledged and delivered by the Guarantors to First Healthcare for deposit in the Collateral Account, all certificates and instruments evidencing the Collateral Account and all proceeds of such property, (C) take such action (including, but not limited to, the delivery to First Healthcare of original instruments and certificates, the filing of Uniform Commercial Code financing statements and amendments to financing statements and the giving of notices and endorsements) as may be necessary or advisable in the opinion of First Healthcare to vest in First Healthcare valid and perfected security interests in the properties purported to be subject to the pledge and security agreements delivered pursuant to Section 6.07(a)(ii), Section 6.07(a)(iii) and this Section 6.07(a)(iv), enforceable against all third parties in accordance with their respective terms, (D) deliver to First Healthcare a signed favorable opinion, addressed to First Healthcare, of counsel for the Guarantors acceptable to First Healthcare as to such pledge and security agreements being legal, valid and binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their respective terms and as to such other matters as First Healthcare may reasonably request, and (E) execute and deliver to First Healthcare any and all further certificates, instruments and documents and take all such other action as First Healthcare may deem desirable in obtaining the full benefits of, or in preserving the security interests of, such pledge and security agreements. (b) Notwithstanding any provision to the contrary in this Section 6.07 or elsewhere in this Agreement or any other Forbearance Document, (i) First Healthcare or its assignee or transferee may present any Guarantor Confession -63- of Judgment to a court of competent jurisdiction for entry by such court at any time after the expiration of the period of three hundred sixty days following the occurrence of the first Forbearance Default (if any) to occur and (ii) First Healthcare or its assignee or transferee may present any Guarantor Confession of Judgment to a court of competent jurisdiction for entry by such court at any time following the occurrence of any Forbearance Default, and shall have no obligation under this Section 6.07 from so presenting such Guarantor Confession of Judgment, if at any time following the occurrence of any Forbearance Default the exercise or enforcement of any right or remedy of First Healthcare and/or the Collateral Agent provided for in any Transaction Document, any Forbearance Document, any Escrowed Document or any other deed, conveyance, bill of sale, mortgage, deed of trust, security agreement, pledge agreement, assignment, stipulation or other document or instrument executed by any Partnership, the General Partner or any Guarantor under or in connection with any Transaction Document or any Forbearance Document, or otherwise available to First Healthcare and/or the Collateral Agent by agreement, at law or in equity, shall be delayed (other than by reason of any delay resulting solely from any action or omission to act by First Healthcare, the Collateral Agent or any agent or attorney of First Healthcare or the Collateral Agent), barred, prohibited, enjoined, stayed or otherwise limited or impaired (A) by reason of the institution of any involuntary proceeding against any Partnership under the Bankruptcy Code which remains undismissed for a period of sixty days or (B) for any other reason, whether intentional or negligent or by operation of law or otherwise (including, but not limited to, any other involuntary bankruptcy proceeding or any voluntary bankruptcy, assignment for the benefit of creditors, reorganization or similar proceeding affecting any Partnership, the General Partner, any Guarantor or any properties of any Partnership, the General Partner or any Guarantor, or the failure by any Partnership, the General Partner or any Guarantor to execute and deliver any affidavit, certificate or other document now or hereafter required or requested pursuant to this Agreement). (c) At any time following the occurrence of a Forbearance Default, in addition to any other rights and remedies provided for in this Agreement, any other Forbearance Document, any Escrowed Document and any Transaction Document and otherwise available to First Healthcare by agreement, at law, in equity or otherwise, First Healthcare may (but shall not be obligated to) draw against any and all letters of credit delivered pursuant to this Section 6.07 upon the occurrence of any one or more of -64- the additional following events and at any and all times thereafter: (i) The period of ninety days following the occurrence of the first Forbearance Default (if any) to occur shall expire and the Guarantors shall have failed within such period of ninety days to deliver or cause to be delivered to First Healthcare any of the cash collateral, letters of credit, pledge and security agreements, opinions and other certificates, instruments and documents, or to have taken any of the other action, required to be delivered or taken pursuant to Section 6.07(a)(ii); (ii) The period of one hundred eighty days following the occurrence of the first Forbearance Default (if any) to occur shall expire and the Guarantors shall have failed within such period of one hundred eighty days to deliver or cause to be delivered to First Healthcare any of the cash collateral, letters of credit, pledge and security agreements, opinions and other certificates, instruments and documents, or to have taken any of the other action, required to be delivered or taken pursuant to Section 6.07(a)(iii); (iii) The period of two hundred seventy days following the occurrence of the first Forbearance Default (if any) to occur shall expire and the Guarantors shall have failed within such period of two hundred seventy days to deliver or cause to be delivered to First Healthcare any of the cash collateral, letters of credit, pledge and security agreements, opinions and other certificates, instruments and documents, or to have taken any of the other action, required to be delivered or taken pursuant to Section 6.07(a)(iv); (iv) The period of three hundred sixty days following the occurrence of the first Forbearance Default (if any) to occur shall expire; (v) The exercise or enforcement of any right or remedy of First Healthcare and/or the Collateral Agent provided for in any Transaction Document, any Forbearance Document, any Escrowed Document or any other deed, conveyance, bill of sale, mortgage, deed of trust, security agreement, pledge agreement, assignment, stipulation or other document or instrument executed by any Partnership, the General Partner or any Guarantor under or in connection with any Transaction Document or any Forbearance Document, or otherwise -65- available to First Healthcare and/or the Collateral Agent by agreement, at law or in equity, shall be delayed (other than by reason of any delay resulting solely from any action or omission to act by First Healthcare, the Collateral Agent or any agent or attorney of First Healthcare or the Collateral Agent), barred, prohibited, enjoined, stayed or otherwise limited or impaired (A) by reason of the institution of any involuntary proceeding against any Partnership under the Bankruptcy Code which remains undismissed for a period of sixty days or (B) for any other reason, whether intentional or negligent or by operation of law or otherwise (including, but not limited to, any other involuntary bankruptcy proceeding or any voluntary bankruptcy, assignment for the benefit of creditors, reorganization or similar proceeding affecting any Partnership, the General Partner, any Guarantor or any properties of any Partnership, the General Partner or any Guarantor, or the failure by any Partnership, the General Partner or any Guarantor to execute and deliver any affidavit, certificate or other document now or hereafter required or requested pursuant to this Agreement); or (vi) The Guarantors, with respect to any letter of credit delivered to First Healthcare pursuant to this Section 6.07, shall fail to deliver or cause to be delivered to First Healthcare, at least twenty days prior to the expiry date of such letter of credit, a clean, irrevocable replacement letter of credit, in form and substance satisfactory to First Healthcare in its sole discretion, issued by a national banking association acceptable to First Healthcare, for the account of either or both of the Guarantors in favor of First Healthcare and having an expiry date not earlier than one year after the date of issuance of such letter of credit. ARTICLE VII MISCELLANEOUS 7.01 Amendments, Etc. No waiver, termination, amendment or other ---------------- modification of any provision of this Agreement or any other Forbearance Document, and no consent to any departure by any Forbearance Party from any provision of this Agreement or any other Forbearance Document, shall in any event be effective unless the same shall be in writing and signed by First Healthcare (or any successor to First Healthcare), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given; provided that no waiver, termination, amendment, -------- other -66- modification or consent, unless the same shall be in writing and signed by First Healthcare (or any successor to First Healthcare) and by MediSave (or any successor to MediSave), shall amend or otherwise modify Section 2.02, Section 2.04, Section 3.15, Section 3.17, Section 3.20, Section 3.22, Section 5.08 or this Section 7.01. For the purposes of this Section, no writing signed by First Healthcare (or any successor to First Healthcare) or by MediSave (or any successor to MediSave) shall be effective unless such writing shall be signed by the chief executive officer or the president of First Healthcare (or such successor to First Healthcare) or MediSave (or such successor to MediSave), as the case may be, or by any other individual expressly authorized in writing by the board or directors, the chief executive officer or the president of First Healthcare (or such successor to First Healthcare) or MediSave (or such successor to MediSave), as the case may be, to sign waivers, terminations, amendments and other modifications for and on behalf of First Healthcare (or such successor to First Healthcare) or MediSave (or such successor to MediSave), as the case may be. 7.02 Notices. All notices, requests, demands, directions, consents and ------- other communications to any party under or in connection with this Agreement or any other Forbearance Document shall be in writing (including telephone facsimile communications) and shall be sent via certified or registered mail, return receipt requested, via telephone facsimile transmission, via personal delivery or via express courier or delivery service, addressed to such party at such party's address or telephone facsimile number set forth below or at such other address or telephone facsimile number as shall be designated by such party in a written notice given to each other party complying as to delivery with the terms of this Section: if to any Partnership, MidAmerica or the General Partner, at: c/o Don G. Angell 6000 Meadowbrook Mall Suite 27 Clemmons, North Carolina 27012 or P.O. Box 1670 Clemmons, North Carolina 27012 Facsimile: (910)766-5220 and -67- c/o Daniel D. Mosca 4901 Holly Ridge Drive Raleigh, North Carolina 27612 Facsimile: (919)831-4768 with a copy to: Blanco Tackabery Combs & Matamoros, P.A. Stratford Executive Park 215 Executive Park Boulevard Winston-Salem, North Carolina 27103-1594 Attention: George E. Hollodick or P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5008 Attention: George E. Hollodick Facsimile: (910)765-4830; if to Angell, at: Don G. Angell 6000 Meadowbrook Mall Suite 27 Clemmons, North Carolina 27012 or P.O. Box 1670 Clemmons, North Carolina 27012 Facsimile: (910)766-5220 with a copy to: Blanco Tackabery Combs & Matamoros, P.A. Stratford Executive Park 215 Executive Park Boulevard Winston-Salem, North Carolina 27103-1594 Attention: George E. Hollodick or P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5008 Attention: George E. Hollodick Facsimile: (910)765-4830; if to Mosca, at: Daniel D. Mosca 4901 Holly Ridge Drive Raleigh, North Carolina 27612 Facsimile: (919)831-4768 -68- with a copy to: Blanco Tackabery Combs & Matamoros, P.A. Stratford Executive Park 215 Executive Park Boulevard Winston-Salem, North Carolina 27103-1594 Attention: George E. Hollodick or P.O. Drawer 25008 Winston-Salem, North Carolina 27114-5008 Attention: George E. Hollodick Facsimile: (910)765-4830; if to First Healthcare, at: First Healthcare Corporation c/o The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Credit Portfolio Manager Facsimile: (206)502-3916 with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: General Counsel Facsimile: (206)502-3623 if to MediSave, at: MediSave Pharmacies, Inc. 10877 Reiger Road Baton Rouge, Louisiana 70821 Attention: Chief Executive Officer Facsimile: (504)296-5219 with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: General Counsel Facsimile: (206)502-3623. All such notices, requests, demands, directions, consents and other communications shall be deemed given (a) when given and receipted for (or upon the date of attempted delivery when delivery is refused), if sent via certified or registered mail, return receipt requested, via personal delivery or via express -69- courier or delivery service or (b) when received, if sent via telephone facsimile (confirmation of such receipt via confirmed telephone facsimile being deemed receipt). 7.03 Entire Agreement. This Agreement, the other Forbearance Documents, ---------------- the other MediSave Forbearance Documents, the Escrowed Documents, the Transaction Documents and the MediSave Transaction Documents constitute the entire agreement between and among the Forbearance Parties, the MidAmerica Parties, First Healthcare and MediSave with respect to the subject matter of this Agreement and supersede all prior agreements, understandings and negotiations, both written and oral, between and among the Forbearance Parties, the MidAmerica Parties, First Healthcare and MediSave with respect to the subject matter of this Agreement. No representation, warranty, inducement, promise, understanding or condition that is not set forth in this Agreement, any other Forbearance Document, any other MediSave Document, any Escrowed Document, any Transaction Document or any MediSave Transaction Document has been made or relied upon by any Forbearance Party, any MidAmerica Party, First Healthcare or MediSave. 7.04 No Waiver; Remedies Cumulative. The execution, delivery and ------------------------------ effectiveness of this Agreement shall not, except as expressly provided in this Agreement, (a) operate as a waiver of any power, right or remedy of First Healthcare under any Transaction Document or with respect to any Designated Default or any other event or condition which constitutes a breach of or a default under any Transaction Document, (b) constitute a waiver of any Designated Default or any other event or condition which constitutes a breach of or a default under any Transaction Document, (c) constitute a waiver of any provision of any Transaction Document, (d) operate as a waiver of any power, right or remedy of MediSave under any MediSave Transaction Document or with respect to any event or condition which constitutes a breach of or a default under any MediSave Transaction Document, (e) constitute a waiver of any event or condition which constitutes a breach of or a default under any MediSave Transaction Document or (f) constitute a waiver of any provision of any MediSave Transaction Document. No failure by any party to this Agreement to exercise, and no delay by any such party in exercising, any power, right or remedy under this Agreement shall operate as a waiver of such power, right or remedy, and no single or partial exercise of any such power, right or remedy shall preclude any other or further exercise of such power, right or remedy or the exercise of any other power, right or remedy. The rights and remedies provided in this Agreement, the other Forbearance Documents, the other MediSave Forbearance Documents, the Transaction Documents, the MediSave Transaction Documents and the Escrowed Documents shall be cumulative and not exclusive of any rights or remedies provided by law. Without limiting the -70- generality of the preceding provisions of this Section, except as expressly provided in this Agreement, First Healthcare expressly reserves all power, rights and remedies available to First Healthcare with respect to the Designated Defaults by agreement, at law, in equity or otherwise. 7.05 Costs and Expenses. First Healthcare and the Forbearance Parties ------------------ acknowledge and agree that the Default Costs and Expenses include, among other things, compensation paid or to be paid to the Escrow Agent by First Healthcare for and on behalf of (and at the request of) the Forbearance Parties pursuant to the Escrow Agreement and certain other costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred or to be incurred by First Healthcare in connection with the negotiation and preparation of the Forbearance Documents, the Escrowed Documents and the MediSave Forbearance Documents and the filing, recording and registration of the Forbearance Documents and the MediSave Forbearance Documents. Other than costs and expenses that are included in the Default Costs and Expenses which are payable as part of the Arrearages in accordance with Sections 3.06 and 3.07, all costs and expenses incurred in connection with the negotiation and preparation of the Forbearance Documents, the Escrowed Documents and the MediSave Forbearance Documents and the filing, recording and registration of the Forbearance Documents and the MediSave Forbearance Documents shall be paid by the party incurring such costs and expenses. Other than costs and expenses that are included in the Default Costs and Expenses which are payable as part of the Arrearages in accordance with Sections 3.06 and 3.07, the Partnerships, jointly and severally, agree to pay on demand all costs and expenses (including, but not limited to, reasonable fees and disbursements of attorneys) incurred by First Healthcare in connection with the enforcement (including, but not limited to, the acceptance, filing, recording and registration of the Escrowed Documents) after the date of this Agreement (whether through negotiations, legal proceedings or otherwise) of the Transaction Documents, the Forbearance Documents, the Escrowed Documents and the other documents to be delivered under the Forbearance Documents and the Escrowed Documents. Without limiting the generality of the preceding provisions of this Section, if any action or proceeding (including, but not limited to, any arbitration or mediation) is commenced to enforce or interpret this Agreement, any other Forbearance Document or any other MediSave Forbearance Document, the prevailing party shall be entitled to recover from the nonprevailing party the costs and expenses of maintaining such action or proceeding, including, but not limited to, reasonable fees and disbursements of attorneys incurred before such action or proceeding is commenced, and before, during and after any trial, arbitration or mediation, and on any appeal, whether the action or proceeding is at law, in equity or in a bankruptcy case or proceeding. -71- 7.06 Consent to Jurisdiction. Each Forbearance Party and each MidAmerica ----------------------- Party hereby irrevocably submits to the jurisdiction of any court of the state of Washington or any federal court of the United States of America for any district of the state of Washington, and any appellate court from any of such courts, in any action or proceeding arising from or by reason of, or otherwise relating to, this Agreement, any other Forbearance Document, any other MediSave Forbearance Document, any Transaction Document and any MediSave Transaction Document, and each Forbearance Party and each MidAmerica Party hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court of the state of Washington or in such federal court of the United States of America for any district of the state of Washington. Each Forbearance Party and each MidAmerica Party, to the fullest extent permitted by applicable law, hereby irrevocably waives the defense of an inconvenient forum to the maintenance of such action or proceeding. Each Forbearance Party and each MidAmerica Party hereby irrevocably appoints Blanco Tackabery Combs & Matamoros, P.A. (the "Process Agent"), as such Forbearance Party's or such MidAmerica Party's agent, to receive on behalf of such Forbearance Party and its property or such MidAmerica Party and its property, as the case may be, service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to such Forbearance Party or such MidAmerica Party, as the case may be, in care of the Process Agent at Stratford Executive Park, 215 Executive Park Boulevard, Winston-Salem, North Carolina 27103-1594 or P.O. Drawer 25008, Winston-Salem, North Carolina 27114-5008, and each Forbearance Party and each MidAmerica Party hereby irrevocably authorizes and directs the Process Agent to accept such service on behalf of such Forbearance Party and its property or such MidAmerica Party and its property, as the case may be. As an alternative method of service, each Forbearance Party and each MidAmerica Party also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to such Forbearance Party or such MidAmerica Party, as the case may be, at its address specified in Section 7.02. Each Forbearance Party and each MidAmerica Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the right of First Healthcare or MediSave to serve legal process in any other manner permitted by law or shall affect the right of First Healthcare or MediSave to bring any action or proceeding against any Forbearance Party, any MidAmerica Party or any property of any Forbearance Party or any MidAmerica Party in the courts of any other jurisdictions. -72- 7.07 Binding Effect. This Agreement shall become effective upon the -------------- satisfaction (or the waiver in writing in whole or in part by First Healthcare in its sole discretion) of the applicable conditions to effectiveness set forth in Article IV, and thereafter (a) shall be binding upon First Healthcare, MediSave, each Forbearance Party, each MidAmerica Party and the respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of First Healthcare, MediSave, each Forbearance Party and each MidAmerica Party, (b) shall inure to the benefit of and be enforceable by First Healthcare, MediSave, each Forbearance Party, each MidAmerica Party and the respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of First Healthcare, MediSave, each Forbearance Party and each MidAmerica Party and (c) with respect to Sections 2.03 and 2.04, also shall inure to the benefit of and be enforceable by First Healthcare, Hillhaven, MediSave, First Rehab, the respective subsidiaries and affiliates of First Healthcare, Hillhaven, MediSave and First Rehab, the respective directors, officers, employees, insurers, agents and representatives of First Healthcare, Hillhaven, MediSave, First Rehab and their respective subsidiaries and affiliates, and all of their respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns; provided that neither any Forbearance Party nor any -------- MidAmerica Party shall have any right to assign any of its rights under or any interest in, or to delegate any duty or obligation under, this Agreement, any other Forbearance Document, any other MediSave Forbearance Document, any Transaction Document or any MediSave Transaction Document. Except as provided in the preceding sentence, no Persons other than First Healthcare, MediSave, each Forbearance Party, each MidAmerica Party and the respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns of First Healthcare, MediSave, each Forbearance Party and each MidAmerica Party shall have any right or remedy under, or any interest in, this Agreement. The Forbearance Parties, the MidAmerica Parties and MediSave acknowledge that First Healthcare may be acquired by or merged or consolidated with or into another Person and that, from and after the consummation of any such acquisition by or merger or consolidation with or into such other Person, such other Person shall have all of the rights, remedies and benefits of First Healthcare under this Agreement, the other Forbearance Documents and the Transaction Documents, including, but not limited to, the right to request and receive Escrowed Documents from the Escrow Agent and to exercise and enforce all of the other rights and remedies of First Healthcare under this Agreement, the other Forbearance Documents and the Transaction Documents. -73- 7.08 Severability. Any provision of this Agreement that is prohibited or ------------ unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 7.09 Captions. The headings of the Articles, Sections, subsections, -------- paragraphs and other divisions of this Agreement are included for convenience of reference only, and shall not in any way limit or affect the construction or interpretation of any provision of this Agreement. 7.10 Survival. The Obligations, the MidAmerica Obligations and the -------- representations, warranties and covenants of the parties to this Agreement, the Transaction Documents, the MediSave Transaction Documents, the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents shall survive the execution and delivery of this Agreement, the other Forbearance Documents, the other MediSave Forbearance Documents and the Escrowed Documents and the termination of the Forbearance Period. 7.11 Execution in Counterparts. This Agreement may be executed in any ------------------------- number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement via telephone facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. 7.12 Governing Law. This Agreement shall be governed by, and construed ------------- in all respects in accordance with, the laws of the State of Washington, without regard to the conflicts of law rules of such state. 7.13 Waiver of Jury Trial. EACH FORBEARANCE PARTY AND EACH MIDAMERICA -------------------- PARTY HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES SUCH FORBEARANCE PARTY'S OR SUCH MIDAMERICA PARTY'S RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF OR RELATING TO ANY OF THIS AGREEMENT, ANY OTHER FORBEARANCE DOCUMENT, ANY OTHER MEDISAVE FORBEARANCE DOCUMENT, ANY ESCROWED DOCUMENT, ANY TRANSACTION DOCUMENT, ANY MEDISAVE TRANSACTION DOCUMENT, ANY OF THE OBLIGATIONS, ANY OF THE MIDAMERICA OBLIGATIONS, ANY OTHER DOCUMENTS AND AGREEMENTS RELATING TO ANY OF THE OBLIGATIONS OR ANY OF THE MIDAMERICA OBLIGATIONS, OR THE ACTIONS OF FIRST HEALTHCARE OR MEDISAVE IN THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT -74- OF THIS AGREEMENT, ANY OTHER FORBEARANCE DOCUMENT, ANY OTHER MEDISAVE FORBEARANCE DOCUMENT, ANY ESCROWED DOCUMENT, ANY TRANSACTION DOCUMENT, ANY MEDISAVE TRANSACTION DOCUMENT, ANY OF THE OBLIGATIONS, ANY OF THE MIDAMERICA OBLIGATIONS, OR ANY OTHER DOCUMENTS AND AGREEMENTS RELATING TO ANY OF THE OBLIGATIONS OR ANY OF THE MIDAMERICA OBLIGATIONS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, EXTENSIONS, RENEWALS OR OTHER MODIFICATIONS OF ANY OF THIS AGREEMENT, ANY OTHER FORBEARANCE DOCUMENT, ANY OTHER MEDISAVE FORBEARANCE DOCUMENT, ANY ESCROWED DOCUMENT, ANY TRANSACTION DOCUMENT, ANY MEDISAVE TRANSACTION DOCUMENT, ANY OF THE OBLIGATIONS, ANY OF THE MIDAMERICA OBLIGATIONS, OR ANY OTHER DOCUMENT OR AGREEMENT RELATING TO ANY OF THE OBLIGATIONS OR ANY OF THE MIDAMERICA OBLIGATIONS. 7.14 Oral Agreements Unenforceable. ORAL AGREEMENTS OR ORAL COMMITMENTS ----------------------------- ----------------------------------- TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT - ------------------------------------------------------------------------------ ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. - ---------------------------------------- IN WITNESS WHEREOF, the Partnerships, the Guarantors, the General Partner, MidAmerica, First Healthcare and MediSave have executed this Agreement as of the date first above written. (Partnerships) MEADOWBROOK MANOR OF AVA LIMITED MEADOWBROOK MANOR OF BALLWIN PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By ----------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title:----------------------- MEADOWBROOK MANOR BLUE HILLS OF MEADOWBROOK MANOR OF BUFFALO KANSAS CITY LIMITED PARTNERSHIP I LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- -75- MEADOWBROOK MANOR OF CHANUTE MEADOWBROOK MANOR OF CLINTON LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By --------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: --------------------- MEADOWBROOK MANOR COLONIAL MEADOWBROOK MANOR OF COLUMBIA TERRACE OF INDEPENDENCE LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] By -------------------------- [SIGNATURE ILLEGIBLE] [ILLEGIBLE] By -------------------------- Title: ------------------- [ILLEGIBLE] Title: ------------------- MEADOWBROOK MANOR OF COUNCIL MEADOWBROOK MANOR OF CRANE GROVE LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- MEADOWBROOK MANOR OF DES PERES MEADOWBROOK MANOR OF HAYSVILLE LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- -76- MEADOWBROOK MANOR OF JEFFERSON MEADOWBROOK MANOR OF JOPLIN LIMITED PARTNERSHIP LIMITED PARTNERSHIP I By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- MEADOWBROOK MANOR OF JOPLIN MEADOWBROOK MANOR OF KIMBERLING LIMITED PARTNERSHIP II CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title:-------------------- Title: ------------------- MEADOWBROOK MANOR RESIDENTIAL OF MEADOWBROOK MANOR OF LAMAR KIMBERLING CITY LIMITED LIMITED PARTNERSHIP PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] By -------------------------- [SIGNATURE ILLEGIBLE] [ILLEGIBLE] By -------------------------- Title: ------------------- [ILLEGIBLE] Title:-------------------- MEADOWBROOK MANOR OF LARNED MEADOWBROOK MANOR OF MARCELINE LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- -77- MEADOWBROOK MANOR OF SEDGWICK MEADOWBROOK MANOR OF SHADY OAKS LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- MEADOWBROOK MANOR OF SPRINGFIELD MEADOWBROOK MANOR OF ST. CHARLES LIMITED PARTNERSHIP LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- MEADOWBROOK MANOR OF TOPEKA MEADOWBROOK MANOR WORNALL OF LIMITED PARTNERSHIP KANSAS CITY LIMITED PARTNERSHIP By MEADOWBROOK MANOR OF KANSAS & By MEADOWBROOK MANOR OF KANSAS & MISSOURI, INC., General MISSOURI, INC., General Partner Partner [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------- By -------------------------- [ILLEGIBLE] [ILLEGIBLE] Title: ------------------- Title: ------------------- (Guarantors) /s/ Don G. Angell /s/ Daniel D. Mosca - ------------------------------- -------------------------------- Don G. Angell, individually Daniel D. Mosca, individually (General Partner) (MidAmerica) MEADOWBROOK MANOR OF KANSAS & MIDAMERICA PHARMACIES LIMITED MISSOURI, INC. PARTNERSHIP [SIGNATURE ILLEGIBLE] By ----------------------------- By MEADOWBROOK MANOR OF KANSAS & [ILLEGIBLE] MISSOURI, INC., General Title: ---------------------- Partner [SIGNATURE ILLEGIBLE] By ----------------------------- [ILLEGIBLE] Title: --------------------- -78- (First Healthcare) (MediSave) FIRST HEALTHCARE CORPORATION MEDISAVE PHARMACIES, INC. [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] By -------------------------------- By ----------------------------- Credit Portfolio Manager Vice President Title: ------------------------- Title: ---------------------- -79- EX-10.53 46 LETTER OF INTENT EXHIBIT 10.53 June 22, 1993 Mr. Maris Andersons Executive Vice President and Treasurer National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Dear Maris: I am writing to confirm our understanding and agreement regarding the terms and conditions pursuant to which certain of the various agreements between National Medical Enterprises, Inc. and certain of its Subsidiaries (collectively, "NME") and The Hillhaven Corporation and certain of its subsidiaries (collectively, "Hillhaven") will be amended or cancelled. A. Present Status of Relationship. NME and Hillhaven participate in the ------------------------------ following arrangements: 1. Leased Buildings. First Healthcare Corporation ("FHC") lease: or ---------------- subleases the 23 facilities set forth on Exhibit A (the "Leased --------- Facilities") from NME, pursuant to individual leases each dated as of January 26, 1990, as amended by that certain Omnibus Amendment to Leases dated as of April 1, 1992, and as further amended by that certain Second Omnibus Amendment to Leases dated as of November 12, 1992, and as individual Leases may have been amended from time to time (as so amended, the "Leases"). 2. Obligation to Finance Purchase of Leased Facilities. Pursuant to --------------------------------------------------- that certain Master Loan Agreement dated as of April 1, 1992, as amended by that certain First Amendment to Master Loan Agreement dated as of November 12, 1992 (as amended the "Master Loan Agreement"), NME has agreed to provide 100% financing of the purchase price if NME requires FHC to acquire the Leased Facilities pursuant to the terms of the Leases. Mr. Maris Andersons June 22, 1993 Page 2 3. Loans Made With Respect to Certain Previously Leased Facilities. --------------------------------------------------------------- Pursuant to the Master Loan Agreement, NME has financed a portion of FHC's acquisition of the 28 facilities listed on Exhibit B. The --------- financing with respect to each such facility is evidenced by a promissory note and a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixtures Filing or a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing. Pursuant to its Guaranty dated as of April 1, 1992, Hillhaven has guaranteed the obligations of FHC with respect to the Master Loan Agreement and each loan made thereunder. The outstanding balance owed by Hillhaven to NME pursuant to such financing is approximately $92,200,000, plus accrued interest. 4. Obligation to Finance Certain Previously Leased Facilities. ---------------------------------------------------------- Pursuant to that certain letter agreement dated May 31, 1990, as amended by that certain Amendment No. One to Commitment Letter dated as of May 1, 1991 (as amended, the Commitment Letter"), NME agreed to loan not in excess of $22.5 million with respect to the purchase by FHC of the five facilities set forth on Exhibit C. Pursuant to the --------- Commitment Letter, FHC has borrowed from NME approximately $6,000,000 with respect to the purchase of Clayton House (No. 445). In addition, NME has provided "wrap" financing in the amount of $1,452,626.43 with respect to the purchase of Greenbriar Terrace (No. 592) and $893,194.45 with respect to the purchase of Birchwood Terrace (No. 559). 5. Promissory Note/Note Guarantee Agreement. Pursuant to that ---------------------------------------- certain Promissory Note dated January 31, 1990, as amended by that certain First Amendment to Promissory Note dated as of May 1, 1991 (as amended, the "Promissory Note"), NME loaned FHC the original principal amount of $135,859,396. As of the date hereof, the principal amount of the Promissory Mr. Maris Andersons June 22, 1993 Page 3 Note is $49,059,396, plus accrued interest; no amounts are outstanding with respect to the $18 million of the Promissory Note that was converted to a revolving credit facility. Pursuant to that certain Note Guarantee Agreement dated as of January 31, 1990, Hillhaven agreed to guarantee FHC's obligations under the Promissory Note. 6. Revolving Credit and Term Loan Agreement. Pursuant to that ---------------------------------------- certain Revolving Credit and Term Loan Agreement dated as of January 31, 1990, as amended by that certain First Amendment to Revolving Credit and Term Loan Agreement dated as of November 12, 1992 (as amended, the "Credit Agreement"), NME agreed to loan Hillhaven up to $50 million. 7. Guarantee Reimbursement Agreement. Pursuant to that certain ---------------------------------- Guarantee Reimbursement Agreement dated as of January 31, 1990, as amended by amendments thereto dated as of October 30, 1990, May 30, 1991, October 2, 1991, April 1, 1992, November 12, 1992, February 19, 1993 and two amendments each dated May 28, 1993 (as amended, the "Guarantee Reimbursement Agreement"), Hillhaven agreed to pay NME a fee with respect to the "Obligations" (as defined therein) and to reimburse NME for any payments NME is required to make with respect to the Obligations. Certain of the Obligations represent rental payments with respect to facilities which NME leases or subleases from third parties and as to which NME assigned a portion of its leasehold interest to FHC, but did not assign all of the renewal or purchase options contained in such leases or subleases. Exhibit D sets forth --------- those facilities leased from third parties where NME or Hillhaven leased, subleased or assigned its leasehold interest to other third parties, including NME's renewal and/or purchase option with respect thereto, but where NME did not assign to FHC such renewal and/or purchase options Mr. Maris Andersons June 22, 1993 Page 4 (the "Third Party Leased Facilities"). 8. Common Stock Ownership. As of the date hereof, NME owns ---------------------- 14,390,737 shares of Hillhaven's Common Stock. 9. Series C Preferred Stock Ownership. As of the date hereof, NME ---------------------------------- owns 35,000 shares of Hillhaven's Series C Preferred Stock. 10. Warrants. As of the date hereof, NME owns warrants (the -------- "Warrants") to purchase 30 million shares of Hillhaven's Common Stock. Pursuant to that certain Warrant and Registration Rights Agreement dated as of January 30, 1990, Hillhaven agreed to register the shares covered by the Warrants under the terms and conditions set forth therein. 11. Management Agreements. Pursuant to Management Agreements, each --------------------- dated as of January 31, 1990, Hillhaven manages on behalf of NME the seven facilities set forth on Exhibit E. --------- 12. Miscellaneous Agreements. Hillhaven and NME have entered into ------------------------ the following agreements each dated as of January 31, 1990: a. Employee and Employee Benefits Agreement; b. Government Programs Agreement; c. Insurance Agreement; d. Services Agreement; and e. Tax Sharing Agreement. B. Agreement to Restructure Arrangements. NME and Hillhaven have agreed ------------------------------------- to make significant changes to a Mr. Maris Andersons June 22, 1993 Page 5 number of the aforesaid agreements. Such changes are being made for the benefit of both parties after significant negotiations for the purposes of: (1) allowing FHC to purchase the Leased Facilities; (2) paying off all debt owed by FHC to NME; (3) removing NME from liability with respect to a significant portion (approximately $400,000,000) of the Obligations; (4) capping Hillhaven's maximum guaranty fee on the Obligations under the Guarantee Reimbursement Agreement; and (5) relieving NME of it. loan commitments to Hillhaven. In particular, we have agreed to the following actions: 1. Purchase of Leased Facilities. FHC shall purchase the Leased ----------------------------- Facilities at an aggregate $23.6 million discount off the aggregate option amount of $135,400,000 (as set forth in Exhibit A hereto), to --------- be allocated among the Leased Facilities as the parties shall mutually agree. Pending the consummation of the transactions set forth herein, NME shall not exercise its options under the Leases to require FHC to purchase any of the Leased Facilities. NME shall pay any prepayment penalty or similar charge payable with respect to the payoff of third party debt on the Leased Facilities. 2. Pay Off Debt. FHC shall repay all debt which it currently owes ------------ to NME including interest thereon. This debt includes loans made pursuant to the Master Loan Agreement (with an aggregate balance of approximately $92.200,000 as of June 1, 1993), the Promissory Note (with a balance of approximately $49,100,000 as of June 1, 1993) and loans made with respect to Clayton House (No. 445), Birchwood Terrace Healthcare (No. 559) and Greenbriar Terrace Healthcare (No. 592). NME shall pay any prepayment penalty or similar charge payable with respect to the payoff of third party debt of Birchwood Terrace Healthcare and Greenbriar Terrace Healthcare. Mr. Maris Andersons June 22, 1993 Page 6 3. Release of Obligations to Provide Financing. NME shall be -------------------------------------------- released from its obligation to provide any further financing to FHC under the Credit Agreement, the Master Loan Agreement, the Promissory Note or the Commitment Letter and any other commitments by NME to provide financing to Hillhaven. Pending consummation of the transactions set forth herein, Hillhaven shall not borrow from NME any additional amounts under these financing arrangements. 4. Series D Preferred Stock. Hillhaven shall issue to NME, and NME ------------------------ shall purchase from Hillhaven, shares (representing $120 million) of a newly created Series D Preferred Stock. Such Series D Preferred Stock shall (a) be non-voting; (b) be redeemable by Hillhaven at any time for cash; (c) be redeemed by Hillhaven at any time at NME's request to fund NME's exercise of all, but not less than all, of the Warrants; (d) shall be redeemed by Hillhaven at NME's request at any time following the occurrence of a "Designated Event" (as defined in the Promissory Note) unless such Designated Event occurs on account of a transfer by NME of any of its equity interest in Hillhaven; and (e) provide for dividends "payable-in-kind" in Series D Preferred Stock ("PIK"), at the rates (compounded annually) of: 6.5% from the date of issuance through August 31, 1994; 5.5% from September 1, 1994 through August 31, 1995; 4.5% from September 1, 1995 through August 31, 1996; and 4% thereafter; provided, however, that dividends there for shall -------- ------- be paid quarterly in cash commencing on the earlier to occur (the "Conversion Date") of (i) the sixth anniversary of the closing of the Bank Financing (as defined below) or (ii) three months after the stated initial maturity of the Bank Financing; provided further, -------- ------- however, that upon NME's exercise of all, but not less than all, of ------- the Warrants, the rate in effect at such time shall be fixed as the rate Mr. Maris Andersons June 22, 1993 Page 7 applicable to the remaining Series D Preferred Stock (including PIK dividends) thereafter; provided further, however, that in the event -------- ------- ------- that NME has not exercised all of the Warrants by the Conversion Date, the annual dividend payable on and after the Conversion Date shall be paid in cash up to $5,745,000, and then any remainder shall be paid in PIK preferred stock. 5. Amendment to Guarantee Reimbursement Agreement. The Guarantee ---------------------------------------------- Reimbursement Agreement shall be amended to provide: (a) when any Obligations are paid off in full with proceeds from the Financing (as defined below), the fee payable with respect to those Obligations that have been paid off during the fiscal year ending May 31, 1994 with proceeds from the Financing shall be prorated to the date of payoff; (b) that, commencing with the first quarter following completion of the Financing, the amount of Obligations shall be calculated quarterly, at the end of each quarter, instead of annually, for the purpose of determining the fee payable by Hillhaven for the following quarter thereunder; and (c) that the maximum guarantee fee payable by Hillhaven is two percent (2%) per annum of the Obligations. 6. Third Party Leased Facilities. With respect to the Third -------------------------------- Party Leased Facilities, NME shall assign to FHC its renewal and/or purchase options under such underlying leases (along with the leases for any facilities which are part of a "basket" to which such Third Party Leased Facilities belong). Such assignments, however, shall restrict FHC's ability to exercise such renewal and/or purchase options unless required to do so (a) as a result of the exercise of any of such options by a sublessee or assignee of any of such Third Party Leased Facilities, or (b) in order to comply with the terms of the subleases or assignments to such sublessees or Mr. Maris Andersons June 22, 1993 Page 8 assignees. Such assignments shall also prohibit FHC from further assignments of such options to third parties. The Guarantee Reimbursement Agreement shall be further amended to provide that in the event that FHC or its sublessee or assignee exercises any of such renewal options, then the rents during the period of such renewal shall be deemed to be part of the Obligations as of the date of exercise. 7. Repayment of Certain Guaranteed Obligations. Hillhaven shall ------------------------------------------- in the case of the industrial development bond financings referred to in clause (e) below shall use its best efforts to cause within a reasonable period following the closing of the Financing, the following obligations to be repaid (or otherwise cause NME to be effectively removed from liability or financial responsibility with respect to): a. THC Facilities financing; b. Hillhaven's portion of the MP Funding financing; c. Third party debt with respect to Hillhaven's Performance Investment Plan; d. Hillhaven's accounts receivable financing; and e. Industrial development bond financing set forth in Exhibit F. --------- 8. Series C Preferred Stock. The Series C Preferred Stock will be ------------------------ amended: (a) to permit the issuance of PIK dividends and the accrual of cash dividends on the Series D Preferred Stock, and redemption of the Series D Preferred Stock if NME requests the redemption to fund its exercise of all the Warrants, even if the Mr. Maris Andersons June 22, 1993 Page 9 dividends on the Series C Preferred Stock are in arrears; and (b) to provide that the Series C Preferred Stock shall be redeemed by Hillhaven at NME's request at any time following the occurrence of a "Designated Event" (as defined in the Promissory Note). Hillhaven will not use the proceeds from the Financing (as defined below) or the proceeds from sale of the Series D Preferred Stock to redeem any of the shares of the Series C Preferred Stock. C. Conditions to Effectiveness. The foregoing changes will only be --------------------------- effective upon completion of the actions required under Section B (excluding, however, the actions set forth under Section B(7)(e), as to which Hillhaven shall be obligated to use its best efforts to complete such actions within a reasonable period following the closing of the Financing) of this Agreement and satisfaction of each of the following conditions: 1. The transactions shall be approved by the Boards of Directors or committees of the Boards of Directors of NME and Hillhaven. 2. Hillhaven shall obtain satisfactory third party bank financing in the approximate amount of $400 million (the "Bank Financing"). 3. Hillhaven shall successfully complete a public or private debt financing in the approximate amount of $175 million (the "High Yield Financing;" the Bank Financing and the High Yield Financing being collectively referred to as the "Financing"). 4. FHC shall obtain regulatory and other consents and approvals necessary to acquire the Leased Facilities. 5. Appropriate documents satisfactory to NME and Hillhaven shall be prepared and executed evidencing the transactions. Mr. Maris Andersons June 22, 1993 Page 10 In the event that any of the foregoing conditions cannot be satisfied for any reason or any of the actions required under Section B of this Agreement are not completed by November 1, 1993, neither party shall have any liability to the other and all obligations hereunder shall cease. D. Effect on Agreements. Except as provided for in this letter, each of -------------------- the agreements between NME and Hillhaven shall remain unmodified and in full force and effect. E. Expenses. Each party shall bear its own costs and expenses in -------- connection with the transaction contemplated in this letter. F. Disclosure of Transactions. NME and Hillhaven must approve the form -------------------------- and content of any public statement or press release concerning these transactions, whether in writing or verbally, prior to the release or issuance thereof. G. Cooperation. The parties agree to execute and deliver such other ----------- documents and instruments and do all such other acts and things as may be reasonably required to give effect to the agreements contained in this letter. H. Modification; Governing Law. No amendment or modifications of this --------------------------- letter shall be effective unless in writing signed by the parties. This letter shall be governed by and construed in accordance with California law. Please indicate your agreement with the forgoing agreement by executing the enclosed duplicate copy of this letter where indicated below and returning it to my attention. This letter may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. Very truly yours THE HILLHAVEN CORPORATION By [SIGNATURE NOT LEGIBLE] ------------------------ Senior Vice President Mr. Maris Andersons June 22, 1993 Page 11 FIRST HEALTHCARE CORPORATION By:[SIGNATURE NOT LEGIBLE] ------------------------- Senior Vice President Accepted and agreed this 22 day of June, 1993. NATIONAL MEDICAL ENTERPRISES, INC. By: ______________________________ NME PROPERTIES CORP. By: ______________________________ NME PROPERTIES, INC. By: ______________________________ NORTHWEST CONTINUUM CARE CENTER, INC. By: ______________________________ Mr. Maris Andersons June 22, 1993 Page 12 By:____________________________ FIRST HEALTHCARE CORPORATION By: ___________________________ Accepted and agreed this 22nd day of June, 1993. ---- ---- NATIONAL MEDICAL ENTERPRISES, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President NME PROPERTIES CORP. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President NME PROPERTIES, INC By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President Mr. Maris Andersons June 22, 1993 Page 13 NORTHWEST CONTINUUM CARE CENTER, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President FLAGG INDUSTRIES, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President NME PROPERTY HOLDING CO., INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President NME PROPERTIES WEST, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President GUARDIAN MEDICAL SERVICES, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President NME ARIZONA, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President SEDGEWICK CONVALESCENT CENTER, INC By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President HAMMOND HOLIDAY HOME By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President Mr. Maris Andersons June 22, 1993 Page 14 LAKE HEALTH CARE FACILITIES, INC. By:[SIGNATURE NOT LEGIBLE] ------------------------------- Senior Vice President EXHIBIT A ---------
No. Facility Name Option Price - ----- ------------- ------------ 116 Hillhaven Rehab. & Conv. Center 4,300,000 Durham, North Carolina 117 East Manor Medical Care Center 5,700,000 Sarasota, Florida 149 Fair Oaks Healthcare Center 6,600,000 Fair Oaks, California 150 Hillhaven/San Francisco 12,100,000 San Francisco, California 180 Hillhaven Convalescent Center 3,300,000 Vancouver, Washington 286 Columbia Nursing Plaza 7,300,000 Evansville, Indiana 416 Park Place Hillhaven Conv. Center 7,800,000 Great Falls, Montana 436/437 Valley House Healthcare/Apts. 4,000,000 Tucson, Arizona 563 Camelot Nursing Home 1,800,000 New London, Connecticut 565 Hamilton Pavilion Healthcare 2,900,000 Norwich, Connecticut 566 Hillhaven of Windsor 2,700,000 Windsor, Connecticut 568 Parkway Pavilion Healthcare 3,000,000 Enfield, Connecticut 572 Winchester Place 7,400,000* Canal Winchester, Ohio 707 Guardian Care of Monroe 5,800,000 Monroe, North Carolina 738 Hillhaven, Alameda, California 7,300,000 770 Vallhaven Care Center 5,800,000 Neenah, Wisconsin 783 Lexington Manor Health Care 6,100,000 Lexington, Kentucky 802 Hillhaven Convalescent Center 6,900,000 Akron, Ohio 806 Hillhaven Convalescent Center 7,000,000 Chapel Hill, North Carolina
____________________ * Sale evidenced by assignment of sublease and all options and rights to purchase of NME, as to Canal Winchester I, and deed conveying fee interest in Canal Winchester II
818 Hillhaven, Little Rock, Arkansas 4,500,000 826 Hillhaven Rehab & Conv. Center 5,200,000 836 Medicenter/Tampa 5,000,000 Tampa, Florida 851/852 Villa Campana Health Center/ 12,900,000 Retirement, Tucson, Arizona ------------ 135,400,000
-2- Exhibit A Exhibit B ---------
No. Facility Name --- ------------- 1. 593 Hanover Terrace, Hanover, New Hampshire 2. 779 Westview Manor, Bedford, Indiana 3. 145 Reno Healthcare, Reno, Nevada 4. 433 Parkview Acres, Dillon, Montana 5. 462 Queen Anne, Seattle, Washington 6. 481 Park Manor, Rawlins, Wyoming 7. 483 Sage View, Rock Springs, Wyoming 8. 767 Colony-Oaks, Appleton, Wisconsin 9. 859 Castle Garden, Northglenn, Colorado 10. 203 Hillhaven-Willow Pass, Concord, California 11. 420 Maywood Acres, Oxnard, California 12. 125 Titusville, Titusville, Florida 13. 136 Hillhaven-LaSalle, Durham, North Carolina 14. 842 Medicenter-Virginia Beach, Virginia Beach, Virginia 15. 706 Guardian Care of Henderson, Henderson, North Carolina 16. 711 Guardian Care of Kinston, Kinston, North Carolina 17. 713 Guardian Care of Zebulon, Zebulon, North Carolina 18. 114 Arden Nursing Home, Seattle, Washington 19. 115 Palm Beaches, West Palm Beach, Florida 20. 155 Savannah Convalescent, Savannah, Georgia 21. 158 Bellingham Care, Bellingham, Washington 22. 188 Hillhaven Rehab, Wilmington, North Carolina 23. 191 Silas Creek, Winston-Salem, North Carolina 24. 320 Hillhaven Convalescent, Burlingame, California 25. 427 Twin Pines, Santa Paula, California 26. 645 Hillhaven Rehab, Marietta, Georgia 27. 690 Wasatch Villa, Salt Lake City, Utah 28. 727 Brookvue Convalescent, San Pablo, California
Exhibit B Exhibit C ---------
No. Facility Name - ---- ------------- 445 Clayton House, Ballwin, Missouri 559 Birchwood Terrace, Burlington, Vermont 591 Dover House, Dover, New Hampshire 592 Greenbriar Terrace, Nashua, New Hampshire 822 Memphis-Hillhaven Convalescent, Memphis, Tennessee
Exhibit C Exhibit D ---------
No. Facility Name - --- ------------- 272 Hughes Springs Nursing Home Hughes Springs, Texas 273 Pinecrest Convalescent Home Daingerfield, Texas 274 Coastal Care Center Texas City, Texas 275 Great Southwest Convalescent Center Grand Prairie, Texas 292 Twin City Nursing Home Gas City, Indiana 298 Driftwood Convalescent Hospital Yuba City, California 299 Marysville Convalescent Hospital Marysville, California 305 University Nursing Center Upland, Indiana 880 Four States Nursing Home Texarkana, Texas 881 Southwest Senior Care Center Las Vegas, New Mexico
Exhibit D Exhibit E ---------
No. Facility Name - --- ------------- 902 Alvarado Convalescent, San Diego, California 974 J.D. French Center, Los Alamitos, California 169 Menorah House, Palm Beach, Florida 815 Del Ray Beach, Del Ray Beach, Florida 978 Northshore Living Center, Slidell, Louisiana 993 Brookhaven Nursing Center, Carrollton, Texas 990 Jo Ellen Smith, New Orleans, Louisiana
Exhibit E Exhibit F ---------
Original Principal Facility No./Name Letter of Credit Amount ----------------- ---------------- ----------- 1. 322 Meadowview Wachovia 842,000 2. 324 Spring Valley Wachovia 1,355,000 3. 325 Glenwood Wachovia 985,000 4. 501 Blue Hills Wachovia 889,000 5. 503 Brigham Manor Wachovia 743,000 6. 507 Country Manor Wachovia 1,518,000 7. 508 Crawford House Wachovia 1,280,000 8. 509 Crestwood Wachovia 900,000 9. 513 Hallmark Wachovia 1,100,000 10. 514 Forge Pond Wachovia 1,116,000 11. 516 Hammersmith Wachovia 492,000 12. 517 Oakwood Wachovia 1,130,000 13. 518 Timberlyn Wachovia 885,000 14. 521 Sandalwood Wachovia 875,000 15. 581 Blueberry Hill Wachovia 2,025,000 16. 853 Kachina Point (7/93) Wachovia 4,230,000** 17. 982 Village Square Wachovia 4,410,000 ----------- Subtotal 24,775,000 18. 7100 Campana del Rio Swiss Bank 10,750,000 19. 7105 Kachina Point Swiss Bank 6,200,000 20. 7125 Castle Gardens Swiss Bank 5,000,000 21. 7185 Crosslands Swiss Bank 5,900,000 ----------- Subtotal 27,850,000 22. 350 Valley Gardens Bank Cal 3,580,000 23. 981 Foothill Bank Cal 4,265,000 ----------- Subtotal 7,845,000
Exhibit F ____________________ **The Bonds with respect to this facility will be refunded under the Wachovia program in July 1993.
Original Principal Facility No./Name Letter of Credit Amount ----------------- ---------------- ----------- 24. 922 Windsor Woods Kredietbank 3,675,000 25. 955 Heritage Villa Kredietbank 3,130,000 26. 1106 Springfield Kredietbank 6,255,000 27. 7137 Woodhaven Kredietbank 9,500,000 28. 7165 Hearthstone Kredietbank 8,440,000 ---------- SUBTOTAL 31,000,000 29. 210 Californian Seafirst 4,900,000 30. 947 St. George Seafirst 2,700,000 31. Chico Seafirst 4,400,000 ---------- SUBTOTAL 12,000,000 TOTAL 103,470,000 ===========
Exhibit F -2- EX-10.54 47 AGREEMENT AND WAIVER Exhibit 10.54 AGREEMENT AND WAIVER This AGREEMENT AND WAIVER (this "Agreement") dated as of September 2, 1993, by and among National Medical Enterprises, Inc., a Nevada corporation ("NME"), the subsidiaries of NME which are signatories hereto, The Hillhaven Corporation, a Nevada corporation ("Hillhaven"), and First Healthcare Corporation, a Delaware corporation ("FHC"). WITNESSETH: WHEREAS, pursuant to that certain Revolving Credit and Term Loan Agreement dated as of January 31, 1990 between NME and Hillhaven, as amended by that certain First Amendment thereto dated as of November 12, 1992 (as amended, the "Revolving Credit Agreement"), NME agreed to make certain loans to Hillhaven through May 31, 1994 subject to the conditions set forth therein; and WHEREAS, pursuant to that certain Commitment Letter dated May 31, 1990, between NME and FHC, as amended by that certain Amendment No. One thereto dated as of May 1, 1991 (as amended, the "Commitment Letter"), NME agreed to make certain loans to FHC subject to the conditions set forth therein; and WHEREAS, pursuant to that certain Master Loan Agreement dated as of April 1, 1992 among the lenders parties thereto, NME, FHC and Hillhaven, as amended by that certain First Amendment thereto dated as of November 12, 1992 (as amended, the "Master Loan Agreement"), the lenders which were parties thereto agreed to finance up to 100% of the purchase price of the facilities referred to therein; and WHEREAS, pursuant to that certain Guaranty dated as of April 1, 1992 from Hillhaven in favor of the lenders listed thereon (the "Master Loan Agreement Guaranty"), Hillhaven guaranteed the obligations of FHC under the Master Loan Agreement; and WHEREAS, pursuant to that certain Master Loan Agreement for Purchase of Nine Facilities dated as of June 1, 1992 among the lenders parties thereto and FHC (the "Second Master Loan Agreement"), the lenders which were parties thereto agreed to finance up to 100% of the purchase price of the facilities referred to therein; and WHEREAS, pursuant to that certain Guaranty dated as of June 1, 1992 from Hillhaven in favor of the lenders listed thereon (the "Second Master Loan Agreement Guaranty"), Hillhaven guaranteed FHC's obligations under the Second Master Loan Agreement; and WHEREAS, pursuant to that certain Promissory Note dated January 31, 1990 (the "Promissory Note") by FHC in favor of NME Properties Corp., a Tennessee corporation (formerly known as The Hillhaven Corporation), FHC owes certain monies to NME Properties Corp.; and WHEREAS, pursuant to that certain Note Guarantee Agreement dated as of January 31, 1990 among Hillhaven, NME and the payees identified therein (the "Note Guarantee Agreement"), Hillhaven guaranteed FHC's obligations under the Promissory Note; and WHEREAS, Hillhaven is restructuring its relationship with NME to, inter alia, repay amounts owing to NME pursuant to the Master Loan Agreement, the Second Master Loan Agreement and the Promissory Note, and terminate NME's commitment to loan funds pursuant to the Revolving Credit Agreement and the Master Loan Agreement; and WHEREAS, in connection therewith the parties desire to eliminate NME's commitments under the Revolving Credit Agreement, and the Master Loan Agreement, and to terminate Hillhaven's obligations under the Master Loan Agreement Guaranty, Second Master Loan Agreement Guaranty and Note Guarantee Agreement; and WHEREAS, the aforesaid restructuring will be financed through (1) the issuance by Hillhaven to NME or its subsidiaries of $120 million of a newly created series of payable-in-kind preferred stock, (2) the incurrence by FHC of up to $360 million of indebtedness in the form of term loans, letters of credit and working capital loans under a secured credit facility with Morgan Guaranty Trust Company of New York and a syndicate of other lenders (the "Bank Financing"), (3) the sale by Hillhaven of senior subordinated notes in the approximate amount of $175 million (the "Notes"), (4) the extension of FHC's commercial paper program backed by certain of its (and certain of its subsidiaries') Medicaid accounts receivable and increase in permitted borrowings under such program from $30.0 million to $40.0 million and (5) the use of available cash; and WHEREAS, in connection with the Bank Financing, Hillhaven has transferred its bank accounts to FHC; and WHEREAS, pursuant to Sections 5(a), 5(b) and 5(i) of that certain Guarantee Reimbursement Agreement, as amended (as so amended, the "Guarantee Reimbursement Agreement"), Hillhaven agreed, inter alia, to certain covenants which may be violated as a result of the Bank Financing, the Notes and the transfer of bank accounts to FHC; NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto intending to be legally bound, hereby agree as follows: 1. Termination of Obligations to Lend. NME's obligations to loan funds to Hillhaven under the Revolving Credit Agreement, the Master Loan Agreement, the Second Master Loan Agreement, the Promissory Note and the Commitment Letter shall terminate as of the date hereof. 2. Termination of Guarantees. Hillhaven's obligations under the Master Loan Agreement Guaranty, Second Master Loan Agreement Guaranty and Note Guarantee Agreement shall terminate as of the date hereof. 3. Waiver. NME hereby waives compliance with the following provisions of the Guarantee Reimbursement Agreement: (a) Sections 5(a) and 5(b) of the Guarantee Reimbursement Agreement are hereby waived to the extent necessary to permit (i) the transactions contemplated by the Bank Financing, including the placement of mortgages on facilities owned by FHC or its subsidiaries, the substitution of facilities as collateral and any subsequent addition of collateral, and (ii) the issuance of the Notes. (b) Section 5(i) of the Guarantee Reimbursement Agreement is hereby waived to the extent necessary to permit Hillhaven to transfer any or all of its bank accounts to FHC. 4. Costs. Each party shall bear its own cost and expenses in connection with the transactions contemplated in this Agreement. 5. Cooperation. The parties agree to execute and deliver such other documents and instruments and do all such other acts and things as may be reasonably required to give effect to the agreements contained in this Agreement. 6. Amendment. No amendment or modifications of this Agreement shall be effective unless in writing signed by the parties. 7. Governing Law. This Agreement shall be governed by and construed in accordance with California law. 8. Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. 9. No Further Waiver. The waivers set forth herein shall be effective only for the specific purposes for which given. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date first set forth above. NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation By: /s/ Timothy Pullen Its: Vice President NME PROPERTIES CORP., a Tennessee corporation By: /s/ Timothy Pullen Its: Vice President NME PROPERTIES, INC., a Delaware corporation By: /s/ Timothy Pullen Its: Vice President NME PROPERTY HOLDING CO., INC., a Delaware corporation By: /s/ Timothy Pullen Its: Vice President NME PROPERTIES WEST, INC., a Delaware corporation By: /s/ Timothy Pullen Its: Vice President HAMMOND HOLIDAY HOME, INC., a Kansas corporation By: /s/ Timothy Pullen Its: Vice President SEDGWICK CONVALESCENT CENTER, INC., a Kansas corporation By: /s/ Timothy Pullen Its: Vice President NORTHWEST CONTINUUM CARE CENTER, INC., a Washington corporation By: /s/ Timothy Pullen Its: Vice President FLAGG INDUSTRIES, INC., a California corporation By: /s/ Timothy Pullen Its: Vice President GUARDIAN MEDICAL SERVICES, INC., a North Carolina corporation By: /s/ Timothy Pullen Its: Vice President NHE ARIZONA, INC., an Arizona corporation By: /s/ Timothy Pullen Its: Vice President LAKE HEALTH CARE FACILITIES, INC., a Delaware corporation By: /s/ Timothy Pullen Its: Vice President THE HILLHAVEN CORPORATION, a Nevada corporation By: /s/ Robert K. Schneider Its: Vice President & Treasurer FIRST HEALTHCARE CORPORATION a Delaware corporation By: /s/ Robert K. Schneider Its: Vice President & Treasurer EX-10.55 48 TRUST AGREEMENT EXHIBIT 10.55 TRUST AGREEMENT BETWEEN THE HILLHAVEN CORPORATION AND WACHOVIA BANK OF NORTH CAROLINA, N.A. AS TRUSTEE, FOR THE BENEFIT OF PARTICIPATING EMPLOYEES TRUST AGREEMENT made and entered into as of January 16, 1995 by and between The Hillhaven Corporation, a corporation organized under the laws of the State of Nevada (the "Company"), and Wachovia Bank of North Carolina, N.A., a national banking association, organized under the laws of the United States of America (the "Trustee"). WITNESSETH: WHEREAS, the Company has in place various non- qualified and qualified employee benefit plans and arrangements for the benefit of some or all of the employees of the Company and certain of its subsidiaries and affiliates and may from time to time adopt one or more additional plans or arrangements; WHEREAS, the Company and its subsidiaries or affiliates have and will have certain legal obligations under these employee benefit plans or arrangements; WHEREAS, the Company wishes to establish a trust to assist it in meeting certain of these obligations and intends to make contributions and/or loans to such trust at such time or times and in such amount or amounts as it may determine; WHEREAS, the Company intends that such contributions shall be held by the Trustee and used for the purpose of acquiring common stock of the Company and making payments with respect to loans used to acquire common stock of the Company all in accordance with the provisions of this Trust Agreement; WHEREAS, the Company intends that such loans made to the Trustee by the Company shall be used for the exclusive purpose of acquiring common stock of the Company in accordance with the provisions of this Trust Agreement; WHEREAS, inasmuch as the income and corpus of such trust may and will be applied in discharge of the legal obligations of the Company, its subsidiaries and affiliates, such trust is intended to be a "grantor trust" within the meaning of Section 671 of the Code; and WHEREAS, the Company intends that the assets of such trust at all times shall be subject to the claims of bankruptcy and other general creditors of the Company as provided in Section 17 of this Trust Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Trustee declare and agree as follows: SECTION 1 Definitions. As used in this Trust Agreement, the following definitions apply to the terms indicated below: 1.1 "Administrator" or "Administrators" shall refer to the committee, Company official(s) or other persons listed in Schedule A charged with responsibility for overseeing and administering the Plans and provision of Benefits. 1.2 "Affiliate" shall refer to any subsidiary or other firm related by direct or indirect stock ownership that has adopted a Plan while each such entity remains a subsidiary or related firm of the Company. 1.3 "Beneficiary" shall mean any person entitled to receive benefits under any Plan on the death of a Participant. 1.4 "Benefits" shall mean amounts that the Company or an Affiliate has an obligation to pay to Participants pursuant to any Plan or arrangement described in Schedule A under which the Company has a legal obligation to (i) pay from its general assets, (ii) provide for the payment of by making contributions from its general assets, or (iii) deliver in shares of Company Stock. 1.5 "Board of Directors" shall mean the Board of Directors of the Company. 1.6 "Change in Control" shall be deemed to occur if the Committee certifies to the Trustee that a "Change in Control" as defined in the 1990 Stock Incentive Plan has occurred or the occurrence of such a "Change in Control" is evidenced by a filing made pursuant to Section 13(d) of the Securities Exchange Act of 1934. 1.7 "Code" shall mean the Internal Revenue Code of 1986 as it may be amended from time to time. 1.8 "Committee" shall mean such committee as the Board of Directors shall appoint from time to time to administer the Trust. The Committee shall consist of at least three persons, including at all times the persons holding the title of: Vice President, Treasurer; General Counsel, Senior Vice President and Secretary; and the Senior Vice President and Chief Financial Officer. Other members of the Committee (if any) will be certified to the Trustee by the Secretary or Assistant Secretary of the Board of Directors. 1.9 "Company Stock" shall mean the common stock of the Company, par value $.75 per share. 1.10 "Daily Value" shall mean, with respect to a share of Company Stock, the closing reported sales price per share of Company Stock on the New York Stock Exchange Composite Tape, or if Company Stock is not traded on such stock exchange, the principal national securities exchange on which Company Stock is traded, or if not so traded, the mean between the highest bid and lowest asked quotation on the over-the-counter market as reported by the National Quotations Bureau, or any similar organization, on any relevant date, or if not so reported, as determined by the Committee in a manner consistently applied. 1.11 "Director" shall mean the Senior Vice President, Human Resources & Support Services for the Company. 1.12 "Eligible Participant" shall mean a Participant who is an Employee who as of the date upon which Eligible Participants are determined, either (a) holds an unexercised vested option with respect to Company Stock granted to him or her pursuant to the 1990 Stock Incentive Plan or the 1991 Performance Investment Plan, or (b) elected to purchase stock pursuant to the Employee Monthly Stock Investment Plan (the "EMSIP") within the 12-month period preceding such date. 1.13 "Employee" shall mean any individual who is actively employed by the Company or an Affiliate. 1.14 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 1.16 "Minimum Distribution Schedule" shall mean the schedule (or schedules) set forth in Schedule B. An additional Minimum Distribution Schedule shall be created each time the Company makes a contribution to the Trust, unless such contribution is used to pay an obligation of the Trust described in Section 9 or is used to repay a loan described in Subsection 4.1.2. 1.17 "Other Assets" shall mean any asset or investment aside from cash held by the Trust that is not Company Stock. 1.18 "Participant Schedule" shall mean the schedule prepared by the Company from time to time pursuant to Subsection 5.2. 1.19 "Participants" shall mean those individuals who participate in one or more of the Plans described in Schedule A. 1.20 "Plans" shall mean the plans or arrangements referred to in Schedule A, as amended from time to time. 1.21 "Trust" shall mean the trust established pursuant to this Trust Agreement. 1.22 "Trust Fund" shall mean all Company Stock, money and other property from time to time obtained by the Trust and all investments and reinvestments made therewith or proceeds thereof and all earnings and profits thereon, less all payments and charges as authorized herein. SECTION 2 Establishment of the Trust. 2.1 Trust Fund. The Company hereby establishes the Trust. The Trust Fund shall consist of such sums of Company Stock, money and other property acceptable to the Trustee as are from time to time paid to or otherwise acquired by the Trustee. Except as otherwise provided in Subsection 8.1.2, the Company shall have no duty or obligation to make any contributions to the Trust and the Trustee shall have no duty or obligation to require the Company to make any contribution to the Trust. The Trust Fund shall be held by the Trustee in trust and shall be dealt with in accordance with the provisions of this Trust Agreement. The Trustee, and any successor Trustee appointed pursuant to Section 11 hereof or resulting under Subsection 19.4 hereof, shall at all times be a bank and trust company or other national banking association that is neither a subsidiary of nor other firm related by direct or indirect stock ownership to the Company. 2.2 Irrevocability. Except as provided in Section 17 hereof, the Trust shall be for the exclusive purpose of assisting the Company in funding Plans and Benefits and defraying expenses of the Trust in accordance with the provisions of this Trust Agreement. No part of the income or corpus of the Trust Fund shall be recover- able by the Company; provided, however, that the Trust Fund shall be applied in discharge of the Company's legal obligations as provided in this Trust Agreement. 2.3 Claims of Creditors. Notwithstanding anything in this Trust Agreement or the Plans to the contrary, the Trust Fund shall at all times be subject to the claims of bankruptcy and other general creditors of the Company as provided in Section 17 hereof. No Participant or Plan shall have any claim against the Trust Fund other than as a general unsecured creditor of the Company. SECTION 3 Acceptance by the Trustee. The Trustee accepts the Trust established under this Trust Agreement on the terms and subject to the provisions set forth herein. The Trustee agrees to discharge and perform fully and faithfully all of the duties and obligations imposed upon it under this Trust Agreement. SECTION 4 Investment of the Trust. 4.1 General Duty of Trustee. Except as otherwise provided in this Subsection 4.1 or except as otherwise expressly provided in this Trust Agreement, all assets received by the Trustee other than Company Stock shall be invested as soon as practicable in, and remain invested in, Company Stock. 4.1.1 Upon direction of the Committee, the Trustee shall acquire shares of Company Stock from the Company. 4.1.2 From time to time, the Trustee shall have the ability, upon direction of the Committee, to borrow funds for the purpose of acquiring shares of Company Stock and/or issue one or more notes to the Company in exchange for shares of Company Stock. The Trustee shall have the ability to pledge any shares so acquired as collateral. Subject to the requirements of Subsection 8.1.4, the terms and conditions of any borrowing shall be fair and reasonable. It is contemplated that any such obligation shall be repaid using cash contributions and earnings attributable to Company Stock held by the Trust Fund. 4.1.3 Notwithstanding anything herein to the contrary, unless the Committee otherwise directs, cash or Other Assets received by the Trustee shall be retained and invested in Other Assets provided that, after payment of the costs of the Trust, including, without limitation, Trustee fees and expenses and, if applicable, debt repayment described in Subsection 4.1.2, through the end of the calendar year during which such cash or Other Assets are received by the Trustee, any such cash or Other Assets remaining shall be distributed by the Trustee to the Administrators or the Director at the end of such calendar year to fund such Plans or Benefits as determined by the Committee taking into account the best interests of a broad cross-section of Participants. 4.2 Additional Powers of Trustee. Subject to the provisions of Section 4.1, the Trustee shall have the following additional powers and authority with respect to all property constituting a part of the Trust Fund: 4.2.1 To purchase securities or any other kind of property and to retain such securities or other property, regardless of diversification and without being limited to investments authorized by law for the investment of trust funds. 4.2.2 Subject to Subsection 7.2 hereof, to sell, exchange or transfer any such property at public or private sale for cash or on credit and grant options for the purchase or exchange thereof, provided that, with respect to any sale of shares of Company Stock (other than pursuant to Subsection 7.2 hereof, and excluding any distribution of Company Stock made pursuant to this Trust Agreement), such shares shall first be offered for sale to the Company at the Daily Value before being sold to one or more third parties. 4.2.3 Subject to Section 7 hereof, to participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to any such property, and to consent to or oppose any such plan or any action thereunder, or any contract, lease, mortgage, purchase, sale or other action by any corporation or other entity any of the securities of which may at any time be held in the Trust Fund, and to do any act with reference thereto. 4.2.4 To deposit cash or any Other Assets with any protective, reorganization or similar committee; to delegate discretionary power to any such committee; and to pay part of the expenses and compensation of any such committee and any assessments levied with respect to any property so deposited. 4.2.5 To exercise any conversion privilege or subscription right available in connection with any such property, and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire. 4.2.6 Subject to Subsection 9.4 hereof, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; to settle, compromise or submit to arbitration any claims, debts or damages, due or owing to or from the Trust. 4.2.7 Subject to Section 7 hereof, to exercise, personally or by general or limited power of attorney, any right, including the right to vote, appurtenant to any securities or other such property. 4.2.8 To hold cash awaiting investment uninvested, and to maintain such additional cash balances as it shall deem reasonable or necessary to meet anticipated cash distributions from or administrative costs of the Trust. 4.2.9 To invest cash or Other Assets at Wachovia Bank of North Carolina, N.A. or another bank and trust company or national banking association in any type of interest-bearing investment, including, without limitation, deposit accounts, certificates of deposit and repurchase agreements. 4.2.10 To invest and reinvest all or any specified portion of cash or Other Assets (i) through the medium of any common trust fund which has been or may hereafter be established and maintained by the Trustee, or (ii) in shares of open end or closed end investment companies provided that, prior to investing any portion of the Trust Fund for the first time in any such common trust fund or investment company, the Trustee shall advise the Company of its intent to make such an investment and furnish to the Company any information it may reasonably request with respect to such investment. 4.2.11 To form corporations or partnerships and to create trusts to hold title to any cash or Other Assets constituting the Trust Fund, upon such terms and conditions as may be deemed advisable. 4.2.12 To engage legal counsel, including (except following the occurrence of a Change in Control) counsel to the Company, or any other suitable agents, to consult with such counsel or agents with respect to the implementation or construction of this Trust Agreement, the duties of the Trustee hereunder, the transactions contemplated by this Trust Agreement or any act which the Trustee proposes to take or omit, to rely upon the advice of such counsel or agents, and to pay any such counsel's or agent's reasonable fees, expenses and compensation. 4.2.13 To register or hold any securities or other property held by it in its own name or in the name of any custodian of such property or of its nominee, including the nominee of any system for the central handling of securities, with or without the addition of words indicating that such securities are held in a fiduciary capacity, to deposit or arrange for the deposit of any such securities with such a system and to hold any securities in bearer form. 4.2.14 To make, execute and deliver, as Trustee, any and all deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts, waivers, releases or other instruments in writing that are necessary or proper for the accomplishment of any of the foregoing powers. 4.2.15 Pursuant to the direction of the Committee as to all aspects of the transaction, including, without limitation, interest rate, term and identity of lender, to undertake a borrowing sufficient to enable the Trust to acquire newly issued Company Stock. 4.2.16 Subject to Section 7 hereof, generally, to exercise any of the powers of an owner with respect to property held in the Trust Fund. SECTION 5. Establishment and Maintenance of Participant Schedule. 5.1 Form of Participant Schedule. The Trustee may, from time to time, request the Company to prepare and deliver to the Trustee in accordance with Subsection 5.2 hereof, a schedule that sets forth the name of each Participant entitled to receive a Benefit under a Plan or arrangement or such group of Participants that the Trustee may need to know in order to carry out the provisions of this Agreement. 5.2 Maintaining the Participant Schedule. At the request of the Trustee, the Company shall from time to time update the Participant Schedule. Each Participant Schedule shall state the date as of which it applies, and the Trustee shall be entitled to rely upon such Participant Schedule, without a duty of further inquiry, until it receives an updated Participant Schedule bearing a later date. Each Participant Schedule shall contain all information concerning a Participant which the Trustee will need to complete its responsibilities under this Agreement. SECTION 6 Maintenance of Trust. 6.1 Trust Assets and Allocation to Plans. The Trustee shall hold all assets contributed or otherwise obtained by the Trust and shall distribute such assets and any earnings thereon to such Administrators, Participants or the Director, as provided for and in accordance with this Trust Agreement or use such assets to pay obligations of the Trust described in Section 9 or to repay a loan described in Subsection 4.1.2. 6.2 Valuation of Trust and Accounts. The Trustee shall revalue the Trust Fund as of the last business day of each calendar quarter. Shares of Company Stock shall be valued at the Daily Value of Company Stock as of such date. SECTION 7 Voting and Tender of Company Stock Held in Trust 7.1 Voting of Company Stock. The Trustee shall vote the shares of Company Stock held by the Trust in accordance with, and by soliciting and receiving, voting directions from Eligible Participants. As soon as practicable following the record date in question, the Company shall deliver to the Trustee a Participant Schedule listing Eligible Participants determined as of such record date. Each Eligible Participant listed on such Participant Schedule shall have the right to direct the vote with respect to that number of shares of Company Stock held by the Trust as determined by the following formula: multiply the shares held by the Trust by a fraction for each Eligible Participant who has given voting instructions. The numerator of such fraction shall equal the sum of (1) shares purchased pursuant to the EMSIP by the Participant during the preceding 12 months, and (2) the total vested, unexercised options held by the Participant; the denominator shall equal the total number of shares purchased pursuant to the EMSIP during the preceding 12 months by all Eligible Participants who have exercised their voting rights pursuant to this Subsection 7.1, plus the total number of vested, unexercised options held, by all Eligible Participants who have exercised their voting rights pursuant to this Subsection 7.1. The Trustee shall devise and implement a procedure to assure confidentiality of any directions given by Eligible Participants in respect of votes. All actions taken by Eligible Participants pursuant to this Subsection 7.1 shall be held confidential by the Trustee and shall not be divulged or released to any person, other than (i) agents of the Trustee who are not affiliated with the Company or its Affiliates, (ii) by virtue of the execution by the Trustee of any proxy, consent or letter of transmittal for the shares of Company Stock held in the Trust, or (iii) as may be required by court order. 7.2 Tender Rights. If any person shall commence a tender or exchange offer with respect to Company Stock, the Trustee shall tender the shares of Company Stock held by the Trust by passing through tender or exchange rights to Eligible Participants determined as of the commencement of such tender or exchange offer. As soon as practicable following the commencement of such tender or exchange offer, the Company shall deliver to the Trustee a Participant Schedule listing the Eligible Participants determined as of the commencement of such tender or exchange offer. Each Eligible Participant listed on such Participant Schedule shall have the right to direct the tender or exchange of that number of shares of Company stock held by the Trust as determined by the following formula: multiply the shares held by the Trust by a fraction for each Eligible Participant who has given tender or exchange instructions. The numerator of such fraction shall equal the sum of (1) shares purchased pursuant to the EMSIP by the Participant during the preceding 12 months and (2) the total vested, unexercised options held by the Participant; the denominator shall equal the total number of shares purchased pursuant to the EMSIP during the preceding 12 months by all Eligible Participants who have exercised their voting rights pursuant to this Subsection 7.1, plus the total number of vested, unexercised options held, by all Eligible Participants who have exercised their exchange or tender rights pursuant to this Subsection 7.2. The Trustee shall devise and implement a procedure to assure the confidentiality of any directions given by Eligible Participants in response to such offers. All actions taken by Eligible Participants pursuant to this Subsection 7.2 shall be held confidential by the Trustee and shall not be divulged or released to any person, other than (i) agents of the Trustee who are not affiliated with the Company or its Affiliates, (ii) by virtue of the execution by the Trustee of any proxy, consent or letter of transmittal for the shares of Company Stock held in the Trust, or (iii) as may be required by court order. 7.3 Notices and Information Statements. The Company shall provide the Trustee in a timely manner with notices and information statements (including proxy statements) when voting rights are to be exercised, and with respect to tender, exchange or similar offers, notices and offer materials, at the same time and in the same manner (except to the extent the Exchange Act requires otherwise) as such notices, information statements, and offer materials are provided to shareholders of the Company generally. The Trustee shall, in turn, provide all material received by the Company pursuant to this Subsection 7.3 to Eligible Participants described in Subsections 7.1 and 7.2. SECTION 8 Distributions from the Trust 8.1 Distributions of Company Stock from the Trust. Distributions of Company Stock from the Trust shall be made (a) in accordance with the Minimum Distribution Schedule, in the case of Company Stock contributed to the Trust or acquired with cash contributed to the Trust (other than cash contributed for the purpose of repayment of a loan described in Subsection 4.1.2 or payment of an obligation of the Trust described in Section 9), or (b) in proportion to the principal payment made (or deemed forgiven) with respect to the loan used to acquire such Company Stock described in Subsection 4.1.2, in the case of Company Stock acquired with the proceeds of such loan. For purposes of the foregoing clause (b) of the preceding sentence, the proportion of the principal payment made (or deemed forgiven) with respect to the loan shall be determined by dividing the amount of the principal payment made (or deemed forgiven) by the sum of such principal payment and the principal balance of the loan remaining after such payment. 8.1.1 Shares Released Pursuant to a Minimum Distribution Schedule. The particular Plan with respect to which any distribution from the Trust is made will be determined by the Committee in accordance with the following directions: (a) to the extent available, shares of Company Stock sufficient to meet the obligations of the 1990 Stock Incentive Plan shall first be allocated to the Administrator of such Plan, (b) remaining shares of Company Stock (if any) to the extent available shall be transferred to the Administrator to fund the 1991 Performance Investment Plan, and (c) remaining shares of Company Stock (if any) to the extent available shall be transferred to the Administrator to fund the EMSIP, and (d) remaining shares (if any) shall be transferred to the Director or Administrators to fund such Plans or Benefits as determined by the Committee taking into account the best interests of a broad cross-section of Participants, provided that it is determined that such Plans or Benefits constitute contractual liabilities of the Company or its Affiliates. 8.1.2 Release of Shares acquired with the Proceeds of a Loan. Shares of Company Stock to be distributed in accordance with clause (b) of the first sentence of this Subsection 8.1 shall be allocated in the same manner described in Subsection 8.1.1 above. If a loan described in Subsection 4.1.2 is outstanding, and if the earnings attributable to the shares of Company Stock acquired with the proceeds of such loan together with any contributions made by the Company for the purpose of repayment of such loan are not sufficient to enable the Trust to make a scheduled repayment of principal under such loan that will cause a release and distribution of shares sufficient to fund Benefits described in 8.1.1(a), (b) and (c), then, to the extent of any such deficiency, such repayment of principal shall be deemed forgiven by the Company. 8.1.3 Reliance Upon Committee Instruction. The Committee shall inform the Trustee in writing of how many shares are required to fund 8.1.1(a), (b), (c), and (d). The Trustee may rely upon written instructions received by the Committee to carry out the instructions contained in this Subsection 8.1 and shall have no responsibility to verify or monitor the determinations made by the Committee. If no direction regarding allocation of shares of Company Stock pursuant to clause (d) of Subsection 8.1.1 is received by the Trustee from the Committee by the date specified in the Minimum Distribution Schedule or the date a principal payment has been made or forgiven, whichever is applicable, the shares of Company Stock subject to such allocation under said clause (d) shall be distributed to the Director to fund non-discretionary compensation of those Participants who are Employees taking into account the best interests of a broad cross-section of such Participants. 8.1.4 Acceleration. Notwithstanding anything herein to the contrary, the Committee can direct that the number of shares distributed in any year exceed the number of shares required to be distributed under the Minimum Distribution Schedule and/or that shares be distributed prior to the date specified in such schedule, provided that such acceleration satisfies the terms of any restrictions contained in the Minimum Distribution Schedule, if any. If, in any year, the Committee directs that the number of shares distributed exceeds the number required to be distributed pursuant to the Minimum Distribution Schedule, such Schedule shall be revised by the Committee, so that the remaining minimum distribution amounts will be reduced proportionately to reflect the acceleration. Notwithstanding anything herein to the contrary, if the Trustee undertakes a loan to acquire Company Stock pursuant to Subsection 4.1, such loan shall at all times provide that principal payments may be accelerated at any time at the discretion of the Committee. 8.2 Significant Event. If an event occurs that causes 30 percent or more of the Participants to cease to be Employees within a 12-month period, as certified by the Committee, then all remaining distribution amounts under the Minimum Distribution Schedule will be reduced in direct proportion to such reduction and, with respect to Company Stock, the Minimum Distribution Schedule will be correspondingly extended. 8.3 Protection of Trustee. The Trustee shall, to the maximum extent permitted by applicable law, be fully protected in acting upon any written statement, affidavit or certification from the Company, the Committee or the Director. The Trustee shall at all times, to the maximum extent permitted by applicable law, be fully protected in making distributions pursuant to Sections 4, 8, 9, 13 and 17 hereof. 8.4 Company Obligations. Notwithstanding the provisions of this Trust Agreement, the Company and its Affiliates shall remain obligated with respect to the Benefits attributable to their respective employees. Nothing in this Trust Agreement shall relieve the Company or any of its Affiliates of their respective liabilities with respect to the Benefits except to the extent such amounts are paid to a Plan or a Participant from the Trust, it nevertheless being the Company's intent that the Trust Fund shall be applied in discharge of the Company's legal obligations as provided in this Trust Agreement. Notwithstanding anything herein to the contrary, no plan or benefit may be funded pursuant to this Section 8 unless it gives rise to a contractual obligation of the Company or its Affiliates and it is a Benefit described in Schedule A. 8.5 Trustee as Holder of Legal Title to Trust Assets. Subject to Section 17 hereof, the Trustee shall hold legal title to all assets in the Trust for benefit of the Participants and Employees. 8.6 Federal Income Tax Consequences of the Trust. The Trust Fund may be applied in the discharge of legal obligations of the Company as provided herein. Accordingly, the Company shall take into account in computing its tax liability, those items of income, deductions and credits against tax attributable to assets held in the Trust to which the Company would have been entitled had the Trust not been in existence. The Trustee shall notify the Company promptly after it becomes aware of any tax liability assessed against, or imposed upon, the Trust or the Trustee in its capacity as Trustee of the Trust. The Company shall be responsible for all matters in respect of such assessment or imposition, and shall have sole responsibility for any defense in connection therewith. Payments in respect of any tax liability of the Company arising in connection with earnings, gains or activities relating to the Trust, including, without limitation, interest and penalties, shall be made from the Trust Fund after a final determination of such liability, unless the Company promptly pays such liability. In the event the assets of the Trust are insufficient to pay such liability, any deficit shall be paid promptly by the Company. SECTION 9 Expenses, Compensation and Indemnification 9.1 Expenses. The Trustee shall be reimbursed by the Company for its reasonable expenses of implementation, management and administration of the Trust, including brokerage commissions and the reasonable compensation of attorneys or other agents engaged by the Trustee or by the Company to assist in such implementation, management and administration. 9.2 Compensation. The Company shall pay the Trustee compensation in accordance with the compensation schedule attached hereto as Schedule C, unless the Company and the Trustee otherwise agree in writing. 9.3 Charge on Trust Fund. All expenses and compensation referred to in Sections 9.1 and 9.2 hereof shall be a charge on the Trust Fund and shall constitute a lien on the Trust Fund in favor of the Trustee and shall be payable from the Trust Fund unless paid when due by the Company. 9.4 Indemnification. The Company hereby agrees to indemnify and hold harmless the Trustee from and against any losses, costs, damages, claims or expenses, including without limitation reasonable attorneys' fees, which the Trustee may incur or pay out in connection with, or otherwise arising out of: 9.4.1 the performance by the Trustee of its duties hereunder, unless any such loss, cost, damage, claim or expense is a result of negligence or willful misconduct by the Trustee or the breach by the Trustee of its fiduciary duties hereunder; or 9.4.2 any action taken by the Trustee in good faith pursuant to the written direction of the Company, the Committee or the Director. In the event that any action or regulatory proceeding shall be commenced or claim asserted which may entitle the Trustee to be indemnified hereunder, the Trustee shall give the Company written notice of such action or claim promptly after becoming aware of such commencement or assertion unless the Company has otherwise received notice of such action or claim. The Company shall be entitled to participate in and, upon notice to the Trustee, assume the defense of any such action or claim using counsel reasonably acceptable to the Trustee. The Trustee shall cooperate with the Company in connection with the defense of any such action or claim. Subject to Section 17 the Trustee shall have no claim on the assets of the Trust Fund in respect of amounts payable to the Trustee under this Subsection 9.4. 9.5 Payment from Trust Fund. All payments of expenses and compensation referred to in Subsections 9.1 and 9.2 hereof shall be made only with the written approval of or at the direction of the Committee. SECTION 10 Administration and Records 10.1 Records. Subject to Subsections 7.1 and 7.2, the Trustee shall keep or cause to be kept accurate and detailed accounts of any investments, receipts, disbursements and other transactions hereunder and all accounts, books and records relating thereto shall be open to inspection and audit at all reasonable times by any person designated by the Company. The Trustee shall preserve all such accounts, books and records, in original form or on microfilm, magnetic tape or any other similar process, for such period as the Trustee may determine, but the Trustee may destroy such accounts, books and records only after first notifying the Company in writing of its intention to do so and transferring to the Company, subject to Subsections 7.1 and 7.2 hereof, any of such accounts, books and records that the Company shall request. 10.2 Settlement of Accounts. Subject to Subsections 7.1 and 7.2, within 60 days after the close of each calendar year, and within 60 days after the removal or resignation of the Trustee or the termination of the Trust (or any portion thereof), the Trustee shall file with the Company a written account setting forth all investments, receipts, disbursements and other transactions effected by it with respect to the Trust during the preceding calendar year or during the period from the close of the preceding calendar year to the date of such removal, resignation or termination, including a description of all investments and securities purchased and sold, with the cost or net proceeds of such purchases or sales, and showing all cash, securities and other property held at the end of such calendar year or other period. It shall be the duty of the Company to review such written account promptly within 90 days from the date of filing any such account and if, within such 90-day period, the Company does not file with the Trustee a written notice of objection to any of the Trustee's acts or transactions, the initial account shall become an account stated between the Trustee and the Company. If the Company files a written notice of objection with the Trustee, the Trustee may file with the Company an adjusted account, in which case it shall be the duty of the Company to review such adjusted account promptly within 30 days from the date of its filing. If, within such 30-day period, the Company fails to file a written notice of objection to any of the Trustee's acts or transactions as so adjusted with the Trustee, the adjusted account shall become an account stated between the Trustee and the Company. Unless an account is fraudulent, when it becomes an account stated it shall be finally settled, and the Trustee shall, to the maximum extent permitted by applicable law, be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account. 10.3 Audit. The Trustee shall from time to time permit an independent public accountant selected by the Company to have access during ordinary business hours to such records as may be necessary to audit the Trustee's accounts. 10.4 Judicial Settlement. Nothing contained in this Trust Agreement shall be construed as depriving the Trustee or the Company of the right to have a judicial settlement of the Trustee's accounts. Upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions the only necessary party thereto in addition to the Trustee shall be the Company. 10.5 Delivery of Records to Successor. In the event of the removal or resignation of the Trustee, the Trustee shall deliver to the successor Trustee all records which shall be required by the successor Trustee to enable it to carry out the provisions of this Trust Agreement. 10.6 Tax Filings. In addition to any returns required of the Trustee by law (e.g., any information return required to be filed on IRS Form 1041), the Trustee shall prepare and file such tax reports and other returns as the Company and the Trustee may from time to time agree. SECTION 11 Removal or Resignation of the Trustee and Designation of Successor Trustee. 11.1 Removal. At any time prior to the occurrence of a Change in Control, the Company may remove the Trustee with or without cause upon at least 60 days' notice in writing to the Trustee. At any time after the occurrence of a Change in Control, the Trustee may not be removed except for cause or by order of a court of competent jurisdiction. No removal of the Trustee shall be effective until the Company has appointed in writing a successor Trustee, and such successor has accepted the appointment in writing. 11.2 Resignation. Trustee may resign at any time upon at least 60 days' notice in writing to the Company, except that any such resignation shall not be effective until the Company has appointed in writing a successor Trustee, and such successor has accepted the appointment in writing. At any time after 30 days following the sending of such notice of resignation, if the Company is unable to appoint a successor Trustee or if a successor Trustee has not accepted an appointment, the Trustee shall be entitled, at the expense of the Company, to petition a United States District Court or any of the courts of the State of Washington or other court having jurisdiction to appoint its successor. 11.3 Successor Trustee. Subject to Subsection 2.1 hereof, each successor Trustee, during such period as it shall act as such, shall have the powers and duties herein conferred upon the Trustee, and the word "Trustee" wherever used herein, except where the context otherwise requires, shall be deemed to include any successor Trustee. Upon designation of a successor Trustee and delivery to the resigned or removed Trustee of written acceptance by the successor Trustee of such designation, such resigned or removed Trustee shall promptly assign, transfer, deliver and pay over to such Trustee, in conformity with the requirements of applicable law, the funds and properties in its control or possession then constituting the Trust Fund. SECTION 12 Enforcement of Trust Agreement. 12.1 Rights of Parties to Enforce the Trust Agreement The Company and the Trustee shall have the right to enforce any provision of this Trust Agreement. In any action or proceeding affecting the Trust, the only necessary parties shall be the Company and the Trustee and, except as otherwise required by applicable law, no other person shall be entitled to any notice or service of process. Any judgment entered in such an action or proceeding shall, to the maximum extent permitted by applicable law, be binding and conclusive on all persons having or claiming to have any interest in the Trust or any Plan. 12.2 Limitation on Rights of Participants and Beneficiaries Neither the Plans nor any Participant or Beneficiary shall have any rights with respect to the Trust Fund, no Plan shall be deemed to have any beneficial interest in the Trust Fund and no Employee shall be deemed to have any beneficial interest in the Trust Fund arising from his participation in any particular Plan. SECTION 13 Termination. 13.1 Termination upon Specific Events. The Trust shall be terminated as soon as practicable after the Trustee has received written notice from the Committee that one or more of the following events has occurred: 13.1.1 the Department of Labor or a court of competent jurisdiction has determined (or, in the Committee s sole discretion, would be likely to determine) that the assets of the Trust are subject to Part 4 of Subtitle B of Title I of ERISA, 13.1.2 the Internal Revenue Service or a court of competent jurisdiction has determined (or, in the Committee s sole discretion, would be likely to determine) that any portion of the Trust Fund is presently taxable to any Participant or Beneficiary, or l3.1.3 a Change in Control has occurred. In the event of a termination pursuant to this Subsection 13.1, the Trustee shall distribute all assets then constituting the Trust Fund attributable to Company Stock to the Administrator or Director to be distributed in the form of Company Stock or cash (as provided pursuant to the terms of a particular Plan) to Participants. Distributions shall first be made to satisfy accrued, vested benefits described in (a) of Subsection 8.1; remaining assets, if any, shall be distributed to satisfy accrued, vested benefits described in (b) of Subsection 8.1; remaining assets, if any, shall then be distributed to satisfy any exercises that have not yet been funded pursuant to the plan described in (c) of Subsection 8.1. Remaining assets, if any, shall then be used to fund the following plans (in the following order): any obligation the Company or an Affiliate has under the Annual Incentive Plan, any obligation the Company or an Affiliate has under the Hillhaven Supplemental Executive Retirement Plan, or any obligation the Company or an Affiliate has under the Hillhaven Deferred Compensation Plan. Assets remaining shall be allocated among Plans described in Schedule B, in the order set out in such Schedule. 13.2 Termination in Other Events. Notwithstanding anything herein to the contrary, the Trust shall terminate on the earliest of (a) 21 years following the death of the last surviving Participant included on the Participant Schedules received by the Trustee in 1995, (b) the date on which the Committee informs the Trustee in writing that the Company and its Affiliates have no obligations under any Plans (or the date on which there are no Plans) or (c) the date on which the Trust contains no assets and retains no claims to recover assets from the Company and its Affiliates pursuant to any provision hereof, whichever shall first occur. In the event of a termination described in clauses (a) or (b) of this Section, the Trustee shall distribute the assets remaining in the Trust Fund to all Participants listed on the Participant Schedule in an equal amount per Participant. 13.3 Limitation on Trustee Liability upon Total Distribution; Continuation of Trustee Powers. Upon a total distribution of the Trust assets pursuant to Section 8 or this Section 13.3, the Trustee shall be relieved from all further liability. The powers of the Trustee hereunder shall continue so long as any assets of the Trust remain in its hands. 13.4 Nonapplicability of ERISA. Notwithstanding anything herein to the contrary, no amount shall be distributed to any Participant pursuant to this Section 13 if such distribution could, in the opinion of independent counsel, cause the Trust to be subject to ERISA (other than as an unfunded plan described in ERISA section 201(2)). Prior to a distribution pursuant to this Section, the Committee shall provide the Trustee with a Schedule of Participants eligible for a distribution (taking into account this subsection 13.4). SECTION 14 Amendment. 14.1 Amendments in General. The Company may, in its sole discretion, from time to time amend, in whole or in part, any or all of the provisions of this Trust Agreement, including, without limitation, by adding to, or subtracting from, Schedule A hereto one or more employee benefit plans (within the meaning of Section 3(3) of ERISA) or plans or arrangements that are not employee benefit plans (within the meaning of such Section); provided, that (a) in making any modification to Schedule A hereto, the Company shall act in good faith taking into account the best interests of a broad cross-section of Participants, and (b) the Company shall ensure that at all times Schedule A shall include at least one employee benefit plan that is not an employee benefit plan within the meaning of Section 3(3) of ERISA. Notwithstanding anything herein to the contrary, no amendment shall be made to Sections 2.2, 7, 8 or 13. 14.2 Specific Amendments. Notwithstanding Subsection 14.1, the Company may amend this Trust Agreement from time to time in such a manner as may be necessary, in the opinion of independent counsel, to prevent this Trust Agreement or the Trust from becoming subject to ERISA and to prevent the current taxation of the Trust Fund to Participants. SECTION 15 Nonalienation. 15.1 Prohibition Against Certain Transfers, Pledges, Etc. Except as otherwise provided by this Trust Agreement and except as otherwise may be required by applicable law, (a) no amount payable to or in respect of any Plan, Participant or Employee at any time under the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber any such amount, whether presently or thereafter payable, shall be void and (b) the Trust Fund shall in no manner be liable for or subject to the debts or liabilities of any Participant. SECTION 16 Communications. 16.1 To the Company, Board of Directors and Committee. Communications to the Company, the Board of Directors and the Committee shall be addressed to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Vice President, Treasurer with a copy to: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: Senior Vice President and General Counsel provided, however, that upon the Company's written request, such communications shall be sent to such other address as the Company may specify. 16.2 To the Trustee. Communications to the Trustee shall be addressed to: Wachovia Bank of North Carolina, N.A. 301 N. Main Street Winston-Salem, N.C. 27150 Attention: Steve Watts Vice President with a copy to: Wachovia Bank of North Carolina, N.A. 301 N. Main Street Winston-Salem, NC 27150 Attention: John Smith Vice President provided, however, that upon the Trustee's written request, such communications shall be sent to such other address as the Trustee may specify. 16.3 To a Participant. Communications to a Participant or to his Beneficiaries shall be addressed to the Participant or his Beneficiaries, respectively, at the address indicated on the Participant Schedule as in effect at the time of the communication. 16.4 Binding upon Receipt. No communication shall be binding on the Trustee until it is received by the Trustee, and no communication shall be binding on the Company, the Board of Directors or the Committee until it is received by the Company, the Board of Directors or the Committee, respectively. A communication shall be deemed binding on a Participant or the Participant's Beneficiaries 60 days following the date notice is given or sent pursuant to Subsection 16.3. 16.5 Authority to Act. The Secretary of the Company shall from time to time certify to the Trustee the person or persons authorized to act for the Company, the Committee and the Board of Directors, and shall provide the Trustee with such information regarding the Company as the Trustee may reasonably request. The Trustee may continue to rely on any such certification until notified to the contrary. 16.6 Authenticity of Instruments. The Trustee shall be fully protected in acting upon any instrument, certificate, or paper reasonably believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. SECTION 17 Claims of Company's Bankruptcy Creditors. 17.1 Bankruptcy Creditors. In the event of the Company's "insolvency," the assets of the Trust shall be available to pay the claims of any creditor of the Company to whom a distribution may be made in accordance with state and federal bankruptcy laws. The Company shall be deemed to be "insolvent" if it is either (a) unable to pay its debts and liabilities as they become due or (b) subject to a pending proceeding as a debtor under the federal Bankruptcy Code (or any successor federal statute) or any state bankruptcy code. In the event the Company becomes insolvent, the Board of Directors and the Chief Executive Officer of the Company shall notify the Trustee of the event as soon as practicable. Upon receipt of such notice, or if the Trustee receives other written allegations of the Company's insolvency from a third party considered by the Trustee to be reliable and responsible, the Trustee shall cease making any distributions from the assets of the Trust, shall hold the assets in the Trust for the benefit of the Company's creditors and shall take such steps as are necessary to determine within a reasonable period of time whether the Company is insolvent. In making such determination, the Trustee may rely upon a certificate of the Board of Directors and the Chief Executive Officer of the Company or a determination by a court of competent jurisdiction that the Company is or is not insolvent. In the case of the Trustee's determination of the Company's insolvency, the Trustee will deliver assets of the Trust to satisfy claims of the Company's creditors as directed pursuant to a final order of a court of competent jurisdiction. 17.2 Resumption of Benefits; Restoration of Accounts. In the event the Trustee ceases making distributions by reason of Subsection 17.1, the Trustee shall resume making distributions pursuant to Sections 4, 8, or 13 of this Agreement only after the Trustee has determined that the Company is no longer insolvent or upon receipt of an order of a court of competent jurisdiction requiring such distributions. In making any determination under this Section, the Trustee may rely upon a certificate of the Board of Directors and the Chief Executive Officer of the Company. SECTION 18 Consolidation, Merger or Sale of the Company. 18.1 Consolidation, Merger or Sale of the Company. Effective upon consolidation of the Company with, or merger of the Company with or into, any corporation or corporations, or any sale or conveyance of all or sub- stantially all of the assets of the Company, the Trustee shall deal with the corporation formed by such consolidation, or with or into which the Company is merged, or the person that acquires the assets of the Company on the same basis as it dealt with the Company prior to such transactions and, in such event, the term "Company" within this Agreement shall mean such corporation or person. SECTION 19 Miscellaneous Provisions 19.1 Binding Effect. This Trust Agreement shall be binding on the Company and the Trustee and their re- spective successors and assigns. 19.2 Inquiry as to Authority. A third party dealing with the Trustee shall not be required to make inquiry as to the authority of the Trustee to take any action nor be under any obligation to follow the proper application by the Trustee of the proceeds of sale of any property sold by the Trustee or to inquire into the validity or propriety of any act of the Trustee. 19.3 Responsibility for Company Action. The Trustee assumes no obligation or responsibility with respect to any action required by this Trust Agreement on the part of the Company, the Board of Directors, the Committee, any Affiliate, the Participants or any Beneficiaries. The Trustee shall be under no duties except such duties as are specifically set forth as such in this Trust Agreement or under applicable law, and no implied covenant or obligation shall be read into this Trust Agreement against the Trustee. 19.4 Successor to Trustee. Subject to Subsection 2.1, any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger, reorganization or consolidation to which the Trustee may be a party, or any corporation to which all or substantially all the trust business of the Trustee may be transferred shall be the successor of the Trustee hereunder without the execution or filing of any instrument or the performance of any act. 19.5 Intercompany Agreements. The Company may require any Affiliate to enter into such other agreement or agreements as it shall deem necessary to obligate such Affiliate to reimburse the Company for any other amounts paid by the Company hereunder, directly or indirectly, in respect of such Affiliate's employees. 19.6 Titles Not to Control. Titles to the Sections of this Trust Agreement are included for convenience only and shall not control the meaning or interpretation of any provision of this Trust Agreement. 19.7 Laws of the State of Washington to Govern. This Trust Agreement and the Trust established hereunder shall be governed by and construed, enforced, and administered in accordance with the laws of the State of Washington, without reference to the principles of conflicts of law thereof. 19.8 Fractional Shares. Notwithstanding anything herein to the contrary, the Trustee may distribute any fractional share otherwise required to be distributed to Administrators or Participants pursuant to Sections 8 or 13, in cash in an amount equal to the Daily Value, multiplied by such fraction. IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties hereto as of the day and year first above written. THE HILLHAVEN CORPORATION Attest: /s/ Ellen B. Alben By: /s/ Richard P. Adcock Ellen B. Alben Richard P. Adcock Assistant Secretary Senior Vice President WACHOVIA BANK OF NORTH CAROLINA, N.A. as Trustee Attest: /s/ Donna Stern By: /s/ John N. Smith, III Donna Stern John N. Smith, III Assistant Secretary Vice President STATE OF WASHINGTON COUNTY OF PIERCE On the 26th day of January, 1995, before me personally came to me Richard P. Adcock, who, being by me duly sworn, did depose and say that he resides at Gig Harbor, Washington; that he is of THE HILLHAVEN CORPORATION, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation; and that he signed his name thereto by like order. /s/ Helen Harmon Helene Harmon Notary Public My commission expires 3/25/95 STATE OF NORTH CAROLINA COUNTY OF FORSYTH On the 27th day of January, 1995, before me personally came to me John N. Smith, III, who, being by me duly sworn, did depose and say that he resides at Winston- Salem, North Carolina; that he is of WACHOVIA BANK OF NORTH CAROLINA, N.A., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation; and that he signed his name thereto by like order. /s/ Sheri M. Utt Sheri M. Utt Notary Public Commission Expires 2/18/95 Schedule A LIST OF PLANS The Hillhaven Corporation 1991 Performance Investment Plan The Hillhaven Corporation 1990 Stock Incentive Plan The Hillhaven Corporation Employee Monthly Stock Investment Plan The Hillhaven Corporation Deferred Compensation Plan The Hillhaven Corporation Supplemental Executive Retirement Plan The Hillhaven Corporation Annual Incentive Plan The Hillhaven Corporation Long Term Incentive Plan Other non-discretionary based compensation Schedule C TRUSTEE'S COMPENSATION SCHEDULE HILHAVEN GRANTOR TRUST FEE ESTIMATE FOR NON-QUALIFIED PLAN SERVICES I. TRUSTEE SERVICES $15,750.00 II. PROXY ADMINISTRATION 0.00 ---------- TOTAL TRUSTEE: $15,750.00 ========== EX-10.56 49 AMENDED/RESTATED AGR. AND PLAN OF SHARE EXCHANGE EXHIBIT 10.56 AMENDED AND RESTATED AGREEMENT AND PLAN OF SHARE EXCHANGE AND AGREEMENTS TO ASSIGN PARTNERSHIP INTERESTS BY AND AMONG THE HILLHAVEN CORPORATION NATIONWIDE CARE, INC. PHILLIPPE ENTERPRISES, INC. MEADOWVALE SKILLED CARE CENTER, INC. AND SPECIFIED PARTNERS OF CAMELOT CARE CENTERS EVERGREEN WOODS, LTD. AND SHANGRI-LA PARTNERSHIP DATED AS OF FEBRUARY 27, 1995 ============================================================================== TABLE OF CONTENTS
PAGE ---- Preliminary Statement................................................................... 1 Terms and Conditions.................................................................... 2 ARTICLE I The Share Exchanges................................................... 2 SECTION 1.1. Share Exchanges....................................................... 2 SECTION 1.2. Effective Time of Share Exchanges..................................... 2 SECTION 1.3. Other Actions......................................................... 2 ARTICLE II Corporate Governance.................................................. 3 SECTION 2.1. [Intentionally Omitted]............................................... 3 SECTION 2.2. Directors and Officers................................................ 3 ARTICLE III Exchange of Shares; Assignment of Partnership Interests; Prepayment of Subordinated Notes and Redemption of Preferred Stock......................................... 3 SECTION 3.1. Effect of Share Exchanges............................................. 3 SECTION 3.2. Consideration for Share Exchanges..................................... 3 SECTION 3.3. Escrow................................................................ 3 SECTION 3.4. Surrender and Payment for the Target Common Shares.................... 4 SECTION 3.5. Redemption of Nationwide Subordinated Notes and Nationwide Preferred Stock................................................................. 5 ARTICLE IV Representations and Warranties of Corporate Targets and Partners...... 5 SECTION 4.1. Organization; Power................................................... 5 SECTION 4.2. Capital Stock......................................................... 5 SECTION 4.3. Authority; No Violation............................................... 6 SECTION 4.4. Consents and Approvals................................................ 6 SECTION 4.5. Transactions with Certain Persons..................................... 6 SECTION 4.6. Books and Records..................................................... 7 SECTION 4.7. Financial Statements.................................................. 7 SECTION 4.8. Absence of Undisclosed Liabilities.................................... 7 SECTION 4.9. Actions Pending....................................................... 7 SECTION 4.10. Outstanding Debt and Related Matters.................................. 7 SECTION 4.11. Tax Matters........................................................... 7 SECTION 4.12. Absence of Changes or Events.......................................... 8 SECTION 4.13. Compliance with Laws; No Default...................................... 9 SECTION 4.14. Property.............................................................. 9 SECTION 4.15. Contracts............................................................. 10 SECTION 4.16. Licenses and Permits.................................................. 11 SECTION 4.17. Proprietary Information............................................... 11 SECTION 4.18. Title to Assets and Related Matters................................... 11 SECTION 4.19. Environmental Matters................................................. 11 SECTION 4.20. Labor Relations; Employees............................................ 12 SECTION 4.21. Employee Benefit Plans................................................ 13 SECTION 4.22. Insurance............................................................. 13 SECTION 4.23. Life Care Contracts................................................... 13 SECTION 4.24. Survey Reports........................................................ 13
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PAGE ---- SECTION 4.25. Payment Programs...................................................... 13 SECTION 4.26. Gratuitous Payments................................................... 14 SECTION 4.27. Brokers' or Finders' Fees............................................. 14 SECTION 4.28. Disclosure............................................................ 14 SECTION 4.29. Tax Representations................................................... 15 SECTION 4.30. Representations and Warranties as of Date Hereof; No Other Representations and Warranties............................... 15 ARTICLE V Representations and Warranties of Acquiror............................ 15 SECTION 5.1. Organization; Power................................................... 15 SECTION 5.2. Capital Stock......................................................... 15 SECTION 5.3. Authority; No Violation; Etc.......................................... 15 SECTION 5.4. Consents and Approvals................................................ 16 SECTION 5.5. Reports............................................................... 16 SECTION 5.6. Due Authorization of Shares........................................... 16 SECTION 5.7. Compliance with Laws; No Default or Litigation........................ 16 SECTION 5.8. Tax Representations................................................... 17 SECTION 5.9. Brokers' or Finders' Fees............................................. 17 SECTION 5.10. Representations and Warranties as of Date Hereof...................... 17 ARTICLE VI Certain Pre-Closing Covenants of the Targets.......................... 17 SECTION 6.1. Maintenance of Corporate Status....................................... 17 SECTION 6.2. No Change in Capitalization........................................... 17 SECTION 6.3. Shareholders Meetings................................................. 17 SECTION 6.4. Operation of the Business............................................. 18 SECTION 6.5. Other Offers.......................................................... 18 SECTION 6.6. Compliance with the Securities Act; Affiliates........................ 18 SECTION 6.7. Taxes................................................................. 19 SECTION 6.8. Access; Review........................................................ 19 SECTION 6.9. Insurance............................................................. 19 SECTION 6.10. Monthly Financial Statements.......................................... 19 SECTION 6.11. Approvals, Notices and Consents....................................... 19 SECTION 6.12. The Targets' Actions; Supplements to Representations and Warranties... 19 SECTION 6.13. Notice of Material Adverse Change..................................... 20 SECTION 6.14. Pooling............................................................... 20 SECTION 6.15. Tax Statements........................................................ 20 SECTION 6.16. Cooperation........................................................... 20 SECTION 6.17. Nationwide to Use Its Best Efforts to Terminate Option................ 20 ARTICLE VII Certain Pre-Closing Covenants of Acquiror............................. 20 SECTION 7.1. Required Consents and Approvals....................................... 20 SECTION 7.2. Pre-transaction Notification.......................................... 20 SECTION 7.3. Registration Statement; NYSE Listing.................................. 20 SECTION 7.4. Notice of Material Adverse Change..................................... 20 SECTION 7.5. Pooling Actions....................................................... 20 SECTION 7.6. Pooling Letter........................................................ 21
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PAGE ---- SECTION 7.7. Tax Statements........................................................ 21 SECTION 7.8. Environmental Surveys................................................. 21 SECTION 7.9. Cooperation........................................................... 21 ARTICLE VIII Conditions Precedent to the Performance of Acquiror................... 21 SECTION 8.1. Accuracy of Representations and Warranties of the Targets............. 21 SECTION 8.2. Compliance............................................................ 21 SECTION 8.3. Approval.............................................................. 21 SECTION 8.4. HSR Act Approval...................................................... 21 SECTION 8.5. Authorizations........................................................ 21 SECTION 8.6. Litigation............................................................ 22 SECTION 8.7. No Material Adverse Change............................................ 22 SECTION 8.8. Closing Deliveries.................................................... 22 SECTION 8.9. Dissenters' Rights.................................................... 22 SECTION 8.10. Pooling Letter........................................................ 22 SECTION 8.11. Exercise of Warrants.................................................. 22 SECTION 8.12. Tax Opinions.......................................................... 22 SECTION 8.13. Lease Extensions...................................................... 22 SECTION 8.14. Option Termination.................................................... 24 ARTICLE IX Conditions Precedent to Performance of the Corporate Targets and Partners.............................................................. 22 SECTION 9.1. Accuracy of Representations and Warranties of Acquiror................ 22 SECTION 9.2. Compliance............................................................ 22 SECTION 9.3. Corporate Approval.................................................... 22 SECTION 9.4. Authorizations........................................................ 22 SECTION 9.5. Registration Statement................................................ 23 SECTION 9.6. Litigation............................................................ 23 SECTION 9.7. No Material Adverse Change............................................ 23 SECTION 9.8. HSR Act Waiting Periods............................................... 23 SECTION 9.9. Closing Deliveries.................................................... 23 SECTION 9.10. Tax Opinions.......................................................... 23 SECTION 9.11. Release of Guarantees................................................. 23 ARTICLE X Termination........................................................... 23 SECTION 10.1. Termination by Mutual Agreement....................................... 23 SECTION 10.2. Termination by Acquiror............................................... 23 SECTION 10.3. Termination by the Corporate Targets and Partners..................... 24 ARTICLE XI Additional Agreements................................................. 24 SECTION 11.1. Confidentiality....................................................... 24 SECTION 11.2. Employee Benefit Matters.............................................. 24 SECTION 11.3. Agreements Respecting Meadowvale...................................... 24 SECTION 11.4. Preservation of Tax-Free Reorganization Treatment..................... 24 SECTION 11.5. Publication of Financial Results...................................... 25 SECTION 11.6. The Shangri-La Partners............................................... 25
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PAGE ---- ARTICLE XII The Closing........................................................... 25 SECTION 12.1. Time and Place........................................................ 25 SECTION 12.2. Deliveries to Acquiror at the Closing................................. 25 SECTION 12.3. Deliveries to the Targets at the Closing.............................. 26 ARTICLE XIII Indemnification....................................................... 26 SECTION 13.1. Indemnification of Acquiror........................................... 26 SECTION 13.2. Threshold and Maximum Amounts......................................... 26 SECTION 13.3. Survival of Indemnification Obligations............................... 27 ARTICLE XIV Supplemental Indemnification.......................................... 27 SECTION 14.1. Supplemental Indemnification of Acquiror.............................. 27 SECTION 14.2. Maximum Amounts....................................................... 27 SECTION 14.3. Survival of Indemnification Obligations............................... 28 ARTICLE XV Miscellaneous Provisions.............................................. 28 SECTION 15.1. Survival of Representations and Warranties............................ 28 SECTION 15.2. Definition of Knowledge............................................... 28 SECTION 15.3. Counterparts.......................................................... 28 SECTION 15.4. Entire Agreement...................................................... 28 SECTION 15.5. Exhibits and Schedules................................................ 28 SECTION 15.6. Parties in Interest................................................... 28 SECTION 15.7. Expenses.............................................................. 29 SECTION 15.8. Gender................................................................ 29 SECTION 15.9. Governing Law......................................................... 29 SECTION 15.10. Headings.............................................................. 29 SECTION 15.11. Modification and Waiver............................................... 29 SECTION 15.12. Notices............................................................... 29 SECTION 15.13. Press Releases........................................................ 30 SECTION 15.14. Rights of Parties..................................................... 30 SECTION 15.15. Successors............................................................ 30 SECTION 15.16. Intent; Construction.................................................. 30 SECTION 15.17. Release............................................................... 30
-iv- AMENDED AND RESTATED AGREEMENT AND PLAN OF SHARE EXCHANGE AND AGREEMENTS TO ASSIGN PARTNERSHIP INTERESTS This Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests (the "Agreement") dated as of the 27th day of February, 1995, is by and among The Hillhaven Corporation, a Nevada Corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation ("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"), Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and Meadowvale are collectively referred to herein as the "Corporate Targets"), the partners of Camelot Care Centers, an Indiana general partnership ("Camelot"), (subject to Section 11.6 hereof) the partners of Shangri-La Partnership, an Indiana general partnership ("Shangri-La") and the limited partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot, Shangri-La and Evergreen are collectively referred to herein as the "Partnership Targets"; the partners of Camelot and Shangri-La and the limited partners of Evergreen are collectively referred to herein as the "Partners"; the interests in the Partnerships held by the Partners are collectively referred to herein as the "Partnership Interests"). The Corporate Targets and the Partnership Targets are collectively referred to herein as the "Targets." PRELIMINARY STATEMENT Acquiror and its subsidiaries operate nursing centers, pharmacies and retirement housing communities. Nationwide and its subsidiaries operate long-term health care centers located in Indiana, Ohio and Florida. Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe, Jr. (the "Phillippes") are the majority owners of Nationwide. Shangri-La, which is owned by the Phillippes and two other parties, owns an 81-bed long term care health care facility. PEI is wholly-owned by the Phillippes and owns a 90 bed assisted living center in Florida managed by Nationwide. Meadowvale is owned by certain relatives of the Phillippes. Meadowvale owns a 120 bed long-term care center in Indiana leased by Nationwide. Each of Camelot and Evergreen operates long term care facilities. Nationwide owns in excess of 95% of the Partnership Interests of Camelot and Evergreen. The capital structure of Acquiror consists of 60 million authorized shares of Common Stock, par value $0.75 per share, of which approximately 32,824,863 are outstanding (the "Acquiror Common Shares"); 25 million authorized shares of preferred stock, par value $0.15 per share, of which the following series have been designated: 3 million authorized shares of Series A Preferred Stock, of which no shares are outstanding; 950 authorized shares of Series B Convertible Preferred Stock, of which 618 shares have been designated as Subseries 1, of which no shares are outstanding; 35,000 authorized shares of Series C Preferred Stock, all of which are outstanding; and 300,000 authorized shares of Series D Preferred Stock, of which approximately 63,403 shares are outstanding. The capital structure of Nationwide consists of 48,000,000 authorized shares of Common Stock, without par value, of which 7,431,458 shares are issued and outstanding (the "Nationwide Voting Common"); 2,000,000 authorized shares of Nonvoting Common Stock, without par value, of which 76,592 shares are issued and outstanding (the "Nationwide Nonvoting Common")(the Nationwide Voting Common and the Nationwide Nonvoting Common are collectively referred to herein as the "Nationwide Common Shares"); and 2,000,000 authorized shares of Preferred Stock, without par value, of which 300,000 shares of Redeemable Preferred Stock are issued and outstanding (the "Nationwide Preferred Stock"). Nationwide also has outstanding warrants to purchase 987,188 shares of Nationwide Nonvoting Common (the "Nationwide Warrants"), which will be exercised prior to the Closing (as defined in Section 12.1). The capital structure of PEI consists of 10,000 authorized shares of Common Stock, without par value, of which 2,000 are issued and outstanding (the "PEI Common Shares"). The capital structure of Meadowvale consists of 3,000 authorized shares of Common Stock, without par value, of which 3,000 are issued and outstanding (the "Meadowvale Common Shares"). The Nationwide Common Shares, PEI Common Shares and Meadowvale Common Shares are collectively referred to herein as the "Target Common Shares." Nationwide owns substantially all of each of the Partnerships, except that Shangri-La is controlled by the Phillippes. The ownership of the Partnerships is as set forth in Section 1 of the statement of disclosure delivered by the Corporate Targets and the Partners to Acquiror in connection with the execution of this Agreement (the "Disclosure Statement"). The parties to this Agreement previously had executed an Agreement and Plan of Merger and Agreements to Assign Partnership Interests, dated as of February 27, 1995 (the "Original Agreement"). Subsequent to execution of the Original Agreement, the parties determined to restructure the acquisitions of the Corporate Targets in the form of statutory share exchanges, whereby all of the outstanding common stock of each of the Corporate Targets would be exchanged for Acquiror Common Shares (the "Share Exchanges"), so that the transactions contemplated thereby would be treated as a "reorganization" within the meaning of Sections 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). The parties to the Original Agreement have therefore executed this Agreement to amend and restate the Original Agreement. The Board of Directors of Acquiror deems the Share Exchanges pursuant to the terms of this Agreement desirable and in the best interests of Acquiror. The Board of Directors of each of the Corporate Targets deems each respective Share Exchange desirable and in the best interests of the respective Corporate Target. The Board of Directors of Acquiror has, by resolutions duly adopted, approved this Agreement. The Board of Directors of each of the Corporate Targets has, by resolutions duly adopted, approved this Agreement. The question of approval of each of the Share Exchanges will be submitted to the shareholders of each of the respective Corporate Targets. In connection with this Agreement, the Phillippes have agreed to approve the Share Exchanges. Each of the Partners deems the assignment of his, her or its Partnership Interests to be desirable and in his, her or its best interest and, where appropriate, has approved such assignment. It is intended that the Share Exchanges shall qualify for treatment as "poolings of interests" transactions. TERMS AND CONDITIONS In consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, and intending to be legally bound thereby, the parties agree to amend and restate the Original Agreement in its entirety as follows. ARTICLE I THE SHARE EXCHANGES SECTION 1.1. Share Exchanges. Upon the terms and subject to the satisfaction of the conditions precedent contained in this Agreement, each of the shareholders of the Corporate Targets shall exchange their respective Target Common Shares for Acquiror Common Shares. The Share Exchanges shall be effected pursuant to the provisions of and with the effect provided in the Indiana Business Corporation Law (the "BCL") and the Nevada General Corporation Law (the "NCL"). SECTION 1.2. Effective Time of Share Exchanges. If (a) all of the conditions precedent to the Share Exchanges as set forth in Article VIII and Article IX of this Agreement are satisfied or waived, and (b) this Agreement is not terminated prior to the Closing (as permitted by the provisions of this Agreement, then as soon as reasonably practicable following the Closing, Acquiror and the Corporate Targets shall cause Articles of Share Exchange conforming to the requirements of the BCL and the NCL (the "Articles of Share Exchange") to be filed with the Secretary of State of the State of Indiana (the "Indiana Secretary of State") and the Secretary of State of the State of Nevada (the "Nevada Secretary of State") with respect to each of the Share Exchanges, in the manner provided under the BCL and the NCL. The Share Exchanges shall become effective as of 12:01 a.m., Eastern Standard Time, on the date following the date of such filing of the Articles of Share Exchange (the "Effective Time"). SECTION 1.3. Other Actions. If after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the officers and directors of Acquiror shall have the authority to take that action. -2- ARTICLE II CORPORATE GOVERNANCE SECTION 2.1. [Intentionally Omitted]. SECTION 2.2. Directors and Officers. The persons set forth in Schedule 2.2 shall become the directors and officers, respectively, of each of the Corporate Targets at the Effective Time, to serve until their successors shall have been elected or appointed and qualified in the manner provided in their respective Articles of Incorporation and Bylaws, or as otherwise provided by law. ARTICLE III EXCHANGE OF SHARES; ASSIGNMENT OF PARTNERSHIP INTERESTS; PREPAYMENT OF SUBORDINATED NOTES AND REDEMPTION OF PREFERRED STOCK SECTION 3.1. Effect of Share Exchanges. At the Effective Time, each of the Target Common Shares will be exchanged for Acquiror Common Shares as provided in this Agreement, and the former holders of Target Common Shares will be entitled only to the exchange rights provided in this Agreement. SECTION 3.2. Consideration for Share Exchanges. (a) As of the Effective Time, the Target Common Shares issued and outstanding immediately prior to the Effective Time shall be exchanged for the number of Acquiror Common Shares as set forth in Schedule 3.2 (subject to adjustment as described in Section 3.2(c), below) to this Agreement. At the Closing, the Partners of the Partnerships (except Nationwide) shall assign to Nationwide, free and clear of all liens, security interests and encumbrances, their Partnership Interests and shall receive in exchange the number of Acquiror Common Shares as is set forth in Schedule 3.2 (subject to adjustment as described in Section 3.2(c), below). The total consideration to be received by holders of the Target Common Shares and by the Partners of the Partnerships in connection with the transactions contemplated herein is referred to herein as the "Exchange Consideration." (b) The Exchange Consideration shall consist of five million (5,000,000) Acquiror Common Shares, provided that the average closing price of one Acquiror Common Share as reported on the New York Stock Exchange ("NYSE") for the ten (10) trading days immediately preceding the Closing Date (the "Trading Price") is greater than or equal to Twenty-Four Dollars ($24.00). If the Trading Price is less than Twenty-Four Dollars ($24.00), the Exchange Consideration shall consist of the number (the "Consideration Number") of Acquiror Common Shares equal to the quotient of (i) One Hundred Twenty Million Dollars ($120,000,000), divided by the Trading Price; provided, however, that the Consideration Number shall not be greater than five and one-half million (5,500,000) Acquiror Common Shares. (c) The allocation of Acquiror Common Shares among the Corporate Targets and the Partners set forth in Schedule 3.2 shall be determined assuming that the Exchange Consideration consists of five million (5,000,000) Acquiror Common Shares. In the event of an adjustment in the Exchange Consideration as provided in Section 3.2(b), above, the number of Acquiror Common Shares to be received in exchange for each Target Common Share and each Partnership Interest, respectively, shall be multiplied by a fraction, the numerator of which is the number of Acquiror Common Shares which comprise the Exchange Consideration as adjusted pursuant to Section 3.2(b), above, and the denominator of which is five million (5,000,000). SECTION 3.3. Escrow. As security for, and as the sole source for satisfaction of, the indemnification obligations provided for in Article XIII (except as provided in the proviso to Section 13.2(b) hereof), ten percent (10%) of the number of Acquiror Common Shares received by the shareholders of the Corporate Targets and the Partners that comprise the Exchange Consideration shall be transferred by the shareholders of the Corporate Targets and the Partners to and held by Bank One, Indianapolis, N.A., as escrow agent, in escrow for the period and in accordance with the other terms, conditions and procedures set forth in the Escrow Agreement attached hereto as Exhibit 3.3(a) (the "Escrow"). In addition, as security for the indemnification obligations provided for in Article XIV, five percent (5%) of the number of Acquiror Common -3- Shares received by the shareholders of the Corporate Targets and the Partners that comprise the Exchange Consideration shall be transferred by the shareholders of Nationwide to and held by Bank One, Indianapolis, N.A., as escrow agent, in escrow for the period and in accordance with the other terms, conditions and procedures set forth in the Supplemental Escrow Agreement attached hereto as Exhibit 3.3(b) (the "Supplemental Escrow"); provided that the Acquiror Common Shares to be delivered to the Supplemental Escrow shall be deducted pro rata solely from the Acquiror Common Shares to be delivered to the shareholders of Nationwide. SECTION 3.4. Surrender and Payment for the Target Common Shares. (a) At the Closing, each holder of Target Common Shares shall deliver to Acquiror each certificate (a "Certificate") for such shares held of record by such holder. Risk of loss and title to the Certificates shall pass upon delivery of the certificates to Acquiror. At the Closing, each Partner shall deliver to Acquiror such documents and instruments agreed to by Acquiror and the Partners. Promptly following the Effective Time, Acquiror shall deliver to (i) each holder so delivering his, her or its Certificate(s) or assigning his, her or its Partnership Interest in exchange therefor the Acquiror Common Shares such holder would be entitled to receive under Section 3.2, less such Acquiror Common Shares to be escrowed pursuant to Section 3.3 and (ii) the Escrow and the Supplemental Escrow, the balance of the Acquiror Common Shares otherwise deliverable pursuant to Sections 3.2 and 3.3. (b) No certificates or scrip representing fractional Acquiror Common Shares shall be issued in the Share Exchanges or in connection with the assignment of the Partnership Interests and no holder of any such fractional share interest shall be entitled to vote, to receive any dividends or other distributions paid or declared on Acquiror Common Shares, or to exercise any other rights as a shareholder of Acquiror with respect to such fractional share interest. (c) Each holder of Target Common Shares as of the Effective Time shall be entitled to receive the applicable Exchange Consideration upon surrender to the Acquiror of the Certificates representing the Target Common Shares owned by the shareholder. Each Partner shall be entitled to receive the consideration specified in Section 3.2 upon execution and delivery of such documents and instruments to be agreed to by Acquiror and the Partners. (d) In the event that any Certificate representing Target Common Shares is lost, stolen or destroyed, Acquiror may require as a condition to the payment of the Exchange Consideration with respect to such Target Common Shares pursuant to this Agreement that the holder of such Target Common Shares execute such affidavits and indemnities as Acquiror shall reasonably require. (e) In the event a dividend or other distribution is declared by Acquiror on the Acquiror Common Shares the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all Acquiror Common Shares issuable pursuant to this Agreement; provided that no dividend or other distribution declared or made on the Acquiror Common Shares shall be paid to the holder of any unsurrendered Certificate with respect to the Acquiror Common Shares (including those Acquiror Common Shares deliverable into the Escrow or the Supplemental Escrow) represented thereby until the holder of such Certificate shall duly surrender such Certificate in accordance with this Section 3.4; and provided further that no holder of any unsurrendered Certificate shall have any rights (including voting rights, if applicable) with respect to Acquiror Common Shares (including those Acquiror Common Shares deliverable into the Escrow or the Supplemental Escrow) represented thereby until the holder of such Certificate shall duly surrender such Certificate in accordance with this Section 3.4. (f) If, after the Effective Time, Certificates are presented to Acquiror, they shall be exchanged for the Exchange Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 3.4. (g) Following the Effective Time, if Certificates previously representing Target Common Shares are not delivered to Acquiror or the payment of Exchange Consideration therefor is not claimed prior to the date on which such payments would otherwise escheat or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by abandoned property and any other applicable law, become -4- the property of Acquiror (and to the extent not in its possession shall be paid over to it), free and clear of all claims or interest of any person previously entitled to such claims. Notwithstanding the foregoing, neither Acquiror nor any other person shall be liable to any former holder of Target Common Shares for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. SECTION 3.5. Redemption of Nationwide Subordinated Notes and Nationwide Preferred Stock. At the Closing, the Subordinated Notes of Nationwide, as set forth on Schedule 3.5 (the "Nationwide Subordinated Notes") shall be prepaid by Acquiror, in accordance with the terms thereof; provided, however, that no "Additional Premium" (as that term is defined in that certain Subordinated Note Purchase Agreement dated as of July 27, 1993 between Nationwide and Continental Bank, N.A.) shall be incurred in connection with the prepayment of the Nationwide Subordinated Notes. At the Closing, the Nationwide Preferred Stock shall be redeemed by Nationwide, in accordance with the terms thereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CORPORATE TARGETS AND PARTNERS For purposes of this Article IV, each of the representations and warranties of the Corporate Targets shall be deemed to have been made with respect to the Corporate Targets and their respective subsidiaries. As a material inducement to Acquiror to enter into this Agreement and to consummate the transactions contemplated hereby, the Corporate Targets and the Partners jointly and severally represent and warrant to Acquiror that: SECTION 4.1. Organization; Power. Each of the Corporate Targets is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Each of the Corporate Targets is qualified as a foreign corporation to transact business and is in good standing in each jurisdiction, if any, in which the conduct of its business or the ownership or leasing of its properties requires it to be so qualified. Each business entity in which any of the Targets owns an equity interest, together with such entity's jurisdiction of organization and such Target's percentage ownership interest therein and the states in which the Targets and each such entity are qualified as a foreign corporation or otherwise are listed in Section 4.1 of the Disclosure Statement. Each of the Corporate Targets has all requisite corporate power and authority to own, lease and operate its business as it is now being conducted, and to enter into, execute and deliver this Agreement, to consummate the transactions contemplated hereby, and to comply with and fulfill the terms and conditions hereof. Each of the Corporate Targets has delivered to Acquiror (a) true and complete copies of its Articles of Incorporation, as may be amended or restated, certified by the Indiana Secretary of State, (b) Certificates of Existence issued by the Indiana Secretary of State and by any other state in which it is qualified to do business and (c) a copy of its Bylaws, as currently in effect, certified as true and complete by the respective Corporate Target's Secretary. Each of the Partnerships has been duly formed under the laws of its jurisdiction of formation. Each of the Partnerships is duly qualified to do business in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties requires it to be so qualified. Each of the Partners has all requisite power and authority to enter into, execute and deliver this Agreement, to consummate the transactions contemplated hereby, and to comply with and fulfill the terms and conditions hereof. The Partners have delivered to Acquiror true and complete copies of the partnership agreements of each of the Partnerships. SECTION 4.2. Capital Stock. The authorized capital stock of each of the Corporate Targets is as set forth in the Preliminary Statement of this Agreement. All issued and outstanding Common Shares of each Corporate Target are validly issued and outstanding, fully paid and nonassessable. Except as set forth in Section 4.2 of the Disclosure Statement, there are no outstanding warrants, options, agreements, convertible securities or other commitments pursuant to which any of the Corporate Targets are or may become obligated to issue any Target Common Shares or other securities of any of the Corporate Targets. Except as set forth in Section 4.2 of the Disclosure Statement, there are not outstanding any agreements or commitments pursuant to which any of the Corporate Targets are or may become obligated to purchase or redeem any of the Target Common Shares or other securities. The ownership of the Partnerships is as set forth in Section 1 of the Disclosure Statement. -5- SECTION 4.3. Authority; No Violation. (a) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of each of the Corporate Targets and the Partners. This Agreement is a valid and binding obligation of each of the Corporate Targets and the Partners, enforceable against each of them in accordance with its terms and conditions, except as the enforcement hereof may be limited by bankruptcy, insolvency, moratorium or other laws relating to or limiting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. (b) Except as set forth in Section 4.3 of the Disclosure Statement, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by each of the Corporate Targets and the Partners with any of the provisions hereof, will: (i) conflict with, violate, result in a breach of, constitute a default (or an event that, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under any provision of the Articles of Incorporation, Bylaws or partnership agreements of any of the Targets, or any of the terms, conditions or provisions of any note, lien, bond, mortgage, indenture, license, lease, contract, commitment, agreement, understanding, arrangement, restriction or other instrument or obligation to which any of the Corporate Targets or Partners is a party or by which any of the Corporate Targets or Partners may be bound; (ii) violate any law, rule or regulation of any government or governmental agency or body, or any judgment, order, writ, injunction or decree of any court, administrative agency or governmental agency or body applicable to any of the Targets; or (iii) constitute an event that, with or without notice, lapse of time or action by a third party, could result in the creation of any lien, charge or encumbrance upon any of the assets of any of the Targets or cause the maturity of any liability, obligation or debt of any of the Targets to be accelerated or increased. SECTION 4.4. Consents and Approvals. Except in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), the Securities Act of 1933, as amended ("Securities Act"), the Securities Exchange Act of 1934, as amended ("Exchange Act"), the approval of the shareholders of each of the Corporate Targets under the BCL and as set forth in Section 4.4 of the Disclosure Statement, the execution, delivery and performance of this Agreement by each of the Corporate Targets and the Partners, and the consummation of the transactions contemplated hereby, will not require any notice to, action of, filing with, or consent, authorization, order or approval from any court, administrative agency or other governmental authority or agency, or any individual, corporation, partnership, joint venture, association, firm, organization, group or any other entity or enterprise. Any and all notices, actions, filings, consents, authorizations, orders and approvals necessary to consummate the transactions contemplated by this Agreement shall have been made and obtained on or prior to and shall be in effect as of the Effective Time. SECTION 4.5. Transactions with Certain Persons. Except as set forth in Section 4.5 of the Disclosure Statement, during the past two years no Target has, directly or indirectly, in the ordinary course of business or otherwise, purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services (except with respect to remuneration for services rendered as a director, officer or employee of any of the Targets in the ordinary course of business) to, any current or former director, officer, employee or consultant of any of the Targets, any person who is the beneficial owner (within the meaning of Rule 13d-3 of the SEC under the Exchange Act) of 5% or more of the outstanding Target Common Shares or any "affiliate" of any of the Targets as defined in Rule 12b-2 under the Exchange Act (individually an "Affiliate"). None of the Targets owes any amount to, or has any contract with or commitment to, any Affiliate (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business), and no such Affiliate owes any amount to any of the Targets. No properties or assets owned by any Affiliate or by any subsidiary or affiliate of any Affiliate is used by any of the Targets in connection with their respective businesses. No Affiliate is or during the past three years has been the direct or indirect owner of any interest in any entity that is a -6- competitor or supplier or a potential competitor or supplier of any of the Targets, nor does any Affiliate receive or has any Affiliate received income from any source other than the Targets that relates to the business of the Targets or should properly accrue to the Targets. SECTION 4.6. Books and Records. The minute books of each of the Corporate Targets as previously made available to Acquiror contain accurate records of all meetings of and corporate actions or written consents by the respective Board of Directors, any committee thereof, and the shareholders of each of the Corporate Targets. There have been no material transactions involving the business of any of the Corporate Targets that should have been set forth in the respective books of account, minute book, stock record book or stock transfer ledger, but which have not been accurately set forth therein. SECTION 4.7. Financial Statements. True and complete copies of the consolidated balance sheets of Nationwide as of September 30, 1994 and 1993, and the related statements of income, other shareholders' equity and cash flows for the years then ended, as audited by Ernst & Young LLP, Certified Public Accountants, (collectively, the "Audited Financial Statements") and the unaudited consolidated balance sheets of the Targets as of December 31, 1994 and 1993, and the related statements of income for the year and, in the case of Nationwide, the three months then ended (the "Unaudited Financial Statements"), are set forth in Section 4.7 of the Disclosure Statement. The Audited Financial Statements and the Unaudited Financial Statements (collectively the "Financial Statements") (including any related schedules and/or notes) present fairly in all material respects, the financial position of the Targets at the dates thereof and the results of their operations and their cash flows for the periods then ended, in conformity with generally accepted accounting principles. SECTION 4.8. Absence of Undisclosed Liabilities. Except as set forth or reserved against on the face of the balance sheets of any of the Targets included in the Financial Statements ("Target Balance Sheets") or in Section 4.8 of the Disclosure Statement, as of the date of the respective Target Balance Sheets, none of the Targets had any debts, liabilities or obligations of any nature whatsoever (known or unknown, matured or unmatured, absolute, accrued, fixed, contingent or otherwise, including, without limitation, any foreign or domestic tax liabilities or deferred tax liabilities incurred in respect of or measured by any Target's income, and products liability or any other liability attributable to defects in products, materials or workmanship not covered by insurance) that are required by generally accepted accounting principles to be so set forth or reserved against that are not set forth or reserved against on the Target Balance Sheets. SECTION 4.9. Actions Pending. Section 4.9 of the Disclosure Statement lists all actions, suits and proceedings pending, or to the knowledge of each of the Targets, threatened (whether or not purportedly brought on behalf of any of the Targets), and all investigations, to the knowledge of each of the Targets, pending or threatened, against each of the Targets, or any properties or rights of the Targets, by or before any court, arbitrator or administrative or governmental body. None of such actions, suits or proceedings, would reasonably be expected to have a material adverse effect on such Target's condition (financial or otherwise), properties, assets, liabilities, operations or prospects, or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated hereby. SECTION 4.10. Outstanding Debt and Related Matters. None of the Targets has outstanding any debt except as set forth in Section 4.10 of the Disclosure Statement ("Existing Debt"). Except as set forth in Section 4.10 of the Disclosure Statement, there exists no default under the provisions of any instrument evidencing such Existing Debt or of any agreement relating thereto. Section 4.10 of the Disclosure Statement lists all contracts or commitments of any of the Targets for the guaranty of any obligation of a third party (i.e., a party not a Target) in excess of $10,000. SECTION 4.11. Tax Matters. (a) Each of the Targets has timely filed with the Internal Revenue Service and other appropriate governmental authorities, or provided to its employees, shareholders, consultants and other persons, as the case may be, all tax returns, statements, forms or reports ("Returns") required to be filed or provided by it on or before the Closing Date. All federal, state, county, local, foreign and other taxes, including without limitation income (including gross, adjusted gross and supplemental net income taxes), receipts, sales, use, -7- franchise, value added, excise, recording, filing, real and personal property, employees' income, unemployment, social security taxes (including withholding obligations for trust fund taxes), and all other taxes (together with all interest and penalties imposed thereon) ("Taxes"), due and payable by or on behalf of each of the Targets have been timely paid in full or timely and fully withheld and paid, as the case may be, except for Taxes being contested in good faith by appropriate proceedings as described in Section 4.11 of the Disclosure Statement. None of the Targets has been delinquent in the payment of any Tax assessment (whether proposed or final) or governmental charge or deposit of any kind or character. (b) All accrued but unpaid Taxes accrued for tax periods or portions thereof ending on or prior to December 31, 1994 are duly reflected as a liability or reserved against on the respective Target's Balance Sheet and each Target has established and maintained adequate reserves for Taxes for all prior tax periods. (c) None of the Targets (i) has any Tax deficiency or claim outstanding, proposed or assessed against it and there is no basis for any such deficiency or claim; (ii) has any audit, action, suit, proceeding or investigation for Taxes pending or threatened against it; and (iii) has received any notice that any deficiency, claim, audit, action, suit, proceeding or investigation may be made against or with respect to it. Except as described in Section 4.11 of the Disclosure Statement, during their existence none of the Targets has received any notice of any material deficiency which has not been satisfactorily resolved or other adjustment from the Internal Revenue Service or any other Taxing Authority, and, except as set forth in Section 4.11 of the Disclosure Statement, none of the Returns has been audited by the Internal Revenue Service. (d) Except as described in Section 4.11 of the Disclosure Statement, there is not now in force any extension of time with respect to the date on which any Return was or is due to be filed or provided by or on behalf of or with respect to any of the Targets or any waiver or agreement by any of the Targets for an extension of time for the assessment of any Tax. No election has been made to treat any of the Targets as a "collapsible corporation" under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). None of the Targets is subject to any penalty by reason of a violation of any order, rule or regulation of, or a default with respect to any Return required to be filed with any governmental authority. Except as described in Section 4.11 of the Disclosure Statement, none of the Targets has any pending requests with any governmental authority for rulings as to payment of any Tax. (e) All leases have been properly reported as either "capital" leases or "true" leases, as those terms are commonly used for federal income tax purposes. None of the property owned or used by any of the Targets is subject to a tax benefit transfer lease executed in accordance with Section 168(f)(8) of the Internal Revenue Code of 1954, as amended by the Economic Recovery Tax Act of 1981. (f) There are no liens for Taxes upon any of the Targets' assets, except liens for current Taxes not yet due. Except as described in Section 4.11 of the Disclosure Statement, none of the Targets is currently under any contractual obligation to indemnify any other person with respect to Taxes and none of the Targets is a party to any agreement providing for payments with respect to Taxes. None of the Targets will be required, as a result of a change in method of accounting, to include any adjustment under Section 481(c) of the Code in any period ending after the Closing Date. Except as set forth in Section 4.11 of the Disclosure Statement, no agreement exists that may cause any payment by any of the Targets to be nondeductible in full or in part under Section 280G of the Code. Since January 1, 1990, none of the Targets has been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code but Nationwide is a common parent of such an affiliated group. SECTION 4.12. Absence of Changes or Events. Except as set forth in Section 4.12 of the Disclosure Statement, since the most recent date of each Target Balance Sheet delivered to Acquiror (the "Bring-down Date") the business of each of the Targets has been conducted only in the ordinary course and consistent with historical practices and, since the Bring-down Date, none of the Targets has: (a) Declared, set aside or made any payment of dividends or other distributions to its shareholders upon or in respect of any the Target Common Shares or purchased, retired or redeemed any Target Common Shares or other securities issued by it; -8- (b) Mortgaged, pledged or subjected to lien, mortgage, pledge, claim, security interest, charge, encumbrance or restriction any material portion of its tangible or intangible property, business or assets; (c) Sold, transferred, leased to others or otherwise disposed of any material portion of its tangible or intangible assets or properties, except for inventory sold in the ordinary course of business; (d) Encountered any actual or threatened labor union organizing activity or collective bargaining agreement negotiation, had any actual or threatened employee strikes, work stoppages, slow-downs or lock-outs, or had any material change in its relationship with its employees, agents, consultants, salespersons, distributors or independent contractors; (e) Transferred or granted any concessions, leases, licenses, agreements or other rights with respect to or under, or entered into any settlement regarding the breach or infringement of, any United States or foreign license, patent, copyright, trademark, service mark, trade name, invention or similar rights, or modified any existing rights with respect thereto; (f) Made any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or agreed to pay, conditionally or otherwise, any bonus, extra compensation, pension, severance or vacation pay, to any director, officer, employee, consultant, sales representative, distributor or independent contractor of such Targets other than normal annual increases consistent with past practice, entered into any employment contract with any officer or salaried employee, instituted any employee welfare, bonus, stock option, profit-sharing, retirement or similar plan or arrangement, or made any loan or advance to any third party except those made pursuant to normal trade terms extended to customers; (g) Issued or sold any shares of its capital stock, partnership interests, bonds, notes or other securities, or issued, granted or sold any options, rights or warrants with respect thereto, or acquired any capital stock or other securities of any corporation or any interest in any business enterprise, or otherwise made any loan or advance to or investment in any third party; (h) Changed its accounting methods or practices, including without limitation changes in depreciation or amortization policies or rates and in the method of accounting for inventory; (i) Suffered any change, event or condition that, in any case or in the aggregate, has had or may have a material adverse effect on the Target's condition (financial or otherwise), properties, assets, liabilities, operations or prospects; (j) Entered into any transaction, contract or commitment, other than in the ordinary course of business; or (k) Entered into any agreement or contract, made any commitment or otherwise obligated itself to take any of the types of action described in Subsections (a) through (j) of this Section 4.12. SECTION 4.13. Compliance with Laws; No Default. Except as set forth in Section 4.13 of the Disclosure Statement, none of the Targets is in default of or has violated (nor is there any event or condition which, with notice or lapse of time or both, would constitute a default or violation of) in any respect (i) any contract, agreement, lease, consent order or other written commitment or instrument to which it is a party or by which the assets or business of any of the Targets are bound, or (ii) any law, rule, regulation, ordinance, writ, injunction, development order, permit, resolution, approval, order, decree, policy or guideline of any court or any foreign, federal, state, local or other governmental department, commission, board, bureau, agency or instrumentality (including without limitation applicable laws, rules and regulations relating to environmental protection, antitrust, civil rights, health and occupational health and safety). SECTION 4.14. Property. (a) Section 4.14 of the Disclosure Statement contains (i) the street address and legal description of each parcel of all real property owned or leased from third parties by any of the Targets, including all buildings, structures and improvements located thereon ("Real Property") and (ii) a brief description of the use to which each parcel of the Real Property is being employed and/or the use for which it is currently intended. -9- (b) Each of the Targets owns or leases from third parties all tools, furniture, machinery, computer hardware and software, supplies, vehicles, equipment and other items of tangible personal property that are required to conduct its business ("Personal Property"). (c) Except as set forth in Section 4.14 of the Disclosure Certificate, the Real Property and each item of the Personal Property conforms in all material respects to applicable federal, state, local and foreign laws, regulations and ordinances, including without limitation, in the case of the Real Property, those related to zoning, use or construction, and the Real Property is zoned for the purposes for which it presently is used. The Real Property and each item of the Personal Property is in good operating condition and repair, subject to normal wear and tear, and is suitable for its intended use by the Target owning or leasing such Real Property and Personal Property. (d) With respect to each parcel of Real Property and each item of Personal Property that is leased from third parties ("Leased Property"), the respective Target is the owner and holder of the entire interest in the leasehold estates purported to be granted by the leases or agreements, each of which is in full force and effect and constitutes a legal, valid and binding obligation of the respective parties thereto, enforceable in accordance with its terms. No consent of any lessor of the Leased Property is required in connection with the transactions contemplated by this Agreement, except as set forth in Schedule 4.14 of the Disclosure Certificate. SECTION 4.15. Contracts. (a) Section 4.15(a) of the Disclosure Statement lists all contracts, leases, commitments, purchase orders, work orders, agreements, consent orders and other arrangements, including all amendments thereto, to which each of the Targets is a party or is subject or by which each of the Targets, its assets, or its business is bound, that fall into one or more of the following categories ("Contracts"): (i) All loans, lines of credit, security agreements, guaranties or other payment obligations; (ii) All employment agreements, contracts, policies and commitments with or between any Target and any of its employees, directors or officers, individually or as one or more groups, including without limitation those relating to severance; (iii) All agreements of guaranty or indemnification; (iv) All agreements, contracts and commitments containing any covenant limiting the right of any Target to engage in any line of business or compete with any person; (v) Each agreement, contract and commitment relating to capital expenditures in excess of One Hundred Thousand Dollars ($100,000.00), or Two Hundred and Fifty Thousand Dollars ($250,000.00) in the aggregate; (vi) All agreements, contracts and commitments entered into that individually involve the payment of One Hundred Thousand Dollars ($100,000) or more over their remaining terms (including any period of extension or renewal) and are not cancelable within sixty (60) days or less notice; (vii) All agreements, contracts and commitments relating to the grant or receipt of any license or royalty; (viii) All agreements, contracts and commitments that require consent by any other person in connection with the consummation of the transactions contemplated by this Agreement and the Mergers either to prevent a breach or to continue the effectiveness thereof; and (ix) All agreements with any Affiliate of any Target. (b) All of the Contracts are valid and binding obligations of the respective parties thereto, enforceable in accordance with their respective terms, are in full force and effect, and Acquiror will be entitled to the full benefits thereof. Within 30 days of the date of this Agreement, the Targets will deliver to Acquiror true and complete copies of all of the Contracts. With respect to those Contracts which are substantially the same from facility to facility of the Targets, the Targets have provided to Acquiror or its counsel an example of a form of such Contracts, and such forms are substantially the same from facility to facility. -10- SECTION 4.16. Licenses and Permits. (a) Section 4.16 of the Disclosure Statement contains a true and complete list of certificates of need, franchises, licenses, permits, certificates, approvals, resolutions, development orders, consents and other authorizations necessary to own, lease or operate each of the Target's assets or to conduct its business in compliance with applicable law ("Permits") and, with respect to each Permit, the name of the licensor or grantor, a description of the subject matter, the termination date, and the terms of any renewal options. Each of the Targets has delivered to Acquiror true and complete copies of all of its Permits. (b) Each of the Targets lawfully obtained and currently possesses the respective Permits and has fulfilled and performed its obligations under each of the Permits. No event has occurred and no condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any of the Permits or would allow revocation or termination of any of the Permits, or which might adversely affect the rights of any Target under any of the Permits. No notice of cancellation, of default, or of any dispute concerning any of the Permits, or of any event, condition or state of facts described in the preceding sentence, has been received by, or is known to, any Target or their respective officers, directors or employees. Except as set forth in Section 4.16 of the Disclosure Statement, each of the Permits is valid, subsisting and in full force and effect, and will continue in full force and effect after the Merger, in each case without (i) the occurrence of any breach, default or forfeiture of rights thereunder, or (ii) the consent, approval or act of, or the making of any filing with, any governmental body, regulatory commission or other person. (c) The Permits include all applicable environmental, land use and growth management obligations required by any federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality. SECTION 4.17. Proprietary Information. Section 4.17 of the Disclosure Statement contains a true and complete list and brief description of all Intellectual Property, directly or indirectly related to the products, services or operations of each of the Targets or necessary to use the assets or conduct the business of the Targets as presently used or conducted. Each of the Targets owns or possesses the licenses or other rights to use their respective names and all the Intellectual Property identified in Section 4.17 of the Disclosure Statement. Except as set forth in Section 4.17 of the Disclosure Statement, to its knowledge, no Target is infringing upon or otherwise acting adversely to any Intellectual Property, the rights to which are owned by any other person. There is no claim or action by any person pending or threatened, with respect thereto. For the purposes of this Agreement, "Intellectual Property" means the names "Nationwide Care" (and any and all variations thereof) and all the corporate names, trade names, trademarks, trademark applications, service marks, service mark applications, theme concepts, copyrights, copyright applications, patents, patent applications, inventions, trade secrets, shop rights, know-how, business plans and strategies, proprietary processes and formulae, data bases, telephone numbers and all other proprietary technical information, whether patentable or unpatentable, directly or indirectly related to the products, services or operations of the business or necessary to conduct the business as it is now being conducted. SECTION 4.18. Title to Assets and Related Matters. Each of the Targets has good, valid, marketable and insurable title to all of the assets owned by it free and clear of all mortgages, liens, pledges, charges, claims, security interests, encumbrances, easements, encroachments, limitations, restrictions, rights of third parties or other interests of any kind or character, except as set forth in Section 4.18 of the Disclosure Statement and except for liens for Taxes not yet due and payable. SECTION 4.19. Environmental Matters. (a) Except as set forth in Section 4.19 of the Disclosure Statement, all of the Real Property and all operations conducted thereon, including without limitation the respective Target's use of its assets and the Real Property, are currently in compliance with all applicable federal, state, local and foreign environmental, land use and growth management laws, regulations, rules, ordinances, permits, development orders, approvals, resolutions and orders, including all consent orders. -11- (b) Except as set forth in Section 4.19 of the Disclosure Statement, with respect to the Real Property, there exists no state of affairs and to each Target's knowledge there has occurred no event that currently requires, or is currently expected to require in the future, reporting or disclosure by the Corporate Targets to any federal, state, local or foreign agency concerned with environmental protection and management or land use control or growth management. (c) There are no pending or threatened claims by any private parties or governmental agencies, and there are no pending or threatened judicial or administrative actions, alleging violations of any federal, state, local or foreign environmental, land use or growth management laws, regulations, rules, ordinances, permits, development orders, approvals, resolutions or orders on or connected with the Real Property, the assets or the operations conducted thereon or at any time prior to the Closing Date. (d) Section 4.19 of the Disclosure Statement contains a list and brief description of all written and oral communications between each of the Targets and any federal, state or local governmental authority with respect to any removal, remediation or clean-up required to be undertaken, the results of any inspection or compliance review, potential liability arising under or potential violations of the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Comprehensive Environmental Response, Compensation and Liability Act and equivalent state and local laws, regulations, rules, ordinances and all court and administrative orders issued pursuant thereto, since January 1, 1991. SECTION 4.20. Labor Relations; Employees. (a) The Targets collectively employ approximately 4,500 employees. No Target is a party to any collective bargaining agreement with respect to its work force or any portion thereof. Except as set forth in Section 4.20 of the Disclosure Statement: (i) each Target has paid in full to all its employees all due and owing wages, salaries, commissions, bonuses, fringe benefit payments and all other direct and indirect compensation of any kind for all services performed by them and each of them to the date hereof; (ii) each Target is in compliance with (1) all federal, state, local and foreign laws, regulations, rules, ordinances and court and administrative orders dealing with employment and employment practices of any kind, (2) all of the terms and conditions of employment of any kind with respect to its business, and (3) all wages and hours requirements and regulations; (iii) there is no unfair labor practice, safety, health, discrimination or wage claim, charge, complaint suit, arbitration or proceeding pending or to each Target's knowledge threatened against or involving such Target before the National Labor Relations Board, Occupational Safety and Health Administration, Equal Employment Opportunity Commission, Department of Labor or any other federal, state, local or foreign agency; (iv) there is no labor dispute, strike, work stoppage, interference with production or slowdown in progress or threatened against or involving such Target; (v) there is no question of representation under the National Labor Relations Act, as amended, or any similar state statute, pending with respect to the employees of any Target; (vi) there is no grievance pending or threatened which might have an adverse effect on any Target or on the conduct of its business; and (vii) there is no collective bargaining agreement currently being negotiated or subject to negotiation or renegotiation by any Target. SECTION 4.21. Employee Benefit Plans. (a) Except as set forth in Section 4.21 of the Disclosure Statement, no Target maintains any (i) employee welfare benefit plan (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), or (ii) employee pension benefit plan (as defined in Section 3.(2) of -12- ERISA), (a) which was maintained or administered by the Target immediately prior to Closing; (b) to which the Target contributed to, or was legally obligated to contribute to immediately prior to Closing, or (c) under which the Target had any liability immediately prior to Closing, with respect to its current or former employees or independent contractors. Except as set forth in Section 4.21 of the Disclosure Statement, none of the Targets or any ERISA Affiliate is now or has been in the past obligated to contribute to any multiemployer plan (as defined in ERISA Section 3(37) or to any plan subject to Title IV of ERISA. For purposes of this Agreement, "ERISA Affiliate" means any member (other than a Target) of a group of business entities including a Target, which are treated as a single employer under Section 414 of the Code. (b) The only plans or arrangements maintained by any of the Targets for the benefit of current or former employees (including, without limitation, the plans referred to in paragraph (a)), are set forth in Section 4.21 of the Disclosure Statement (collectively, the "Benefit Plans"). The Targets have delivered or prior to the Closing shall deliver to Acquiror true and correct copies of each of the Benefit Plans. Each of the Benefit Plans has been established and maintained in all material respects in accordance with its terms and compliance with all applicable laws, including, but not limited to, ERISA and the Code. As of the Closing, all contributions required under applicable law or the terms of any Benefit Plan or other agreement relating to a Benefit Plan to be paid by any Target have been completely and timely made to such Benefit Plan when due, and each Target has established adequate reserves on its books to meet liabilities for contributions accrued but that have not been made because they are not yet due and payable. SECTION 4.22. Insurance. (a) Each of the Targets is insured by financially sound and reputable insurers with respect to its properties and the conduct of its businesses. (b) Section 4.22 of the Disclosure Statement contains (i) a true and complete list of all policies of liability, theft, fidelity, life, fire, product liability, workers' compensation, health and other forms of insurance held by the Targets and specifies the insurer, amount of coverage, type of insurance and policy number; and (ii) for the past three (3) fiscal years, an accurate description of any prior claims, any cancellation or significant increase in premiums and any pending claims under those or predecessor policies. (c) The policies listed in Section 4.22 of the Disclosure Statement are outstanding, in full force and effect and all premiums billed with respect to those policies have been paid. The insurance coverage provided by the policies listed in Section 4.22 of the Disclosure Statement satisfies all contractual and statutory requirements applicable to each Target, its assets or its business and is in such amounts and insures against such liabilities and hazards as is consistent with past practice and as is customarily maintained by other companies operating in similar businesses. No Target has, during the past five fiscal years, been denied or had revoked or rescinded by a carrier any policy of insurance. SECTION 4.23. Life Care Contracts. No Target is a party to any contract pursuant to which such Target has agreed to care for any individual for such individual's life. SECTION 4.24. Survey Reports. A true and complete copy of the most recent survey reports and any waivers of deficiencies, plans of correction and other investigation reports issued with respect to any facility of any Target has been delivered to Acquiror. Each facility is in compliance with all conditions and standards of licensing and participation in the Medicare and Medicaid programs. SECTION 4.25. Payment Programs. Each Target is now, and on the Closing Date will be, certified for participation in, and party to valid provider agreements for payment by, the federal Medicare and Medicaid programs (the "Programs"); provided, however, that Nationwide's Markle Health Care facility is not certified for participation in the Medicare program. The Targets have filed all cost reports in connection with their businesses and operations that are required to be filed with any federal or state governmental or regulatory authority (including pursuant to Titles XVIII and XIX of the Social Security Act). A true and complete copy of all such cost reports has been provided to Acquiror. Except as set forth in Section 4.25 of the Disclosure Statement, the Targets have not received any notice of pending or threatened investigations by any Program which poses a risk to the Targets' participation in the Program or may result in any adjustments to reimbursements that have been paid, excluding survey report deficiencies that have been corrected. All billing -13- practices by the Target to all third payors, including the federal Medicare program, state Medicaid programs and private insurance companies, have been true, fair and correct and in compliance with all applicable laws, regulations and policies of all such third payors, and the Targets have not billed for or received any payment or reimbursement in excess of amounts allowed by law, other than insignificant amounts subject to adjustment pursuant to periodic audits of cost reports submitted by the Target. Neither any Target, nor any Affiliate thereof, nor any director, officer or employee thereof, is a party to any contract, lease, agreement or arrangement, including any joint venture or consulting agreement with any physician, hospital, nursing facility, home health agency or other person who is in a position to make or influence referrals to or otherwise generate business for any Target to provide services, lease space, lease equipment or engage in any other venture or activity, to the extent prohibited by law or regulations. SECTION 4.26. Gratuitous Payments. Neither any Target, nor any director, officer or employee, nor any agent acting on behalf of or for the benefit of any thereof, has directly or indirectly (i) offered or paid any remuneration, in cash or in kind, to, or made any financial arrangements with, any past or present customers, past or present suppliers, contractors or third party payors of any Target in order to obtain business or payments from such persons, other than entertainment activities in the ordinary and lawful course of business; (ii) given or agreed to give, or has knowledge that there has been made or that there is any agreement to make, any gift or gratuitous payment of any kind, nature or description (whether in money, property or services) to any customer or potential customer, supplier or potential supplier, contractors, third party payor or any other person other than in connection with promotional or entertainment activities in the ordinary and lawful course of business; (iii) made or agreed to make, or is aware that there has been made or that there is any agreement to make, any contribution, payment or gift of funds or property to, or for the private use of, any governmental official, employee or agent if either the contribution, payment or gift or the purpose of such contribution, payment or gift is or was illegal under the laws of the United States or under the laws of any state thereof or any other jurisdiction (foreign or domestic) under which such payment, contribution or gift was made; (iv) established or maintained any unrecorded fund or asset for any purpose or made any false or artificial entries on any of its books or records for any reason; or (v) made, or agreed to make, or has knowledge that there has been made or that the intention or understanding that any part of such payment would be used for any purpose other than that described in the documents supporting such payment. SECTION 4.27. Brokers' or Finders' Fees. No agent, broker, investment banker or other person or firm acting on behalf of the Targets or Partners or any of their directors, executive officers, or partners or under the authority of any of them, is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, from any of the parties hereto in connection with any of the transactions contemplated hereby, except for those fees or commissions set forth and described in Section 4.27 of the Disclosure Statement which the Targets shall have paid in full prior to or at the Closing, and evidence of payment for which shall have been delivered to Acquiror at the Closing. SECTION 4.28. Disclosure. (a) No representation or warranty by any Corporate Target or Partner contained in this Agreement and no statement made by any Corporate Target or Partner contained in the Disclosure Statement or any certificate or other instrument delivered or to be delivered pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. All information in the Disclosure Statement or any Schedule, Exhibit or any contract delivered on behalf of the Corporate Targets and the Partners pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to have been relied upon by Acquiror and constitute representations and warranties by the Corporate Targets and the Partners herein. (b) None of the information supplied or to be supplied by the Targets for inclusion in the registration statement on Form S-4 or other appropriate registration form to be filed with the SEC by Acquiror in connection with the offer and issuance of the Acquiror Common Shares in or as a result of the Share Exchanges (the "Registration Statement"), will at the time the Registration Statement becomes effective under the Securities Act contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. -14- SECTION 4.29. Tax Representations. The representations and warranties by the shareholders of the Corporate Targets required under Section 6.15 shall be true, correct and complete in all respects as of the Effective Time. SECTION 4.30. Representations and Warranties as of Date Hereof; No Other Representations and Warranties. The representations and warranties contained in the foregoing Sections 4.1 through 4.29 inclusive are made as of the date hereof, except as otherwise expressly indicated therein. None of the Corporate Targets or Partners makes, and no party shall be entitled to rely upon, any representation or warranty as to any fact or matter other than as expressly set forth herein. ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR As a material inducement to the Corporate Targets and the Partners to enter into this Agreement and to consummate the transactions contemplated hereby, Acquiror represents and warrants to the Corporate Targets and the Partners that: SECTION 5.1. Organization; Power. Acquiror is a corporation duly organized and validly existing under the laws of the State of Nevada, for which all required annual reports have been filed with the Nevada Secretary of State and for which no Articles of Dissolution appear as having been filed with the Nevada Secretary of State. Acquiror has all the requisite corporate power and authority to own, lease and operate its business as it is now being conducted and to enter into this Agreement, to consummate the transactions contemplated hereby, and to comply with and fulfill the terms and conditions of this Agreement. SECTION 5.2. Capital Stock. The authorized shares of Acquiror are as set forth in the Preliminary Statement to this Agreement. All issued and outstanding Acquiror Common Shares are validly issued and outstanding, fully paid and nonassessable. SECTION 5.3. Authority; No Violation; Etc. (a) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Acquiror. This Agreement is a valid and binding obligation of Acquiror, enforceable against Acquiror in accordance with its terms and conditions, except as the enforcement hereof and thereof may be affected by bankruptcy, insolvency, moratorium or other laws relating to or limiting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. (b) Except as set forth in Section 5.3 of the statement of disclosure delivered by the Acquiror to the Corporate Targets and the Partners in connection with the execution of this Agreement (the "Acquiror's Disclosure Statement"), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance by Acquiror with any of the provisions hereof, will: (i) conflict with, violate, result in a breach of, constitute a default (or an event that, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under any provision of the Articles of Incorporation or Bylaws of Acquiror, or any of the terms, conditions or provisions of any note, lien, bond, mortgage, indenture, license, lease, contract, commitment, agreement, understanding, arrangement, restriction or other instrument or obligation to which Acquiror is a party or by which Acquiror may be bound; (ii) violate any law, rule or regulation of any government or governmental agency or body, or any judgment, order, writ, injunction or decree of any court, administrative agency or governmental agency or body applicable to Acquiror; or (iii) constitute an event that, with or without notice, lapse of time or action by a third party, could result in the creation of any lien, charge or encumbrance upon any of the assets of Acquiror or cause the maturity of any liability, obligation or debt of Acquiror to be accelerated or increased. -15- SECTION 5.4. Consents and Approvals. Except in connection with the HSR Act, the Securities Act and the Exchange Act, and as set forth in Section 5.4 of the Acquiror's Disclosure Statement, the execution, delivery and performance of this Agreement by Acquiror and the consummation of the transactions contemplated hereby will not require any notice to, action of, filing with or consent, authorization, order or approval from any court, administrative agency or other governmental authority or agency, or any individual, corporation, partnership, joint venture, association, firm, organization, group or any other entity or enterprise. SECTION 5.5. Reports. Acquiror has filed all required forms, reports and documents with the SEC required to be filed by it pursuant to the federal securities laws and the rules and regulations of the SEC thereunder (the "Acquiror SEC Reports"), each of which complied, at the time such form, report or document was filed, in all material respects with the then applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations thereunder. None of the Acquiror SEC Reports, including without limitation any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of Acquiror included in the Acquiror SEC Reports (the "Acquiror Financial Statements") were prepared from Acquiror's books and records in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of Acquiror and its consolidated subsidiaries as at the dates thereof and the results of their operations and their cash flows for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring year-end adjustments and any other adjustments described therein. Since the date of the last audited balance sheet in the Acquiror Financial Statements (the "Acquiror Bring Down Date"), neither Acquiror nor any of its subsidiaries has incurred any liabilities or obligations, whether absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether due or to become due, except (i) as and to the extent set forth on the audited balance sheet of the Acquiror and its subsidiaries as at the Acquiror Bring Down Date (including the notes thereto), (ii) as incurred in connection with the transactions contemplated, or as provided, by this Agreement, (iii) as incurred after the Acquiror Bring Down Date in the ordinary course of business and consistent with past practices, (iv) as described in the Acquiror SEC Reports or (v) as would not, individually or in the aggregate, have a material adverse effect upon the business, assets or condition, financial or otherwise, of Acquiror and its subsidiaries considered as a whole. Acquiror has delivered to Nationwide all Acquiror SEC Reports filed with the SEC since January 1, 1993. SECTION 5.6. Due Authorization of Shares. The Acquiror Common Shares to be issued at the Closing will, when issued, be duly authorized Common Shares of Acquiror and, when delivered, will be duly and validly issued, fully paid and nonassessable and qualified for trading on the NYSE subject to notice of issuance. SECTION 5.7. Compliance with Laws; No Default or Litigation. Except as set forth in Section 5.7 of the Acquiror's Disclosure Statement, neither Acquiror nor any of its subsidiaries is in default of or has violated (nor is there any event or condition which, with notice or lapse of time or both, would constitute a default or violation of) in any respect, (i) any contract, agreement, lease, consent, order or other written commitment or instrument to which it is a party or by which the assets or business of any of the Acquiror or its subsidiaries are bound, or (ii) any law, rule, regulation, ordinance, writ, injunction, development order, permit, resolution, approval, order, decree, policy or guideline of any court or any foreign, federal, state, local or other governmental department, commission, board, bureau, agency or instrumentality (including without limitation applicable laws, rules and regulations relating to environmental protection, antitrust, civil rights, health and occupational health and safety) except where such default or violation would not, individually or in the aggregate with all other defaults and/or violations, have a material adverse effect on the business, assets or condition, financial or otherwise, of Acquiror and its subsidiaries considered as a whole. Except as disclosed in the Acquiror Financial Statements or as set forth in Section 5.7 of the Acquiror's Disclosure Statement: neither Acquiror nor any of its subsidiaries is presently engaged in or threatened with or aware of any situation that could subject Acquiror or any of its subsidiaries (together, the "Acquiring Companies") to any litigation (including appeals of lower court decisions), arbitration, claim or other legal proceedings or governmental or -16- any other investigation relating to the affairs of any of the Acquiring Companies or any of their properties or assets that (a) questions the validity or enforceability of this Agreement or that could prevent, hinder or delay consummation of the transactions contemplated by this Agreement or (b) would reasonably be expected to have a material adverse effect on the business, assets or condition, financial or otherwise, of Acquiror and its subsidiaries considered as a whole. SECTION 5.8. Tax Representations. The representations and warranties by Acquiror required under Section 7.7 shall be true, correct and complete in all respects as of the Effective Time. SECTION 5.9. Brokers' or Finders' Fees. Except for certain fees and expense reimbursements to be paid by Acquiror to Merrill Lynch, Pierce, Fenner & Smith, Incorporated, no agent, broker, investment banker or other person or firm acting on behalf of Acquiror or any of its directors or executive officers, or under the authority of any of them is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, from Acquiror in connection with any of the transactions contemplated hereby. SECTION 5.10. Representations and Warranties as of Date Hereof. The representations and warranties contained in the foregoing Sections 5.1 through 5.9 inclusive are made as of the date hereof, except as otherwise expressly indicated therein. The Acquiror does not make, and no party shall be entitled to rely upon, any representation or warranty as to any fact or matter other than as expressly set forth herein. ARTICLE VI CERTAIN PRE-CLOSING COVENANTS OF THE TARGETS Each of the Corporate Targets and the Partners covenants and agrees that between the date hereof and the Closing: SECTION 6.1. Maintenance of Corporate Status. Each of the Corporate Targets shall be maintained at all times as a corporation validly existing and in good standing under the laws of the state of its incorporation and in good standing as a foreign corporation in all states in which it is currently qualified to do business. No amendment shall be made to the Articles of Incorporation or Bylaws of any of the Corporate Targets without the prior written consent of Acquiror. SECTION 6.2. No Change in Capitalization. No change will be made in the number of issued and outstanding Target Common Shares, other than as a result of the exercise of outstanding warrants or options to purchase Target Common Shares in accordance with the terms of such warrants or options. No option, warrant or any other right to purchase or to convert any obligation or security into Target Common Shares will be sold, issued or granted by the Targets. SECTION 6.3. Shareholders Meetings. Each of the Corporate Targets shall cause a meeting of its shareholders to be duly called and held as soon as practicable following the effectiveness of the Registration Statement (but not earlier than 20 business days after the date of such effectiveness) for the purpose of voting on the approval and adoption of this Agreement and the Share Exchanges. The Board of Directors of each of the Corporate Targets shall recommend approval and adoption of this Agreement and the Share Exchanges by the respective Corporate Target's shareholders. In connection with such meeting, each of the Targets: (a) will cooperate with Acquiror in the prompt preparation of the Registration Statement and use its best efforts to have the Registration Statement declared effective by the SEC, and will thereafter mail to its shareholders as promptly as practicable the Prospectus/Information Statement and all other solicitation materials for use in connection with the meeting of shareholders; (b) will use its best efforts to obtain the necessary approvals by its shareholders of this Agreement and the Share Exchanges; and (c) will otherwise comply with all legal requirements applicable to such meeting. SECTION 6.4. Operation of the Business. Each of the Targets shall operate its business diligently and only in the regular and ordinary course and manner as it has previously been operated. Without limiting the -17- generality of the foregoing, each of the Targets shall use all reasonable efforts to (i) preserve its present business organization intact and conserve its goodwill; (ii) keep available and maintain the services of all officers, employees, agents and representatives on the same or substantially the same terms; (iii) continue and preserve good relationships with suppliers, customers, lenders and others having business dealings or relationships with the Targets; (iv) maintain in full force and effect all Permits required for the operation of the business as presently conducted; and (v) maintain and keep in good order, consistent with past practice, all of the Targets's tangible assets, ordinary wear and tear excepted. None of the Targets shall, without the prior written consent of Acquiror: (i) incur any indebtedness to any third party, except trade payables incurred in the ordinary course of business consistent with past practices; (ii) declare, set aside or pay any dividends or other distributions or payments on or in respect of its outstanding shares, or purchase, redeem or otherwise acquire, or agree to purchase, redeem or otherwise acquire any Target Common Shares; (iii) knowingly do any act or omit any act or permit any omission to act within its control, which will cause a breach or default in any of the Targets' contracts, commitments or obligations; (iv) except in the ordinary course of business consistent with past practices, change or increase the rate of compensation paid by any of the Targets to any of their directors, officers, employees or agents, including without limitation the payment of bonuses and arrangements for severance pay, or (v) enter into any agreement to do any of the foregoing. SECTION 6.5. Other Offers. From the date of this Agreement until it is terminated in accordance with Article X, the Targets shall not and shall cause its officers, directors, partners, employees and other agents not to, directly or indirectly, take any action to solicit, initiate or encourage the making of any Acquisition Proposal (as hereinafter defined). Until this Agreement shall be terminated in accordance with Article X, the Targets will not enter into any agreement to merge or consolidate with, issue Target Common Shares to, exchange the Target Common Shares with, or sell a substantial portion of the Targets' assets to, any person or entity. The Targets will promptly notify Acquiror after receipt of any Acquisition Proposal or any request for nonpublic information relating to the Targets in connection with an Acquisition Proposal or for access to the personnel, properties, books or records of any of the Targets by any person or entity that informs the Board of Directors or Partners of any of the Targets that it is considering making, or has made, an Acquisition Proposal. The term "Acquisition Proposal" as used herein means any offer or proposal for, or any indication of interest in, a merger or other business combination involving any of the Targets or the acquisition of a majority of the equity interest in, or a majority of the assets of, any of the Targets, other than the transactions contemplated by this Agreement. SECTION 6.6. Compliance with the Securities Act; Affiliates. Each of the Targets shall use its best efforts to cause each person who is an "affiliate," as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of such Target to deliver to the Target at or prior to the Effective Time a written agreement to the effect that such person will not offer to sell, sell or otherwise dispose of any Acquiror Common Shares issued in the Share Exchanges, except, in each case, pursuant to an effective registration statement or in compliance with Rule 145, as amended from time to time, or in a transaction that, in the opinion of legal counsel satisfactory to Acquiror, is exempt from the registration requirements of the Securities Act, such agreement to be in substantially the form attached hereto as Exhibit 6.6(a). Each of the Targets shall use its best efforts to cause each such person not to take any action that would impair Acquiror's ability to account for the Share Exchanges as poolings of interests. Accordingly, each of the Targets shall use its best efforts to cause each such person to deliver prior to the Effective Time a written agreement in the form attached as Exhibit 6.6(b) to this Agreement, to the effect that such person shall not sell or otherwise reduce his or her risk relative to any Acquiror Common Shares received in connection with the Share Exchanges (within the meaning of the SEC's Codification of Financial Reporting Policies sec. 201.01) until Acquiror has published financial results (including combined sales and net income) covering at least thirty days of post-Share Exchange operations, except as permitted by Staff Accounting Bulletin No. 76 issued by the SEC. SECTION 6.7. Taxes. Each of the Targets shall timely file all Tax reports and Returns required to be filed with any governmental authority wherein the nature of its activities is such as to require the filing thereof, and shall promptly pay, when due, all federal, state, local and foreign taxes, assessments, governmental charges, fees, interest and penalties lawfully levied or assessed upon it or its properties. -18- SECTION 6.8. Access; Review. Each of the Targets shall provide to Acquiror, its attorneys, accountants, appraisers and other authorized representatives or retained experts access upon reasonable notice to all the premises, books, records, personnel and income tax returns of or relating to such Target during normal business hours and shall furnish to such persons such financial and operating data and other information as Acquiror or such persons may from time to time reasonably request. In addition, each of the Targets shall authorize its independent certified public accountants to give Acquiror's independent certified public accountants access to books and records and work papers regarding the Target's financial statements. No investigation, test, examination or inquiry by Acquiror shall affect the representations and warranties contained in this Agreement. SECTION 6.9. Insurance. Each of the Targets shall maintain the types and levels of insurance currently in effect to insure its assets and its business against the risk of loss or damage attributable to casualty, storm, fire, theft, burglary or riot. SECTION 6.10. Monthly Financial Statements. On or prior to the thirtieth day of each calendar month, each of the Targets shall deliver to Acquiror copies (identified with a reference to this Section 6.10) of the unaudited monthly balance sheet and statement of income of such Target for the immediately preceding month (the "monthly statements"), prepared in a manner consistent with past practices used in preparation of such statements, all of which when delivered, shall be materially complete and correct, prepared from the books and records of such Target in accordance with generally accepted accounting principles (except for the omission of notes thereto) consistently applied and maintained throughout such months, and shall in all material respects fairly present the financial condition of such Target as at their respective dates and the results of the operations of its business for the months covered thereby. SECTION 6.11. Approvals, Notices and Consents. Promptly after the execution of this Agreement, each of the Targets shall file all forms, applications and reports, including without limitation all filings under the HSR Act, and take such other action which is required to be taken or filed with any governmental agency or authority in connection with the transactions contemplated by this Agreement. Each of the Targets shall cooperate with Acquiror in promptly producing such additional information as those authorities may require to allow early termination of the notice period provided by the HSR Act or as otherwise necessary to comply with statutory requirements and requests of the Federal Trade Commission or the Department of Justice. Each of the Targets shall give all additional notices to third parties and take such other action required to be given or taken by it under any authorization, lease, note, mortgage, indenture, agreement or other instrument or any law, rule, regulation, demand or court or administrative order in connection with the transactions contemplated by this Agreement, and shall use its best efforts to obtain all consents and approvals necessary to enable it to consummate the transactions contemplated by this Agreement. Each of the Targets shall use its reasonable efforts to obtain estoppel certificates from the lessors under the leases of Real Property. SECTION 6.12. The Targets' Actions; Supplements to Representations and Warranties. From the date of this Agreement through the Closing, (a) each of the Targets shall use its best efforts to cause the conditions to the obligations of the Corporate Targets and the Partners set forth in Article IX to be satisfied to the extent that the satisfaction of such conditions is within the control of such Target; provided, however, that the foregoing shall not constitute a limitation upon the covenants and obligations of the Corporate Targets and the Partners otherwise set forth in this Agreement; (b) none of the Targets shall take any action or omit to take any action within its control to the extent such action or omission might result in a breach of any term or condition of this Agreement or in any representation or warranty contained in this Agreement being inaccurate or incorrect on and as of the Closing Date; and (c) each of the Targets shall deliver to Acquiror, as soon as possible after discovery thereof, but not later than at the Closing, supplemental information updating the information set forth in the representations and warranties of the Targets set forth in this Agreement to reflect subsequent occurrences, if any, (along with a notice stating the representations and warranties, including the schedules referred to therein, to which such supplemental information relates) so that such representations and warranties as supplemented by such information will be true and correct as of the Closing as if then made. The foregoing provisions shall not be deemed to permit any transaction between the date hereof and the Closing not otherwise contemplated or permitted by this Agreement nor shall any action taken by any of the -19- Targets pursuant to the foregoing provisions impair the exercise by Acquiror of its rights as set forth in Section 10.2. SECTION 6.13. Notice of Material Adverse Change. The Targets shall promptly advise Acquiror in writing of any material adverse change in the assets or financial condition, results of operations, businesses or properties of the Targets considered as a whole. SECTION 6.14. Pooling. None of the Targets shall take any action that would prevent the Share Exchanges from qualifying for pooling of interests accounting treatment. SECTION 6.15. Tax Statements. The Targets will make and will use their reasonable efforts to cause their respective shareholders to make the representations and warranties contained in Exhibit 6.15, and such other representations and warranties as considered reasonably necessary by the accountants or counsel for purposes of rendering the opinions referred to in Sections 8.12 and 9.10. SECTION 6.16. Cooperation. Each of the Targets shall generally cooperate with Acquiror and its officers, employees, attorneys, accountants and other agents and, generally, do such other acts and things in good faith as may be reasonable, necessary, or appropriate to timely effectuate the intents and purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 6.17 Nationwide to Use Its Reasonable Best Efforts to Terminate Option. Nationwide shall use its reasonable best efforts to terminate that certain option to purchase the Marietta, Ohio facility pursuant to that certain Lease Agreement by and between Marietta Convalescent Center, Inc. (previously merged into Nationwide) and Jackson-Browne Enterprises, Inc., dated July 12, 1983. The terms of such termination shall be reasonably acceptable to Acquiror and Acquiror shall assist Nationwide with the negotiations to terminate such option to the extent Nationwide shall reasonably deem appropriate. ARTICLE VII CERTAIN PRE-CLOSING COVENANTS OF ACQUIROR Acquiror covenants and agrees that between the date hereof and the Closing: SECTION 7.1. Required Consents and Approvals. It shall use all reasonable efforts to obtain all consents and approvals necessary to enable it to consummate the transactions contemplated by this Agreement. Acquiror shall also use its best efforts to obtain by April 28, 1995 all necessary consents from its principal lenders, as set forth in Section 5.4 of Acquiror's Disclosure Statement. SECTION 7.2. Pre-transaction Notification. It shall file with the proper authorities all forms and other documents necessary to be filed pursuant to the HSR Act and regulations issued thereunder as promptly as possible and shall cooperate with the Targets in promptly producing such additional information as such authorities may require to allow early termination of the notice period provided by the HSR Act or as otherwise necessary to comply with statutory requirements and requests of the Federal Trade Commission or the Department of Justice. SECTION 7.3. Registration Statement; NYSE Listing. (a) Acquiror shall promptly prepare and file with the SEC under the Securities Act the Registration Statement and shall use all reasonable efforts to cause the Registration Statement to be declared effective as promptly as practicable. Acquiror shall take all reasonable action required to be taken under applicable state securities or Blue Sky laws in connection with the issuance of Acquiror Common Shares in the Share Exchanges. (b) Acquiror shall take all such action as is reasonably necessary to qualify the Acquiror Common Shares to be issued in the Share Exchanges for trading on the NYSE effective upon notice of issuance. SECTION 7.4. Notice of Material Adverse Change. Acquiror shall promptly advise the Targets in writing of any material adverse change in Acquiror, its assets or the financial condition, results of operations, businesses or properties of Acquiror and its subsidiaries considered as a whole. -20- SECTION 7.5. Pooling Actions. Neither Acquiror nor any of its subsidiaries shall take any action that would prevent the Share Exchanges from qualifying for pooling of interests accounting treatment. SECTION 7.6. Pooling Letter. Prior to the date of Closing, Acquiror shall have caused KPMG Peat Marwick LLP to deliver to Acquiror a letter with respect to whether the Share Exchanges will qualify for pooling of interests accounting treatment. SECTION 7.7. Tax Statements. Acquiror will make the representations, warranties and covenants contained in Exhibit 7.7, and such other representations, warranties and covenants as considered reasonably necessary by the accountants or counsel for purposes of rendering the opinions referred to in Sections 8.12 and 9.10. SECTION 7.8. Environmental Surveys. Acquiror shall use its reasonable efforts to cause to have performed by April 28, 1995, at Acquiror's expense, Phase I environmental surveys of all long-term health care facilities currently operated but not owned by the Targets and to be operated by the Corporate Targets following the Closing. SECTION 7.9. Cooperation. Acquiror shall generally cooperate with each of the Targets and its officers, employees, attorneys, accountants and other agents, and, generally, do such other acts and things in good faith as may be reasonable, necessary or appropriate to timely effectuate the intents and purposes of this Agreement and the consummation of the transactions contemplated hereby, including assisting the Targets in obtaining agreements to release at the Closing the personal guarantees as described in Section 9.11. Prior to the Closing Date, Acquiror agrees to disclose to the Targets any fact or matter that comes to the attention of Acquiror that might indicate that any of the representations or warranties of any of the Targets may be untrue, incorrect, or misleading in any material respect. ARTICLE VIII CONDITIONS PRECEDENT TO THE PERFORMANCE OF ACQUIROR The obligations of Acquiror pursuant to the terms of this Agreement are subject to the satisfaction, at the Closing, of each of the following conditions: SECTION 8.1. Accuracy of Representations and Warranties of the Targets. Each of the representations and warranties of each of the Corporate Targets and the Partners contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date. For purposes of this Section 8.1, all references in such representations and warranties to "the date hereof," "the date of this Agreement" and like language shall mean the Closing Date. SECTION 8.2. Compliance. Each of the Targets and the Partners shall have performed, complied with and fulfilled in all material respects all the covenants, agreements, obligations and conditions required by this Agreement to be performed, complied with or fulfilled by it at or prior to the Closing. SECTION 8.3. Approval. The execution and delivery of this Agreement by each of the Corporate Targets and the Partners, and the performance of the Targets' and Partners' covenants and obligations hereunder, shall have been duly authorized by all necessary action on the part of such Target or Partner. SECTION 8.4. HSR Act Approval. Any applicable waiting period under the HSR Act relating to the Share Exchanges shall have expired or been terminated. SECTION 8.5. Authorizations. All material permits, authorizations, approvals and consents of and notices to any federal, state or local governmental body, agency or authority or any other third party, which may be required by law, regulation, rule, ordinance, order, decree, agreement, indenture, lease or other instrument or document to which any of the Targets or Acquiror is a party or by which such Target or Acquiror or its assets are bound or which Acquiror may otherwise reasonably require in connection with the execution of this Agreement or effectuation of the transactions contemplated by this Agreement shall have been obtained or made by the respective Target or Acquiror on terms and conditions reasonably satisfactory to -21- Acquiror, other than licenses set forth in Section 4.16 of the Disclosure Statement which cannot be transferred, but which must be issued to Acquiror after the Closing. SECTION 8.6. Litigation. No order, decree, writ or ruling of any governmental authority or court shall have been entered that restrains, enjoins, or otherwise prohibits the consummation of the transactions contemplated hereby. SECTION 8.7. No Material Adverse Change. In the reasonable judgment of Acquiror, between the date hereof, and the Closing, there shall not have been any material adverse change or any event which is likely to result in any material adverse change in the assets, business, financial condition or results of operations of the Targets and their subsidiaries taken as a whole. SECTION 8.8. Closing Deliveries. Acquiror shall have received from the respective Target all of the instruments, documents and considerations described in Section 12.2, and the form and substance of all such deliveries shall be reasonably satisfactory in all material respects to Acquiror. SECTION 8.9. Dissenters' Rights. Holders in excess of 5% of the Target Common Shares shall not have exercised dissenters' rights under applicable law. SECTION 8.10. Pooling Letter. Acquiror shall have received a letter from KPMG Peat Marwick LLP, in form and substance reasonably satisfactory to Acquiror, stating that the Share Exchanges will qualify for poolings of interests accounting treatment. SECTION 8.11. Exercise of Warrants. All warrants issued by Nationwide shall have been exercised prior to the Closing. SECTION 8.12. Tax Opinions. Acquiror shall have received opinions of KPMG Peat Marwick LLP acceptable in form and content to Acquiror substantially to the effect that the exchange of Target Common Shares for Acquiror Common Shares as provided in this Agreement will, in each instance, constitute a reorganization within the meaning of Section 368(a)(1)(B) of the Code, and each Corporate Target and Acquiror will be a "party to reorganization" within the meaning of Section 368(b) of the Code. SECTION 8.13. Lease Extensions. The lease of Colonial Oaks Health Care Center shall have been renewed in accordance with such lease for an additional five year term, and the Targets shall have used their reasonable efforts to obtain modifications to the lease of Ossian Health Care to provide for a five year extension. SECTION 8.14. Option Termination. That certain Option to Purchase dated January 25, 1993 by and among Craig Moore, John Maxwell, the Anita Maxwell Trust (collectively, the "Optionees") and Nationwide, relating to the Cambridge and Parkwood facilities, shall have been terminated in exchange for the payment of not more than $300,000 to the Optionees, and Acquiror agrees that such termination and payment shall not constitute a breach of any representation, warranty or other provision of this Agreement. ARTICLE IX CONDITIONS PRECEDENT TO PERFORMANCE OF THE CORPORATE TARGETS AND PARTNERS The obligations of each of the Corporate Targets and Partners pursuant to the terms of this Agreement are subject to the satisfaction, at the Closing, of each of the following conditions: SECTION 9.1. Accuracy of Representations and Warranties of Acquiror. Each of the representations and warranties of Acquiror contained in this Agreement shall be true and correct in all material respects at the Closing with the same force and effect as if made at the Closing. For purposes of this Section 9.1, all references in such representations and warranties to "the date hereof," "the date of this Agreement" and like language shall mean the Closing Date. SECTION 9.2. Compliance. Acquiror shall have performed, complied with and fulfilled in all material respects all the covenants, agreements, obligations and conditions required by this Agreement to be performed, complied with or fulfilled by it at or prior to the Closing. -22- SECTION 9.3. Corporate Approval. The execution and delivery of this Agreement by Acquiror and the performance by Acquiror of all of its covenants and obligations hereunder shall have been duly authorized by all necessary corporate action on the part of Acquiror. SECTION 9.4. Authorizations. All material permits, authorizations, approvals and consents of and notices to any federal, state or local governmental body, agency or authority or any other third party, which may be required by law, regulation, rule, ordinance, order, decree, agreement, indenture, lease or other instrument or document to which any of the Targets or Acquiror is a party or by which such Target or Acquiror or its assets are bound or which the Targets may otherwise reasonably require in connection with the execution of this Agreement or effectuation of the transactions contemplated by this Agreement shall have been obtained or made by the respective Target or Acquiror on terms and conditions reasonably satisfactory to the Targets. SECTION 9.5. Registration Statement. The Registration Statement shall have become effective under the Securities Act and the Acquiror Common Shares to be issued in the Share Exchanges shall have become qualified or registered (or shall be exempt from qualification or registration) under comparable state securities laws, and at or prior to the Effective Time no stop order suspending the effectiveness of the Registration Statement or the qualification or registration of the Acquiror Common Shares to be issued in the Share Exchanges under the Blue Sky laws of any jurisdiction shall have been issued and no proceeding for that purpose shall have been initiated or shall be threatened or contemplated by the SEC or the authorities of any such jurisdictions, and the Acquiror Common Shares shall be eligible for trading on the NYSE upon notice of issuance. SECTION 9.6. Litigation. No order, decree, writ or ruling of any governmental authority or court shall have been entered that restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated by this Agreement. SECTION 9.7. No Material Adverse Change. In the reasonable judgment of the Targets, between the date of execution and the Closing, there shall not have been any material adverse change or any event which is likely to result in any material adverse change in the assets, business, financial condition or results of operations of Acquiror and its subsidiaries, taken as a whole. SECTION 9.8. HSR Act Waiting Periods. Acquiror and the Targets shall have filed all notifications required by the HSR Act with the Department of Justice and the Federal Trade Commission and the applicable waiting periods with respect thereto (including any extension thereof by reason of a request for additional information) shall have expired or been terminated. SECTION 9.9. Closing Deliveries. Each of the Targets shall have received from Acquiror all of the instruments, documents and considerations described in Section 12.3, and the form and substance of all such deliveries shall be reasonably satisfactory in all material respects to the Targets. SECTION 9.10. Tax Opinions. Nationwide shall have received opinions of Ice Miller Donadio & Ryan acceptable in form and content to Nationwide, substantially to the effect that the exchange of Target Common Shares for Acquiror Common Shares as provided in this Agreement will, in each instance, constitute a reorganization within the meaning of Section 368(a)(1)(B) of the Code, and each Corporate Target and Acquiror will be a "party to a reorganization" within the meaning of Section 368(b) of the Code. SECTION 9.11. Release of Guarantees. The beneficiaries with respect to the personal guarantees by the shareholders of the Corporate Targets and/or Partners in the Partnership Targets that are set forth in Section 9.11 of the Disclosure Statement shall have agreed to release such guarantees at the time of the Closing or Nationwide shall have agreed to indemnify such shareholders and/or Partners for any losses resulting from such guarantees. -23- ARTICLE X TERMINATION SECTION 10.1. Termination by Mutual Agreement. This Agreement may be terminated by the mutual agreement in writing of the parties hereto at any time prior to the Closing. SECTION 10.2. Termination by Acquiror. This Agreement and any obligations of Acquiror hereunder (other than its obligations under the Confidentiality Agreement referred to in Section 11.1) may be terminated upon written notice to that effect by Acquiror at any time prior to or at the Closing, if in the judgment of Acquiror (a) any of the Targets or the Partners shall have breached or failed to perform in any material respect any of its covenants or obligations under this Agreement; (b) any representation or warranty of any of the Targets or the Partners contained in this Agreement is false or misleading in any material respect and cannot be cured prior to July 31, 1995; or (c) any other material condition precedent to Acquiror's performance of its obligations under this Agreement is not capable of being met. SECTION 10.3. Termination by the Corporate Targets and Partners. This Agreement and any obligations of any of the Corporate Targets and Partners hereunder (other than their obligations under the Confidentiality Agreement referred to in Section 11.1) may be terminated upon written notice to that effect by any of the Corporate Targets and the Partners at any time prior to or at the Closing if in the judgment of such Target or Partner (a) Acquiror shall have breached or failed to perform in any material respect any of its covenants or obligations under this Agreement; (b) any representation or warranty of Acquiror contained in this Agreement is false or misleading in any material respect and cannot be cured prior to July 31, 1995; (c) any other material condition precedent to such Target's or Partner's performance of its obligations under this Agreement is not capable of being met; (d) the average closing price of one Acquiror Common Share as reported by the NYSE for the ten (10) trading days immediately preceding the Closing Date is less than $21.82; or (e) the Share Exchanges have not been consummated by July 31, 1995. ARTICLE XI ADDITIONAL AGREEMENTS SECTION 11.1. Confidentiality. Acquiror and each of the Targets agree that the Confidentiality Agreement dated November 7, 1994 between Acquiror and Nationwide shall remain in full force and effect at all times prior to the Effective Time and after any termination of this Agreement, and each agrees to comply with the terms of that agreement. SECTION 11.2. Employee Benefit Matters. Acquiror agrees to continue in full force and effect the Benefit Plans of the Targets referred to in Section 4.21 of the Disclosure Statement and existing at the Effective Time until those employees of the Targets who continue as employees of the Targets or Acquiror after the Effective Time become eligible to participate in the employee benefit plans of Acquiror. Acquiror will recognize such transferred employees' service with any of the Targets for purposes of eligibility and vesting under such Acquiror plans. Nothing set forth in this Agreement shall be construed to impose any obligation on Acquiror to continue the employment of any person after the Effective Time or give any person any rights to such employment; provided, however, that Acquiror acknowledges that it will cause Nationwide to honor and perform after the Effective Time the obligations of Nationwide pursuant to those Employment Agreements set forth on Schedule 11.2(a). Acquiror also agrees that prior to the termination of any employee whose name is set forth on Schedule 11.2(b), Acquiror will cause the Corporate Targets to give such employee thirty days notice and will pay to such terminated employee as severance one week's salary for each year such employee has been employed by Nationwide or its affiliates, as set forth on Schedule 11.2(b), less applicable withholdings. SECTION 11.3. Agreements Respecting Meadowvale. Prior to the Effective Time, Meadowvale will transfer to Donald Cheesman ("Cheesman") real property including land and a home built thereon located at 1529 West Lancaster Street, Bluffton, Indiana and owned by Meadowvale (the "Residence"). In addition, Meadowvale will repay to Cheesman all amounts owing by Meadowvale to Cheesman pursuant to that certain -24- Promissory Note dated February 1, 1986 executed by Meadowvale in favor of Cheesman. After the Effective Time, Acquiror shall, subject to Section 11.6 below, cause Nationwide to honor and pay out of its own funds the debt in the amount of $313,408 owed to Thomas E. Phillippe, Sr. by Shangri-La. The parties to this Agreement agree that the transactions contemplated by this Section 11.3 shall not affect the amount of Exchange Consideration due pursuant to this Agreement. SECTION 11.4. Preservation of Tax-Free Reorganization Treatment. Acquiror shall not take or cause to be taken any action, and shall not permit its affiliates to take or cause to be taken any action within Acquiror's control, whether before or after the Effective Time, which would disqualify any of the Share Exchanges as a "reorganization" within the meaning of Section 368(a)(1)(B) of the Code. Without limiting the foregoing, Acquiror may not participate in any tax-free reorganization or share exchange without first (i) obtaining an unqualified opinion, acceptable in form to the Representative (as defined in the Agreement among Shareholders attached hereto as Exhibit 12.2(i)), of KPMG Peat Marwick LLP that such reorganization or share exchange does not disqualify any of the Share Exchanges as a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Code; and (ii) providing such opinion to the Representative. SECTION 11.5. Publication of Financial Results. In accordance with the Codification of Financial Reporting Policies of the Securities and Exchange Commission, in order to permit the sale of Acquiror Common Shares following the Closing and also to preserve the treatment of the transactions described herein as a pooling of interests for accounting purposes, Acquiror agrees to publish the financial results of the combined operations of Acquiror and the Targets, covering at least 30 days of such combined operations, no later than the last to occur of (a) 60 days following the end of the month in which the Closing occurs and (b) 10 days following delivery of such financial information with respect to the operations previously owned by the Targets as Acquiror considers reasonably necessary to prepare the combined financial results described in this Section 11.5. SECTION 11.6. The Shangri-La Partners. Shangri-La owns an 81-bed long-term care center, known as Rolling Meadows Health Care Center (the "Rolling Meadows Facility"). Pursuant to a certain Lease Agreement (the "Shangri-La Lease") dated September 23, 1991 between Shangri-La and Rolling Meadows Health Care Center, Inc. (the "Lessee"), Shangri-La has leased the Rolling Meadows Facility to the Lessee. The Shangri-La Lease grants the Lessee the option to purchase the Rolling Meadows Facility from Shangri-La. On March 1, 1995, the Lessee notified Shangri-La of its intention to exercise this option. Notwithstanding any other provision of this Agreement, if the Lessee purchases the Rolling Meadows Facility prior to the Effective Time, (a) the partners of Shangri-La shall not be considered parties to the Original Agreement or this Agreement, and such partners shall be released and forever discharged from all obligations thereunder or hereunder, including without limitation, any obligation to assign their partnership interest to Nationwide and any representation or warranty pursuant to Article IV hereof; and (b) Acquiror and Nationwide shall be released and forever discharged from all obligations to the partners of Shangri-La pursuant to the Original Agreement and this Agreement, and the obligation to pay $313,408 to Thomas E. Phillippe, Sr. pursuant to Section 11.3 above. ARTICLE XII THE CLOSING SECTION 12.1. Time and Place. The closing of the transactions contemplated by this Agreement shall take place at the offices of Ice Miller Donadio & Ryan, One American Square, 34th Floor, Indianapolis, Indiana, at 10:00 a.m. Indianapolis time on June 30, 1995, or on such other date as the parties hereafter agree (the "Closing"). SECTION 12.2. Deliveries to Acquiror at the Closing. At the Closing, and simultaneously with the deliveries to the Targets specified in Section 12.3, the Corporate Targets and the Partners shall deliver or cause to be delivered to Acquiror the following: (a) Certificates of the President and Chief Financial Officer of each of the Corporate Targets and of each of the Partners as to the accuracy of its representations and warranties contained in this Agreement -25- and as to its compliance with and fulfillment of all covenants, agreements, obligations and conditions required by this Agreement. (b) Copies of all resolutions adopted by the Board of Directors and the shareholders of each of the Corporate Targets authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, together with a certificate, duly executed by the Secretary of such Target, stating that such copies are true, complete and correct, and that the resolutions have been duly adopted by the Board of Directors and the shareholders, as the case may be, have not been amended since adoption, and remain in full force and effect. (c) Copies of all permits, authorizations, approvals and consents required to be obtained pursuant to Section 8.5. (d) An opinion of Ice Miller Donadio & Ryan, counsel to the Targets, dated the Closing Date, in such form as shall be agreed to by the parties hereto prior to the Closing, in their reasonable discretion. (e) If required by Section 6.6, the written agreements and letters described in Section 6.6. (f) The Certificates and such documents and instruments as agreed to by Acquiror and the Partners. (g) The lease amendment referred to in Section 8.13. (h) Noncompetition Agreements between Acquiror and each of the Phillippes, in the form of Exhibit 12.2(h). (i) Agreements among the shareholders of each of the Corporate Targets in substantially the form of Exhibit 12.2(i). (j) Resignations of each of the officers and directors of each of the Corporate Targets. (k) Evidence of redemption of the Nationwide Preferred Stock. SECTION 12.3. Deliveries to the Targets at the Closing. At the Closing, and simultaneously with the deliveries to Acquiror specified in Section 12.2, Acquiror shall deliver or cause to be delivered to the Targets and the Partners the following: (a) Certificates of the President and Chief Financial Officer of Acquiror as to the accuracy of its representations and warranties contained in this Agreement and as to its compliance with and fulfillment of all covenants, agreements, obligations and conditions required by this Agreement. (b) Copies of all permits, authorizations, approvals and consents required to be obtained pursuant to Section 9.4. (c) An opinion of Richard P. Adcock, General Counsel to Acquiror, dated the Closing Date, in such form as shall be agreed to by the parties hereto prior to the Closing, in their reasonable discretion. (d) The Exchange Consideration (less any amounts to be delivered to the Escrow and the Supplemental Escrow). (e) Evidence of prepayment of the Nationwide Subordinated Notes. ARTICLE XIII INDEMNIFICATION SECTION 13.1. Indemnification of Acquiror. Subject to Section 13.2, and except with respect to Supplemental Losses (as that term is defined in Section 14.1 hereof), Acquiror shall be indemnified and held harmless from and against any damages, loss, cost, liability, or expense (including, without limitation, costs and expenses of litigation, settlement and reasonable attorney's fees, but net of amounts received under applicable insurance carried by the Targets) ("Losses") that may be incurred by or suffered by or asserted -26- against Acquiror or any of its subsidiaries (hereinafter, collectively, the "Indemnified Party"), but without duplication, arising out of or related to, directly or indirectly, the incorrectness of any of the representations or warranties contained in Article IV of this Agreement (or any section of the Disclosure Statement referred to in Article IV), or the breach prior to the Effective Time of any of the covenants or agreements of any Target or Partner contained in this Agreement or in any other instrument executed or delivered by the Targets or the Partners. SECTION 13.2. Threshold and Maximum Amounts. (a) The Indemnified Party shall be entitled to indemnification under this Article XIII only when the aggregate of all Losses suffered by the Indemnified Party, with respect to which the Indemnified Party would otherwise be entitled to indemnification hereunder exceeds Two Hundred and Fifty Thousand Dollars ($250,000.00) (the "Threshold Amount"), whereupon the Indemnified Party shall be entitled to indemnification for any and all such Losses in excess of the Threshold Amount; provided, however, that in the case of the incorrectness of any representation contained in Section 4.2 or fraud, the Threshold Amount shall not apply. (b) Subject to Section 13.2(c) below, the aggregate dollar amount of all Losses the Indemnified Party may be indemnified for under this Article XIII shall not exceed the fair market value, as of the Closing Date, of the Acquiror Common Shares delivered to the Escrow Agent for the Escrow pursuant to Section 3.3 (the "Escrow Value"); provided, however, that, in the case of the incorrectness of any representation contained in Section 4.2 or fraud, the Indemnified Party may be indemnified for an amount in excess of the Escrow Value. (c) Any and all Losses for which the Indemnified Party may be indemnified under this Article XIII shall be paid or satisfied only by distribution to Acquiror of the Acquiror Common Shares and cash, if any, held in the Escrow in accordance with Section 3.3 and the Escrow Agreement attached hereto as Exhibit 3.3(a). The Indemnified Party shall have no recourse against any of the former holders of the Target Common Shares, and such former holders shall have no personal liability to the Indemnified Party with respect to the indemnification provided for in Section 13.1, except to the extent such holders hold Acquiror Common Shares and cash, if any, in the Escrow or, with respect to the Targets and their respective officers, directors and employees only, as otherwise provided in Section 13.2(b). Except with respect to Supplemental Losses, indemnification pursuant to this Article XIII shall be the exclusive remedy of Acquiror for a breach of a representation or warranty made by any Target or Partner or a covenant of any Target or Partner set forth in this Agreement. SECTION 13.3. Survival of Indemnification Obligations. (a) The foregoing indemnification obligations shall survive, in the case of the incorrectness of any representation contained in Section 4.2 or fraud, indefinitely. (b) Except as provided in Section 13.3(a) and subject to Section 13.3(c), the foregoing indemnification obligations shall survive, in the case of the representations and warranties of the Targets and Partners contained in Article IV, until the date that Acquiror's independent accountants have completed the first audit following the Effective Time of Acquiror's and the Targets' combined operations, but not later than one year after the Closing Date. Acquiror Common Shares and cash, if any, held in the Escrow shall be distributed, if available, to the former holders of the Target Common Shares promptly following completion of such audit, but not later than one year after the Closing Date. (c) Notwithstanding the foregoing survival periods, if written notice of a claim or written notice describing with particularity facts and circumstances that exist and will be substantially likely, in the good faith judgment of Acquiror, to give rise to a claim of indemnification hereunder has been given by Acquiror to the Targets prior to the termination of any applicable representation and warranty of the Targets or the termination of the Escrow as specified in the Escrow Procedures, then the relevant representation and warranty, and the term of the Escrow shall survive, solely as to such claim as provided in the notice, until the claim has been finally resolved. -27- ARTICLE XIV SUPPLEMENTAL INDEMNIFICATION SECTION 14.1. Supplemental Indemnification of Acquiror. Subject to Section 14.2, and in addition to the indemnification provided for in Article XIII hereof, an Indemnified Party shall be indemnified and held harmless from and against any Loss that may be incurred by or suffered by or asserted against such Indemnified Party, but without duplication, arising out of or related to, directly or indirectly, the litigation entitled Jerry K. Wright, Guardian of the Estate and Person of Oleta May Skelton, an Adult Incompetent v. Nationwide Care, Inc., Vigo Superior Court, State of Indiana, Cause No. 84D01-9409-CP-1618 (the "Pending Matter")(Losses with respect to the Pending Matter are referred to herein as "Supplemental Losses"). SECTION 14.2. Maximum Amounts. (a) Subject to Section 14.2(b) below, the aggregate dollar amount of all Supplemental Losses the Indemnified Party may be indemnified for under this Article XIV shall not exceed the fair market value, as of the Closing Date, of the Acquiror Common Shares delivered to the Escrow Agent for deposit in the Supplemental Escrow pursuant to Section 3.3 (the "Supplemental Escrow Value"). (b) Any and all Supplemental Losses for which the Indemnified Party may be indemnified under this Article XIV shall be paid or satisfied only by distribution to Acquiror of the Acquiror Common Shares and cash, if any, held in the Supplemental Escrow in accordance with Section 3.3 and the Supplemental Escrow Agreement attached hereto as Exhibit 3.3(b). The Indemnified Party shall have no recourse against any of the former holders of Nationwide, and such former holders shall have no personal liability to the Indemnified Party with respect to the indemnification provided for in Section 14.1, except to the extent such holders hold Acquiror Common Shares and cash, if any, in the Supplemental Escrow. Indemnification pursuant to this Article XIV shall be the exclusive remedy of the Indemnified Party for the incurrence of a Supplemental Loss. SECTION 14.3. Survival of Indemnification Obligations. Notwithstanding the provisions of Section 15.1, the indemnification obligations set forth in this Article XIV with respect to Supplemental Losses shall survive until such time as (a) the Pending Matter has been settled; (b) an order of a court of competent jurisdiction has been entered and either no appeal can be taken from such order or the time for such an appeal has run; or (c) a summary judgment or other order has been granted to the effect that punitive damages will not be awarded with respect to the Pending Matter. ARTICLE XV MISCELLANEOUS PROVISIONS SECTION 15.1. Survival of Representations and Warranties. Except as set forth in Sections 13.3 and 14.3, the representations and warranties contained in this Agreement shall survive until the date that Acquiror's independent accountants have completed the first audit following the Effective Time of Acquiror's and the Targets' combined operations, but not later than one year after the Closing Date. SECTION 15.2. Definition of Knowledge. For purposes of this Agreement, "to the knowledge of" or words of like import mean that the party to which the statement is attributed: (a) has made such investigations, and has made such inquiries of directors, officers, partners and responsible employees of such party and of legal counsel, independent auditors, actuaries and other persons who have performed services for such party as shall be reasonably necessary to determine the accuracy of such representation or warranty; and (b) nothing has come to the person's attention in the course of such investigation and review or otherwise, which would cause the person, in the exercise of reasonable care (in accordance with the standards of what a reasonable person in similar circumstances would have done to satisfy himself as to the accuracy of the representation and warranty), to believe that such representation and warranty is not true and correct in all respects. -28- SECTION 15.3. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 15.4. Entire Agreement. This Agreement and the agreements to be delivered pursuant to this Agreement and the Confidentiality Agreement between the parties dated November 7, 1994 constitute the entire agreement among the parties pertaining to the subject matter contained herein and therein and supersede all other prior and contemporaneous agreements, representations and understandings of the parties. SECTION 15.5. Exhibits and Schedules. All exhibits and schedules attached to this Agreement are incorporated herein and made a part hereof in the same manner as if such exhibits and schedules were set forth at length herein. SECTION 15.6. Parties in Interest. This Agreement will be binding upon and inure solely to the benefit of each of the parties, and nothing in this Agreement, express or implied, is intended to or will confer upon any other person any right, benefit, or remedy; provided, however, each person receiving Acquiror Common Shares in connection with the Share Exchanges or the assignments of the Partnership Interests pursuant to this Agreement shall be a third-party beneficiary of this Agreement and shall be entitled, after the Effective Time, to enforce the Agreement against Acquiror for the benefit of such shareholders with respect to the covenants of Acquiror contained herein and shall be entitled to pursue all remedies available at law or in equity for, and Acquiror shall indemnify such shareholders from, any Losses that may be incurred by or suffered by or asserted against such shareholders (or any of them) arising out of or related to, directly or indirectly, the incorrectness of any representations and warranties of Acquiror in Article V of this Agreement or for any breach of any of the covenants or agreements of Acquiror contained herein. Except in the case of fraud, such indemnification obligations shall survive until the date that Acquiror's independent accountants have completed the first audit following the Effective Time of Acquiror's and the Targets' combined operations, but not later than one year after the Closing Date. SECTION 15.7. Expenses. Each of the parties shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement, except as otherwise expressly provided for herein. SECTION 15.8. Gender. Any reference to the masculine gender shall be deemed to include the feminine and neuter genders unless the context otherwise requires. SECTION 15.9. Governing Law. This Agreement and all transactions contemplated hereby shall be governed, construed and enforced in accordance with the laws of the State of Washington, notwithstanding any state's choice of law rules to the contrary. SECTION 15.10. Headings. The subject headings of the articles and sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. SECTION 15.11. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties. The party for whose benefit a warranty, representation, covenant or condition is intended may in writing waive any inaccuracies in the warranties and representations contained in this Agreement or waive compliance with any of the covenants or conditions contained herein and so waive performance of any of the obligations of the other party hereto, and any defaults hereunder; provided, however, that such waiver shall not affect or impair the waiving party's rights with respect to any other warranty, representation or covenant or any default hereunder, nor shall any waiver constitute a continuing waiver. SECTION 15.12. Notices. All notices, requests, demands, waivers and other communications required to be given under this Agreement shall be in writing and shall be deemed to have been duly given on (a) the date of service if served personally on the party to whom notice is to be given, (b) the date sent if given by telegram, confirmed facsimile transmission or telex addressed to the party to whom notice is to be given or -29- (c) the third day after mailing if mailed to the party to whom notice is to be given by certified mail, return receipt requested, and properly addressed as follows: If to Acquiror: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Attention: General Counsel Fax: (206) 756-4845 With a copy to: Edmund O. Belsheim, Jr. Bogle & Gates Two Union Square 601 Union Street Seattle, Washington 98101-2346 Fax: (206) 621-2660 If to any of the Targets: Dr. Thomas E. Phillippe, Sr. 9200 Keystone Crossing Suite 800 Indianapolis, Indiana 46240 Fax: (317) 848-3197 With a copy to: Marcus B. Chandler Ice Miller Donadio & Ryan One American Square, Suite 3400 Indianapolis, Indiana 20036 Fax: (317) 236-2219 Any party may change the address to which notice is to be sent or the telephone number for facsimile transmission pursuant to this Section 15.11 by giving written notice thereof in compliance with this section. SECTION 15.13. Press Releases. Acquiror and the Targets shall consult with each other with respect to the form and substance of any press release or other public disclosure of matters related to this Agreement or any of the transactions contemplated hereby. SECTION 15.14. Rights of Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any person other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this Agreement. SECTION 15.15. Successors. This Agreement shall be binding on, and shall inure to the benefit of, the parties and their respective successors and assigns. SECTION 15.16. Intent; Construction. It is the intent of the parties that this Agreement and the transactions contemplated hereby will satisfy the requirements contained in Section 368(a)(1)(B) of the Code and the regulations promulgated thereunder, and that it will qualify as a corporate reorganization without recognition of gain by any of the holders of Target Common Shares other than to the extent any holder shall receive cash in lieu of fractional shares for all or part of his, hers or its Target Common Shares, and this Agreement shall be construed to effect the foregoing. Any transactions inconsistent with the foregoing shall be void and of no force or effect. -30- SECTION 15.17. Release. NCI Acquisition Corp., a party to the Original Agreement, is hereby released of any obligation under the Original Agreement and shall have no obligation under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE HILLHAVEN CORPORATION By: /s/ ROBERT F. PACQUER --------------------------------- Robert F. Pacquer Senior Vice President and Chief Financial Officer Attest: /s/ RICHARD P. ADCOCK ----------------------------- Richard P. Adcock Secretary NATIONWIDE CARE, INC. By: /s/ THOMAS E. PHILLIPPE, SR. --------------------------------- Dr. Thomas E. Phillippe, Sr. Chairman of the Board Attest: /s/ GREGORY O. MERVINE ----------------------------- Gregory O. Mervine Secretary PHILLIPPE ENTERPRISES, INC. By: /s/ THOMAS E. PHILLIPPE, SR. --------------------------------- Dr. Thomas E. Phillippe, Sr. President Attest: /s/ THOMAS E. PHILLIPPE, JR. ----------------------------- Thomas E. Phillippe, Jr. Secretary MEADOWVALE SKILLED CARE CENTER, INC. By: /s/ DONALD CHEESMAN --------------------------------- Donald Cheesman President Attest: /s/ JOAN M. PHILLIPPE ----------------------------- Joan M. Phillippe Secretary -31- THE PARTNERS OF CAMELOT CARE CENTERS /s/ RODNEY BENSON ------------------------------------- Rodney Benson THE PARTNERS OF SHANGRI-LA PARTNERSHIP /s/ THOMAS E. PHILLIPPE, SR. ------------------------------------- Dr. Thomas E. Phillippe, Sr. /s/ THOMAS E. PHILLIPPE, JR. ------------------------------------- Thomas E. Phillippe, Jr. /s/ LUPE M. BROWNE ------------------------------------- Lupe M. Browne, as Executor of Estate of Jim Browne /s/ GREGORY O. MERVINE ------------------------------------- Gregory O. Mervine THE LIMITED PARTNERS OF EVERGREEN WOODS, LTD. /s/ THOMAS E. PHILLIPPE, SR. ------------------------------------- Dr. Thomas E. Phillippe, Sr. /s/ THOMAS E. PHILLIPPE, JR. ------------------------------------- Thomas E. Phillippe, Jr. /s/ LORENE BURNS ------------------------------------- Lorene Burns /s/ RODNEY BURNS ------------------------------------- Rodney Burns Each of the undersigned persons hereby agrees to vote all shares or ownership interests owned by such person in each of the Targets (as defined in this Agreement) in favor of approval of the transactions contemplated by this Agreement. /s/ THOMAS E. PHILLIPPE, SR. ------------------------------------- Dr. Thomas E. Phillippe, Sr. /s/ THOMAS E. PHILLIPPE, JR. ------------------------------------- Thomas E. Phillippe, Jr. -32- EXHIBIT LISTING Exhibit 3.3(a). Escrow Agreement Exhibit 3.3(b). Supplemental Escrow Agreement Exhibit 6.6(a). Affiliate Letter Exhibit 6.6(b). Pooling Letter Exhibit 6.15. Tax Certificate of Targets Exhibit 7.7. Tax Certificate of Acquiror and AC Exhibit 12.2(h). Noncompetition Agreement Exhibit 12.2(i). Agreement among Shareholders
-33- EXHIBIT 3.3 (A) ESCROW AGREEMENT This ESCROW AGREEMENT (this "Agreement") is made this day of , 1995, by and among The Hillhaven Corporation, a Nevada Corporation (such corporation and its subsidiaries being referred to herein collectively as "Acquiror"), the individuals listed on Exhibit A (collectively, the "Shareholders") and Bank One, Indianapolis, N.A. (the "Escrow Agent"). EXPLANATION STATEMENT A. Acquiror and the Targets are parties to that certain Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests (the "Share Exchange Agreement"), dated as of February 27, 1995. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned thereto in the Share Exchange Agreement. B. Prior to the Effective Time, the Shareholders owned all the capital stock of the Corporate Targets and all the partnership interests in the Partnership Targets. C. In order to induce Acquiror to enter into the Share Exchange Agreement and to consummate the transactions contemplated thereby, the Shareholders wish to execute and deliver this Agreement and to deposit or to cause to be deposited in escrow hereunder certificates representing ten percent (10%) of the Acquiror Common Shares that comprise the Exchange Consideration (such percentage of shares being referred to herein collectively as the "Escrow Shares") to secure the indemnification obligations under Article XIII of the Share Exchange Agreement, the terms of which Article are incorporated herein by this reference. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, and in consideration of the mutual covenants herein contained, agree as follows: 1. DEPOSIT OF ESCROW SHARES; ESCROW ACCOUNT; SHAREHOLDER AGENT. 1.1 Promptly following the Effective Time, Acquiror shall withhold from the Exchange Consideration and deposit with the Escrow Agent the Escrow Shares. The Escrow Agent shall establish an account (the "Escrow Account") for the Shareholders and place the Escrow Shares therein. The Escrow Agent agrees that the Escrow Shares shall be held in the Escrow Account and disbursed by the Escrow Agent in accordance with, and subject to the terms and conditions of, this Agreement. 1.2 Acquiror and the Shareholders acknowledge and agree that, to the extent and for so long as Escrow Shares are held by the Escrow Agent hereunder, Acquiror shall have, as of and from the date such Escrow Shares are received by the Escrow Agent, a perfected, first priority security interest in such Escrow Shares to secure the payment of amounts, if any, payable pursuant to Article XIII of the Share Exchange Agreement. In connection therewith, the Shareholders expressly agree (i) that the Escrow Agent is acting solely as Acquiror's agent to the extent necessary to perfect Acquiror's first-priority security interest in the Escrow Shares and (ii) to execute and deliver such instruments as Acquiror may from time to time reasonably request for the purpose of evidencing and perfecting such security interest. 1.3 All of the Shareholders hereby appoint Thomas E. Phillippe, Jr., an individual (the "Shareholder Agent"), as their attorney-in-fact to act as their agent in the performance of all of their obligations and exercise of all of their rights under this Agreement. 2. VOTING RIGHTS; DIVIDENDS ON ESCROW SHARES; SALE OF SHARES; INVESTMENT OF CASH. 2.1 All voting rights with respect to the Escrow Shares shall remain with the Shareholders. All cash dividends on Escrow Shares shall be distributed by Acquiror to the Escrow Agent. Within three (3) business days following receipt thereof by the Escrow Agent, the Escrow Agent shall distribute such dividends in respect of the Escrow Shares to the Shareholders, respectively. -34- 2.2 All non-cash dividends (including, without limitation, any stock split, share dividend, rights offering or recapitalization) on any Escrow Shares shall be added to the Escrow Account as additional Escrow Shares fully subject to the terms of this Agreement. 2.3 At any time while there are Escrow Shares in the Escrow Account, the Shareholder Agent may, by delivering written instructions to the Escrow Agent, direct the Escrow Agent to sell one or more of the Escrow Shares on the NYSE and deposit the sale proceeds into the Escrow Account, which proceeds shall be distributed, designated, withheld and otherwise subject to the terms of this Agreement in the same manner and to the same extent as the Escrow Shares, except that the Escrow Agent shall designate and withhold cash in the Escrow Account, to the extent thereof, to Pending Claim Notices and Escrow Disposition Notices (as defined in Section 4.2) prior to applying any remaining Escrow Shares to such claims. 2.4 Cash deposited into the Escrow Account pursuant to Section 2.3 shall be invested and reinvested by the Escrow Agent in (a) bonds, treasury notes or other evidences of indebtedness of, and those unconditionally guaranteed as to the payment of principal and interest by, the United States, (b) certificates of deposit of banks or trust companies (including the Escrow Agent) organized under the laws of the United States, or any state thereof, each of which has a combined capital, surplus and retained earnings of at least $50,000,000 and (c) money market funds, including short term investment funds of the Escrow Agent. In investing and reinvesting any such monies, the Escrow Agent shall seek to obtain the best yields consistent with safety of principal and ready marketability. The Escrow Agent shall have no duty or right to invest cash on deposit in the Escrow Account other than as provided in the foregoing sentence. Earnings on cash so invested shall be paid to the Shareholders. 3. ACCOUNTING. The Escrow Agent shall mail to Acquiror and the Shareholder Agent a written accounting of all transactions relating to the Escrow Account not less frequently than quarterly. 4. DISPOSITION OF ESCROW SHARES. 4.1 Prior to the Distribution Date (as defined in Section 4.3), Acquiror will issue, or cause to be issued, from time to time to the Escrow Agent and the Shareholder Agent one or more Pending Claim Notices in the form of Exhibit B (each a "Pending Claim Notice") describing with particularity existing facts and circumstances, if any, that are substantially likely, in the good faith judgment of Acquiror, to give rise to a claim of indemnification under Article XIII of the Share Exchange Agreement and designating the number of Escrow Shares necessary to satisfy in whole or, if there are not sufficient Escrow Shares in the Escrow Account, in part such claim. The Escrow Agent shall withhold and distribute such designated number of Escrow Shares as required by Sections 4.2 and 4.3. For all designations, withholdings and distributions of Escrow Shares pursuant to a Pending Claim Notice or Escrow Disposition Notice, the number of Escrow Shares to be designated, withheld and/or distributed shall be (i) determined using the average closing price of one Acquiror Common Share as reported on the NYSE for the ten (10) trading days immediately preceding the date of such notice and (ii) rounded to the nearest whole share. To the extent Acquiror and the Shareholder Agent are not in dispute as to the distribution or retention of Escrow Shares withheld pursuant to a Pending Claim Notice, Acquiror and the Shareholder Agent shall promptly prepare an Escrow Disposition Notice (as defined in Section 4.2) directing the Escrow Agent to so distribute or retain such Escrow Shares. 4.2 The Escrow Agent shall distribute the Escrow Shares only in accordance with (i) written instructions contained in one or more notices in the form of Exhibit C (each an "Escrow Disposition Notice") delivered to the Escrow Agent and executed by Acquiror and the Shareholder Agent, (ii) a final arbitration award secured under the provisions of Section 4.4 hereof, (iii) an order of a court of competent jurisdiction pursuant to Section 9 hereof or (iv) the procedures set forth in Section 4.3, as applicable. The Escrow Agent shall promptly comply with such instructions, award, order or procedures, as applicable, to the extent that there are sufficient Escrow Shares in the Escrow Account to so comply. 4.3 Promptly following the date that Acquiror's independent accountants have completed the first audit following the Effective Time of Acquiror's and the Targets' combined operations, but not later than one year after the Closing Date (such audit completion date being referred to herein as the "Distribution Date"), the -35- Escrow Agent shall distribute to each Shareholder from the Escrow Account his or her percentage interest, as listed on Exhibit A, of the Escrow Shares remaining in the Escrow Account less the number of Escrow Shares specified in any unresolved Pending Claim Notice(s) received by the Escrow Agent prior to the Distribution Date, which specified Escrow Shares the Escrow Agent shall withhold from such distribution and not distribute except as provided in clause (i), (ii) or (iii) of Section 4.2, as applicable. If the first audit of Acquiror's and the Targets' combined operations is completed on or before the date that is one year after the Closing Date, then Acquiror shall notify the Escrow Agent and the Shareholder Agent in writing of such completion within five (5) days following such completion. 4.4 Acquiror and the Shareholder Agent agree to use their respective best efforts to resolve any dispute that may arise with respect to this Agreement, including without limitation any dispute regarding the validity of or the amount of Escrow Shares designated in any Pending Claim Notice, amicably and without resort to any third party dispute resolution forum. At any time Acquiror on the one hand or the Shareholder Agent on the other believes that a dispute exists among the parties with respect to this Agreement, it or he shall give prompt written notice thereof to the other party(s). Any dispute which has not been settled or resolved within thirty (30) days of receipt by Acquiror or the Shareholder Agent of the notice thereof shall be submitted for binding arbitration in Marion County, Indiana in an arbitration proceeding that, except as may otherwise be provided herein, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator chosen in accordance with such rules. All evidentiary and discovery matters shall be conducted in accordance with and governed by the applicable Federal Rules of Civil Procedure. No later than 10 calendar days after the arbitrator is appointed, the arbitrator shall schedule the arbitration for a hearing to commence on a mutually convenient date. All discovery shall be completed no later than the commencement of the arbitration hearing or 90 calendar days after the date that a proper demand for arbitration is served, whichever occurs first, unless, upon a showing of good cause, the arbitrator extends such period. The hearing shall commence no later than 90 calendar days after the arbitrator is appointed and shall continue until completed. The arbitrator shall issue his or her award in writing no later than 20 calendar days after the conclusion of the hearing. The parties to this Agreement agree that, in rendering an award, the arbitrator shall have no jurisdiction to consider evidence with respect to or render any award of judgment for punitive damages or any other amount awarded for purposes of imposing a penalty. The arbitrator shall not have the power to amend this Agreement in any respect. The arbitrator's decision shall be binding and conclusive upon the parties. The costs of any arbitration conducted pursuant to this Section 4.4 shall be borne by the non-prevailing party(s), as identified by the arbitrator, regardless of whether the subject dispute is arbitrated to completion. Each party hereto agrees to provide notice of the commencement of any such arbitration proceeding to the Escrow Agent and the other parties, as the case may be. 5. CONTROL OF LITIGATION. 5.1 Within 20 calendar days following receipt by Acquiror of notice of any claim by a third party or of the commencement of any action or proceeding by a third party which may give rise to an indemnity claim under Article XIII of the Share Exchange Agreement, Acquiror shall notify the Shareholder Agent in writing of such claim, action or proceeding; provided, that failure to give such notification shall not affect Acquiror's rights to indemnification under Article XIII of the Share Exchange Agreement, except to the extent the Shareholder Agent shall have been prejudiced as a result of such failure. Upon receipt of such written notice, the Shareholder Agent shall be entitled to participate in and, to the extent that it may wish, unless it is reasonably foreseeable that the Losses from such claim, action or proceeding will exceed the value of the Escrow Shares remaining in the Escrow Account or such claim, action or proceeding involves a claim for injunction or other specific relief, assume the defense, conduct or settlement of such claim, action or proceeding by giving written notice thereof to Acquiror within forty-five (45) days of his receipt of notice of such claim, action or proceeding. After delivery of such notice to Acquiror, the Shareholders shall not be liable to Acquiror for any legal expenses subsequently incurred by Acquiror in connection with the defense, conduct or settlement of such claim, action or proceeding; provided, that, if the Shareholder Agent fails to take reasonable steps necessary to diligently defend such claim, action or proceeding within 20 calendar days after receiving written notice from Acquiror that it believes the Shareholder Agent has failed to take such steps, then Acquiror may assume such defense, and the Shareholders shall be liable for any expenses therefor. -36- Without limiting the foregoing sentence, if the Shareholder Agent assumes the defense of a third party claim, action or proceeding hereunder, then Acquiror shall have the right to participate in such defense at its own expense by giving prompt written notice thereof to the Shareholder Agent. If, after assuming the defense of a third party claim, action or proceeding hereunder, the Shareholder Agent obtains an award from the third party claimant on behalf of the Shareholders, then Acquiror shall be entitled to recover its costs, including reasonable attorney's fees of outside counsel incurred in defending such claim and obtaining such award, from the proceeds of such award; provided, that such recovery shall not be a waiver of any right, claim or amount to which Acquiror may otherwise be entitled. In the event the Shareholder Agent assumes the defense of a claim, action or proceeding hereunder, the Shareholder Agent shall be entitled to receive from the Escrow Agent distributions of cash or Escrow Shares from the Escrow Account to reimburse the Shareholder Agent (and, thereby, the Shareholders for whom he will be acting) for the reasonable costs incurred in such defense as well as the costs of any settlement or damages paid with respect to such claim, action or proceeding. The Escrow Agent shall make such a distribution to the Shareholder Agent only upon the receipt of a properly executed Escrow Disposition Notice. 5.2 To the extent that a third party may be responsible for a Loss incurred or suffered by Acquiror, Acquiror either (a) may seek recovery of the Loss from the third party, in which case the Shareholders shall be responsible only to the extent that the Loss is not recoverable from the third party (other than claims for Losses incurred in obtaining such recovery), or (b) seek indemnification from the Shareholders for the Loss pursuant to Article XIII of the Share Exchange Agreement, in which case Acquiror shall assign to the Shareholders all rights relating to the Loss that Acquiror may have against the third party, shall not release the third party from its obligations and shall cooperate with the Shareholders and take all other action reasonably requested by the Shareholders to enable them to seek recovery of the Loss from the third party. 5.3 Notwithstanding anything herein to the contrary, neither Acquiror on the one hand nor the Shareholder Agent on the other shall have the right to settle or compromise a third-party claim, action or proceeding without obtaining the prior written consent of the other, which consent shall not be unreasonably withheld. In addition, the Shareholder Agent shall not permit to exist any lien, encumbrance or other adverse charge upon any asset of, or consent to the imposition of any injunction against, Acquiror or any of its respective affiliates without obtaining its prior written consent, which consent shall not be unreasonably withheld. 6. ESCROW PROVISIONS. 6.1 Upon termination of this Agreement and delivery of the balance of the Escrow Shares to the parties entitled thereto, the Escrow Agent shall be discharged from any further obligation hereunder. 6.2 The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety, validity or service thereof. The Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and may assume that any person purporting to give notice or receipt or advice, or make any statement or execute any document, in connection with the provisions hereof has been duly authorized to do so. 6.3 The Escrow Agent shall not be liable to the other parties hereto for any error of judgment, action taken or omitted in good faith or mistake of fact or law, or anything which it may do or refrain from doing in connection therewith, except in the case of its own gross negligence, willful misconduct or bad faith. 6.4 The Escrow Agent shall be entitled to consult with competent and responsible counsel of its choice with respect to the interpretation of the provisions hereof, and any other legal matters relating hereto, and shall be fully protected in taking any action or omitting to take any action in good faith and in accordance with the advice of such counsel. 6.5 The Escrow Agent shall be entitled to be indemnified and held harmless by Acquiror and the Shareholders, jointly and severally, for any and all claims, liabilities, costs, payments and expenses, including reasonable fees of counsel (who may be selected by the Escrow Agent), incurred by the Escrow Agent which -37- arise out of or in connection with any act or omission by it in the performance of its obligations under this Agreement, except in the case of the Escrow Agent's own gross negligence, willful misconduct or bad faith. 7. TIME OF PERFORMANCE. Whenever under the terms hereof the time for performance of any provision shall fall on a date which is not a regular business day of the Escrow Agent, the performance thereof on the next succeeding regular business day of the Escrow Agent shall be deemed to be in full compliance. 8. DEATH, DISABILITY, ETC. The death, disability, bankruptcy or insolvency of any of the Shareholders shall not affect or prevent the performance by the Escrow Agent of its obligations and instructions received hereunder. Without limiting the foregoing sentence, the Shareholder Agent shall notify the Escrow Agent in writing of any person who or that, as a result of a Shareholder's death, disability, bankruptcy or insolvency, should receive distributions, if any, that would otherwise be made hereunder to such Shareholder. 9. RESOLUTION OF CONTROVERSIES. In the event any dispute or controversy arises respecting the administration or disposition of the Escrow Shares, or any part thereof, and such dispute or controversy has not been submitted to arbitration as provided in Section 4.4 hereof, the Escrow Agent shall have the right but not the obligation to interplead the parties to such dispute or controversy in any court of competent jurisdiction, including but not limited to the courts of the State of Indiana and the United States District Court for the Southern District of Indiana which shall be deemed to be courts of competent jurisdiction, and to deposit with such court the Escrow Shares remaining in the Escrow Account, or any portion thereof. Thereafter the Escrow Agent shall be fully released and discharged from all further obligations hereunder with respect to the Escrow Shares held in the Escrow Account or the portion thereof deposited with the court in such proceedings, except in the case of its own gross negligence, willful misconduct, or bad faith. Acquiror and the Shareholders, jointly and severally, shall reimburse the Escrow Agent for all expenses, fees and charges (including reasonable attorneys' fees and expenses) reasonably incurred by the Escrow Agent in any such interpleader action. 10. RESIGNATION OR REMOVAL OF ESCROW AGENT. If the Escrow Agent resigns or is removed, then Acquiror and the Shareholder Agent shall mutually agree upon and name a substitute for the Escrow Agent ("Successor Escrow Agent"), which shall be a bank or trust company and which shall perform the same duties and responsibilities, and which shall be entitled to the same protection and substantially equivalent fees, as the original Escrow Agent named herein. The Escrow Agent shall have the unequivocal right to resign as Escrow Agent upon at least sixty (60) days' prior written notice delivered to Acquiror and the Shareholder Agent; provided, that, in any event, such resignation shall not be effective until such time as a Successor Escrow Agent has been appointed, has accepted its appointment and has taken possession of the Escrow Shares. Upon mutual agreement by Acquiror and the Shareholder Agent, the Escrow Agent may be removed upon at least sixty (60) days' prior written notice; provided, that, in any event, such removal shall not be effective until such time as a Successor Escrow Agent has been appointed, has accepted its appointment and has taken possession of the Escrow Shares. In either of said events, if a Successor Escrow Agent is not appointed within said sixty (60) day period, the Escrow Agent, Acquiror or the Shareholder Agent may petition a court of competent jurisdiction to name a Successor Escrow Agent, whether by interpleader or other appropriate action, and the decision of such court shall be binding upon all parties to this Agreement. 11. ACCEPTANCE OF ESCROW: COMPENSATION OF ESCROW AGENT. The Escrow Agent hereby agrees to serve as Escrow Agent pursuant to this Agreement and to perform the duties and responsibilities conferred upon it hereunder. The Escrow Agent has agreed to serve hereunder for such fees as are set forth in Exhibit D, which fees are to be paid as described in Exhibit D. Such fees shall be borne by Acquiror. 12. TERMINATION. This Agreement shall terminate without further action of any party when all of the terms hereof shall have been fully performed. -38- 13. NOTICES. Any notice, request, instruction or other document to be given under this Agreement by any party shall be in writing and shall be delivered personally, by registered or certified mail, postage prepaid, return receipt requested, by overnight courier or by facsimile transmission, as follows: (a) If to Acquiror, at: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, WA 98402 Attention: General Counsel Facsimile: (206) 756-4845 With a copy to: Edmund O. Belsheim, Jr. Bogle & Gates Two Union Square 601 Union Street Seattle, WA 98101-2346 Facsimile: (206) 621-2660 (b) If to the Shareholders, at: c/o Thomas E. Phillippe, Jr. Attention: Facsimile: With a copy to: Marcus B. Chandler, Esq. ICE MILLER DONADIO & RYAN One American Square Box 82001 Indianapolis, IN 46282-0002 Facsimile: (317) 236-2219 or to such other address or person as any party may designate by a notice to the other parties which is given in the manner required above. Any such notice, request, instruction or other document shall be deemed to have been delivered and received as of the date personally delivered, or if mailed, three days after the date so mailed, or if telecopied, the date on which such telecopy is sent (as confirmed by return facsimile transmission) or if by overnight courier the day following the day on which such notice is properly placed with the courier. 14. COOPERATION WITH ESCROW AGENT. The parties to this Agreement shall cooperate with the Escrow Agent, as the Escrow Agent reasonably deems necessary or desirable to perform its duties and obligations under this Agreement. Without limiting the foregoing, the parties shall provide the Escrow Agent with all information necessary to make any distribution, including names, addresses, social security numbers and tax identification numbers. The Escrow Agent shall be entitled to rely upon the most recent information received from any party without further inquiry and each party shall be responsible for notifying the Escrow Agent of any new or changed information pertaining to such party. 15. TAXES: REPORTS TO GOVERNMENTAL AUTHORITIES. The Shareholders severally agree to assume any obligations imposed now or hereafter by any applicable tax law with respect to any payment from the Escrow Account to the Shareholders under this Agreement and undertake to instruct the Escrow Agent in writing with respect to the Escrow Agent's responsibility for withholding taxes and any other taxes, assessments or -39- other governmental charges and any certifications and governmental reporting required in connection therewith. 16. MISCELLANEOUS. 16.1 This Agreement may not be amended or modified in any way except by an instrument in writing signed by all of the parties hereto. 16.2 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Indiana without reference to its conflicts of law provisions. 16.3 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 16.4 The headings contained in this Agreement are for convenience only, shall not affect this Agreement in any way, and shall not be used to construe or interpret the scope or intent of this Agreement. 16.5 This Agreement shall inure to the benefit of and shall bind the parties hereto and their respective heirs, devisees, personal representatives, successors, transferees and assigns; provided, that, except as otherwise expressly set forth in this Agreement, including without limitation Section 10, neither the rights nor the obligations of any party may be assigned or delegated without the prior written consent of the other parties. IN WITNESS WHEREOF, the parties have duly executed and have caused to be duly executed this Agreement as of the date first written above. THE HILLHAVEN CORPORATION By ------------------------------------ Name: Title: -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- BANK ONE, INDIANAPOLIS, N.A. By ------------------------------------ Name: Title: -40- EXHIBIT A SHAREHOLDERS
INDIVIDUAL PERCENTAGE - - ---------- - - ---------------------------------------------------------------------------- - - ---------------------------------------------------------------------------- - - ---------------------------------------------------------------------------- - - ---------------------------------------------------------------------------- - - ---------------------------------------------------------------------------- - - ----------------------------------------------------------------------------
-41- EXHIBIT B PENDING CLAIM NOTICE To: Bank One, Indianapolis, N.A. From: The Hillhaven Corporation Date: ------------------------------
This Pending Claim Notice is delivered to you pursuant to Section 4.1 of the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by and among The Hillhaven Corporation, a Nevada corporation, the Shareholders and Bank One, Indianapolis, N.A. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to those terms in the Escrow Agreement. Please be advised that you are hereby instructed to withhold from the distribution to the Shareholders that is due to be made on the Distribution Date from the Escrow Account a total of Escrow Shares. The undersigned maintains in good faith that it is entitled to indemnification in the aforementioned amount of Escrow Shares pursuant to the terms of the Share Exchange Agreement based upon the following: [LIST INDEMNIFICATION ITEMS AND THE AMOUNT OF EACH ITEM. ATTACH ANY DOCUMENTS REASONABLY DEMONSTRATING THE INDEMNIFICATION ITEMS.] The Shareholder Agent has been sent a copy of this Pending Claim Notice along with any attached information relating to the claimed right to indemnification. Signed this day of , 199 . THE HILLHAVEN CORPORATION By -------------------------------- Name: Title: -42- EXHIBIT C ESCROW DISPOSITION NOTICE To: Bank One, Indianapolis, N.A. From: The Hillhaven Corporation Thomas E. Phillippe, Jr. Date: -------------------------------
This Escrow Disposition Notice is delivered to you pursuant to Section 4.2 of the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by and among The Hillhaven Corporation, a Nevada corporation, the Shareholders and Bank One, Indianapolis, N.A. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to those terms in the Escrow Agreement. Please be advised that you are hereby directed to [distribute from] [retain in] the Escrow Account the property now held in your possession and described herein in the following manner, to wit: [STATE THE NUMBER OF ESCROW SHARES TO BE DISTRIBUTED OR RETAINED AND, IF DISTRIBUTED, THE RECIPIENT(S) OF SUCH SHARES] Signed this day of , 199 . THE HILLHAVEN CORPORATION By ----------------------------------- Name: Title: -------------------------------------- Thomas E. Phillippe, Jr. -43- EXHIBIT D ESCROW AGENT FEES DOLLARS ($ ) PER YEAR -44- EXHIBIT 3.3(B) ESCROW AGREEMENT This ESCROW AGREEMENT (this "Agreement") is made this day of , 1995, by and among The Hillhaven Corporation, a Nevada Corporation (such corporation and its subsidiaries being referred to herein collectively as "Acquiror"), the individuals listed on Exhibit A (collectively, the "Shareholders") and Bank One, Indianapolis, N.A. (the "Escrow Agent"). EXPLANATION STATEMENT A. Acquiror and the Targets are parties to that certain Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests (the "Share Exchange Agreement"), dated as of February 27, 1995. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned thereto in the Share Exchange Agreement. B. Prior to the Effective Time, the Shareholders owned all the capital stock of Nationwide Care, Inc., an Indiana corporation. C. In order to induce Acquiror to enter into the Share Exchange Agreement and to consummate the transactions contemplated thereby, the Shareholders wish to execute and deliver this Agreement and to deposit or to cause to be deposited in escrow hereunder certificates representing five percent (5%) of the Acquiror Common Shares that comprise the Exchange Consideration (such percentage of shares being referred to herein collectively as the "Escrow Shares") to secure the indemnification obligations under Article XIV of the Share Exchange Agreement, the terms of which Article are incorporated herein by this reference. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, and in consideration of the mutual covenants herein contained, agree as follows: 1. DEPOSIT OF ESCROW SHARES; ESCROW ACCOUNT; SHAREHOLDER AGENT. 1.1 Promptly following the Effective Time, Acquiror shall withhold from the Exchange Consideration and deposit with the Escrow Agent the Escrow Shares. The Escrow Agent shall establish an account (the "Escrow Account") for the Shareholders and place the Escrow Shares therein. The Escrow Agent agrees that the Escrow Shares shall be held in the Escrow Account and disbursed by the Escrow Agent in accordance with, and subject to the terms and conditions of, this Agreement. 1.2 Acquiror and the Shareholders acknowledge and agree that, to the extent and for so long as Escrow Shares are held by the Escrow Agent hereunder, Acquiror shall have, as of and from the date such Escrow Shares are received by the Escrow Agent, a perfected, first priority security interest in such Escrow Shares to secure the payment of amounts, if any, payable pursuant to Article XIV of the Share Exchange Agreement. In connection therewith, the Shareholders expressly agree (i) that the Escrow Agent is acting solely as Acquiror's agent to the extent necessary to perfect Acquiror's first-priority security interest in the Escrow Shares and (ii) to execute and deliver such instruments as Acquiror may from time to time reasonably request for the purpose of evidencing and perfecting such security interest. 1.3 All of the Shareholders hereby appoint Thomas E. Phillippe, Jr., an individual (the "Shareholder Agent"), as their attorney-in-fact to act as their agent in the performance of all of their obligations and exercise of all of their rights under this Agreement. 2. VOTING RIGHTS; DIVIDENDS ON ESCROW SHARES; SALE OF SHARES; INVESTMENT OF CASH. 2.1 All voting rights with respect to the Escrow Shares shall remain with the Shareholders. All cash dividends on Escrow Shares shall be distributed by Acquiror to the Escrow Agent. Within three (3) business days following receipt thereof by the Escrow Agent, the Escrow Agent shall distribute such dividends in respect of the Escrow Shares to the Shareholders, respectively. -45- 2.2 All non-cash dividends (including, without limitation, any stock split, share dividend, rights offering or recapitalization) on any Escrow Shares shall be added to the Escrow Account as additional Escrow Shares fully subject to the terms of this Agreement. 2.3 At any time while there are Escrow Shares in the Escrow Account, the Shareholder Agent may, by delivering written instructions to the Escrow Agent, direct the Escrow Agent to sell one or more of the Escrow Shares on the NYSE and deposit the sale proceeds into the Escrow Account, which proceeds shall be distributed, designated, withheld and otherwise subject to the terms of this Agreement in the same manner and to the same extent as the Escrow Shares. 2.4 Cash deposited into the Escrow Account pursuant to Section 2.3 shall be invested and reinvested by the Escrow Agent in (a) bonds, treasury notes or other evidences of indebtedness of, and those unconditionally guaranteed as to the payment of principal and interest by, the United States, (b) certificates of deposit of banks or trust companies (including the Escrow Agent) organized under the laws of the United States, or any state thereof, each of which has a combined capital, surplus and retained earnings of at least $50,000,000 and (c) money market funds, including short term investment funds of the Escrow Agent. In investing and reinvesting any such monies, the Escrow Agent shall seek to obtain the best yields consistent with safety of principal and ready marketability. The Escrow Agent shall have no duty or right to invest cash on deposit in the Escrow Account other than as provided in the foregoing sentence. Earnings on cash so invested shall be paid to the Shareholders. 3. ACCOUNTING. The Escrow Agent shall mail to Acquiror and the Shareholder Agent a written accounting of all transactions relating to the Escrow Account not less frequently than quarterly. 4. DISPOSITION OF ESCROW SHARES. 4.1 The Escrow Agent shall distribute the Escrow Shares only in accordance with (i) written instructions contained in the form of Exhibit B (the "Escrow Disposition Notice") delivered to the Escrow Agent and executed by Acquiror and the Shareholder Agent, (ii) a final arbitration award secured under the provisions of Section 4.3 hereof, or (iii) an order of a court of competent jurisdiction pursuant to Section 9, as applicable. The Escrow Agent shall promptly comply with such instructions, award or order, as applicable, to the extent that there are sufficient Escrow Shares in the Escrow Account to so comply. The number of Escrow Shares to be distributed hereunder shall be (i) determined using the average closing price of one Acquiror Common Share as reported on the NYSE for the ten (10) trading days immediately preceding the date of such distribution and (ii) rounded to the nearest whole share. 4.2 Promptly following the earlier of the date that the [redacted] Litigation (as defined in this Section 4.2) has been settled or otherwise finally resolved or the date that a summary judgment to the effect that punitive damages will not be allowed in such litigation has been granted, either of which must be reflected in a final order of a court of competent jurisdiction from which appeal may not be taken (due to lapse of time or otherwise), Acquiror and the Shareholder Agent shall, subject to Section 4.3, prepare and deliver to the Escrow Agent the Escrow Disposition Notice, and the Escrow Agent shall distribute the Escrow Shares to the Shareholders and/or Acquiror in accordance therewith. As used herein, the "[redacted] Litigation" shall mean [redacted]. 4.3 Acquiror and the Shareholder Agent agree to use their respective best efforts to resolve any dispute that may arise with respect to this Agreement amicably and without resort to any third party dispute resolution forum. At any time Acquiror on the one hand or the Shareholder Agent on the other believes that a dispute exists among the parties with respect to this Agreement, it or he shall give prompt written notice thereof to the other party(s). Any dispute which has not been settled or resolved within thirty (30) days of receipt by Acquiror or the Shareholder Agent of the notice thereof shall be submitted for binding arbitration in Marion County, Indiana in an arbitration proceeding that, except as may otherwise be provided herein, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator chosen in accordance with such rules. All evidentiary and discovery matters shall be conducted in accordance with and governed by the applicable Federal Rules of Civil Procedure. No later than -46- 10 calendar days after the arbitrator is appointed, the arbitrator shall schedule the arbitration for a hearing to commence on a mutually convenient date. All discovery shall be completed no later than the commencement of the arbitration hearing or 90 calendar days after the date that a proper demand for arbitration is served, whichever occurs first, unless, upon a showing of good cause, the arbitrator extends such period. The hearing shall commence no later than 90 calendar days after the arbitrator is appointed and shall continue until completed. The arbitrator shall issue his or her award in writing no later than 20 calendar days after the conclusion of the hearing. The parties to this Agreement agree that, in rendering an award, the arbitrator shall have no jurisdiction to consider evidence with respect to or render any award of judgment for punitive damages or any other amount awarded for purposes of imposing a penalty. The arbitrator shall not have the power to amend this Agreement in any respect. The arbitrator's decision shall be binding and conclusive upon the parties. The costs of any arbitration conducted pursuant to this Section 4.3 shall be borne by the non-prevailing party(s), as identified by the arbitrator, regardless of whether the subject dispute is arbitrated to completion. Each party hereto agrees to provide notice of the commencement of any such arbitration proceeding to the Escrow Agent and the other parties, as the case may be. 5. CONTROL OF LITIGATION. 5.1 The Shareholder Agent shall control the defense, conduct or settlement of the [redacted] Litigation, and Acquiror shall have the right, at its own expense, to participate therein by giving written notice to the Shareholder Agent. If the Shareholder Agent obtains an award from the third party claimant in the [redacted] Litigation on behalf of the Shareholders, then Acquiror shall be entitled to recover its costs, including reasonable attorney's fees of outside counsel incurred in defending such claim and obtaining such award, from the proceeds of such award; provided, that such recovery shall not be a waiver of any right, claim or amount to which Acquiror may otherwise be entitled. 5.2 Notwithstanding anything herein to the contrary, the Shareholder Agent shall not have the right to settle or compromise the [redacted] Litigation without obtaining the prior written consent of Acquiror, which consent shall not be unreasonably withheld. In addition, the Shareholder Agent shall not permit to exist any lien, encumbrance or other adverse charge upon any asset of, or consent to the imposition of any injunction against, Acquiror or any of its affiliates without obtaining its prior written consent, which consent shall not be unreasonably withheld. 6. ESCROW PROVISIONS. 6.1 Upon termination of this Agreement and delivery of the balance of the Escrow Shares to the parties entitled thereto, the Escrow Agent shall be discharged from any further obligation hereunder. 6.2 The Escrow Agent shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety, validity or service thereof. The Escrow Agent may act in reliance upon any instrument or signature believed by it to be genuine and may assume that any person purporting to give notice or receipt or advice, or make any statement or execute any document, in connection with the provisions hereof has been duly authorized to do so. 6.3 The Escrow Agent shall not be liable to the other parties hereto for any error of judgment, action taken or omitted in good faith or mistake of fact or law, or anything which it may do or refrain from doing in connection therewith, except in the case of its own gross negligence, willful misconduct or bad faith. 6.4 The Escrow Agent shall be entitled to consult with competent and responsible counsel of its choice with respect to the interpretation of the provisions hereof, and any other legal matters relating hereto, and shall be fully protected in taking any action or omitting to take any action in good faith and in accordance with the advice of such counsel. 6.5 The Escrow Agent shall be entitled to be indemnified and held harmless by Acquiror and the Shareholders, jointly and severally, for any and all claims, liabilities, costs, payments and expenses, including reasonable fees of counsel (who may be selected by the Escrow Agent), incurred by the Escrow Agent which -47- arise out of or in connection with any act or omission by it in the performance of its obligations under this Agreement, except in the case of the Escrow Agent's own gross negligence, willful misconduct or bad faith. 7. TIME OF PERFORMANCE. Whenever under the terms hereof the time for performance of any provision shall fall on a date which is not a regular business day of the Escrow Agent, the performance thereof on the next succeeding regular business day of the Escrow Agent shall be deemed to be in full compliance. 8. DEATH, DISABILITY, ETC. The death, disability, bankruptcy or insolvency of any of the Shareholders shall not affect or prevent the performance by the Escrow Agent of its obligations and instructions received hereunder. Without limiting the foregoing sentence, the Shareholder Agent shall notify the Escrow Agent in writing of any person who or that, as a result of a Shareholder's death, disability, bankruptcy or insolvency, should receive distributions, if any, that would otherwise be made hereunder to such Shareholder. 9. RESOLUTION OF CONTROVERSIES. In the event any dispute or controversy arises respecting the administration or disposition of the Escrow Shares, or any part thereof, and such dispute or controversy has not been submitted to arbitration as provided in Section 4.3 hereof, the Escrow Agent shall have the right but not the obligation to interplead the parties to such dispute or controversy in any court of competent jurisdiction, including but not limited to the courts of the State of Indiana and the United States District Court for the Southern District of Indiana which shall be deemed to be courts of competent jurisdiction, and to deposit with such court the Escrow Shares remaining in the Escrow Account, or any portion thereof. Thereafter the Escrow Agent shall be fully released and discharged from all further obligations hereunder with respect to the Escrow Shares held in the Escrow Account or the portion thereof deposited with the court in such proceedings, except in the case of its own gross negligence, willful misconduct, or bad faith. Acquiror and the Shareholders, jointly and severally, shall reimburse the Escrow Agent for all expenses, fees and charges (including reasonable attorneys' fees and expenses) reasonably incurred by the Escrow Agent in any such interpleader action. 10. RESIGNATION OR REMOVAL OF ESCROW AGENT. If the Escrow Agent resigns or is removed, then Acquiror and the Shareholder Agent shall mutually agree upon and name a substitute for the Escrow Agent ("Successor Escrow Agent"), which shall be a bank or trust company and which shall perform the same duties and responsibilities, and which shall be entitled to the same protection and substantially equivalent fees, as the original Escrow Agent named herein. The Escrow Agent shall have the unequivocal right to resign as Escrow Agent upon at least sixty (60) days' prior written notice delivered to Acquiror and the Shareholder Agent; provided, that, in any event, such resignation shall not be effective until such time as a Successor Escrow Agent has been appointed, has accepted its appointment and has taken possession of the Escrow Shares. Upon mutual agreement by Acquiror and the Shareholder Agent, the Escrow Agent may be removed upon at least sixty (60) days' prior written notice; provided, that, in any event, such removal shall not be effective until such time as a Successor Escrow Agent has been appointed, has accepted its appointment and has taken possession of the Escrow Shares. In either of said events, if a Successor Escrow Agent is not appointed within said sixty (60) day period, the Escrow Agent, Acquiror or the Shareholder Agent may petition a court of competent jurisdiction to name a Successor Escrow Agent, whether by interpleader or other appropriate action, and the decision of such court shall be binding upon all parties to this Agreement. 11. ACCEPTANCE OF ESCROW: COMPENSATION OF ESCROW AGENT. The Escrow Agent hereby agrees to serve as Escrow Agent pursuant to this Agreement and to perform the duties and responsibilities conferred upon it hereunder. The Escrow Agent has agreed to serve hereunder for such fees as are set forth in Exhibit C, which fees are to be paid as described in Exhibit C. Such fees shall be borne by Acquiror. 12. TERMINATION. This Agreement shall terminate without further action of any party when all of the terms hereof shall have been fully performed. -48- 13. NOTICES. Any notice, request, instruction or other document to be given under this Agreement by any party shall be in writing and shall be delivered personally, by registered or certified mail, postage prepaid, return receipt requested, by overnight courier or by facsimile transmission, as follows: (a) If to Acquiror, at: The Hillhaven Corporation 1148 Broadway Plaza Tacoma, WA 98402 Attention: General Counsel Facsimile: (206) 756-4845 With a copy to: Edmund O. Belsheim, Jr. Bogle & Gates Two Union Square 601 Union Street Seattle, WA 98101-2346 Facsimile: (206) 621-2660 (b) If to the Shareholders, at: c/o Thomas E. Phillippe, Jr. --------------------------------------------- --------------------------------------------- Attention: Facsimile: With a copy to: Marcus B. Chandler, Esq. ICE MILLER DONADIO & RYAN One American Square Box 82001 Indianapolis, IN 46282-0002 Facsimile: (317) 236-2219 or to such other address or person as any party may designate by a notice to the other parties which is given in the manner required above. Any such notice, request, instruction or other document shall be deemed to have been delivered and received as of the date personally delivered, or if mailed, three days after the date so mailed, or if telecopied, the date on which such telecopy is sent (as confirmed by return facsimile transmission) or if by overnight courier the day following the day on which such notice is properly placed with the courier. 14. COOPERATION WITH ESCROW AGENT. The parties to this Agreement shall cooperate with the Escrow Agent, as the Escrow Agent reasonably deems necessary or desirable to perform its duties and obligations under this Agreement. Without limiting the foregoing, the parties shall provide the Escrow Agent with all information necessary to make any distribution, including names, addresses, social security numbers and tax identification numbers. The Escrow Agent shall be entitled to rely upon the most recent information received from any party without further inquiry and each party shall be responsible for notifying the Escrow Agent of any new or changed information pertaining to such party. 15. TAXES: REPORTS TO GOVERNMENTAL AUTHORITIES. The Shareholders severally agree to assume any obligations imposed now or hereafter by any applicable tax law with respect to any payment from the Escrow Account to the Shareholders under this Agreement and undertake to instruct the Escrow Agent in writing with respect to the Escrow Agent's responsibility for withholding taxes and any other taxes, assessments or -49- other governmental charges and any certifications and governmental reporting required in connection therewith. 16. MISCELLANEOUS. 16.1 This Agreement may not be amended or modified in any way except by an instrument in writing signed by all of the parties hereto. 16.2 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Indiana without reference to its conflicts of law provisions. 16.3 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 16.4 The headings contained in this Agreement are for convenience only, shall not affect this Agreement in any way, and shall not be used to construe or interpret the scope or intent of this Agreement. 16.5 This Agreement shall inure to the benefit of and shall bind the parties hereto and their respective heirs, devisees, personal representatives, successors, transferees and assigns; provided, that, except as otherwise expressly set forth in this Agreement, including without limitation Section 10, neither the rights nor the obligations of any party may be assigned or delegated without the prior written consent of the other parties. IN WITNESS WHEREOF, the parties have duly executed and have caused to be duly executed this Agreement as of the date first written above. THE HILLHAVEN CORPORATION By ---------------------------------- Name: Title: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ BANK ONE, INDIANAPOLIS, N.A. By ---------------------------------- Name: Title: -50- EXHIBIT A SHAREHOLDERS INDIVIDUAL - - ---------------------------------------- - - ---------------------------------------- - - ---------------------------------------- - - ---------------------------------------- - - ---------------------------------------- - - ---------------------------------------- -51- EXHIBIT B ESCROW DISPOSITION NOTICE To: Bank One, Indianapolis, N.A. From: The Hillhaven Corporation Thomas E. Phillippe, Jr. Date: --------------------------- This Escrow Disposition Notice is delivered to you pursuant to Section 4.1 of the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by and among The Hillhaven Corporation, a Nevada corporation, the Shareholders and Bank One, Indianapolis, N.A. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to those terms in the Escrow Agreement. Please be advised that you are hereby directed to distribute from the Escrow Account the property now held in your possession and described herein in the following manner, to wit: [STATE THE NUMBER OF ESCROW SHARES/AMOUNT OF CASH TO BE DISTRIBUTED AND THE RECIPIENT(S) OF SUCH SHARES/CASH] Signed this day of , 1995. THE HILLHAVEN CORPORATION By ---------------------------------- Name: Title: ------------------------------------- Thomas E. Phillippe, Jr. -52- EXHIBIT C ESCROW AGENT FEES DOLLARS ($ ) PER YEAR -53- EXHIBIT 6.15 CERTIFICATE EXECUTED BY NATIONWIDE CARE, INC. This Certificate is executed and delivered in connection with the Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests, by and among The Hillhaven Corporation, a Nevada corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation ("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"), Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"), the partners of Camelot Care Centers, an Indiana general partnership ("Camelot"), the partners of Shangri-La Partnership, an Indiana general partnership ("Shangri-La"), and the limited partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot, Shangri-La and Evergreen are collectively referred to as the "Partnerships"), dated as of February 27, 1995 ("Reorganization Agreement"); and the documents executed and delivered in connection therewith (collectively with the Reorganization Agreement, the "Transaction Documents"). Terms which are not defined herein and are used with initial capitalization when the rules of grammar would not otherwise so require and which are defined in the Transaction Documents shall have the meanings assigned to such terms in the Transaction Documents. In accordance with Section 9.10 of the Reorganization Agreement, the undersigned has requested the opinions of Ice Miller Donadio & Ryan as to certain federal income tax consequences of the Share Exchange as a condition precedent to Closing. In rendering its opinion, Ice Miller Donadio & Ryan may assume that, and the undersigned hereby certifies, represents, and warrants to Ice Miller Donadio & Ryan that: (1) the Share Exchange will be consummated in accordance with the terms, conditions, and other provisions of the Transaction Documents; and (2) all of the factual information, descriptions, representations, and assumptions set forth in the Transaction Documents, in the Form S-4 Registration Statement to be filed with the Securities and Exchange Commission on April , 1995 in connection with the Share Exchange (the "Registration Statement"), and in this Certificate are accurate and complete in all respects and will be accurate and complete in all respects at the time the Registration Statement becomes effective and at the Effective Time of the Share Exchange (the "Effective Time"). Pursuant to the foregoing, the undersigned hereby certifies, represents, and warrants to Ice Miller Donadio & Ryan as follows: THE SHARE EXCHANGE Nationwide operates long-term health care centers primarily located in Indiana, Ohio and Florida. Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe, Jr. are the majority owners of Nationwide. The capital structure of Nationwide consists of: 48,000,000 authorized shares of Common Stock, without par value, of which approximately 7,431,458 shares are issued and outstanding (the "Nationwide Voting Common"); 2,000,000 authorized shares of Nonvoting Common Stock, without par value, of which 76,592 shares are issued and outstanding (the "Nationwide Nonvoting Common") (the Nationwide Voting Common and the Nationwide Nonvoting Common are collectively referred to herein as the "Nationwide Common Shares"); and 2,000,000 authorized shares of Preferred Stock, without par value, of which 300,000 shares of Redeemable Preferred Stock are issued and outstanding (the "Nationwide Preferred Stock"). Nationwide also has outstanding warrants to purchase 987,188 shares of Nationwide Nonvoting Common (the "Nationwide Warrants"). Nationwide files a consolidated return with its one subsidiary, and Nationwide does not have an excess loss account with respect to the stock of, or gains deferred under Treasury Regulation sec. 1502-13 with respect to, any such subsidiary. The Share Exchange is totally unrelated to the Nationwide 1993 reorganization. The Transaction Documents provide that all of the outstanding Nationwide Common Shares will be exchanged solely for shares of Acquiror Common Stock. The Share Exchange will be consummated in accordance with the Indiana Business Corporation Law, as amended ("BCL"), and the Nevada General Corporation Law, as amended ("NCL"). The Share Exchange was approved by the Board of Directors of -54- Nationwide on April , 1995 and is subject to the approval of the holders of a majority of the outstanding shares of Nationwide stock at a duly called and held meeting of the Nationwide shareholders on June , 1995. At the Effective Time, each Nationwide Common Share then outstanding will be exchanged for that number of shares of Acquiror Common Stock determined in accordance with the Reorganization Agreement, rounded to the nearest whole share. Other than shares of Acquiror Common Stock, there will be no cash or other property exchanged in the Share Exchange. Prior to the Effective Time, the Nationwide Preferred Stock will be redeemed by Nationwide with its own funds and without reimbursement directly or indirectly from Acquiror. Prior to the Effective Time, the Nationwide Warrants shall be exercised into the corresponding number of Nationwide Nonvoting Common pursuant to the terms of the Warrants, and the resulting Nationwide Nonvoting Common will be exchanged for that number of shares of Acquiror Common Stock determined in accordance with the Reorganization Agreement, rounded to the nearest whole share. At the Closing, the Nationwide Subordinated Notes will be prepaid directly by Acquiror. The Nationwide Subordinated Notes are debt (not stock or equity) under general principles of federal taxation law, and Acquiror will not pay any amounts in excess of such indebtedness. The Nationwide Common Shares held by the holders of the Nationwide Subordinated Notes shall be valued in the Share Exchange in the same manner as other Nationwide Common Shares. Except for the redemption of the Nationwide Preferred Stock, there have been and will be no distributions to any of the Nationwide shareholders with respect to their Nationwide stock in contemplation of the Share Exchange, and no Nationwide stock has been or will be sold, redeemed or otherwise disposed of in contemplation of the Share Exchange. Nationwide shareholders are entitled to dissenters' rights in connection with the proposed Share Exchange. Any payments to dissenters in connection with the Share Exchange shall be made by Nationwide out of its own funds without reimbursement directly or indirectly from Acquiror. Except for the Nationwide Warrants, there are no outstanding options or warrants to purchase any Nationwide stock or outstanding securities or other instruments or rights convertible into any Nationwide stock or which constitute equity under general principles of federal tax law, and no such options, warrants, securities, instruments, or rights have been or will be issued or cancelled in contemplation of the Share Exchange. At the Effective Time, the Partnership Interests shall be assigned to Nationwide. All of the parties to the Reorganization Agreement agree that the Partnership Interests have no value, nor do they represent liabilities. None of the Acquiror Common Stock is being transferred pursuant to the Reorganization Agreement in exchange for such Partnership Interests. The parties agree that the shareholders of the Targets and Partners of the Partnerships were not the primary obligors with respect to the obligations which they personally guaranteed and which will be released prior to the Share Exchange. The Nationwide Common Shares held by the Partners and by the guarantors shall be valued in the Share Exchange in the same manner as the other Nationwide Common Shares. Any debts owed by any Partnership to any of the Target shareholders (including without limitation the debt owed by Shangri-La to Thomas E. Phillippe, Sr.) shall be paid by Nationwide out of its own funds without reimbursement directly or indirectly from Acquiror. Acquiror is making no payment of cash or Acquiror Common Stock or other property or assuming any liabilities in connection with or pursuant to the assumption of the Partnership Interests, releases of guarantees or the Noncompetition Agreements, and will not directly or indirectly reimburse Nationwide for any such payments. ADDITIONAL REPRESENTATIONS 1. The fair market value of the shares of Acquiror Common Stock received by each Nationwide shareholder will be approximately equal to the fair market value of the shares of Nationwide stock surrendered in exchange therefor. 2. There is no plan or intention by the shareholders of Nationwide who own one percent or more of the shares of Nationwide stock, and to the best of the knowledge of the management of Nationwide, there is no plan or intention on the part of the remaining shareholders of Nationwide to sell, exchange, or otherwise dispose of a number of shares of Acquiror Common Stock received in the Share Exchange that -55- would reduce the Nationwide shareholders' ownership of such shares of Acquiror Common Stock (i.e., the shares of Acquiror Common Stock received in the Share Exchange) to a number of shares having an aggregate value, as of the Effective Time, of less than 50 percent of the value of all of the formerly outstanding shares of Nationwide stock as of the same date. For purposes of this representation, shares of Nationwide stock surrendered by dissenters will be treated as outstanding shares of Nationwide stock at the Effective Time. Moreover, shares of Nationwide stock and shares of Acquiror Common Stock held by Nationwide shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to the Share Exchange (including the Nationwide Preferred Stock) will be considered in making this representation. Except for the redemption of the Nationwide Preferred Stock, there have been and will be no distributions to the Nationwide shareholders with respect to their Nationwide stock made in contemplation of the Share Exchange, and no Nationwide stock has been or will be sold, redeemed or otherwise disposed of in contemplation of the Share Exchange. 3. Nationwide has no plan or intention to issue additional shares of its stock that would result in Acquiror losing control of Nationwide within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"). 4. Acquiror will acquire Nationwide stock solely in exchange for Acquiror voting stock (Acquiror Common Shares). For purposes of this representation, Nationwide stock redeemed for cash or other property furnished by Acquiror will be considered as acquired by Acquiror. Further, no liabilities of Nationwide or the Nationwide shareholders will be assumed by Acquiror, nor will any of the Nationwide stock be subject to any liabilities. 5. At the Effective Time, Nationwide will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Nationwide that, if exercised or converted, would affect Acquiror's acquisition or retention of control of Nationwide, as defined in Code Section 368(c). 6. Nationwide will pay its dissenting shareholders the value of their stock out of its own funds. No funds will be supplied for that purpose, directly or indirectly, by Acquiror, nor will Acquiror directly or indirectly reimburse Nationwide for any payments to dissenters. 7. The liabilities of Nationwide were incurred by Nationwide in the ordinary course of its business. 8. Acquiror does not own, directly or indirectly, nor has it owned during the past five years, directly or indirectly, any Nationwide stock, including ownership by any Acquiror subsidiary. 9. Nationwide will pay its expenses incurred in connection with the Share Exchange. Nationwide will not pay the expenses of Acquiror or the Nationwide shareholders incurred in connection with the Share Exchange; provided, however, that Nationwide may pay certain expenses it was previously obligated to pay by contract in connection with the issuance of the Nationwide Warrants, Nationwide Subordinated Notes and Nationwide Preferred Stock out of its own funds and without reimbursement directly or indirectly from Acquiror. 10. There is no intercorporate indebtedness existing between Acquiror and Nationwide or between Acquiror and any Nationwide subsidiary that was issued, acquired, or will be settled at a discount. 11. Neither Nationwide nor any Nationwide subsidiary is an investment company as defined in Code Sections 368 (a)(2)(F)(iii) and 368(a)(2)(F)(iv). 12. Neither Nationwide nor any Nationwide subsidiary is under the jurisdiction of a court in a Title 11 or similar case within the meaning of Code Section 368(a)(3)(A). 13. At the Effective Time, the fair market value of the assets of Nationwide will exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject. 14. None of the compensation received by any shareholder who is an employee of Nationwide will be separate consideration for, or allocable to, any of their shares of Nationwide stock. None of the shares of Acquiror Common Stock received by any shareholder who is an employee of Nationwide will be separate consideration for, or allocable to, any employment agreement. The compensation paid to any shareholder who is an employee of Nationwide will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. -56- 15. The Share Exchange is being effected for bona fide business reasons, including without limitation the reasons set forth in the Registration Statement. Nationwide has looked for opportunities to expand its nursing care operations and increase its operating efficiencies. Nationwide also recognizes that some of its senior management executives, who are both officers and directors, are approaching retirement age, and others have expressed a desire to reduce or discontinue their role in the management of Nationwide. Consequently, Nationwide, in considering business expansion opportunities, has looked for businesses with strong senior management with experience in the nursing care industry. Nationwide determined that Acquiror offers an opportunity for it to meet these objectives. Nationwide believes that a combination of its operations with Acquiror will provide increased opportunity and flexibility for profitable expansion and diversification, will enhance its ability to provide more efficient and dependable service, and will result in operating efficiencies and cost savings. 16. To the extent that a portion of the shares of Acquiror Common Stock issued by Acquiror in exchange for Nationwide stock will be placed in escrow by the Nationwide shareholders and will be made subject to a condition pursuant to the Reorganization Agreement and the Escrow Agreement, for possible return to Acquiror under specified conditions: (1) there is a valid business reason for establishing the arrangement in that the escrow is a mechanism to accomplish an exchange price adjustment, bargained for at arm's length, in the event of a breach by Nationwide, and no Nationwide shareholder is liable for any such breach; (2) the shares of Acquiror Common Stock subject to such arrangement will appear as issued and outstanding on the balance sheet of Acquiror and such shares of Acquiror Common Stock will be legally outstanding under applicable state law; (3) all dividends paid on such shares of Acquiror Common Stock will be distributed currently to the Nationwide shareholders; (4) all voting rights of such shares of Acquiror Common Stock will be exercisable by or on behalf of the Nationwide shareholders or their authorized agent; (5) no shares of such Acquiror Common Stock will be subject to restrictions requiring their return to Acquiror because of death, failure to continue employment, or similar restrictions; (6) all such shares of Acquiror Common Stock will be released from the arrangement within five years from the date of consummation of the Share Exchange (except where there is a bona fide dispute as to whom the shares of Acquiror Common Stock should be released); (7) at least 50 percent of the number of shares of each class of Acquiror Common Stock issued initially to the Nationwide shareholders will not be subject to the arrangement; (8) the return of the shares of Acquiror Common Stock will not be triggered by an event the occurrence or nonoccurrence of which is within the control of the Nationwide shareholders; (9) the return of shares of Acquiror Common Stock will not be triggered by the payment of additional tax or reduction in tax paid as a result of an Internal Revenue Service audit of the Nationwide shareholders or the corporations either (a) with respect to the Share Exchange, or (b) when the Share Exchange involves persons related within the meaning of Code Section 267(c)(4); and (10) the mechanism for the calculation of the number of shares of Acquiror Common Stock to be returned is objective and will be readily ascertainable. The foregoing is provided to Ice Miller Donadio & Ryan in connection with the preparation of its opinions. We understand that its opinions will be premised on the basis that all of the facts, representations, and assumptions on which it is relying, whether contained herein or elsewhere, are accurate and complete in all respects and will be accurate and complete in all respects at the time the Registration Statement becomes effective and at the Effective Time. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this day of , 1995. NATIONWIDE CARE, INC. By: ------------------------------- Dr. Thomas E. Phillippe, Sr., Chairman of the Board -57- EXHIBIT 6.6(A) , 1995 The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Gentlemen: Reference is made to the Restated and Amended Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests dated as of , 1995, as amended (the "Agreement"), by and among The Hillhaven Corporation ("Acquiror"), Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc. ("PEI"), Meadowvale Skilled Care Center, Inc. ("Meadowvale") and specified Partners of Camelot Care Centers ("Camelot"), Evergreen Woods, Ltd. ("Evergreen") and Shangri-La Partnership ("Shangri-La")(Nationwide, PEI and Meadowvale are collectively referred to herein as the "Corporate Targets"; Camelot, Evergreen and Shangri-La are collectively referred to herein as the "Partnership Targets"; the Corporate Targets and Partnership Targets are collectively referred to herein as the "Targets"), providing for the exchange of all of the outstanding common stock of each of the Corporate Targets for common stock of the Acquiror and the assignment of all interests in the Partnership Targets to Nationwide (collectively, the "Acquisitions"). Pursuant to the Agreement, I may receive a certain number of shares of Common Stock, par value $0.75 per share, of Acquiror in exchange for the shares of Common Stock of the Corporate Targets (the "Target Common Shares") or interests in the Partnership Targets (the "Target Interests") owned by me (all shares of Acquiror Common Stock to be acquired by me pursuant to the Agreement being hereinafter referred to as "Acquiror Common Shares"). I have been advised that I may be deemed to be an "affiliate" of at least one of the Targets within the meaning of Rule 144 of the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"), and as that term is used in paragraphs (c) and (d) of Rule 145 under the Act. For all purposes of this letter, the term "affiliate" shall have the foregoing meaning. I understand that the Targets are obligated, pursuant to Section 6.6 of the Agreement, to use their best efforts to cause me, and each person identified as a possible affiliate, to deliver this letter (hereinafter referred to as an "Affiliate Letter") to Acquiror. A. In connection with, and in consideration of, the matters set forth above: 1. I confirm that I have no agreement (oral or written) with any other affiliate of the Targets pursuant to which I am subject to restrictions on sales similar to the restrictions in this Affiliate Letter. I represent and warrant that as of the date hereof I beneficially own such Target Common Shares and Target Interests as are listed on Schedule A attached hereto. 2. I understand that the Acquiror Common Shares will, upon the effectiveness of the Acquisitions, be registered with the SEC under the Act. However, I also understand that, since I may be an affiliate of one of the Targets at the time the Agreement is submitted to the stockholders and partners of the Targets for approval and the distribution by me as a former affiliate of a Target of Acquiror Common Shares has not been registered under the Act, any sale or disposition by me of any of the Acquiror Common Shares may, under current law, be made only in conformity with the provisions of Rule 145(d) under the Act, pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration thereunder. I understand that the provisions of Rule 145(d) restrict my sales, during the two-year period after the effective date of the Acquisitions, and permit sales, in general, while Acquiror is subject to the requirements to file, and is filing, periodic reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, only in brokers' transactions or transactions directly with a market maker where the aggregate number of shares sold at any time together with all sales of restricted Acquiror securities sold for my account during the preceding three-month period, does not exceed, generally, the greater of (i) one percent of the outstanding shares of Common Stock of Acquiror, or (ii) the average weekly volume of trading in such securities on all national securities exchanges and/or -58- reported through the automated quotation system of a registered securities association during the four-week period preceding any such sale, all as set forth in more detail in Rules 144 and 145 under the Act. 3. In view of the foregoing paragraph 2, unless the Agreement is terminated, I agree that after the effective date of the Acquisitions, I will not offer to sell, sell or otherwise dispose of Acquiror Common Shares except (i) pursuant to an effective registration statement; (ii) pursuant to the provisions of Rule 145 under the Act; or (iii) pursuant to another exemption from registration under the Act. 4. I have carefully read this letter and understand the limitations stated herein upon the sale, transfer or other disposition of (i) Target Common Shares and Target Interests beneficially owned by me or hereafter acquired by me and (ii) Acquiror Common Shares that I may acquire pursuant to the Agreement. B. In connection herewith, Acquiror represents, warrants, acknowledges and agrees as follows: 1. Acquiror shall not give, or cause to be given, stop transfer instructions to the transfer agent of Acquiror with respect to any of the Acquiror Common Shares issued in connection with the Acquisitions except for such instructions as shall be in conformity with the provisions hereof, and shall place, or cause to be placed, on any certificate representing such Acquiror Common Shares only the following legend: The shares represented by this certificate were issued in a transaction to which Rule 145 under the Securities Act of 1933 applies. The shares represented by this certificate may be transferred only in accordance with the terms of a letter agreement dated , 1995 between the registered holder and The Hillhaven Corporation, a copy of which is on file at the principal offices of The Hillhaven Corporation. 2. Acquiror shall use its best efforts to file, in a timely manner, all reports with the SEC necessary for the current public information requirement of Rule 144 under the Act to be satisfied. Very truly yours, -------------------------------------- Agreed this day of , 1995: The Hillhaven Corporation - - --------------------------------------------------------- Name: Title: -59- EXHIBIT 6.6 (B) , 1995 The Hillhaven Corporation 1148 Broadway Plaza Tacoma, Washington 98402 Gentlemen: Reference is made to the Restated and Amended Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests dated as of , 1995, as amended (the "Agreement"), by and among The Hillhaven Corporation ("Acquiror"), Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc. ("PEI"), Meadowvale Skilled Care Center, Inc. ("Meadowvale") and specified Partners of Camelot Care Centers ("Camelot"), Evergreen Woods, Ltd. ("Evergreen") and Shangri-La Partnership ("Shangri-La")(Nationwide, PEI and Meadowvale are collectively referred to herein as the "Corporate Targets"; Camelot, Evergreen and Shangri-La are collectively referred to herein as the "Partnership Targets"; the Corporate Targets and Partnership Targets are collectively referred to herein as the "Targets"), providing for the exchange of all of the outstanding common stock of each of the Corporate Targets for common stock of the Acquiror and the assignment of all interests in the Partnership Targets to Nationwide (collectively, the "Acquisitions"). Pursuant to the Agreement, I may receive a certain number of shares of Common Stock, par value $0.75 per share, of Acquiror in exchange for the shares of Common Stock of the Corporate Targets (the "Target Common Shares") or interests in the Partnership Targets (the "Target Interests") owned by me (all shares of Acquiror Common Stock to be acquired by me pursuant to the Agreement being hereinafter referred to as "Acquiror Common Shares"). I understand that the Targets are obligated, pursuant to Section 6.6 of the Agreement, to use their best efforts to cause each shareholder of the Corporate Targets and each partner of the Partnership Targets to deliver this letter (hereinafter referred to as the a "Pooling Letter") to Acquiror. In connection with, and in consideration of, the matters set forth above: 1. I confirm that I have no agreement (oral or written) with any other shareholder or partner of the Targets pursuant to which I am subject to restrictions on sales similar to the restrictions in this Pooling Letter. I represent and warrant that as of the date hereof I beneficially own such Target Common Shares and Target Interests as are listed on Schedule A attached hereto. 2. I understand that, for accounting purposes, it is anticipated that the Acquisitions will qualify for pooling-of-interests accounting treatment under generally accepted accounting principles and that, in order for the Acquisitions to so qualify, shareholders or partners of any Target can sell Target Common Shares, Target Interests and Acquiror Common Shares only in accordance with certain restrictions. In this connection, I will not make any sales of Target Common Shares or Target Interests prior to the effective date of the Acquisitions, or sales of Acquiror Common Shares after the effective date of the Acquisitions, that would cause the criteria for pooling-of-interests accounting treatment to be violated, it being understood that sales of shares in accordance with paragraph 3 below shall be deemed not to violate my obligations under this Pooling Letter. 3. In view of the foregoing paragraph 2, unless the Agreement is terminated, I agree that with respect to the period beginning on the effective date of the Acquisitions and ending at such time as financial results covering at least 30 days of post-Acquisition combined operations have been published, I will not sell, transfer or otherwise dispose of, or reduce my interest in, or risk relating to, any Acquiror Common Shares received by me pursuant to the Agreement, unless prior to any such transaction I have obtained a letter from an independent public accounting firm satisfactory to Acquiror to the effect that such transactions will not cause the criteria for pooling-of-interests accounting to be violated. -60- 4. I have carefully read this letter and understand the limitations stated herein upon the sale, transfer or other disposition of (i) Target Common Shares and Target Interests beneficially owned by me or hereafter acquired by me and (ii) Acquiror Common Shares that I may acquire pursuant to the Agreement. Very truly yours, ------------------------------------- -61- EXHIBIT 7.7 CERTIFICATE EXECUTED BY THE HILLHAVEN CORPORATION FOR NATIONWIDE CARE, INC. This Certificate is executed and delivered in connection with the Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests, by and among The Hillhaven Corporation, a Nevada corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation ("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"), Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"), the partners of Camelot Care Centers, an Indiana general partnership ("Camelot"), the partners of Shangri-La Partnership, an Indiana general partnership ("Shangri-La"), and the limited partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot, Shangri-La and Evergreen are collectively referred to as the "Partnerships"), dated as of February 27, 1995 ("Reorganization Agreement"); and the documents executed and delivered in connection therewith (collectively with the Reorganization Agreement, the "Transaction Documents"). Terms which are not defined herein and are used with initial capitalization when the rules of grammar would not otherwise so require and which are defined in the Transaction Documents shall have the meanings assigned to such terms in the Transaction Documents. In accordance with Section 9.10 of the Reorganization Agreement, Nationwide has requested the opinions of Ice Miller Donadio & Ryan as to certain federal income tax consequences of the Share Exchange as a condition precedent to Closing. This Certificate is issued by Acquiror in accordance with Section 7.7 of the Reorganization Agreement. In rendering its opinion, Ice Miller Donadio & Ryan may assume that, and the undersigned hereby certifies, represents, and warrants to Ice Miller Donadio & Ryan that: (1) the Share Exchange will be consummated in accordance with the terms, conditions, and other provisions of the Transaction Documents; and (2) all of the factual information, descriptions, representations, and assumptions set forth in the Transaction Documents, in the Form S-4 Registration Statement to be filed with the Securities and Exchange Commission on April , 1995 in connection with the Share Exchange (the "Registration Statement"), and in this Certificate are accurate and complete in all respects and will be accurate and complete in all respects at the time the Registration Statement becomes effective and at the Effective Time of the Share Exchange (the "Effective Time"). Pursuant to the foregoing, the undersigned hereby certifies, represents, and warrants to Ice Miller Donadio & Ryan as follows: THE SHARE EXCHANGE Acquiror and its subsidiaries operate nursing centers, pharmacies and retirement housing communities. The capital structure of Acquiror consists of 60 million authorized shares of voting Common Stock, par value $.75 per share of which approximately 32,824,863 are outstanding (the "Acquiror Common Shares"); 25 million authorized shares of preferred stock, par value $0.15 per share, of which the following series have been designated: 3 million authorized shares of Series A Preferred Stock, of which no shares are outstanding; 950 authorized shares of Series B Convertible Preferred Stock, of which 618 shares have been designated as Subseries 1, of which no shares are outstanding; 35,000 authorized shares of Series C Preferred Stock, all of which are outstanding; and 300,000 authorized shares of Series D Preferred Stock, of which approximately 63,403 are outstanding. The Transaction Documents provide that all of the outstanding shares of common stock of Nationwide will be exchanged solely for Acquiror Common Shares. The Share Exchange will be consummated in accordance with the Indiana Business Corporation Law, as amended ("BCL"), and the Nevada General Corporation Law, as amended ("NCL"). The Share Exchange was approved by the Board of Directors of Acquiror on April 12, 1995, and does not require the approval of the Acquiror shareholders. -62- At the Effective Time, each Nationwide Common Share then outstanding will be exchanged for that number of shares of Acquiror Common Stock determined in accordance with the Reorganization Agreement, rounded to the nearest whole share. Other than shares of Acquiror Common Stock, there will be no cash or other property exchanged in the Share Exchange. Prior to the Effective Time, the Nationwide Preferred Stock will be redeemed by Nationwide with its own funds and without reimbursement directly or indirectly from Acquiror. Immediately prior to the Effective Time, the Nationwide Warrants shall be exercised into the corresponding number of Nationwide Nonvoting Common pursuant to the terms of the Warrants, and the resulting Nationwide Nonvoting Common will be exchanged for that number of shares of Acquiror Common Stock determined in accordance with the Reorganization Agreement, rounded to the nearest whole share. At the Closing, the Nationwide Subordinated Notes will be prepaid directly by Acquiror. The Nationwide Subordinated Notes are debt (not stock or equity) under general principles of federal taxation law, and Acquiror will pay only the fair market value of such indebtedness, and will not pay any amounts in excess of such indebtedness. The Nationwide Common Shares held by the holders of the Nationwide Subordinated Notes shall be valued in the Share Exchange in the same manner as the other Nationwide Common Shares. At the Effective Time, the Partnership Interests shall be assigned to Nationwide. All of the parties to the Reorganization Agreement agree that the Partnership Interests have no value, nor do they represent liabilities. None of the Acquiror Common Stock is being transferred pursuant to the Reorganization Agreement in exchange for such Partnership Interests. The parties agree that the shareholders of the Targets and Partners of the Partnerships were not the primary obligors with respect to the obligations which they personally guaranteed and which will be released prior to the Share Exchange. The Nationwide Common Shares held by the Partners and by the guarantors shall be valued in the Share Exchange in the same manner as the other Nationwide Common Shares. Any debts owed by any Partnership to any of the Target shareholders (including without limitation the debt owed by Shangri-La to Thomas E. Phillippe, Sr.) shall be paid by Nationwide out of its own funds without reimbursement directly or indirectly from Acquiror. Acquiror is making no payment of cash or Acquiror Common Stock or other property or assuming any liabilities in connection with or pursuant to the assumption of the Partnership Interests, releases of gurantees or the Noncompetition Agreements, and will not directly or indirectly reimburse Nationwide for any such payments. Acquiror will not make, directly or indirectly, any payments to dissenters or any other distributions to the Nationwide shareholders with respect to their Nationwide stock in contemplation of the Share Exchange. Except for the Nationwide Warrants, Acquiror is not aware of any outstanding options or warrants to purchase Nationwide shares or outstanding securities or other instruments or rights, convertible into Nationwide shares or which constitute equity under general principles of federal tax law, and no such options, warrants, securities, instruments or rights have been or will be issued or cancelled in contemplation of the Share Exchange. ADDITIONAL REPRESENTATIONS 1. The fair market value of the shares of Acquiror Common Stock received by each Nationwide shareholder will be approximately equal to the fair market value of the shares of Nationwide stock surrendered in exchange therefor. 2. Following the Share Exchange, Acquiror will not permit Nationwide to issue additional shares of its stock that would result in Acquiror losing control of Nationwide within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"). 3. Acquiror has no plan or intention to reacquire any of its stock issued in the Share Exchange. 4. Acquiror has no plan or intention to liquidate Nationwide or any Nationwide subsidiary; to merge Nationwide or any Nationwide subsidiary with and into another corporation; to cause or permit Nationwide to sell or otherwise dispose of any of its assets, or the assets of any Nationwide subsidiary, -63- except for dispositions made in the ordinary course of business; or to sell or otherwise dispose of the stock of Nationwide or any Nationwide subsidiary except for transfers described in Code Section 368 (a)(2)(C). 5. Following the Share Exchange, Nationwide will continue its historic business or use a significant portion of its historic business assets in a business. 6. Acquiror will pay its expenses incurred in connection with the Share Exchange. Acquiror will not pay the expenses of Nationwide or the Nationwide shareholders, if any, incurred in connection with the Share Exchange. 7. Acquiror will acquire Nationwide stock solely in exchange for Acquiror voting stock (Acquiror Common Shares). For purposes of this representation, Nationwide stock redeemed for cash or other property furnished by Acquiror will be considered as acquired by Acquiror. Further, no liabilities of Nationwide or the Nationwide shareholders will be assumed by Acquiror, nor will any of the Nationwide stock be subject to any liabilities. 8. Nationwide will pay its dissenting shareholders the value of their stock out of its own funds. No funds will be supplied for that purpose, directly or indirectly, by Acquiror, nor will Acquiror directly or indirectly reimburse Nationwide for any payments to dissenters. 9. There is no intercorporate indebtedness existing between Acquiror and Nationwide or between Acquiror and any Nationwide subsidiaries that was issued, acquired, or will be settled at a discount. 10. Acquiror is not an investment company as defined in Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv). 11. Acquiror is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Code Section 368(a)(3)(A). 12. Acquiror does not own, directly or indirectly, nor has it owned during the past five years, directly or indirectly, any shares of Nationwide stock, including any ownership by any Acquiror subsidiary. Acquiror will not acquire, directly or indirectly, any shares of Nationwide stock prior to the Effective Time. 13. The Share Exchange is being effected for bona fide business reasons, including without limitation the reasons set forth in the Registration Statement and for the reasons that Acquiror and its subsidiaries have looked for growth opportunities which would increase their percentage share of the nursing care market while increasing their operating efficiencies by achieving economies of scale as a larger service provider. Due in part to the proximity of the service areas, Acquiror determined that Nationwide represented such an opportunity and expressed an interest in combining the resources of the companies. Acquiror believes that a combination of its operations with Nationwide will provide increased opportunity and flexibility for profitable expansion and diversification, will enhance their ability to provide more efficient and dependable service, and will result in operating efficiencies and cost savings. 14. At the Effective Time, the fair market value of the assets of Nationwide will exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject. 15. None of the compensation received by any shareholder who is an employee of Nationwide will be separate consideration for, or allocable to, any of such shareholder's shares of Nationwide stock. None of the shares of Acquiror Common Stock received by any shareholder who is an employee of Nationwide will be separate consideration for, or allocable to, any employment agreement. The compensation paid to any shareholder who is an employee of Nationwide will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. 16. To the extent that a portion of the shares of Acquiror Common Stock issued in exchange for the Nationwide stock will be placed in escrow by the Nationwide shareholders and will be made subject to a condition pursuant to the Reorganization Agreement and the Escrow Agreement, for possible return to Acquiror under specified conditions: (1) there is a valid business reason for establishing the arrangement -64- in that the escrow is a mechanism to accomplish an exchange price adjustment, bargained for at arm's length, in the event of a breach by Nationwide, and no Nationwide shareholder is liable for any such breach; (2) the shares of Acquiror Common Stock subject to such arrangement will appear as issued and outstanding on the balance sheet of Acquiror and such shares of Acquiror Common Stock will be legally outstanding under applicable state law; (3) all dividends paid on such shares of Acquiror Common Stock will be distributed currently to the Nationwide shareholders; (4) all voting rights of such shares of Acquiror Common Stock will be exercisable by or on behalf of the Nationwide shareholders or their authorized agent; (5) no shares of such Acquiror Common Stock will be subject to restrictions requiring their return to Acquiror because of death, failure to continue employment, or similar restrictions; (6) all such shares of Acquiror Common Stock will be released from the arrangement within five years from the date of consummation of the Share Exchange (except where there is a bona fide dispute as to whom the shares of Acquiror Common Stock should be released); (7) at least 50 percent of the number of shares of each class of Acquiror Common Stock issued initially to the Nationwide shareholders will not be subject to the arrangement; (8) the return of the shares of Acquiror Common Stock will not be triggered by an event the occurrence or nonoccurrence of which is within the control of the Nationwide shareholders; (9) the return of shares of Acquiror Common Stock will not be triggered by the payment of additional tax or reduction in tax paid as a result of an Internal Revenue Service audit of the Nationwide shareholders or the corporations either (a) with respect to the Share Exchange, or (b) when the Share Exchange involves persons related within the meaning of Code Section 267(c)(4); and (10) the mechanism for the calculation of the number of shares of Acquiror Common Stock to be returned is objective and will be readily ascertainable. 17. The purpose of the Hillhaven rights plan is to provide a mechanism by which Hillhaven, a publicly traded corporation, can, in the future, provide shareholders with rights to purchase Hillhaven stock at substantially less than fair market value as a means of responding to unsolicited offers to acquire Hillhaven. The plan provides that in the event of an unsolicited offer in the future to acquire Hillhaven under certain circumstances (a "triggering event"), the Hillhaven shareholders will have the right to purchase Hillhaven stock. The rights until they become exercisable may be redeemed at any time by Hillhaven for one cent per right until a specified date. Until a triggering event, the rights are not exercisable or separately tradeable, transferrable, or detachable, nor are they represented by any certificate other than the Acquiror Common Share certificate. Until a triggering event occurs, the exercise price is anticipated to exceed the value of the Hillhaven stock at all times during the life of the right. The likelihood that the rights would, at any time, be exercised is both remote and speculative. No event has occurred, or is anticipated to occur, that would make the rights exercisable. The foregoing is provided to Ice Miller Donadio & Ryan in connection with the preparation of its opinions. We understand that its opinions will be premised on the basis that all of the facts, representations, and assumptions on which it is relying, whether contained herein or elsewhere, are accurate and complete in all respects and will be accurate and complete in all respects at the time the Registration Statement becomes effective. IN WITNESS WHEREOF, the undersigned have executed this Certificate as of this day of , 1995. THE HILLHAVEN CORPORATION By: ------------------------------- Printed: -------------------------- Title: ---------------------------- -65- EXHIBIT 12.2(H) PART 1 NONCOMPETITION AGREEMENT This NONCOMPETITION AGREEMENT (this "Agreement"), dated [ ], 1995, is made among The Hillhaven Corporation, a Nevada corporation ("Acquiror"), and Dr. Thomas E. Phillippe, Sr. ("Phillippe"), an individual. WHEREAS, Phillippe and certain other persons have, on this date, as part of a single transaction, delivered to Acquiror all the issued and outstanding shares of the capital stock of Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc., and Meadowvale Skilled Care Center, Inc., each an Indiana corporation (collectively, the "Corporate Targets"), and delivered to Nationwide all the outstanding interests in Camelot Care Centers, a general partnership governed by the laws of Indiana, Shangri-La Partnership, a general partnership governed by the laws of Indiana, and Evergreen Woods, Ltd., a Florida limited partnership (together, the "Partnership Targets") (the Corporate Targets and the Partnership Targets being referred to herein collectively as the "Targets"), pursuant to that certain Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests among Acquiror and the Targets, dated as of February 27, 1995 (the "Share Exchange Agreement"; such transaction contemplated therein hereinafter referred to as the "Transaction"); WHEREAS, Acquiror and the Targets are engaged in various locations in the following businesses (i) owning, operating and managing nursing homes and assisted living centers and (ii) providing home health care and rehabilitation therapy care (the foregoing businesses being referred to herein collectively as the "Business Activities"); WHEREAS, Phillippe has acquired knowledge relating to the Business Activities as a result of Phillippe's relationship with the Targets; and WHEREAS, as part of, and a condition precedent to, the Transaction, Phillippe has agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual premises and agreements herein set forth, the parties hereto, intending to be legally bound, agree as follows: 1. Definitions. All capitalized terms used and not defined herein shall have the meanings given such terms in the Share Exchange Agreement. References to "Phillippe" herein shall mean Phillippe and any of his Affiliates. 2. Rights of Acquiror. Covenants herein contained are cumulative to the rights of Acquiror under the laws of the United States, the states of Washington, Indiana, Ohio and Florida and other states, as applicable, respecting Acquiror's rights to protect itself from the competition of Phillippe. 3. Non-Competition. Phillippe agrees that, for a period of five (5) years from the date of the Effective Time, Phillippe shall not, directly or indirectly: (a) have an interest in, own, manage, operate, control, be connected with as a stockholder (other than as a stockholder of less than 5% of the issued and outstanding stock of a publicly held corporation), joint venturer, partner, limited liability company member or manager, or consultant, or otherwise engage or invest or participate in, or enjoy a financially beneficial relationship with, any business which conducts any of the Business Activities within a five (5) mile radius of any facility or other location at or from which Acquiror, a Target or any of their respective Affiliates conducts any of the Business Activities as of the date hereof. (b) (i) solicit, recruit or hire any employee of Acquiror, a Target or any of their respective Affiliates or any person who has worked for Acquiror, a Target or any of their respective Affiliates -66- within the six months preceding such solicitation, recruitment or hire; or (ii) solicit or encourage any employee of Acquiror, a Target or any of their respective Affiliates to leave such employment. 4. Specific Performance. Phillippe acknowledges that his failure to comply with the provisions of this Agreement will result in irreparable and continuing damage to Acquiror for which there will be no adequate remedy at law and that, in the event of a failure of Phillippe so to comply, Acquiror and its successors and assigns shall be entitled to injunctive relief and to such other and further relief as may be proper and necessary to ensure compliance with the provisions of this Agreement. 5. Amendments. No amendment to this Agreement shall be effective unless it shall be in writing and signed by each party hereto. 6. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to each other party. 7. Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 8. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or other applications of such provision. 9. Governing Law. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Indiana, without regard to the conflicts of law principles of such state. 10. Arbitration. Any claim or controversy relating to the breach, interpretation or enforcement of this Agreement shall be submitted to final and binding arbitration in Marion County, Indiana, in an arbitration proceeding that, except as may otherwise be provided herein, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator chosen in accordance with such rules. All evidentiary and discovery matters shall be conducted in accordance with and governed by the applicable Federal Rules of Civil Procedure. No later than 10 calendar days after the arbitrator is appointed, the arbitrator shall schedule the arbitration for a hearing to commence on a mutually convenient date. All discovery shall be completed no later than the commencement of the arbitration hearing or 90 calendar days after the date that a proper demand for arbitration is served, whichever occurs first, unless, upon a showing of good cause, the arbitrator extends such period. The hearing shall commence no later than 90 calendar days after the arbitrator is appointed and shall continue until completed. The arbitrator shall issue his or her award in writing no later than 20 calendar days after the conclusion of the hearing. The arbitrator shall not have the power to amend this Agreement in any respect. The arbitrator's decision shall be binding and conclusive upon the parties. -67- IN WITNESS WHEREOF, the parties have duly executed and have caused to be duly executed this Agreement as of the date first above written. THE HILLHAVEN CORPORATION By: -------------------------------- Robert F. Pacquer Senior Vice President and Chief Financial Officer ------------------------------------ Dr. Thomas E. Phillippe, Sr. -68- EXHIBIT 12.2(H) PART 2 NONCOMPETITION AGREEMENT This NONCOMPETITION AGREEMENT (this "Agreement"), dated [ ], 1995, is made among The Hillhaven Corporation, a Nevada corporation ("Acquiror"), and Thomas E. Phillippe, Jr. ("Phillippe"), an individual. WHEREAS, Phillippe and certain other persons have, on this date, as part of a single transaction, delivered to Acquiror all the issued and outstanding shares of the capital stock of Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc., and Meadowvale Skilled Care Center, Inc., each an Indiana corporation (collectively, the "Corporate Targets"), and delivered to Nationwide all the outstanding interests in Camelot Care Centers, a general partnership governed by the laws of Indiana, Shangri-La Partnership, a general partnership governed by the laws of Indiana, and Evergreen Woods, Ltd., a Florida limited partnership (together, the "Partnership Targets") (the Corporate Targets and the Partnership Targets being referred to herein collectively as the "Targets"), pursuant to that certain Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests among Acquiror and the Targets, dated as of February 27, 1995 (the "Share Exchange Agreement"; such transaction contemplated therein hereinafter referred to as the "Transaction"); WHEREAS, Acquiror and the Targets are engaged in various locations in the following businesses (i) owning, operating and managing nursing homes and assisted living centers and (ii) providing home health care and rehabilitation therapy care (the foregoing businesses being referred to herein collectively as the "Business Activities"); WHEREAS, Phillippe has acquired knowledge relating to the Business Activities as a result of Phillippe's relationship with the Targets; and WHEREAS, as part of, and a condition precedent to, the Transaction, Phillippe has agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual premises and agreements herein set forth, the parties hereto, intending to be legally bound, agree as follows: 1. Definitions. All capitalized terms used and not defined herein shall have the meanings given such terms in the Share Exchange Agreement. References to "Phillippe" herein shall mean Phillippe and any of his Affiliates. 2. Rights of Acquiror. Covenants herein contained are cumulative to the rights of Acquiror under the laws of the United States, the states of Washington, Indiana, Ohio and Florida and other states, as applicable, respecting Acquiror's rights to protect itself from the competition of Phillippe. 3. Non-Competition. Phillippe agrees that, for a period of five (5) years from the date of the Effective Time, Phillippe shall not, directly or indirectly: (a) have an interest in, own, manage, operate, control, be connected with as a stockholder (other than as a stockholder of less than 5% of the issued and outstanding stock of a publicly held corporation), joint venturer, partner, limited liability company member or manager, or consultant, or otherwise engage or invest or participate in, or enjoy a financially beneficial relationship with, any business which conducts any of the Business Activities within a five (5) mile radius of any facility or other location at or from which Acquiror, a Target or any of their respective Affiliates conducts any of the Business Activities as of the date hereof. (b) (i) solicit, recruit or hire any employee of Acquiror, a Target or any of their respective Affiliates or any person who has worked for Acquiror, a Target or any of their respective Affiliates -69- within the six months preceding such solicitation, recruitment or hire; or (ii) solicit or encourage any employee of Acquiror, a Target or any of their respective Affiliates to leave such employment. 4. Specific Performance. Phillippe acknowledges that his failure to comply with the provisions of this Agreement will result in irreparable and continuing damage to Acquiror for which there will be no adequate remedy at law and that, in the event of a failure of Phillippe so to comply, Acquiror and its successors and assigns shall be entitled to injunctive relief and to such other and further relief as may be proper and necessary to ensure compliance with the provisions of this Agreement. 5. Amendments. No amendment to this Agreement shall be effective unless it shall be in writing and signed by each party hereto. 6. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to each other party. 7. Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 8. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or other applications of such provision. 9. Governing Law. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Indiana, without regard to the conflicts of law principles of such state. 10. Arbitration. Any claim or controversy relating to the breach, interpretation or enforcement of this Agreement shall be submitted to final and binding arbitration in Marion County, Indiana, in an arbitration proceeding that, except as may otherwise be provided herein, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator chosen in accordance with such rules. All evidentiary and discovery matters shall be conducted in accordance with and governed by the applicable Federal Rules of Civil Procedure. No later than 10 calendar days after the arbitrator is appointed, the arbitrator shall schedule the arbitration for a hearing to commence on a mutually convenient date. All discovery shall be completed no later than the commencement of the arbitration hearing or 90 calendar days after the date that a proper demand for arbitration is served, whichever occurs first, unless, upon a showing of good cause, the arbitrator extends such period. The hearing shall commence no later than 90 calendar days after the arbitrator is appointed and shall continue until completed. The arbitrator shall issue his or her award in writing no later than 20 calendar days after the conclusion of the hearing. The arbitrator shall not have the power to amend this Agreement in any respect. The arbitrator's decision shall be binding and conclusive upon the parties. -70- IN WITNESS WHEREOF, the parties have duly executed and have caused to be duly executed this Agreement as of the date first above written. THE HILLHAVEN CORPORATION By: --------------------------------- Robert F. Pacquer Senior Vice President and Chief Financial Officer ------------------------------------ Thomas E. Phillippe, Jr. -71- EXHIBIT 12.2(i) AGREEMENT AMONG SHAREHOLDERS THIS AGREEMENT AMONG SHAREHOLDERS ("Agreement") is entered into as of , 1995, by and among all of the shareholders (the "Shareholders") of Nationwide Care, Inc., an Indiana corporation ("Nationwide"). PRELIMINARY STATEMENTS Nationwide, The Hillhaven Corporation, a Nevada corporation ("Acquiror"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"), Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and Meadowvale are collectively referred to as the "Corporate Targets"), the partners of Camelot Care Centers, an Indiana general partnership ("Camelot"), the partners of Shangri-La Partnership, an Indiana general partnership ("Shangri-La"), and the limited partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot, Shangri-La and Evergreen are collectively referred to as the "Partnerships"), have entered into that certain Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign Partnership Interests, dated as of February 27, 1995 (the "Reorganization Agreement"), and the documents executed and delivered in connection therewith (collectively with the Reorganization Agreement, the "Transaction Documents"), pursuant to which all of the shares of common stock of Nationwide will be exchanged solely for Acquiror Voting Common Stock (the "Share Exchange") in a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). Voting Acquiror Common Shares will be the only consideration issued to the Shareholders in the Share Exchange. Section 9.10 of the Reorganization Agreement provides that, as a condition precedent to the consummation of the Share Exchange, Nationwide shall receive opinions of counsel that the Share Exchange will qualify as a reorganization within the meaning of Code Section 368(a)(1)(B). The Shareholders desire to set forth their agreement concerning ownership of the Acquiror Common Shares received in the Share Exchange in order to facilitate the issuance of the opinions referred to in Section 9.10 of the Reorganization Agreement and to otherwise ensure that the continuity of shareholder interest requirement set forth in Treasury Regulation sec. 1.368-1(b) will be satisfied with respect to the Share Exchange. Terms which are not defined herein and are used with initial capitalization when the rules of grammar would not otherwise so require and which are defined in the Transaction Documents shall have the meanings assigned to such terms in the Transaction Documents. NOW, THEREFORE, in consideration of the mutual covenants, undertakings and promises set forth in this Agreement, the Shareholders agree as follows: TERMS AND CONDITIONS SECTION 1. Representations, Warranties, and Covenants of the Shareholders. Each Shareholder severally represents, warrants, and covenants to the other Shareholders that the Shareholder has no plan, intention, or arrangement to sell, exchange or otherwise dispose of a number of the Acquiror Common Shares received in the Share Exchange that would reduce that Shareholder's ownership of the Acquiror Common Shares to a number of Acquiror Common Shares having a value, determined as of the Effective Time of the Share Exchange (the "Effective Time"), of less than 50 percent of the value of the Nationwide stock held by that Shareholder immediately before the Share Exchange. For purposes of this representation, warranty, and covenant, Nationwide stock (including voting and nonvoting common stock and preferred stock) and Acquiror Common Shares held by the Shareholder and otherwise sold, redeemed, or disposed of prior or subsequent to the Share Exchange have been considered in making this representation, warranty, and covenant. Each Shareholder further represents, warrants, and covenants that such Shareholder has no plan, intention, or arrangement to sell, exchange, or otherwise dispose of any Acquiror Common Shares received in the Share Exchange except as set forth on Exhibit A. -72- SECTION 2. Prohibition on Disposition within Two Years. No Shareholder shall, within two years of the Effective Time, sell, exchange, or otherwise dispose of any of the Acquiror Common Shares received in the Share Exchange, except as set forth on Exhibit A, unless and until (a) such sale, exchange or disposition would not reduce the fair market value of the Acquiror Common Shares (determined as of the Effective Time) retained by that Shareholder to an amount less than fifty percent (50%) of the fair market value of the Nationwide stock held by that Shareholder immediately before Share Exchange (determined in the same manner as set forth in Section 1 of this Agreement); or (b) in the event such sale, exchange or disposition would reduce the fair market value of the Acquiror Common Shares (determined as of the Effective Time) retained by that Shareholder to an amount less than fifty percent (50%) of the fair market value of the Nationwide stock held by that Shareholder immediately before the Share Exchange, (i) such Shareholder obtains and delivers to Thomas E. Phillippe, Jr., acting as representative of all the Shareholders (the "Representative"), an unqualified opinion of counsel (from counsel reasonably acceptable to the Representative, and in a form acceptable to the Representative) to the effect that such sale, exchange or disposition would not adversely affect the tax-free status of the Share Exchange; and (ii) the Representative and Thomas E. Phillippe, Sr. (the "Phillippes") jointly consent in writing to such sale, exchange or disposition. The Phillippes shall use reasonable efforts to reply to a request for a disposition of shares pursuant to clause (b) above within 30 days of receipt of a written notice of a Shareholder's request to sell shares pursuant to such clause. SECTION 3. Nonwaiver. The failure of any Shareholder or of the Representative to insist in any one or more instances upon performance of any provisions of this Agreement or to pursue rights under this Agreement shall not be construed as a waiver of any such provisions or the relinquishment of any such rights. SECTION 4. Governing Law. The laws of the State of Indiana shall govern the validity, performance, enforcement, interpretation and any other aspect of this Agreement. SECTION 5. Modification. This Agreement may not be modified or altered except by written instrument duly executed by all of the Shareholders. SECTION 6. Entire Agreement. The Transaction Documents and this Agreement contain the entire agreement of the Shareholders with respect to the subject matter of this Agreement and shall be deemed to supersede all prior agreements, whether written or oral, and the terms and provisions of any such prior agreements shall be deemed to have been merged into this Agreement. SECTION 7. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------ - - ------------------------------------------ ------------------------------------------
-73- EXHIBIT A
NUMBER OF SHARES WHICH THE SHAREHOLDER HAS A PLAN, INTENTION, OR ARRANGEMENT TO SELL, EXCHANGE, NUMBER OF OR OTHERWISE SHAREHOLDER SHARES HELD DISPOSE OF ----------- ----------- ---------------- VOTING COMMON SHARES Lorene Burns..................................... 35,418 Rod Benson....................................... 159,694 Kathy Benson..................................... 60,000 Joe Edwards...................................... 66,570 Don Polston...................................... 30,000 Kaylynn Cheesman................................. 7,500 Mark Benson...................................... 7,500 Dan Benson....................................... 7,500 David Benson..................................... 7,500 Lorayn Hoop...................................... 113,172 Phil Caldwell.................................... 3,750 Chuck Cooper..................................... 3,750 William Phillippe................................ 79,206 Joe Phillippe.................................... 22,540 Mike Goodspeed................................... 24,624 Tom Phillippe, Jr................................ 1,475,812 Tom Phillippe, Sr................................ 1,982,967 Tom Phillippe, Sr., as Trustee under Annuity Trust for the benefit of Tom Phillippe, Jr..... 850,000 Tom Phillippe, Sr., as Trustee under Annuity Trust for the benefit of Towana Moore.......... 850,000 Tom Phillippe, Sr., as Trustee under Annuity Trust for the benefit of Stacey Mervine........ 850,000 Indiana Wesleyan................................. 50,000 Towana Moore..................................... 264,865 Craig Moore...................................... 110,736 Greg & Stacy Mervine............................. 368,354 Warrants to be exercised......................... 987,188 TOTAL FOR VOTING COMMON SHARES:................ 8,418,646 NONVOTING COMMON SHARES Ford S. Bartholomew.............................. 3,192 Matthew W. Clary................................. 1,596 Jeffrey M. Mann.................................. 2,394 M. Ann O'Brien................................... 16,754 Robert F. Perille................................ 18,350 Christopher J. Perry............................. 32,710 Thomas E. Van Pelt............................... 1,596 TOTAL FOR NONVOTING COMMON SHARES:............. 76,592
-74- EX-11 50 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 VENCOR, INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 -------- ------- ------- PRIMARY EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Earnings (loss): Income from operations........................... $ 8,363 $86,139 $68,976 Preferred stock dividend requirements............ (5,280) (7,574) (2,344) Gain on redemption of preferred stock............ 10,176 - - Other............................................ - (179) - -------- ------- ------- Income from operations available to common stockholders.................................... 13,259 78,386 66,632 Extraordinary loss on extinguishment of debt, net of income tax benefit..................................... (23,252) (241) (2,217) Cumulative effect on prior years of a change in accounting for income taxes................................ - - (1,103) -------- ------- ------- Income (loss) available to common stockholders.................................. $ (9,993) $78,145 $63,312 ======== ======= ======= Shares used in the computation: Weighted average common shares outstanding....... 61,196 55,522 51,985 Dilutive effect of common stock equivalents...... 1,122 1,515 2,570 -------- ------- ------- Shares used in computing earnings (loss) per common and common equivalent share................... 62,318 57,037 54,555 ======== ======= ======= Primary earnings (loss) per common and common equivalent share: Income from operations........................... $ .21 $ 1.37 $ 1.22 Extraordinary loss on extinguishment of debt..... (.37) - (.04) Cumulative effect on prior years of a change in accounting for income taxes................................ - - (.02) -------- ------- ------- Net income (loss).............................. $ (.16) $ 1.37 $ 1.16 ======== ======= =======
EXHIBIT 11 VENCOR, INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 -------- ------- ------- FULLY DILUTED EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Earnings (loss): Income from operations available to common stockholders..................................... $ 13,259 $78,386 $66,632 Interest addback on convertible securities, net of income taxes..................................... 7,380 10,127 7,056 -------- ------- ------- Adjusted income from operations available to common stockholders.............................. 20,639 88,513 73,688 Extraordinary loss on extinguishment of debt, net of income tax benefit...................................... (23,252) (241) (2,217) Cumulative effect on prior years of a change in accounting for income taxes................................. - - (1,103) -------- ------- ------- Income (loss) available to common stockholders.. $ (2,613) $88,272 $70,368 ======== ======= ======= Shares used in the computation: Weighted average common shares outstanding........ 61,196 55,522 51,985 Dilutive effect of common stock equivalents and other dilutive securities (a).................... 10,771 13,492 8,655 -------- ------- ------- Shares used in computing earnings (loss) per common and common equivalent share.................... 71,967 69,014 60,640 ======== ======= ======= Fully diluted earnings (loss) per common and common equivalent share: Income from operations............................ $ .29 $ 1.28 $ 1.22 Extraordinary loss on extinguishment of debt...... (.32) - (.04) Cumulative effect on prior years of a change in accounting for income taxes................................. - - (.02) -------- ------- ------- Net income (loss)............................... $ (.03) $ 1.28 $ 1.16 ======== ======= =======
- -------- (a) During 1995 all convertible debt securities were redeemed in exchange for cash or converted into Vencor common stock. Accordingly, the computation of fully diluted earnings per common share assumes that the equivalent number of common shares underlying such debt securities were outstanding during the entire year even though the result thereof is antidilutive. EX-13.1 51 ANNUAL REPORT (MARKET PRICES/DIVIDEND INFORMATION) EXHIBIT 13.1 Market Prices and Dividend Information Vencor has approximately 36,000 shareholders based on the number of record holders of the Company's common stock and an estimate of the number of individual participants represented by security position listings. No cash dividends have been paid. The prices in the table below represent the high and low sales prices for Vencor common stock as reported by the New York Stock Exchange. All prices have been adjusted and rounded to the nearest one-eighth to reflect prior stock splits.
1995 1994 - ---------------------------------------------------------------------------- High Low High Low ------------------------------------------------------------ First Quarter $37 $27 1/8 $24 7/8 $19 1/8 Second Quarter $38 $28 1/2 $24 $20 Third Quarter $36 1/8 $28 1/4 $30 3/8 $22 3/8 Fourth Quarter $33 3/4 $26 $30 5/8 $25 3/4
EX-21 52 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 REGISTRANT'S SUBSIDIARIES Vencor, Inc., a Delaware corporation VCI Specialty Services, Inc., a Delaware corporation Vencor Properties, Inc., a Delaware corporation Vencor Hospitals Texas, Ltd., a Texas limited partnership Vencor Investments, Inc., a Delaware corporation Vencor Hospitals California, Inc., a Delaware corporation Vencor Hospitals South, Inc., a Delaware corporation Ventech Systems, Inc., a Delaware corporation Vencor Hospitals East, Inc., a Delaware corporation Hahnemann Hospital, Inc., a Delaware corporation Vencor Hospitals Illinois, Inc., a Delaware corporation Vencor Kentucky, Inc., a Delaware corporation Vencare, Inc., a Delaware corporation Hospice Homecare, Inc., a Kentucky corporation Vencare Florida, Inc., a Delaware corporation Candle Subacute Services, Inc., a California corporation Healthcare Rehabilitation, a California corporation Respiratory Supply Group, Inc., a California corporation Healthcare Respiratory Therapy, Inc., a California corporation Healthcare Respiratory Services, Inc., a California corporation First Healthcare Corporation, a Delaware corporation Hillhaven of Central Florida, Inc., a Delaware corporation Northwest Health Care, Inc., an Idaho corporation Pasatiempo Development Corp., a California corporation Professional Medical Enterprises, Inc., a Massachusetts corporation Hillhaven Home Care, Inc., a Delaware corporation CIC Risk Management Corporation, a Delaware corporation Hillhaven Health Services Malaysia, Inc., a Delaware corporation Hillhaven Properties, Ltd., an Oregon corporation Brim-Olive Grove, Inc., an Oregon corporation Fairview Living Centers, Inc., an Oregon corporation Twenty-Nine Hundred Corporation, a Florida corporation Ledgewood Health Care Corporation, a Massachusetts corporation/*/ Cornerstone Insurance Company, a Cayman Islands corporation Brim of Massachusetts, Inc., a Massachusetts corporation Hillhaven Funding Corporation, a Nevada corporation Medisave Pharmacies, Inc., a Delaware corporation Medisave of Florida, Inc., a Delaware corporation Medisave of Tennessee, Inc., a Delaware corporation American X-Rays, Inc., a Louisiana corporation First Rehab, Inc., a Delaware corporation Convalescent Pharmaceutical Services, Inc., a California corporation Advanced Infusion Systems, Inc., a California corporation Hillhaven PIP Funding I, Inc., a Delaware corporation 2 NCI Corp. of Delaware, a Delaware corporation Nationwide Care, Inc., an Indiana corporation Nationwide Funding Corporation, a Delaware corporation Phillippe Enterprises, Inc., a Delaware corporation Meadowvale Skilled Care Center, Inc., a Delaware corporation Hillhaven Community Health Partnership, a Florida General Partnership/*/ Windsor Woods Nursing Home Partnership, a Washington General Partnership St. George Nursing Home Limited Partnership, an Oregon Limited Partnership Bartlesville Nursing Home Partnership, an Oregon General Partnership/*/ Carrollwood Care Center, a Tennessee General Partnership Foothill Nursing Company Partnership, a California General Partnership/*/ San Marcos Nursing Home Partnership, a California General Partnership/*/ Fox Hill Village Partnership, a Massachusetts General Partnership/*/ Starr Farm Partnership, a Vermont General Partnership/*/ New Pond Village Associates, a Massachusetts General Partnership Tucson Retirement Center Limited, an Oregon Limited Partnership San Marcos Retirement Village, a California General Partner Castle Gardens Retirement Center Limited Partnership, an Oregon Limited Partnership Lantana Partners, Ltd., a Florida Limited Partnership, Hillhaven Properties, Ltd. Woodhaven Partners, Ltd., a Florida Limited Partnership/*/ Hillcrest Retirement Center, Ltd., an Oregon Limited Partnership Topeka Retirement Center, Ltd., a Kansas Limited Partnership Sandy Retirement Center Limited Partnership, an Oregon Limited Partnership 3 Hillhaven-MSC Partnership, a California General Partnership/*/ Stockton Health Care Center Limited Partnership, an Oregon Limited Partnership Twenty-Nine Hundred Associates, Ltd., a Florida Limited Partnership MedLife Pharmacy Network Partnership, a Tennessee General Partnership/*/ Hillhaven/Indiana Partnership, a Washington General Partnership Hillhaven/Westfield Partnership, a Washington General Partnership Pharmaceutical Infusion Therapy, a California General Partnership** CPS-Sacramento, a California General Partnership/***/ Visiting Nurse Advanced Infusion Systems, a California general partnership * Only fifty percent (50%) is owned by one of the Registrant's subsidiaries ** Only fifty-one percent (51%) is owned by one of the Registrant's subsidiaries *** Only sixty percent (60%) is owned by one of the Registrant's subsidiaries 4 EX-23 53 CONSENT OF ERNST & YOUNG EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-38188) pertaining to the Vencor, Inc. Retirement Savings Plan; in the Registration Statement (Form S-8 No. 33-34191) pertaining to the Vencor, Inc. 1987 Incentive Compensation Program; in the Registration Statement (Form S-8 No. 33-40949) pertaining to the Vencor, Inc. 1987 Incentive Compensation Program- additional shares; in the Registration Statement (Form S-8 No. 33-34192) pertaining to the Vencor, Inc. 1987 Stock Option Plan for Nonemployee Directors; in the Registration Statement (Form S-8 No. 33-66774) pertaining to the Vencor, Inc. Nonemployee Directors Deferred Compensation Plan; in the Registration Statement (Form S-8 No. 33-81988) pertaining to the Vencor, Inc. 1987 Incentive Compensation Program-additional shares; and in the Registration Statement (Form S-3 No. 33-71910) pertaining to shares to be issued in connection with acquisitions, of our report dated March 1, 1996, with respect to the consolidated financial statements and schedule of Vencor, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP Louisvile, Kentucky March 26, 1996 EX-27 54 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 35,182 0 360,147 (16,785) 24,862 524,679 1,552,293 (362,199) 1,912,454 285,013 778,100 0 0 18,040 754,024 1,912,454 0 2,323,956 0 1,620,397 416,969 7,851 60,918 32,364 24,001 8,363 0 (23,252) 0 (14,889) (.16) (.03)
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